Food procurement is one of the most important elements of supply chain management. It is essentially buying the appropriate ingredients in accurate amounts, at the best time and right price.
While that sounds straightforward, those responsible for food sourcing often face a long list of challenges that include dealing with perishable products, volatile supplies and prices, stringent regulations, and keeping up with consumer demands. But perhaps what is most familiar to all small and medium sized enterprises (SMEs), is the lack of time and resources.
Top procurement challenges SMEs face
- Lack of time and resources
Most small businesses are lean with limited resources and one person often performs multiple functions. As a result, business functions are less specialised and food procurement ends up taking the backseat. - Balancing cost with quality
Smaller businesses lack the market influence and economies of scale that larger organisations have to keep prices low. They are also exposed to the volatility of commodity prices and transport fees, making it hard to keep costs under control while maintaining a certain quality. - Keeping up with consumer demands
SMEs are also expected to keep up with new consumer trends in order to stay competitive. Unsurprisingly, this increases portfolio complexity and drives up development costs.
At the same time, businesses are pressured to satisfy increasing hygiene and environmental demands from consumers who want greater traceability on products and their supply chains. - Tackling supply chain disruption
According to a McKinsey survey conducted in the second quarter of 2020, 73% of senior supply chain executives encountered problems in their supplier base and 75% faced problems with production and distribution.1
The vulnerability of global supply chains was evident when disruptions occured due to borders closing and factories shutting. Having to switch suppliers affects product continuity and businesses may have to redesign their menu or catalogue as a result. - Navigating regulations and safety standards from different market
Periodic updates to food regulations, food safety standards as well as import and export laws may get overwhelming for those who procure items from overseas suppliers. This usually involves extensive documentation and reporting, and can be confusing and time-consuming to keep up with, especially if multiple markets are involved.
As challenges exist, so do opportunities. According to the Business Development Bank of Canada, SMEs typically spend between 45% to 65% of their sales revenue on procuring raw materials or services.2 By streamlining your food sourcing efforts, considerable savings can be achieved.
(Photo by Bermix Studio on Unsplash)
Improve your procurement process with these 5 tips
1. Introduce structure using standard operating procedures (SOPs)Small businesses can benefit from having a proper procurement process. This does not necessarily mean investing in the latest e-procurement or predictive scheduling software, but rather, creating a clear purchasing procedure.
For instance, this could be as simple as ensuring that all purchase orders are documented, and that these orders are checked against the goods received and invoices. By monitoring inventory and developing procedures for purchasing and receiving deliveries, businesses can stay on top of what they need more effectively. Also consider including contract terms and product specification details in your records for easy reference.
2. Align your procurement strategy with your business goals
Develop a purpose-driven procurement strategy that complements your market positioning. For instance, if your business is positioned as a low-cost provider, cost reduction becomes a priority in your procurement strategy.
Similarly, quality becomes the key supplier criteria when your focus is on customer satisfaction, and delivery lead time and innovation becomes essential if your core advantage is introducing new products to the market.
Regardless of your short and long-term strategies, always leave some room for flexibility so that you can meet changing consumer demands. Review your inventory regularly, using techniques such as the ABC analysis, which help you determine your core products and manage costs more effectively by deprioritising or introducing new product lines.3
3. Tap on technology to optimise resources
The use of automation and business data can help improve inventory visibility, optimise procurement schedules, and reduce waste. Consider investing in digital procurement systems that can help with predictive scheduling or buying suggestions based on customer demand and inventory on hand.
For a less capital-intensive option, Microsoft Excel has some basic in-built templates that allow you to track your inventory and purchases, evaluate suppliers, and analyse trends.
Another area worth exploring is shifting your procurement efforts online. Trade fairs used to be the place to meet new suppliers. But just as how consumers are shifting to shopping online, B2B marketplaces are the new equivalent that offers a trusted and convenient way to source for new products and suppliers.
4. Maintain a strong supplier base to control quality and cost
Strong supplier relationships are beneficial, saving you time and resources. To build a robust network, diversify by getting suppliers based in more than one market to hedge against supply disruptions.
Look for reliable suppliers who share similar objectives and values. For instance, does the supplier have a strict quality control process in place? How do they deal with product quality issues? How do they treat their workers? What is their track record in delivering on time?
Once you have found the right suppliers, focus on building long-term relationships. Keeping your supplier base tight can help you keep purchasing costs down in the long run.
5. Consider procurement outsourcing to scale quicker
For smaller businesses, procurement outsourcing is a viable option that provides expertise (e.g. operational know-hows, supplier screening) so that you can free up time and resources. It also brings about increased savings by aggregating purchases for better rates, and provides scalability for businesses adapting to changing market conditions.
Partners such as Trustana can help you navigate complex markets by providing guidance on importing food products into local markets, as well as market insights across product categories that can help value add to your procurement strategy and benchmarking efforts
Key takeaway: streamlining your procurement process can contribute to bottom line growth
Food procurement is a strategic function of your business, and improvements to the process – no matter how small – have the opportunity to lead to increased savings and revenue. Your procurement strategy should be closely linked to your business goals as it is the backbone of your operations, and will have a direct impact on the profits and reputation of your business.
Reference:
- https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal
- https://www.bdc.ca/en/articles-tools/operations/purchasing/best-practices-buying-goods-services
- https://www.cips.org/knowledge/procurement-topics-and-skills/operations-management/abc-classification/