Positive procurement: smarter, not harder

Power corrupts, so the saying goes, and larger businesses which use smaller enterprises in their supply chain certainly hold plenty of power. But it doesn’t have to corrupt your business, writes Steve Malone of procurement services business Inprova in the first of a new series of columns about positive procurement.

It’s easy for larger businesses to call the shots when it comes to setting payment and other terms with suppliers. And buyers – whose performance is often measured on the impact of their procurement on the business bottom line – will naturally work hard to secure the best possible price and terms from suppliers new and old.

But thinking that good business means screwing everything you can out of your supply chain: the lowest cost, the longest payment terms, and the most onerous penalty clauses possible – is a long way from optimum, not only for your suppliers but for your own business. It amounts to lazy procurement. Progressive procurement experts understand supply chain risk and the target costs of operations and will therefore know what the optimum result looks like.

After all, if you’re managing risk in your supply chain you don’t want a key supplier to run out of cash because you’ve pushed them over a financial cliff. Nor do you want them to jump ship, supplying your competitors at a better price than you’re paying, on the back of their experience as a supplier to you.

So on reading about recent research showing that nearly a quarter of small and medium-sized businesses are facing a potential financial crisis due to late payment of invoices, I’m frustrated. Frustrated for the million plus SMEs which could be owed up to a total of £212bn, with an unpaid invoice meaning, for some, potentially the difference between a successful month and insolvency.

And frustrated about the mindset and practices of those businesses – large and small – which are responsible for late payments.

Do they think beyond the short-term cashflow gain into what the impact would be if their suppliers weren’t there to service them? Could they fulfil obligations to their own customers without their suppliers? Whatever terms you’ve struck with suppliers – you need to stick to them.

The road to smarter procurement isn’t about winning in a battle of wills with your supply chain. It’s more about giving procurement a more strategic, central position at the heart of your business – and procuring smarter, not harder.

Procurement can deliver efficiency and savings to you alongside supporting small businesses – and even creating social value. And smart procurement can do this while helping savvy organisations negotiate the best value from their supply chain.

But smarter procurement also requires buy-in right across a business to ensure that efficiency gains you do strike – by working with your suppliers - are sustained and maximised. And an attitude of collaboration with your suppliers, not grinding them into the ground, goes a long way towards making your business better fit to serve your own customers.