iQ MAGAZINE

Inadequate "sourcing competencies," which include a lack of organized, centralized purchasing, cost medium-sized U.S. firms more than $134 billion annually in missed supply-savings opportunities, according to estimates in a December 2005 study from the Aberdeen Group research firm.

The study found that typical small and medium-sized businesses (SMBs) rely on ineffective, fragmented, and largely manual procedures to analyze spending and to negotiate, collaborate with, and manage suppliers.

"A primary consideration is focusing on what we call ‘spend under management' and on renegotiating contracts," says Sudy Bharadwaj, vice president and practice director in global supply management for Aberdeen.

One glaring problem: Many SMBs do not use automation in sourcing and purchasing. "More than 80% of midmarket enterprises use a combination of homegrown sourcing automation solutions and offline communications to facilitate negotiations," Bharadwaj says. "These primarily consist of spreadsheets and e-mail, thus limiting negotiation effectiveness and repeatability."

For example, you may have done a good job negotiating or renegotiating prices, but lack of automation can require you to do it all over again the next time the contract comes up, which slows down the process and increases costs.

"In addition to being spread too thin, SMBs not using automation will not learn from past purchasing experience," says Bharadwaj, who offers the following five basic strategies for maximizing your purchasing power:

• Repeat yourself: Create a process that's repeatable and sustainable year to year.
• Build a calendar: Design a "sourcing calendar" that shows when contracts expire so you can gain an advantage in renegotiating better prices.
• Break it down: Organize your sourcing and purchasing strategy according to spending categories.
• Understand spending options: For example, provide your buyer with an office supply store credit card. At the end of the year, use accumulated credit-card data to negotiate a rebate from the store where the supplies were purchased.
• Embrace technology: Use a sourcing and procurement application to manage purchasing. SMB-friendly procurement application vendors include Ariba, Global eProcure, Iasta, Ketera Technologies, and Procuri.

You can also use the Internet to research prices, says JupiterResearch's Joe Wilcox, who authored a report entitled Small Business Purchase Influencers. "For technology purchases, a small business can even use a search engine or a manufacturer's Website," Wilcox says.

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iQ Magazine, Second Quarter 2006