Spend Matters: Small Business Spend Management -- Indirect Buying ...

In the first post in this series, I provided a few war stories (and lessons) about how my company, Azul Partners (the parent of Spend Matters, MetalMiner and some other ventures), has learned from our buying mistakes as we've scaled the business. In the next installment of this analysis, I'll share some additional tips from a recent WSJ column that caught my eye. Perhaps not surprisingly, author Barbara Haislip makes some recommendations that are useful for even larger companies and procurement team members looking to small business for possible buying inspiration. One suggestion, on the shipping side, doesn't go far enough in my opinion. The idea, automated address verification to avoid order returns from incorrect ship to addresses, has been around in manually for some time. Using a tool to show employees the costs of their own shipping decisions (e.g., priority overnight vs. standard overnight) would be more valuable. Moreover, companies with any material volume of small parcel spend -- even small ones -- would be well advised to work through intermediaries that may have special rates with preferred carriers (Costco used to have a pre-paid plan with DHL that we used, for example). Regardless, all companies should audit, on a monthly basis, the actual performance of the carrier and should request immediate credits for performance specifications not met. Trust me, the credits will be real.

In other areas, the WSJ column does a good job of laying out the basics from a small company procurement angle (though the choice of words may not be the best). For example, "play hard ball." One executive at a small business "urges the procurement team...to get bids from three different vendors to ensure the best deal. And he encourages them to ask vendors for 10% off the cost of any item they're purchasing." We're all for negotiating here at Spend Matters, but playing hardball is not the same as playing smart with suppliers. You may not always have to get the proverbial three bids in a box and negotiate -- but understand the true benchmark for an item or service. This may take one bid (and some background research online). It may take 20. But if you know the benchmark, you'll know you're getting a good deal. Moreover, such knowledge may allow you to negotiate not only on price, but other cost drivers (e.g., lead-times, warranty, etc.).

Even though the afore-quoted gentleman suggests that "playing hard ball" with suppliers may be too ready to swing for the vendor fences -- and we all know the batting averages of sluggers versus base hitters, not to mention the fact most people who try to hit home runs with any regularity can't -- I do agree with his suggestion to create a "savings pool" in the company. Under this model, "the company contributes 2% of any savings on a purchase to its employees." Such an idea can certainly create a culture of thrift. But simply encouraging employees to spend less through an internal rebate program is not as simple as it sounds. Just as it is in big company procurement, defining the baseline can prove tricky as can making employees focus on total cost, not just unit cost.

Still, anything a small business can do to create a culture of spend savings is a smart move in our view.

- Jason Busch

Source: http://www.spendmatters.com/index.cfm/2011/6/14/Small-Business-Spend-Management--Indirect-Buying-Travel-Strategic-Sourcing-and-Beyond-Part-2

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