Tag Archives: celebrating SMEs

Procurement: The Startup’s New Best Friend?

We looked in an earlier blog at the benefits for large businesses of working with start-ups and SMEs and how procurement could make a successful connection. Here we investigate why procurement often has difficulties with small businesses and examine SME-friendly procurement practices already in use in pioneering organisations.

Procurement doesn’t engage well with start-ups – why?

Procurement often gets in the way of establishing good relationships with innovative start-ups.

Major corporations seeking the next start-up to rejuvenate their business models are running innovation labs and incubators. Often, suppliers participate in the incubators. But the initiatives are rarely owned by procurement.

In fact, procurement often plays the bad-cop role, creating barriers to the onboarding of new and innovative suppliers, asking for endless compliance documents, ending the magic of the incubation.

Why does this happen? Procurement has expertise in the supplier market. Isn’t it the team best-placed in an organisation to unearth innovative gems?

One difficulty is that not all partnerships with start-ups go through the typical customer-supplier relationship. They might come in other forms like a joint venture, an equity investment or a licensing agreement. And these are traditionally not procurement’s area of expertise. They typically involve other teams from finance.

According to a survey by KPMG, collaborations involving equity (joint ventures, equity investments, acquisitions, etc.) comprise 40% of total collaborations. Customer-supplier relationships comprise only 24% and licensing 19% of the total. Therefore, it’s understandable that procurement does not take the lead in all cases.

But procurement remains an asset. It has a key role in identifying potential targets. What’s more, in those 24% of cases procurement should be on top of the customer-supplier partnerships with start-ups. That is largely not the case.

I can think of at least 3 reasons why.

3 reasons why procurement does not approach startup collaboration well

For one thing, procurement is often not sufficiently aligned with its company’s business. It lacks the understanding to find the next start-up or innovation to accelerate business.

To build relevant partnerships, procurement must grasp its company’s challenges and its future areas of development. It needs to get a broader view. It needs to see beyond the often narrow procurement lens.

This kind of mindset must be instilled by the Chief Procurement Officers themselves – even though business curiosity remains everyone’s duty. This is actually one of the main recommendations produced by Forrester in its Q1 2019 survey about the keys to a successful procurement transformation.

Second, procurement often lacks the time and resources to perform these tasks.

Its resources are too often consumed in labour-intensive activity that has lower added value – like gathering data from scattered legacy systems.

This is where having a powerful digital procurement platform that automates processes and enables actionable analytics is key. You free resources for new value-added tasks.

With such a tool, you could even afford to have somebody specifically in charge of supplier-enabled innovation.

A third and more general problem is that procurement processes are not designed to work effectively with new start-ups.

They tend to favour larger companies, especially under the dependency criteria or volume concentration strategies.

Let’s dig into this aspect of things.

Time frame. To start with, procurement and start-ups work within different time frames.

For start-ups, typical procurement qualification processes take too long. They often require browsing many documents, answering hundreds of questions and attaching several justification documents.

And start-ups often face these obligations before they know about the type of partnership and the benefits that are expected.

On the other hand, decision-making about a qualification process or a purchase order is too slow. Start-ups expect answers in days, not weeks.

Resources. Resources are scarce in start-ups.

Start-up employees often have many functions. They find it very time-consuming to deal with complex organisations with numerous specialised points of contact – one for bidding, one for contracting, one for ordering, one for invoicing, etc.

They want access to the real decision-maker.

Procurement cannot change a company’s complex organisation. However, it can define a single point of entry for start-ups: a person with a strong internal network in the organisation, a deep understanding of the organisational maze and the ability to grasp the particular challenges start-ups face – and how to solve them.

Checks and declarations. A supplier wanting to work with a large company typically has to pass several checks and tests.

This process is designed with bigger organisations in mind. The process includes checking dependency criteria, environmental charters, ethical declaration, quality labels and so on.

The solution here is: start simple. Use a non-disclosure agreement to ensure confidentiality, a letter of intent to ensure motivation and some intellectual property (IP) general rules in case any IP is built jointly.

Invoices. The main concern for start-ups about procurement processes is invoice payment.

Big corporations are often slow at paying supplier invoices. But cash is a matter of survival for start-ups.

This is a critical point in collaboration. Start-ups would rather get less money but get it faster.

