7 Steps For Effective Procurement Planning For Small Businesses
One of the major issues that small businesses face is challenges with their procurement process. The process of procuring material for your business can be complicated and cumbersome. Before procurements can be adequately made, it requires input from all parts of the business. Such inputs, alongside the overall business strategy, greatly influence the procurement process. Here are seven steps that small businesses can adopt to streamline their procurement process.
- Understand your needs
As a small business, you need to know and understand the materials you need to function. Conduct an internal needs analysis to recognize your needs. After that develop a procurement strategy based on the collection and interpretation of several kinds of data from all departments. This is especially important if you need specialized materials such as tungsten carbide valve seats. The data you gather should also serve as a marker for resources that you currently have, the materials you need, and the costs involved.
- Assess the supplier market
In this step, assess the supplier market for potential suppliers that can serve as feasible sources of the components, materials, and other services you will need. The more specific materials you need, the smaller the suitable pool of suppliers. Take your time to do proper research and analysis in this regard to make sure that you are settling on the best choice.
- Get supplier information
Your choice of supplier can make or unmake you as a business. Be sure you select your suppliers carefully and they must be able to provide the materials you need in quantity and quality and at the time you need them. Beyond that, take a close look at the way they conduct business. Get their financial statements, credit reports, and references, then evaluate them based on the data you have gathered on them. If you have to, pay a personal visit to their facility and have a firsthand experience of how they go about their business. Do this for every supplier you intend to work with to ensure that no part of your production process is found wanting.
- Develop a sourcing strategy
The information you gathered from the first three steps should be put to good use in developing a sourcing strategy. Examples of sourcing strategies are; Direct Purchase, Acquisition, and Strategic Partnership. Picking the right strategy for your business should be dependent on the competition of the supplier market and the risk you are willing to take as well as your overall business strategy.
- Execute sourcing strategy
With all the information you need at your disposal, it is time to execute the best sourcing strategy you decided on. Remember that each sourcing strategy has its advantages and disadvantages as well as its limits and risks.
- Finalize negotiations
After examining all potential suppliers, it is time to finalize negotiations. The finalization of negotiations may include selecting the best bids by suppliers and making final decisions. When the final decision is made, you may enter a formal contract agreement with the selected supplier.
- Devise a transition plan
Selecting a supplier is not the end game. It is now time to put in place a transition plan to ensure that the supply chain works effectively. The transition plan must include modes of communication and timelines between the two parties. Another consideration should be measurable KPI’s that will be used to evaluate the entire process.
Above all, preparation and transparency are vital to the procurement process. Follow these simple seven steps to develop and execute your procurement plans.
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