Procurement Lessons for Small Businesses and Large Multinational Corporations

Spend Matters welcomes a guest post from Sanyam Khurana of GEP.

As a procurement consultant, I had the opportunity to work deals across a number of clients and categories. In all the cases, the client was a multibillion-dollar multinational corporation, and all categories ran into millions of dollars of spend, so the standard sourcing and supplier management strategies worked well. However, it seldom occurred to me to look at things from a different perspective – that of the requirements of a much smaller company with low spend figures.

In the world of procurement, there is a handful of strategies that can be adopted and reused across categories and clients. This can create a redundancy that slows innovation and prospects of future growth. I recently met and talked with the owner and staff of a small bakery in New Delhi and observed that there are many parallels between how this small outfit operates to what is and should be practiced at larger organizations:

Be Flexible

Attending to the needs of the customer is definitely top priority for the bakery. However, being nimble and flexible adds an additional advantage. Decisions on ramping up the production scale during a heavy demand season and reducing operational cost during a slow season can be just a few of the examples of how flexibility can work to a business’s favor. This is achieved through realizing efficiencies in production, optimizing inventory by understanding demand, and being adequately agile on sales and delivery to the market. Similar supply chain parallels are drawn from larger organizations that realize such advantages when they become flexible.

Sound Data Management

Even though the outfit is only 10 people strong, the importance of data is never underestimated. Managing social media (tweets, Facebook ads, promotional advertising) is a daily task. So is managing the sales and orders delivery module, the financial management module – all performed on a simple yet well-designed spreadsheet updated in real time, which helps maintain visibility of stocks, short falls, potential revenue loss, and daily/weekly/monthly profitability.

Data analytics is the key to successful product promotions and sales thereafter, and that analysis is fed into budgeting for the year ahead. While large organizations use complex ERPs, this bakery manages its sales, marketing, procurement, and operations costs through a well-tied, neatly analyzed spreadsheet that makes it simple to read and easy to operate, helping it stay agile and responsive.

Cyclic Procurement and Cost Optimization

While it is assumed that bakeries run at full speed throughout the year, this outfit has analyzed its seasonal variations of orders and requirements of raw materials and labor through good data collection and analysis. Procurement is empowered by the visibility this analysis provides and so it able to plan strategically before the start of a busy season, and optimize during the low season. During the festival months, for example, along with material required for standard bakery items, promotional merchandize is sourced well in advance to package products according to the need of the hour. The bakery would buy more colors to enhance cake and cupcake frosting, along with packaging that suits the season trend and festival.

Perishable items are purchased through an open contract on a short turnaround requirement basis with a supplier to reduce investor storage costs and keep produce as fresh as possible. During the low seasons, raw materials procurement is planned per order and temporary labor is reduced to optimize costs and increase profitability. Like larger organizations, which plan their strategic sourcing based on budget and contracts, this tiny outfit follows the same principle.

Diligent supplier rationalization

It may come as a surprise, but rationalizing their supplier base helps the bakery achieve optimum standards. Diligent supplier risk assessments help plan ahead of time to ensure orders are delivered on time and in full to allow the bakery to run at its planned utilization. Frequent tests help establish standards for raw material that result in optimal products.

To achieve this, the bakery constantly evaluates its suppliers’ financial strength, ability to deliver products that meet quality requirements, and shares constructive reviews on the product and process of doing business. The bakery uses these parameters to rationalize its supplier base and help them identify and develop good working relationships and alliances with suppliers. For this small bakery, these alliances with key suppliers ensure happy customers and returning revenue.

Altogether, similar supply chain strategies and practices are adopted across large and small/medium business enterprises. However, it is ultimately those who adopt the practices to suit their business model who remain successful for times to come.

For more interesting thinking on procurement, visit the GEP Knowledge Bank.

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  1. elijah-t:

    update me on new posts.

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