The financial crisis has forced most business leaders to reconsider the role of procurement from a peripheral to a strategic activity at the core of their commercial venture. The move makes a compelling business case as figures speak for themselves: a 1% purchasing cost reduction has the same impact on profit as a 10% increase in turnover.
"It is imperative that SMEs set a sound strategy for their support services, among which is procurement and supply chain management, securing contractors, vendors, contract agreements, and ensuring continuity of supply are key business requirements," said Asif Khan, account director at Tejari, a joint-venture by BravoSolution and Istithmar World that provides software and services to supply management executives.
Among the challenges procurement functions frequently encounter within SMEs, he cited limited resources or manpower allocation to the purchasing organization; undefined organizational design (center-led versus decentralized for example); ambiguity about the SME business model and the strategic objective of the company; problems with visibility and access to information; and finally not having dynamic and value-creation metrics that feature both efficiency and effectiveness measures.
To address these challenges, SMEs should focus on one area at a time and look at the 'big picture' first. "SMEs initially must start with addressing the main challenge which is strategy setting and shifting the function from a 'doer' paradigm or just carrying out the transactional activity of buying, to a more value-added role of 'strategic sourcing'."
INVESTING IN TECHNOLOGY
Ideally, the company's spending should be fully centralized under one department within a well-defined process, Asif said. This role of leveraging spend would start by supplier selection as it provides the most benefit to the entire company. Once that paradigm shift is achieved and spend is consolidated, SMEs should consider technology.
By allowing access to real time data in a very fast paced world, technology has become a necessity to provide visibility and transparency. Switching to an automated procurement process rather than using a cumbersome paper process will add value through seamless workflow, provide increased productivity through reusable templates (RFxs), decrease cycle times and ultimately will help reduce costs through process efficiency and better sourcing agreements.
"The ease of adoption and the practical day to-day solutions are key in selecting the technology that will provide more insight into the total cost of ownership and in-depth knowledge of the soft and hard savings benefits."
The benefits of technology also include proactive internal collaboration with different stakeholders within the organization (for gathering business requirements and needs), helping improve communication, transparency and a common strategy. Furthermore, external collaboration with suppliers can then be institutionalized and embedded within collaboration tools, he pointed out.
"We have two legs in two different worlds; one with our client and the other is with their suppliers. From the supplier's side, we also support and promote SMEs registered in Mohamed Bin Rashid and Khalifa funds to ensure suppliers have access to different request for proposal (RFP) launched in an array of procurement portals that we develop and implement across the GCC region. This expands SMEs access to a local, regional and global marketplace thereby bringing in added business value."
In Dubai, the local government has been proactive in supporting UAE nationals who own and operate SME businesses. They are able to compete with larger companies and sell their products and services to government departments through the government procurement portal (GPP) and e-supply, its official electronic portal.
Dubai SME encourages private companies to allocate 5% of their purchases to the GPP, to help maximize opportunities for UAE national business owners to win sales with the private sector. Since the program was established in 2002, GPP members have sold more than AED 1 billion (USD 27 million) worth of goods and services to the Dubai government.
© Zawya BusinessPulse 2014
