Report: SMEs are adopting procurement earlier, but still as reactionary measure

Dive Insight:

As one who works with a range of technology-driven early stage and small businesses, I can confirm, albeit with a smaller sample, that SMEs are indeed looking at procurement as an important element of their businesses. While surveys may look at companies incorporating procurement using transactional benchmarks such as a number of suppliers and invoices, it goes deeper than that. SMEs are focusing is on developing holistic supply chain strategies — rather than integrating a more transaction-focused procurement department — into their fledgling operations.

Perhaps it is a case of semantics, but the term supply chain management, rather than procurement, gets the attention of most small businesses leaders these days. But the need is more than the traditional management of suppliers who provide goods and services to the organization. The issues around supply chain management are centred on commercialization, the identification and development of manufacturing partners for rapid time to market products, customer fulfilment, and transportation management. While actual procurement may have a role, it is the larger strategic issues, centred on the supply chain, that are winning the day.

Far too many SMEs are still sourcing with Google and a credit card. And in some cases in very early stage companies, that might be okay. Procurement, considered by some to be an organizational luxury they cannot afford, may come at a later date when other more traditional functions including accounting and human resources formally join the business. Yet, key supplier partners are a critical part of the business strategy and small businesses are beginning to understand that it is important to get them involved early.

Those financing these SMEs are also having a direct influence, and typically understand the importance of the supply chain in managing costs and meeting customer requirements. Incubators may provide manufacturing support that often includes supply management concepts. Many founders of early stage business, often fresh from business or engineering programs, are introduced to the importance of supply chain management in their curriculum.

The issues surrounding the importance of procurement are not new. It is a business discipline that seems to have a permanent inferiority complex. However, as a component of a supply chain management strategy, procurement remains a key contributor to small and medium-sized enterprises.

Dive Brief:

  • Small to medium-sized enterprises (SMEs) are looking to professionalize procurement at an early stage of the business’s growth, based on a survey conducted Wax Digital, Supply Chain Digital reported. From a survey of 260 procurement experts, 77% stated that procurement was needed by the time the company had 500 supplier contracts, with 72% calling it necessary once 500 invoices per month needed to be processed.
  • Procurious noted from the survey that procurement adaptation in SMEs is more likely to be reactionary, with 48% surveyed stating that implementation was due to a negative situation, while only 31% said they rolled out procurement as a proactive step.
  • Rising costs (68%) and inefficient and labor-intensive processes (45%) were the highest noted reasons for adopting procurement, according to the survey.

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By Rich Weissman– Past president of the Institute for Supply Management, Greater Boston