This means that a company with an efficient source-to-pay process will definitely have a competitive advantage over its peers when it comes to working with innovative start-ups.

Good procurement practices already in use that are helping start-ups.

Here are good practices already implemented by some best-in-class procurement departments.

First, they have opened a gate for start-ups. Several procurement departments have created a dedicated start-up portal based on the Source-to-Pay solution they use. Some have even interfaced it with public start-up portals.

Second, they have adapted the contracting process to focus only on the essentials of a start-up collaboration. They avoid sending a hundred pages of standard contractual documents at an early stage.

For example, the process could evolve along with the incubation stages of the target that have been defined – for instance a non-disclosure agreement for ‘discovery’, data protection clauses for ‘incubating’ and proof of concept with formal description for ‘pilot’.

Third, they have speeded up decision-making. They have implemented shorter approval workflows for interactions with start-ups: contracts, orders, invoice and payment processing.

Next, they have set up accelerated payment terms. Making these the default for start-ups is a major part of speeding up the payment process.

Finally, they have appointed a dedicated contact person. She or he facilitates start-ups’ interactions with the organisation.  

So it’s well worth considering why your procurement department may be struggling to interact well with SMEs and start-ups. And looking at the SME-friendly practices already in use in some organisations can provide key inspiration for changes you can make.

For this reason we will take a more detailed look in part 2 of this blog at use cases from pioneering large companies.

For more information on how Ivalua can help you work better with SMEs, go to ivalua.com

4 Ways Procurement Can Work With Start-Ups and SMEs

Size isn’t everything when choosing suppliers.

There’s a poignant scene in The Lord of the Rings in which the Elven Queen Galadriel turns to Frodo Baggins, a frightened young hobbit, and gently reminds him that ‘even the smallest person can change the course of the future’. 

Against all odds, and to the dismay of many powerful leaders in Middle-earth, Frodo is entrusted with the monumental task of destroying the One Ring within the fires of Mount Doom. His relentless determination, unorthodox methods and the faith of his closest friends all contribute to his ultimate success. 

What can procurement take away from this? Most importantly, when it comes to selecting suppliers, size isn’t everything – something any one of the 30.2 million small businesses operating in the United States could tell you. 

Traditionally, big works with big. But companies today are recognizing that they are selling themselves short by restricting their supply base to large organisations. 

Benefits of working with SMEs and start-ups include: 

  • Small businesses are more agile and innovative because they are less confined by rigid or bureaucratic processes.
  • Improved sustainability and added social value, which benefits the local economy. This is because SMEs are likely to have a good understanding of the community in which they operate.
  • Better value for money as a result of lower admin costs and increased flexibility.
  • Capacity to deliver highly specialised solutions.
  • Closer buyer-supplier relationships.
  • Increased efficiency in terms of product cycles and the provision of services.
  • Improved supplier diversity: 45% of US-based SMEs are minority-owned businesses.

Despite the many advantages, some procurement leaders remain wary of partnering with smaller businesses due to increased risks. Others simply struggle to effectively build and nurture these partnerships.

Here are my 4 tips for procurement to build successful relationships with SMEs and start-ups. 

1. Build close relationships with your suppliers

One of the many benefits of working with smaller vendors is that it’s easier to build meaningful, lasting relationships – often directly with the CEO. These drive innovation, reduce cost and mitigate risk. 

Procurement professionals should take advantage of this through regular communication and collaboration with suppliers, particularly in the pursuit of innovation.

Negotiations, contracting and pricing are a necessary (and important) part of any buyer-supplier relationship. But meeting your suppliers in person to seek innovations will drive value for your organisation. 

In reality, you might be surprised at how much additional value a supplier can contribute when you abandon standard approaches to SRM and commit to listening and learning.

2. Pay your suppliers on time 

According to a recent study, 11% of all invoices sent by SMEs are not paid on time, which comes at a cost of over $1 trillion each year. On top of this, the research found that 7.5% of all SME invoices are written off as bad debt. 

SMEs are dependent on good cash flow. Many fail as a direct result of clients delaying payments. So paying your suppliers on time should be an absolute priority for procurement professionals.  

Similarly, procurement should be cautious about driving harsh payment and contractual terms with small businesses that may be unequipped to negotiate with large corporations. Remember SMEs are likely to deliver long-term value in other ways. 

