There’s no shortage of challenges when you’re a SMB manufacturer. Bigger manufacturers have many advantages: They have more capital to allocate, they can afford to fail more and they can use economies of scale to make more efficient investments and maximize ROI. Thus, small businesses have to get creative and aggressively leverage their strengths to stay competitive.
Purchasing is one particular area in which SMB manufacturers have to use sound strategy and execute with care. These seven purchasing tips will help show you how to procure the right materials at the right time, and how to purchase them at the right price.
Make sure your BOMs are accurate and usable.
A bill of materials (BOM), also called an assembly component list or a production recipe, is an essential tool for your business’s procurement processes. Each BOM lists all necessary materials for manufacturing a product. It’s worth taking the time to audit your BOMs, particularly if your business is having trouble with procurement accuracy.
Several different types of BOMs are available, so take a look at the available options to determine which suits your business best. Modular BOMs allow each module of a product to be examined as a unit and are ideal for large and complex products with multiple discrete modules. Manufacturers who create highly customizable products, meanwhile, often use configurable BOMs that allow them to plan around their many product options.
Build and grow supplier relationships.
Well-established and productive supplier relationships can be the grease that keeps a supply chain moving. Building relationships with a collection of trusted suppliers will make it easier to secure better pricing and make adjustments when they’re most needed. Allocate some resources toward tracking and maintaining supplier relationships, and remember that procurement software can be a useful tool for analyzing purchasing data and tracking which suppliers are consistently offering the best prices and service. (More on this in a minute.)
Maintaining these strategic partnerships is key to a business’s long-term supply chain function. You can often use the power of win-win to build trusted partnerships with a supplier who will provide supply chain stability. When suppliers and manufacturers develop partnerships, their interests become more aligned, as both are incentivized to eliminate barriers and cooperate for their mutual good.
Get serious about procurement analysis.
Your business needs a consistent system for evaluating suppliers and choosing which ones to maintain relationships with. SMB manufacturers should ensure that they’re collecting accurate and relevant data about each supplier, including tracking prices and supply chain issues. ERP systems can offer great tools for analyzing supplier data into an organized and actionable format.
Predictive analytics are also crucial for cutting procurement costs. Nearly all large manufacturers now make use of predictive analytics to analyze their supply chains, using the power of historical data and mathematical modeling to predict which resources will need to go where. Predictive analytics platforms are more affordable and accessible than they’ve ever been thanks to the low barriers to entry of cloud-based software, so spend a little time looking at the many available options and evaluating how their pricing plans can fit your business.
Minimize the use of fully custom components.
This is actually a product design tip, but it has big ramifications for purchasing processes. Fabricating fully custom components is expensive, so try to maximize the use of stock or lightly customized components in product designs and minimize unnecessarily complex custom parts.
Customized components can be surprisingly affordable when they’re pared back to the essentials. Many components, such as plastic enclosures, can be ordered as stock models with certain custom modifications such as customized enclosure cutouts and digital printing.
Leverage group buying power.
SMB manufacturers by themselves often don’t have the buying power to command the best prices from suppliers, but a lot of SMBs together can be a different story. By forming a purchasing consortium, SMB manufacturers can often get better prices through volume discounts that would otherwise be available only to larger manufacturers.
Buying consortia often requires some effort and resources to set up, so make sure that your master agreement with suppliers and other members of the consortium is legally airtight. Emphasize the mutual benefits of the consortium to each member, and only take on consortium partners whom you trust to honor their agreements.
Outsource procurement to an expert.
Particularly for very small businesses, procurement can simply occupy too much bandwidth to be feasibly handled in-house. Working with a procurement consultant can be a good investment for SMB manufacturers who need to focus their attention in other areas, such as refining manufacturing processes.
When choosing a purchasing consultant, it’s a good idea to look for familiarity with your specific sector. A consultant who understands the technical considerations of the sector will be better able to analyze your supply chain and spot inefficiencies. Make sure that procurement consultants are listening to and working with all levels of your organization, including shop floor, so that they get a complete picture of your business’s supply chain needs.
Use lean inventory systems to streamline your process.
Many manufacturers have found that lean inventory systems are the key to a smart and streamlined process. Systems such as the Japanese “5S” system offer frameworks for using small, constant improvements to trim wasteful spending and improve quality and productivity. These lean inventory systems don’t just help reduce short-term costs. They can also help reframe a business’s long-term inventory strategy through a more efficient and empowering lens.
It’s important to note that more advanced lean inventory systems (such as the popular “just in time” model) demand an efficient and functional supply chain. Manufacturers having difficulty with other elements of their supply chains should fix their foundational issues first and then investigate their options for using aggressive lean inventory systems.
Procurement can be among the biggest challenges to master for SMB manufacturers. Remember that good procurement is a process of continuous refinement and that it requires constant adjustment. Keep a lean and agile approach to procurement and your business will reap the benefits.