Procurement for start-ups: where to begin?
For many new or soon-to-be business owners and founders the procurement process is the least of their worries – or so they think. Usually caught up in issues regarding their hiring process, chain of command, growth and marketing strategies and similar traditional start-up issues, many put the procurement process to the back of their minds. Generally, the reason for this is because it seems like quite a simple process - Locate needed goods. Pay. Receive purchased goods. Document transaction. Seems easy right? Unfortunately, like any experienced manager or business owner will tell you, a business process is never as easy as it first may seem.
In the initial phases of your business, these may seem like small issues. In fact, they likely are small issues…when you have eight employees. However, as your business begins to (hopefully) experience growth, you’re going to need to bring on more staff, expand your area(s) of operations and generally account for your growing company with growing procurement processes.
Mark Kozlowski, writing for Spend Matters, once talked about a company that let its procurement processes get out of control. He noted, “For the first few years of their existence, a startup advertising promotions company had no process design for spending funds. With a roster of employees that never exceeded 8 people, all of the employees were given the go-ahead to make purchases as they saw fit and expense it to the company.” As this company expanded, though, doubling and then tripling in size, there was a real need to create a process and catalogue system for the company’s procurement needs in order to ensure they wouldn’t lose massive amounts of money.
The company that Mr. Kozlowski wrote about is not alone in this need, and unfortunately, many expanding companies create massive financial losses for themselves by not being prepared with a standardized and effective procurement process strategy. That is why we have come up with six easy steps to building a procurement process that will work for you.
Your first step, as already noted, is recognizing the issue. This is two-fold, first as a business owner you need to recognize that you need a strategy for purchasing, or procuring, any items. Second, you need to recognize, in specific instances, when these new items are needed – whether you ordering new items or re-ordering. Maintaining a firm grasp of what you need, and when you need it, will make your business run smoothly all the time.
Your second step, as with any business process, is to research your options. This is a pretty big step, so pay close attention. Your industry may maintain specific requirements for your procurement process or for the specific items you need – if that is the case, make sure you stay up to date on whatever requirements exist. Next, their likely isn’t just one supplier for what you need – examine all your options and find the right supplier for you…and then build a lasting relationship with them so you can get preferred pricing.
While research may be the most extensive step, your third step may be the most important, that is creating a standardized ordering and shipping process. You will want to work together with your legal counsel to create a purchase order that will work well for you and your supplier. This purchase order should contain the price, specifications and terms and conditions of the product or service and any other additional obligations. Have a legal representative review your purchase order – you never want to be left out to dry due to a faulty contract. While you’re at it, though, you will also want to create an internal process for delivering the purchase order to suppliers. In today’s modern age, we recommend email, but fax or mail are acceptable as well.
Your next step will be developing a process for record keeping and tracking of your materials. This is why we recommend sticking with a supplier that you feel comfortable with. For many businesses, delays in shipping of materials can be back breaking so creating processes for expediting and receiving shipments is key ensuring you aren’t losing time or money in the procurement process.
So you’ve received your shipments, but your procurement process is far from over. Smart businesses understand that keeping strong records is the most important step in their procurements. At this point, you will want to make sure that three key documents – the invoice, the receiving document and the original purchasing order should all match up. You can file these away the old-fashioned way or with one of the many e-procurement software platforms available today, and can then rest assured that your procurement process and business dollars are safe and secure.
The previous five steps essentially summarize the procurement process, but it is important to remember not to get married to these five steps as well. That’s why our sixth step is to constantly be re-evaluating and renewing your procurement strategy. If a supplier isn’t working for you or certain products are no longer necessary, do not be afraid to make changes to your process for the success of the company.
Identifying and streamlining the procurement process may not be a major concern for small start-ups but creating a strategy and process early on in your businesses’ life will save you countless hours of paperwork and headaches later down the line…never mind the dollar amounts you will likely save from a clean procurement process.
In the past many small companies avoided investing in procurement processes for fear of personnel costs and racking up long paper trails, however with e-procurement software and mobile procurement processes, the large majority of these concerns have been rendered obsolete. If you’re a small business owner today, take the time to invest in a smart and efficient procurement strategy, your business will only benefit in the long run.
By Mat Langley, Strategic Advisor and Procurement SME, www.shortlist.co
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