SMEs taking a haphazard approach to reviewing their suppliers
The nation’s army of small and medium-sized businesses (SMEs) could save six per cent of their combined annual turnover, according to newly published research from Tungsten Network.
The study asked 1,000 business decision makers to estimate how much they could save through shopping around for better deals.
Of the small businesses that responded, 28 per cent thought they could save between £5,000 and £20,000, while 15 per cent thought they could save up to £50,000. Based on these average estimates, each SME could save £19,663 each year, which when multiplied across the UK’s 5.4 million SMEs adds up to £106 billion.
Richard Hurwitz, CEO at Tungsten Network, commented: “If British SMEs could realise even a small percentage of the estimated savings identified in the report, profitability would soar and working capital as well as cash flow would be significantly improved, allowing businesses to be more agile and flexible. With a clear procurement strategy, the potential savings are considerable and this research just highlights the value of having good market intelligence.
“Smarter procurement would enable the UK’s SMEs to invest more capital back into their business, so they are prepared for whatever opportunities or risks may come their way. In an age where finance can be hard to come by, bringing efficiencies to the procure-to-pay work stream can be a value enhancing initiative. As SMEs make up 99.9% of all private sector businesses in the UK, the impact on the economy would be considerable.”
The study also looked at the views of decision makers on the importance of procurement. Interestingly, those from small businesses believe it plays a more prominent role than sales or marketing.
Asked how frequently businesses reviewed their list of suppliers, a key measure of the importance of following best practice in terms of procurement, respondents from SMEs revealed a jumbled approach. The majority of businesses – 42 per cent – said they review the supplier base annually but only 29 per cent do so two or three times a year. Meanwhile, 19 per cent say they have a review on an ad hoc basis or when they are dissatisfied.
Hurwitz added: “In order to avoid paying more than they should, buyers need to develop stronger relationships with their suppliers to encourage honesty and transparency. This can have a huge impact on the bottom line.
“The savvy buyer knows that many different factors come into play when choosing a supplier. Price has a strong influence, but quality, whole life cost, security, ethics, values and reputation of a business also hold sway. Besides, with the amount of data now available at businesses’ fingertips and valuable tools like spend analytics, buyers are able to analyse where and how they are paying their invoices, often uncovering significant opportunities to streamline their invoicing system.”
