Procurement Basics for Small Business: Debunking 5 Myths about Small Business Procurement
Procurement forms an essential part of any business – big or small. However in small business, procurement is often the last thing business owners want to think about.
Our article debunks 5 myths about small business procurement and shows why it is important for small business to make time for procurement.
Before we debunk some of the myths around small business procurement, it is best to place “small business” in context and to clarify what procurement means.
“From Little Things, Big Things Grow.” Paul Kelly and Kev Carmody
Procurement and Small business in context
“Small business” is generally accepted to be a business that employs less than 20 people.
It is a known fact that small business makes a significant impact to the economy. For example, in NSW alone, small business contributes more than $269 billion to the economy.
Between 45 and 60% of small business turnover is spent on procurement.
Taking the time to focus on small business procurement will make a real difference to small business growth and success.
Debunking 5 myths about small business procurement
Myth #1: Procurement belongs to big business only
We all do procurement in its simplest form – every time we buy stationary in our business or book a business trip.
Bigger businesses may have the luxury of dedicated procurement teams but procurement has nothing to do with the size of your business. It has to do with being business savvy on how you spend your money in order to deliver your services or sell your products.
Small business is often more resourceful and make do with far less. I have seen more creativity and smart bargaining from small business owners than I have seen in practice from many procurement teams.
However, small business does not always dedicate time to develop the right systems, strategies and plans for its procurement, as it simply does not have the right resources or the time.
As a small business owner it is important to make the time to develop and action the strategies around how we spend and where we spend our money, as it will make the difference between success and failure.
Myth #2: Procurement is about price only
Procurement considers “value for money” and price forms only one part of the overall procurement decision-making process.
Value for money means that we consider areas such as:
- cash flow,
- payment terms,
- quality and
- customer requirements
as well as price in making the final decision around what we buy, where we buy it or who we buy it from.
The procurement decision has to involve more than just the lowest price to avoid costly rework or wasting precious dollars.
Myth #3: Procurement adds no value to small business
Small business spends more than 45% of their turnover on procurement.
Using the NSW small business’ $269 billion contribution to the economy as the example, it would mean that small business spends approximately $121billion on procurement.
Even saving as little as 10% on small business procurement spend, provides small businesses in NSW with the opportunity to improve their profit margins by approximately $12billion.
Thus, when small business focuses on their small business procurement spend, it adds value to small business in the form of profit margins improvements and unlocking cash flow.
Myth #4: “Take it or leave it” is the only option for small business
I often get told by small business owners that:
- firstly, they don’t have time to negotiate and
- secondly even if they did, often they are told to “take it or leave it“.
The way to tackle this is to make sure that you take the time to develop a proper scope and get at least three quotes.
This way the “take it or leave it” businesses will realise that you have options, they are not the only fish (or maybe shark) in the pond and that you are in control of where you spend your money.
In addition, the recent Unfair Contract Terms legislation provides protection for small business against one-sided standard form contracts.
Myth #5: Small business has no buying power
Small business may not have the same buying power as big business. However, nothing stops small business from collaborating (not talking about collusion) with other small business to form buying consortiums.
For a small fee, the consortium can outsource this function to an independent third party and still gain more from buying as a consortium than as an individual small business.
Small business will thrive with key partnerships and collaboration – the consortium option allows small business to improve its buying power, free up time and negotiate better pricing and terms.
You can start small in areas such as stationary, administration, fuel and couriers.
In conclusion: Small Business Procurement
From little things, big things grow!
In small business every dollar counts and every dollar makes a difference. Time is money and the better we are at spending our money, the more time we will make available for small business.
By making time to focus on procurement and how small business spends its money, small business will create opportunity for improving its competitiveness, growing its business and ultimately becoming “big” business.
Celia Jordaan has 21 years international and corporate experience and worked in the areas of procurement, tenders, supply chain, contract management, law and risk. She works with business, procurement leaders and teams to develop and implement strategies to boost business performance, make tendering easy and improve bottom line performance.
To learn more about Celia Jordaan, please click here.