3. Be flexible 

In order to prioritise innovation and other benefits associated with SME partnerships, procurement teams must be willing to adapt their processes to be more accommodating. 

Many corporations are accustomed to only dealing with other big companies. This leads to the assumption that only large suppliers are capable of meeting demands and managing risk.

In reality, as long as suppliers are financially secure and can deliver your requirements, your flexibility in accommodating them is the more important factor. 

Procurement teams can do this by:

  • reducing contract complexity 
  • limiting turnover thresholds and removing high insurance and health and safety requirements
  • sharing risk appropriately between buyer and supplier
  • keeping KPIs simple, concise and supportive. 

4. Mitigate potential risks fairly 

There’s no question that there are risks associated with working alongside SMEs and start-ups. But with careful consideration and forward planning, these can be mitigated. And without negative impacting prospective suppliers to a point where they are compelled to walk away.

For example, an SME might present a higher financial risk than a big supplier. These concerns can be alleviated by requiring financial due diligence and detailed discussions surrounding the company’s finances to ensure complete transparency. 

Similarly, it’s worth asking for an overview of the supplier’s recent and ongoing projects, including a first right of refusal to buy the company should it go bankrupt. Commit to regular meetings and use incentives instead of penalties. 

So, the next time you’re approached by an SME or start-up, don’t reject them on the assumption that they will be too small to meet the needs of your organisation.

Just like Frodo Baggins and the Fellowship of the Ring, an SME just might turn out to be the most valuable partnership you ever create. 

Learn about the cost savings and other benefits involved in joining a Group Purchasing Organisation (GPO) at www.una.com

The Procurement Tipping Point

At what point should a growing business bite the bullet and professionalise procurement? New research from Wax Digital has found that the right time is surprisingly early in a businesses’ growth, but it’s usually done on the back foot. 

Skylines/Shutterstock.com

As professionals in the sector we tend to think that procurement is the sole domain of large organisations spending millions of pounds on thousands of suppliers. However, new research has found that many smaller and more formative businesses also turn to procurement.

We recently surveyed 260 UK business and procurement experts and asked them at what point organisations needed to professionalise procurement to get a firmer grip on spend, suppliers, sourcing and so on. We were surprised by how many thought the ‘tipping point’ for procurement was relatively early on in a business’ growth. The results were as follows:

  • 75% said procurement was required once a company reaches £50M turnover
  • 77% claimed to need procurement by the time a business has 100 supplier contracts
  • 72% said once 500 invoices per month are being processed, procurement was essential.

Clearly, it seems that many smaller organisations are adopting procurement, so why is this? When asked why they introduced procurement, 68% said that it was due to rising costs, while 45% said that it was due to inefficient and labour intensive processes. Being a successful, up-and-coming business means experiencing rapid growth and significant change in these areas – more so than a larger, more established business.

For example, an organisation may be undergoing a merger or be highly acquisitive, bringing in more complex supplier portfolios or increasing spend overnight. These types of events can force a business to rethink processes like procurement. The very foundations of the organisation could adjust dramatically, and existing resources may simply not be adequate enough to support it.

Quick, someone build us a procurement function

Another interesting discovery in our research was that procurement is often introduced ‘on the back foot’ as opposed to being part of a pre-planned vision. We found that procurement is implemented as a reaction to a negative situation 48% of the time, compared to 31% of the time when it’s rolled out as a proactive and positive step forward. So few businesses planning ahead with procurement suggests that it’s (wrongly) an afterthought for many. Many businesses are ‘reactively’ using procurement, suggesting that they are already experiencing issues such as a lack of spend control or inefficient processes. But pre-planning with procurement could help businesses evolve more efficiently to try and reduce these problems.

That said, rolling out procurement isn’t always plain sailing, and smaller businesses with limited resources may particularly struggle to establish this new function successfully. Gaining senior management buy-in is the most common barrier to adopting formal purchasing processes, cited by 35%. Managing cultural change and a lack of internal knowledge followed, scoring 27% and 19% respectively. Given that they work for a smaller business – perhaps with a less rigid structure – the need for a procurement function might simply not occur to some SME employees, and it may take some time to win the support of colleagues. Those in the business being hindered by the lack of procurement shouldn’t be afraid to make a case for it to senior management.

