February 01, 2018

Best Practices in Strategic Procurement for the Mid-Market

Many mid-market firms or small-to-medium businesses (SMBs) manage their procurement function as an afterthought, prioritizing financing, staffing, customer growth, and marketing. They tend to focus on procurement once the company has reached a certain growth threshold. However, according to the Business Development Bank of Canada, SMBs spend between 45-65% of their sales revenue on procurement. Bain & Company says that businesses that implement best practice sourcing strategies and processes can save up to 15% of their total spending. As such, developing a strategic approach to procurement can have a significant positive impact for mid-market companies. This article discusses some best practices in procurement for SMB and mid-market firms.

Engage Procurement Experts: Many mid-market companies have minimally staffed procurement teams that report into the Finance or Human Resources function. This effectively makes procurement personnel responsible for transactional activities. While investing in hiring procurement experts and in procurement training seems like a substantial cost, the consequential savings can be quite high. A recent report by McKinsey found that the return on skill investments for procurement workers is generally between 15 and 25 times the cost.

Analyze Spend: Most SMBs are not staffed to do full audits of their costs to find sources of maverick or rogue spend, thus missing out on critical savings opportunities. For example, by utilizing supplier consolidation, instead of sourcing similar items (or skill sets in services procurement) from multiple suppliers in smaller quantities, pooling orders together with a single supplier can result in a reduced price.

Instill Governance: Poor process governance and compliance can lead to spend leakage, but the right strategy and process for governance can lead to cost savings, control of rogue spend, and greater accountability for purchasing decisions.

Develop Supplier Relationship: Often mid-market firms don’t invest time in building strategic supplier relationships, but doing so can result in cost savings due to better discounts. It’s also possible to gain supplier-driven innovation.

Automate Processes: Automated industry-standard processes driven by procurement software solutions can result in faster lead times for transactional activities. It also enables procurement process compliance. Ultimately, automating processes can help increase efficiency and improve productivity.