Friday Rant: The Time is Right for an SMB Procurement and Cost Reduction Renaissance

I'm a small business owner with significantly growing (and out of control) spend that's increasing every year. And I can honestly say that until recently, I've felt the plethora of enterprise tools and services designed to help small and medium-sized businesses reduce costs through better spend management and general cost reduction felt like fitting a round peg in a square hole. In fact, many so-called savings tools (e.g., Amazon Prime) certainly ending up costing our venture more money because of the ease with which employees can buy. Just about the only effective form of savings, if you can call it that, that's been available has come in the form of better tax advice (yes, that big SUV, even a used one, is still a good write-off, especially if you keep the total cost of it to sub-Range Rover levels given expensing limitations). Yet as a business owner, it's a pity that you have to spend money to save money. This effectively defeats the entire purpose of good spend management in the first place.

But the good news is that going forward, I see the market for procurement-led SMB cost reduction, savings and working capital improvement tools changing dramatically. Not only have compliance tools gotten simpler -- they've gone down market as well. For example, there are a number of P2P solutions that can now scale down-market that are in fact better than legacy peers in ease of use and overall visibility they can generate into purchases (and more are on the way). They're relatively inexpensive for small business as well.

There's another angle to this as well. When procurement organizations begin to embrace tighter controls through technology -- such as the adoption of P2P systems and becoming customers of electronic invoicing tools on both the buy- and sell-side, they can begin to more tightly control working capital. Moreover, early payment discounting programs tied into customer tools (either from banks or technology providers) with reasonable APRs (e.g., 3-5%) backed by customer credit ratings are becoming more frequent. Yet they require a move away from paper-based programs. In addition, there are half a dozen efforts I'm aware of in the group/leveraged buying area that are (or will be) targeted specifically to the SMB market, helping bring the power of aggregated buys to smaller and smaller firms.

The only thing missing in this equation is staff and talent, especially in the lower end of the middle market. All too often, it's the business owner, then the controller and finally the CFO (in that order of hiring and scale) who focus on cutting costs -- if and when an organization chooses to take a closer look at the bottom line. Buyers and purchasing agents in smaller companies still have little or no influence outside of the occasional vendor negotiation and the proverbial three-bids-in-a-box they must run to prove they're doing their job. But even this competition and partial sourcing is the exception, I've found, for growing firms and companies. Expanding the top line almost always takes priority vs. tightly controlling costs, at least in healthy SMB organizations.

Still, I hold out hope, and I believe the combination of a highly questionable economy coming out of the EU mess plus the greater availability of better compliance, cost reduction and working capital tools and services that can scale down to the SMB market suggest the time is ripe for a spend management renaissance. This is precisely why we plan to cover it more closely into 2012 and beyond, hopefully taking a healthy dose of our own savings medicine as we analyze the capabilities and services SMBs can embrace to prop up the bottom line.

Jason Busch

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