Make sure the time is right

No two businesses are the same and each will feel the need for procurement at different stages. It’s not right to see procurement as something that should only be introduced when you reach a specific size or stage in the business cycle. Instead, consider when the businesses is feeling a strain that formalised procurement could help with.

It’s time for the procurement community to help strip its perception as a function for the larger business. This way more businesses can realise its effects.

Contributed by Paul Ellis, Managing Director at Wax Digital.

What Does Your Ideal Company Look Like?

Many graduates embarking on the world of work think their ideal company is a large, corporate company, with great offices. But is this the best route to fast track success?

small or large company

Many of us have experienced working for large organisations and been given the opportunity to change positions multiple times within that same business. Larger organisations tend to have sites in different locations, allowing individuals to be more flexible with living and travel choices.

Within Procurement, corporate organisations exhibit strong brand awareness and recognition resulting in strong negotiation with suppliers leveraging economies of scale. Larger organisations bring greater resources enabling better technology infrastructure and subsequent commercial advantage.

Large Company Pressures

Having previously worked for a large international company for a decade, one of the challenges I experienced was establishing social cohesion and culture. It can be harder to get to know your colleagues and co-workers due to the large volume of employees.

For people who appreciate a familiar environment, this can be a disadvantage. High performers and confident individuals get noticed, gaining new opportunities and promotions seemingly more easily. However, this can put pressure on individuals to perform and stand out, creating a stressful working environment.

Change within a large organisation can sometimes be difficult to implement and occurs at a much slower pace. The numerous levels of communication and various approval structures agreeing the transformation mean larger organisations are not perceived to be as agile and responsive as some smaller entities.

These are just some of the challenges leading employees to consider working in a smaller business.

Transitioning from Large to SME

The transition from employment with a larger to smaller business can prove to be a considerable learning curve. Frequently, the cultural behaviours and habits deemed necessary and acceptable in larger organisations do not translate to an SME.

Behaviours such as empire building (often considered a sign of success in a large corporation) can also be detrimental in a smaller business. Instead, it is essential to create a culture of mutual interest and success instead of territorial defence.

In my experience the benefits of working within an SME significantly outweigh any habitual adjustments. You instantly realise that it is more personable, with the ability to build relationships across all levels with direct access to your colleagues.

There is more opportunity to broaden your skill set with exposure to broader roles, which in turn keeps it interesting. Additionally, you can make a real impact daily, and be recognised for it. Everything happens with more agility and ability to respond, implementing change and new ideas with momentum.

When transitioning from a large organisation to a smaller workforce it can be uncomfortable, adjusting to the culture and a more personal working experience. Great opportunities come with this transition: more chances to exhibit your abilities; increased responsibilities and exposure, meaning your hard work gets noticed.

Finally, flexibility with home working and desk-bound hours is something I have personally found immensely refreshing. Trusting individuals to manage their own workload and day creates incredible loyalty and motivated employees.

Emma Lambert is a Resourcing Manager at Procurement Heads, a UK-based procurement recruiter. Procurement Heads is all about getting to know great Procurement people and bringing them together to make outstanding Procurement teams.

Celebrating Supply Chain – The Organisation’s Unsung Hero

It exists in the background. When it works seamlessly, you wouldn’t know it was there at all. But the supply chain really is the unsung hero of the organisation.

Alice Catherine Evans. Dr. Megan Coffee. Gunner the Dog. Rick Rescorla. Heard of any of these individuals? They are just some of the unsung heroes from the past 150 years. They have all made a huge difference to the world, and arguably deserve much more recognition.

While maybe not at the same level, the same could be said for the organisational supply chain. It exists in the background. If it works seamlessly, then people don’t really take any notice of it. But, without it, organisations would grind to a halt. It really is the unsung hero of an organisation (as are all the people working in it!).

This week, supply chains have been in the news for the right reasons. The US Aerospace and Defence Industry and Domino’s Pizza were just a couple of organisations to highlight the good work their supply chains were doing.

However, it wasn’t all good news, as supply chains came under fire again for not doing enough to combat modern slavery.

SMEs the Unsung Hero for A&D

The Farnborough International Airshow, held in the past week, presents a fantastic opportunity of organisations further down the supply chain to present their new technologies and ideas. This year it also allowed the US A&D Industry the chance to celebrate its SMEs.

