Buying SMART isn’t just about saving money and buying products or services at a low cost, it’s also about improving your supply chain, supplier relationships and negotiating a price that is the best for you AND your suppliers.
In May, Kavita, our MD held a seminar at The Business Show 2019, sharing the benefits and values of buying SMART. In this article we have complied the practical tips and advice we believe will help you identify where you can save money, find ways to improve efficiencies and build stronger relationships within your supply chain.
What is buying SMART?
SMART is a methodology Novo-K devised to help understand the best practice of buying:
Strategic – Planning, Governance and Policy
Measure – Spend Data Analysis and Performance Management
Approach – Process and Procedures
Relationships – Engagement, Partnership and Collaboration
Transformation – Procurement Journey and Continuous Improvement
To summarise, SMARTprocurement is “Strategic sourcing of goods and services to deliver value for money and mitigate risk”.
Here are the 8 tips that can help you buy SMART:
Our first tip is to always plan. Planning for the next year will help you leverage deals with suppliers, gain visibility and take control. By understanding the activities that need to be delivered, when and by who, you will avoid duplication and capacity issues. Without clear planning of these activities, multiple orders could be made of the same product or service, causing unnecessary spending and time wasted.
Running basic reports about your spending will help identify quick wins. There are three reports we suggest starting with; Top spend by suppliers, Spend
fragmentation by category and Number of invoices by supplier. You can then use these reports to eliminate unnecessary spending and focus on building better relationships with your top suppliers.
Understanding how and when to place orders is key. Make sure you understand when exactly you need the products or services in order to make less frequent, larger tactical orders quarterly or yearly rather than whenever a request is put in. This will save you money in terms of less invoices being raised, also saving you time and helping you keep control of your spending. With your orders consolidated, you will have more of an idea of your outgoings making it easier to track and, in turn, save on unnecessary spending and duplications.
Improving your supplier relationships can help you reduce costs, even once the contract has been signed. In having regular supplier meetings, you can build up a strong relationship and have the chance to address price reductions when you feel there need is there. When entering contracts with new or existing suppliers, it is a good idea to add in a benchmarking clause, allowing you to periodically compare prices and services ensuring that you are getting the most out of your suppliers.
Make ‘buying’ part of the strategy for success, not a deterrent. Centralising your buying by putting expenses through a specialist or a finance team will make it easier to track your contracts and spending. It will also help you take control and minimise unnecessary spending.
You need to identify your tail spend; typically, this is 80% of suppliers which make up 20% of your spend. This 20% usually goes unnoticed or is unclassified because the purchases are too small, or too infrequent to go through an organisations procurement system, which is why tail spend often goes unmanaged. Focusing on this can deliver quick results while saving money. The most efficient way to save money is to cut back in the first instance; become strict on what your business buys and where from. Good practice is consolidating where appropriate. This can include asking for quarterly invoices instead of after every purchase and seeing if you can use the same supplier for multiple products or services where possible.
Gain insight from within your business; ask your employees which suppliers they think are the best- who communicates well? Who offers deals? Who will go that extra mile?
Unless you are the person who deals with all the suppliers, your employees will have a better relationship with them and have a better understanding how good they are. By asking employees, you will gain a clearer insight on how supplier relationships can be improved and better maintained.
Supplier Diversity and Ethics-
Look for more in a supplier than just low cost. Widen your supplier requirements when looking for a new supplier. It’s good to align your business with suppliers that follow the same values and ethics as yours as this will improve your supply chain and promote just how you actively seek out products and services that align with your values.
We also suggest completing due diligence on all suppliers. Due diligence is a detailed examination that should be done before signing a contract with a supplier to make sure they are financially stable and have the resources to fulfil the contract with you. This will help you avoid signing a contract with a supplier that is struggling financially or has issues with their supply chain.
Whether it’s with new or existing suppliers, host a supplier day. Not only will a supplier day show that you care deeply about your supplier relationships and are looking to strengthen them, it will also help you share your vision, objectives and targets with them for the next year. Confirm that they can supply you with the increase of products or services you need and at a better price. Larger companies tend to hold supplier days regularly, and because they have a larger spend and suppliers will bend over backwards to keep their business. We know for smaller companies, hosting a supplier day can seem daunting but holding the event will benefit your suppliers as much as you.
These tips with help you buy SMART and save MONEY. We know every business is at a different point in their procurement journey, so we have created a scorecard to deliver personalised advice tailored around the four stages of the procurement journey; Clerical, Commercial, Supportive and Strategic. Fill in our scorecard here and see how you can progress.