There comes a time in every ambitious organisation when it has to acknowledge that to grow the business even further or to expand into new territories, it needs to undertake some form of digital transformation to enable more efficient business processes.
Delays in evaluating, hiring and onboarding new suppliers or poorly performing existing suppliers can lead to problems in meeting customer orders. And a lack of transparency on spend commitments and unexpected payments can lead to severe cash flow issues for businesses. All of this can impact an organisations’ ability to expand the business at the rate they want to.
Digging a little deeper into these issues, Wax Digital recently conducted an independent survey looking at the processes that are stifling UK businesses’ growth plans, and also established when the tipping point is for an organisation to formulise many of its procurement processes.
The independent research with 250+ senior managers and procurement professionals showed that an absence of professionalised procurement practice was holding their businesses back, with 83 per cent of respondents claiming that their supplier base could not support future growth plans, while only 34 per cent had a dedicated procurement function for managing purchasing.
Supplier management issues are blamed by over three quarters of survey respondents for thwarting many organisation’s expansion plans, with 79 per cent claiming that they are not driving an innovation culture within the supply chain. Also, 83 per cent said they don’t really challenge their suppliers adequately on cost and performance.
Out growing manual processes
When it comes to procurement, a massive 84 per cent claim that as their businesses have scaled organically, they’ve simply outgrown their ‘home grown’ manual processes. In addition 75 per cent claim that their technology is not sufficiently enabled for a business of their size, while 37 per cent are held back by manual ordering and payment processes.
Other procurement challenges that the UK’s mid-market appears to be struggling with include: getting a better grip on costs and spend for 49 per cent; managing suppliers more effectively for 44 per cent; the cost of invoice processing for 42 per cent; ensuring POs are issued for 41 per cent; and also making sure valid contracts are in place with key suppliers for 36 per cent.
The survey clearly shows that these mid-market organisations have real aspirations for growth, as 92 per cent have strategies which go beyond ‘organic’ expansion. However, many are being held back by the limitations of their supply chains and procurement’s lack of formal processes.
The survey respondents all seem to have some form of procurement control in place, but roughly only a third have a dedicated procurement function for both managing purchasing and dealing with supplier sourcing - with finance or other departments more likely to be controlling these practices.
Procurement isn’t just for the big boys
It’s a long believed myth that implementing formal procurement and embracing eProcurement technology is just something for larger enterprises and not smaller businesses. But as any finance director in a growing business knows, keeping control of costs as the business rapidly gets bigger can be challenging. Purchasing processes suddenly become more time-consuming and managing a growing number of suppliers gets more complex.
A more formal approach to procurement can help SMEs get a tighter grip on all purchasing processes. In fact our research shows that many smaller high-performing businesses are deciding to reap the benefits of it too.
The tipping point at which our respondents acknowledge the need to review their need for formal procurement might come sooner than you might think. The research showed that the tipping point for implementing it was when:
· a company reaches a £50m turnover, for 75 per cent of respondents;
· by the time is has 100 supplier contacts for 77 per cent of respondents;
· and, for 72 per cent, when a business is processing over 500 invoices per month.
Factors such as rising costs, inefficient, labour intensive processes and increasing risk (cited by 68 per cent, 45 per cent and 30 per cent respectively) are the main reasons for implementing procurement for the first time. While, for 48 per cent of respondents, procurement was implemented reactively in response to a negative situation, compared to just over a third (31 per cent) who claimed 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 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.
Barriers to adoption
For those respondents that had already experienced introducing procurement into an organisation for the first time, many had come up against 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).
The good news is that there are no change barriers that are insurmountable, and the key is to understand what your business’s procurement tipping points are and to present the need for change to the business.
No two businesses are the same and each will have its own procurement tipping point. It’s clear from the research 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.
It’s time for businesses to see the bigger picture and that without the tools to automate and optimise many of the responsibilities that fall to procurement, they will remain unable to scale to meet the demands of the business.
Three-quarters of respondents are yet to embrace the technology they need to optimise so many important procurement functions. This represents a great opportunity for those businesses to drive much greater value within their organisations by utilising procurement tools that are now available and get the right foundations in place to support business growth and procurement.
About the research
The research was conducted by Sapio Research and Wax Digital in spring 2017, surveying 260 senior managers from UK businesses with £50m to £250m turnover.
Paul Ellis, managing director, Wax Digital
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