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Make the most of your purchasing power

Smaller businesses do not flex their purchasing muscles - and lose out financially as a result, according to research by Cranfield School of Management and the Buying Support Agency.

Ninety percent of owner-managers who responded to a survey admit they could be buying more efficiently on behalf of their businesses, with purchasing experts predicting that a small firm can typically save between 10% and 35% across spending on stationery and office supplies, telecoms, janitorial and catering supplies.

"Their perception is born out by the reality of their purchasing practices," said David Molian of Cranfield's Credo Centre, who led the survey.

"More than three-fifths of our respondents set targets for reducing supplier costs or improving their efficiency less than once a year, while more than a quarter admit they never do either. On that basis alone there's undoubtedly room for improvement."

The survey was completed by 46 owner-managers, all of whom took part in Cranfield's leading Business Growth and Development Programme (BGP). Their businesses have turnovers between £400,000 and £10 million, with most being in the £1 million - £5 million range, employing between 10 and 50 people.

They come from all economic sectors and, by virtue of participating in BGP, are ambitious businesses that already have a track record of success in sales and profits. But if the disparities in their purchasing practices are representative of the bigger picture, smaller firms have a lot to do on the buying front.

"The survey shows a clear split between those businesses that have a firm grip on their buying and those who don't," says David Molian.

"About two-thirds look at the totality of their purchasing spend, and almost the same number are doing so on a quarterly basis. At the other end, a quarter review their expenditure less often than once a year. As far as we can see there's not necessarily a link between the size of business and buying management - some of the larger respondents are among the least rigorous."

Micro businesses, especially in the services sector, may have negligible bought-in costs. But any business beyond a certain size has to budget for services and consumables such as power and telecommunications, janitorial supplies, computer hardware and software, printing and stationery.

"It all adds up," says Molian. "Smaller businesses are inherently disadvantaged in terms of their buying power, and if they don't challenge the status quo they are condemned to live with it."

The research reveals some examples of good practice with almost three-quarters of respondents implementing formal policies for reviewing and approving suppliers, and the majority having more than five suppliers in areas critical to their business.

But the survey results suggest that the big opportunity for many independent businesses could lie in taking costs out of the business, perhaps by joining a buying consortium which enables smaller organisations to increase their buying power by uniting with other organisations.

Fewer than 10% of those surveyed belong to a buying consortium which negotiates preferential terms from large suppliers on behalf of its members. The cost savings from bigger orders are then split between the members and the agency.

A small firm can typically save between 10% and 35% across categories of spend that include stationery and office supplies, telecoms, janitorial and catering supplies, estimates Matthew Roper of the Buying Support Agency, Cranfield's partner in the research. A major exception is gas and electricity, where the current global price rises cannot be reversed, but at least members of these organisations are likely to benefit when prices eventually fall.

"Relatively little research has been done in this area," says Molian, "So this survey is a pilot. We plan to extend it, and then produce a full report, so would encourage other owner-managers to complete the survey."

To take part in the extended survey please visit the Buying Support Agency website at http://www.buyingsupport.co.uk/ResearchServices.htm

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