New research shows SMEs struggle without a procurement function.

New research by eProcurement provider Wax Digital reveals that procurement is just as vital for small and medium sized companies (SMEs) at it is for large organisations, with formal procurement processes serving an equally critical role in helping them reduce costs, keep control of spend and eradicate labour intensive processes.

The research conducted with both procurement professionals and other management in 260 UK businesses asked what the tipping point was for introducing procurement into their organisations. The results were as follows:-

  • 75 per cent said procurement was needed once a company reaches a £50M turnover
  • 77 per cent claim to need procurement by the time it has 100 supplier contracts
  • 72 per cent said once 500 invoices per month are being processed, procurement was necessary.
Rising costs was the most common reason for first introducing procurement, cited by 68 per cent, followed by inefficient and labour intensive processes for 45 per cent, and increasing business risk for 30 per cent. 48 per cent of businesses said they ended up implementing procurement reactively in response to a negative situation compared to 31 per cent who said that it was a positive and proactive step forward.

Respondents, 82 per cent of which had experience of introducing procurement into an organisation for the first time, also pointed to their immediate, mid and long-term priorities in these situations. Spend analysis, contract management, integrating procurement and finance systems and supplier relationship management were cited as immediate priorities for the majority of respondents. Mid-priorities focused on tracking savings, supplier information management, eRequistioning and eInvoicing. And, in the long-term our respondents wanted to introduce compliant online buying and use of electronic catalogues, and also eAuctions and eTendering to enable faster, more effective tendering processes.

However, those respondents that had already experienced introducing procurement into an organisation for the first time cited a number of barriers to adopting formal purchasing processes. Barriers included gaining senior management buy-in (35 per cent); managing cultural changes (27 per cent) and a lack of internal knowledge (19 per cent).

Paul Ellis, Managing Director at Wax Digital, says: “No two businesses are the same and each will have its own procurement tipping point. The research shows that UK businesses are realising that formal procurement isn’t just for large organisations, and that any business that wants to control spend, improve its supplier performance and eradicate slow admin-heavy processes from the business can benefit from the adoption of a more professional approach to procurement.

“In spite of the barriers to adoption experienced by some of our research respondents, none of these challenges are unsurmountable, and forwarding thinking organisations will recognise their tipping points and put in place the necessary procedures to prevent a negative situation happening in the first place.”