While SMEs tend to be flexible and innovative, they often have limited capital resources and expertise with new methods and technologies.
However, Supply Chain Management technology is beginning to catch on with SMEs, largely because of the significant cost control benefits and the increasing emphasis on control of supply chains and the internationalisation of these supply chains. Plus, there are more Cloud based options available that offer flexibility on licensing for SMEs.
Supply Chain eProcurement technology adoption poses a great many challenges for small to medium sized companies. One serious impediment to adoption is the lack of awareness of the implications of automation and the impact on organizational performance.
The level of understanding of procurement automation within a company influences significantly the adoption. See our article on eProcurement adoption for more details on this.
Plus, SMEs can least afford to implement poor performing automation across their organisation. This tends to lead to inertia if the impact is ill understood.
By automating their business processes in functions such as finance, procurement and goods receiving and automating time-consuming, repetitive tasks SMEs stand to improve productivity which will help them gain competitive advantage.
2What are the key drivers?
What are the key drivers for SME adoption of Supply Chain Management eProcurement platforms?
There are many benefits for SMEs adopting Procurement automation. Including:
- Better Cash Flow associated with payments and inventory management
- Better use of scarce resources to procure goods and services
- Real-time financial purchasing information for management decisions
- Better prices from key suppliers
- A seamless and fast procurement process
- Reduced inventory-carrying costs
- Controlled ease of access for employees to buy from approved suppliers
- Supply chain integration ensuring smooth operations
- Improved relationships with vendors
- Effective and timely order fulfilment
- Improved and timely goods receipting and payment processes
- Shorter order cycle times
In addition, collating real-time purchasing information and processing the information collected during the day, allows organisations to produce detailed forecasts and business intelligence for the next morning. Normally this whole process would take between eight to ten hours per day of staff time.
3Then why are all SMEs not implementing this automation?
Many SMEs see automation as simply an IT project for exchanging information with suppliers, however fail to see other strategic and tactical operational benefits. The extent to which SME owners and managers actually believe eProcurement can positively impact future performance will influence their predisposition toward adoption.
SMEs also want to see systems that flex according to their business. The business scope of SMEs in terms of volume of business, product-mix, nature of the products manufactured/services provided, and their role in supply chains means that there can be a need for tailoring of systems to specific needs. Many solutions do not offer this level of flexibility and suppliers are not open to make changes for the SME segment.
Another factor is the size of organisation. The SME needs to be of sufficient size for eProcurement to make sense. A survey by Wax Digital revealed that most organisations (77%) needed a procurement function by the time they had 100 supplier contracts, or a company had reached a turnover of £50m+.
Claritum believes that most organisations with a turnover over £10m can benefit from automation of the buying process and will see a positive net gain from the investment.
4Where should SMEs focus initially?
SMEs need to focus on supply chain management — rather than building up a transaction-focused procurement department. Transactions can be automated and approved suppliers engaged through this automation. Let your employees buy from catalogues, as opposed to trying to employ additional scarce buyers to handle transactional purchases.
Take a step-by-step transformation approach to this automation: introduce automation into areas where there will be the highest return in terms of either direct cost savings or indirect savings through efficiency gains.
Also, focus where people are committed to make this happen at all levels within a department or function within the organisation.
5Things to consider when contemplating Supply Chain Automation
- Manual processes take longer and are more prone to human errors. A key problem with manual procurement processes is the need for dedicated manpower to ensure physical documentation is produced accurately.
- Human error is an underestimated cost. How much resource is being wasted in correcting errors? What are the costs associated with under or over ordering? What are the costs of poor supplier choice, when there was already a secured and preferred supplier available to the organisation?
- Lack of visibility in business spending. Can you track, in real-time, spending in your business? Traditional manual approaches to Procurement do not provide visibility of spend. In fact, often, costs are incurred in historically investigating spend patterns. In this context, Dashboards are a key tool for management.
- Compliance standards. Managing ongoing supplier compliance is an increasing cost to businesses, made all the more difficult with internationalisation of supply chains. Making this compliance part of the automated process, and integrating this to goods receipting processes, provides a level of control that is not possible through a purely manual process.
- What Spend Categories to automate? This is a key question and the answer may not be only the volume items. Consider the impact on organisational efficiencies and costs if supplies and marketing materials can be sourced automatically from approved suppliers, with pre-negotiated prices.
- Are your suppliers eProcurement enabled? If your suppliers already have experience in using eProcurement technology, then you should be able to easily integrate these suppliers into your processes.
- Analysis of spend. What information do you have now to base your decisions on? Can this information be easily leveraged?
- What is the status of your current suppliers? Are there supplier Relationships left unmanaged, compliance to contracts unmonitored and negotiated terms lost? Could automation clean this up and ensure you are in a stronger position to scale?
- How are supplier decisions made? Is it a case of path of least resistance or are long term business judgements being made to select/change these suppliers. Plus, are prices being negotiated effectively and best possible value being sought from supplier relationships?
- Think about the procurement process. What components can/should be automated. Where are the major pain points / costs in the process? A typical procurement process consists of a number of processes that could include:
- first the identification of the needs, be it temporary or permanent
- followed by a process of exploration of supplier value, options and risks
- to finally arrive at finalization of the supplier/s by fixing pricing and contractual terms of supply
all these initial tasks typically lead to the second phase of the procurement phase which involves
- generating a request for quotation from the list of selected suppliers
- bid/tender evaluation and supplier selection
- generation of a purchase order
- expediting may be necessary to ensure delivery
- order delivery
- warehouse / stock control activity and further demand generation
- receiving the invoice
- cross checking the invoice against the delivery
- cross checking the invoice against pricing and payment terms
- paying the invoice at the appropriate time
- supplier performance recording and feedback if necessary
- and finally recording of the whole process and archiving the data for future analysis and spend reporting
Note: the above assumes that the goods and invoice are correct. If they are not, then there are further process steps associated with correcting any issues.
This process may be short or long, depending on the nature of the purchased products or services, so needs to be adaptable based on the purchase being made. More strategic purchases requiring more time and process to ensure that the supply chain is resilient and that the best possible prices are negotiated.
If you would like to learn more about supply chain automation for SMEs then please Contact Us or if you would just like to learn what other companies are doing, then take a look at some of our Case Studies
See example case studies from both For Profit and Not for Profit organizations.