According to data from the Aerospace Industries Association (AIA), the US A&D Industry has exports totalling $142 billion last year. Of that, the supply chain generated 58 per cent of the exports, a whopping $78 billion.

The numbers go to show the strength of the supply chain companies, as well as the global partnerships they have built across the world. The importance of the supply chain SMEs is clear to the US A&D industry too. They have led the way in building a solid reputation of US technology and innovation across tens of thousands of projects worldwide.

AIA CEO David Melcher also sees a bright future of the SMEs. With trade agreements in place, Melcher argued that “small- and medium-sized companies can generate exports for decades more to keep this equipment operating effectively and efficiently.”

Supply Chain Success

Another unsung hero, at least until this week, was the supply chain for Domino’s pizza. The fast-food giant announced a 12 per cent increase in sales in the second quarter of 2016, beating profit and revenue forecasts.

The company attributed increased supply chain sales, including increased volumes and store growth, as a key reason for this. The supply chain sales themselves also saw a 12 per cent increase in the quarter.

Heroes Required

However, the week wouldn’t be complete without stories of what organisations need to do to combat slavery in their supply chains. A report released this week showed that the ICT industry has plenty to do in this area.

KnowTheChain compared 20 ICT companies, including Apple, HP and Samsung, on their supply chain practices. The results were not pretty, with the majority of the organisations scoring under 50 (out of 100) for efforts to eradicate forced labour, and how transparent their efforts were in doing this.

However, according to a business leader in the cosmetics industry, eradicating forced labour and slavery completely is an on-going battle. Simon Constantine, of British retailer Lush, stated that even though Lush is willing to pay more for ethically sourced goods, the company has still struggled to keep up.

Constantine said, “With the amount of work you need to do to stay on top of things, and everything changing so rapidly…I would never be comfortable saying our supply chain is 100 per cent clean.”

But with new regulations increasingly putting the onus on companies to ensure their supply chains are clean, it’s a battle that is set to be fought just as hard as ever.

Is your supply chain an unsung hero? Why not let us know and we can help you tell your story?

We’ve been pouring over the news and digital media to make sure you don’t miss the key headlines this week…

Brexit Causes “Dramatic Deterioration” in UK Economy
  • The decision by UK voters to leave the EU has led to a “dramatic deterioration” in economic activity in Britain.
  • Markit’s Purchasing Managers Index shows a fall in economic output to 47.7 in July, the lowest since the end of the Global Financial Crisis.
  • Both manufacturing and service sectors saw a decline, though exports were up due to the weakening pound.
  • Chris Williamson, Chief Economist at IHS Markit, said the downturn has been “most commonly attributed in one way or another to ‘Brexit’.”

Read more at The BBC

Turkish Procurement Programme Delays
  • The failed coup attempt to overthrow the national Government in Turkey will delay multi-billion dollar procurement programmes.
  • Members of the coup took senior army officials hostage last weekend, with their actions leading to over 200 deaths.
  • Although incomparable to loss of life, senior officials have admitted that procurement is “nowhere in the military command’s priority list.”
  • It has raised concerns that this will leave the army short of operational resources in the fight against ISIS.

Read more at Defense News

Rio Olympics Highlights Cross-Border Procurement Risks
  • The Rio Olympics, due to start in a few weeks, represents a massive opportunity for cross-border commerce.
  • The organising committee has already procured more than 30 million goods, including sports equipment and accommodation items.
  • However, organisations still need to be aware of the potential risks, such as logistical issues, and currency exchange rate fluctuation.
  • Reggie Peterson, Director of Indirect Supply Programmes at AmeriQuest, highlighted the importance of carrying out due diligence for organisations before getting involved.

Read more at PYMNTS.com

Facebook Drones Close to Taking Flight
  • Drones, built with the purpose of bringing connectivity to remote regions of the world, are closer to taking flight.
  • Facebook-owned British company, Ascenta, has run a successful test of its drones in the skies above Arizona.
  • The the solar-powered drones will be airborne for months at a time, beaming signals down to users on the ground.
  • The project is in competition with Google’s ‘Project Loon’, which aims to use high altitude balloons for the same purpose.

Read more on The BBC