Is your profit made when you buy or when you sell? I’ll bet you figure that the best way to make more money is to sell more of your goods at a higher price. But in these recessionary times, it may be dawning on you that your profit isn’t coming from sales. Rather, the difference between operating in the red or the black comes from getting more value from your vendors, suppliers, and consultants, for less cash. That’s where the notion of procurement, the practice of smarter purchasing, comes from.
To get a handle on what is most important in procurement practices, I turned to Bonnie Seydler, a certified purchasing manager and specialist in print procurement. She was formerly a senior vice president at Putnam Investments in Boston. Seydler believes it’s your job to make sure your vendors are “held accountable for their performance and the value they deliver,” no matter what size your business.
To review, procurement generally calls for the following:
- Gathering information about potential suppliers
- Asking for bids or sending out requests for proposals
- Reviewing the references of bidders
- Negotiating price, schedules, and other details before signing a contract
- Auditing the procured products and services as they are being consumed and auditing invoices
But efficiency-minded staff and vendors tell me that procurement often seems like just another layer of meetings, paperwork, and hassle in the guise of saving money. I’ve heard many a disgruntled story about a company that used procurement policies to get a new, less- expensive supplier, only to end up paying copious sums to fix problems with customers when the new supplier didn’t pan out. Who needs the risk? I asked Seydler.
You do, she says. Done well, procurement will squeeze more profit out of your existing operation.
The most important step, Seydler says, is to stop treating all purchases the same, because that only bogs you down. Instead, she suggests you zero in on the goods and services you buy that are essential to keeping your business humming. If it is a landscaping company, for instance, the maintenance of your copy machine and printer are probably not going to make or break a new job. But if you are an investment company, late or poorly produced documents for financial clients will ding your credibility and take years to repair. Another quick example: your vehicles. When you buy gas, change the oil, or even repair a clutch, you can shop around for the best price or pick an auto shop that a friend recommends. But when it’s time to upgrade your fleet of service trucks, that’s when procurement practices can pay off big time.
So your first step toward smarter purchasing is identifying the five purchases that keep your business running. By focusing on a few crucial procurement targets, experts say you have the best chance to uncover pockets of savings and find more effective vendors that otherwise would have slipped through the cracks.
For everything else, knock yourself out. Search online to look for a great deal, try out a startup that promises cheap delivery, or tap your brother-in-law’s recommendation. It could save you a bundle, but it won’t wreck your business if it doesn’t.