Large multinational organisations employ large procurement teams to manage all aspects of their purchasing activity, at the very heart is to achieve consistent and sustainable cost savings. Small businesses do not have unlimited funds to employ the best purchasing professionals available to run their purchasing department, and with a relatively small spend, this would not be realistic.
There are however a number of areas all small businesses should consider at the heart of any decision made which will help to minimise costs in areas which are normally overlooked.
1. Order Consolidation
Every company has suppliers they place small frequent (daily) orders from, by consolidating these frequent orders into a more manageable size for both the supplier and your business both companies experience lower processing and transport costs. Depending on the supplier you are trading with there may be price breaks available for larger orders.
2. Product Variation Control
Creating a number of fundamentally different versions of a product may appear to offer your customer greater choice, however providing the appearance of choice but with simple specification changes that can be modified at later stages of the production process i.e. colour, finishes etc. add the greatest variation without incurring much additional cost associated with purchasing and storing multiple variations of a component.
3. Periodic Supplier Negotiations
Negotiation generally requires in-depth preparation, an understanding of the relationship between the buyer and supplier (who is dominant, type of relationship etc) and strong plan. However once you have built a good relationship with a supplier it is important to regularly address pricing and service to ensure complacency does not occur in either party. Quarterly meetings with your key suppliers to look at how cost can be removed from the relationship can bear good sustainable savings.
4. Re-Sourcing, Low Cost Country Sourcing
It is important to understand the sourcing potential of goods you purchase, Low Cost country sourcing has generally thought to consist of Asian countries, which is only relevant to very large quantity, repeatable ordering. However another option is Eastern Europe, strong cost savings can be achieved by sourcing within the countries from the Baltic region. If you have a fairly large quantity product or portfolio of similar products (i.e. profiled sheet metal), then Europe contains a wealth of good suppliers with lower risk and shorter lead times than Asia.
5. Engineer Cost Savings
It is a useful exercise to periodically review products you make to understand if there are components which can be easily re-engineered to reduce cost, or modify a number of similar parts to make one universal option. In recent years fizzy drinks bottle manufacturers have reduced the depth of lids on their bottles by a very small amount, this has produced a small saving per bottle which very quickly adds up to a large annual saving for a relatively small modification.
6. Supply Base Rationalisations
Large organisations set great emphasis on Supplier rationalisation, there can be great savings (both cost and processes waste) to be made by reviewing your supplier list and consolidating product supply with fewer suppliers each getting a larger section of the pie. By reviewing suppliers and categorising your spend type you can quickly see which suppliers you need to develop, which can be removed and which you need to find alternative sources to lessen potential risks.
7. Staff Consultation.
Finally great insight into your business and possible inefficiencies can be gleaned by inviting suggestions and feedback from the staff who perform the operations on a daily basis. Everyone has the ability to look at a scenario or role and think "I can do it better". Promoting this behaviour not only provides useful suggestions which may reduce cost but also make your staff feel valued.