Member Article

Internal efficiencies: the key to reducing red tape

Red tape is an ever present burden for businesses. Although it is promising that the Government has pledged to remove undue administration for SMEs in its Small Business, Enterprise and Employment Act, firms must take control of their own futures in order to drive efficiencies internally.

Time consuming red tape is particularly problematic within procurement. Buyers can find the process of using preferred supplier lists or putting a job out to tender extremely time consuming and restrictive. Streamlining these processes as well as implementing an online procurement platform to monitor stock levels can help drive cost savings and empower buyers to make smarter, more effective decisions.

Think smarter

When it comes to procurement processes, some companies are reluctant to enforce change because ‘that’s the way it’s always been done’. This is dangerous, especially for businesses in the private sector that have more autonomy over the way in which they implement and manage the process. It is important to recognise the freedom that this gives them to tailor the way they approach procurement and drive efficiencies as a result.

Identify key issues

Some business owners choose to take the route of putting a supplier contract out to tender in the same way public sector organisations do. This can prove cumbersome and once a supplier is appointed, businesses could find themselves tied into a contract for a number of years with little room to negotiate if the service is not up to standard.

Similarly, maintaining an ongoing list of approved suppliers can become a barrier to greater efficiency if not managed in the right way. Individual suppliers may only be servicing one or two requirements so where possible buyers need to take advantage of the opportunity for one vendor to provide a consolidated group of products and services. This can save time and money in the process.

Apply the right thinking

Private sector businesses that use either of these approaches are not constrained by regulators. As such, they have the freedom to amend unnecessary and inefficient procurement processes to better fit the needs of their businesses.

An interesting dynamic in the private sector is that suppliers usually secure a tendered contract because their service stands out – whereas in the public sector it is a case of eliminating the competition on the basis of meeting set criteria. This means private business owners can choose a supplier that consistently delivers but also goes beyond the remit of their contract. Subsequently, where private companies wish to use the tendering process they are at liberty to select criteria that ties in more closely with their individual needs. They can also choose which suppliers they would like to invite to tender and cut back on the administration of processing large amounts of applications.

Where a preferred list of vendors is in place, business owners should regularly implement reviews of their performance and challenge them to improve if necessary. Sometimes suppliers can become complacent if they have a formal contract in place which can increase the risk of service levels deteriorating and the needs of customers not being met. Where this applies, suppliers should be given the opportunity to improve. However, if this isn’t forthcoming, business owners should not be sentimental. Instead, it is best to identify an alternative supplier that can better meet spontaneous demand and offer multiple products and services under one roof.

Implement the right tools

For buyers, there are electronic tools that can be used to help drive procurement efficiencies. One example of this is implementing an online stock monitoring system. This could provide timely alerts when certain items are running low. By granting shared access to suppliers, this allows for requirements to be better anticipated and met in good time. This system can also help businesses to closely scrutinise costs and focus their efforts on the best selling products.

Suppliers themselves should match this through their own efforts to improve service levels. Stock Keeping Unit (SKU) rationalisation is an approach to inventory management that can help determine the popularity of stock. By looking at the sales and profitability levels of individual items or product lines, the most unproductive ones can be phased out. This then allows suppliers to focus on the more profitable lines and improve the efficiency of their service. Suppliers also have more time to anticipate how the needs of buyers might change in the future and realign their efforts accordingly.

Cutting administration costs can also help to significantly improve the efficiency of the procurement process. By implementing an e-invoicing system the time costs of manually processing invoices is eliminated. E-invoicing also reduces the likelihood of errors being made and increases the effectiveness of buyers’ accounts payable functions.

While it is fitting to select a formal process for appointing and managing suppliers, some private business owners forget that the process is more flexible than in the public sector. Keeping in mind the need to remain competitive, it is essential that this thinking is recognised and incorporated into the way that suppliers are appointed and managed on an ongoing basis.

Nigel Crunden, is a business specialist at Office Depot

This was posted in Bdaily's Members' News section by Hitachi Capital Invoice Finance .