Procurement for (very) small businesses – and what large ones can learn

Spend Matter US ran an interesting series on procurement for small businesses recently (here's the last of their series). Having considered the topic, what strikes me is that actually, when it comes down to it, the basic principles apply pretty much as they do to any organisation.

So having run two VERY small (“micro” is the official terminology) businesses, here are my five key learnings on effective procurement.

1. You have to cost in the value of your time when looking at procurement alternatives. Yes, I can save £50 by shopping around for the best price for that printer, but the afternoon I spent doing that has an opportunity cost.  The same thing applies at all levels – do you or your procurement function really look hard at where you get the most value out of your time, and prioritise / plan accordingly?

2. The whole life cost argument, and its closely related brother, false economy, apply in spades for smaller firms. That cut-price lawyer or accountant who gives you bad advice (not mine, I hasten to add), the computer that constantly fails... And there’s an exact read-across to similar decisions in big corporate life. “We can get an interim for £400 a day, we don’t need a £1,000 consultant”. You may be right. Or the £400 a day person may take 3 times as long to do the job, and then screw up. Value not price…

3. Small can be beautiful. You may remember Guy Allen writing about my ability to buy a hotel room better than his huge corporation. Flexibility and moving quickly can give you market advantage – one of the reasons why I am always cautious about pure ‘economies of scale’ arguments.

4. The P2P process can be a pain and is not a value-adding activity. I hate the whole admin thing, including invoicing, chasing payment, etc. I’m unconvinced – like Jason – about electronic invoicing for small firms although I feel I should try it. So remember, if you’re in procurement involved in defining or managing the P2P process, most users are not really interested – they just want it to be as easy and infallible as possible. If you don’t consider matters from their perspective, the users won’t necessarily give you what you want.

5. There’s a fine balance between relationships and value. As a small business, you value your accountant, IT support guy, bank manager. You develop trust, and you become less worried about the odd few percent on the bill. And most will repay that. But if for instance you haven’t challenged your house insurance costs for a few years, do it.  I saved over 50% last year, without changing firms – a sign of how bad I’d been at challenging it over many years.   So value service and relationships, but keep aware of the market and what it can offer.

What do you think? Any other key points from your personal or small business experience that even the CPO at GE or Barclays could learn from?

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