Welcome once again! I promised not to miss blogging this weekend, so that I deny you the opportunity of complaining about the missing blog post. Of course I know not everybody complaints about missing a post, but it’s good to maintain consistency. Isn’t it? It’s a promise. It’s a relationship. It’s more than just another blog. So it’s good to keep the tempo despite occasional challenges. I do hope you are alright. Can we now proceed?

Today we would like to venture into the area of buying or purchasing. Never mind some of the words used to make this subject appear extremely big and important. Some call it sourcing, resourcing, procurement, purchasing, category, vending, delivery, acquisition, attraction, buying etc. I don’t care whatever fantabulous or humongous title you give this function in your enterprise. We shall keep it as simple as buying – or at least procurement.

Again, we will try and keep the action points simple. I’m not going to advise you to recruit a procurement manager for your enterprise. OK? I know there are people doing degrees, masters and doctorates in procurement, but I’m going to talk about simple procurement or buying fundamentals. You don’t need to know rocket science to understand this. So, what are the top procurement or buying fundamentals for you, an entrepreneur?

  • Buy the right product or service, at the right time, place, price, quantity and quality. When I say this I know some people might pop up with all kinds of questions seeking to know what is the right time, product, price, quantity blah blah blah. I’m not going to be drawn into that, because I have little idea about what your business is unless you tell me. What is right should be assessed in the context of your business. Do you understand me? For example, when you buy chicken feeds meant for 3 months old chicks and give them to one week old chicks then I certainly know you are not buying right. Or when you stock supplies enough to last you two years, even when that item is always readily available in the market, then I know there is something amiss with your buying approach. Don’t laugh here. I know there are people out there who are simply bad buyers. Ok?
  • Negotiate everything. Now, there are people who feel sheepish or too big when it comes to negotiation. Mr. Entrepreneur, don’t ever think that your success, which has translated into you driving rare and extremely expensive cars or flying around the world in your personal jet, means you should not negotiate always when buying. Additionally, when negotiating, you need to be prepared and informed; otherwise you will just be pretending to negotiate. You need negotiation skills. How do you negotiate for a better price when you have no clue what alternative suppliers are pricing at? How can you ask for better delivery terms when you know nothing about delivery alternatives? Do you feel ashamed asking for a 20% discount, but jump with pleasure when your supplier says he will give you a 5% discount? What are your negotiation strategies? Come on, we are talking about top procurement fundamentals my friend. Negotiate, and negotiate.
  • Properly manage your supply chain. Again, I’m going to simplify this supply chain of a thing. You know – big and complex vocabularies sometimes discourage some entrepreneurs, and make others look at entrepreneurs with bad tempers building up. Relax! The supply chain is simply the system and steps involved in moving a product or service from the supplier to the buyer. You can choose to go to a University professor of procurement and get some brain damaging definition of supply chain. That is your business! What I’m saying is this. Evaluate and understand your suppliers and customers including logistics guys, communicate with them, relate with and handle them well so that your procurement management is effective and efficient. Ok? Those guys along that chain can mess you up, or make your enterprise appear disorganized if you are not careful.
  • Control your costs. Entrepreneur, procurement fundamentals require that you control your procurement costs – both direct and indirect. You need to spend SMART and focus on saving – of course with wisdom. Controlling your costs rotates around issues such as supplier evaluation, relationship management, objectively working with suppliers to cut costs, considering logistics issues, negotiation etc. If however you think you have made enough money to splash around without concern about your overall procurement costs, you can go ahead and do anything silly you like. There will certainly be other businesses and people to consume that free money. Don’t you think so? By the way, you need to get me right here. Again, some entrepreneurs control costs in ways that are detrimental to the business. I’m not telling you to hold onto your business cheque book as if your life breath depends on it. Neither am I telling you to hire a very mean buying manager who drives suppliers crazy with a low cost agenda, until they withdraw from supplying your enterprise. I’m not part of that please. Ok? Be smart.
  • Be proactive. Think forward my dear Entrepreneur. Procurement or buying fundamentals involves matching supply and demand. This implies that you have to watch your supplier and customer plans, behaviours and strategy, and do some forecasting and advance preparation, while leaving some room for maneuver when required. There might be El Niño or La Niña weather effects, port congestion, some presidential decree or whatever, but what you should know is that the market does not like a lot of grammar about issues. You must be in charge of your business and value creation and delivery. The market requires timely delivery of goods and services. Period. Don’t be dumb. Now, tell me how you are going to manage such situations without pro-action and forward thinking.
  • Mind about the legalities of your procurement. The issue of legalities is another top procurement fundamental, and you can only ignore this at your peril. Legalities become very important when you start making contracts say for major, long-term, sensitive and other unique procurement or buying arrangements. Don’t tell me you are engaging a top lawyer to draft a contract for your purchase of pan cakes for staff tea. OK? I think you can work around that. However, when you are managing procurement or buying functions with complex processes of transactions, vital need for delivering on promises, major risks involved and performance issues that can bring down your enterprise, then you might need a ‘learned friend’ – don’t mind the fact that you are also a learned entrepreneur. May be some people read more books than others. If you are dealing with critical procurement and you gloss over these matters without tying your supplier to performance contracts, don’t blame anybody. Don’t blame me also!
  • Apply any modern procurement techniques you can get hold on. This word modern is sometimes misleading, and to some people, what was modern 20 years ago is just becoming modern to them now. If you lay your hand on any new procurement approaches that you think works for you, go ahead and give it a try. There are business researchers out there trying new approaches. The Just-In-Time (JIT) principle that made the Japanese leap ahead of other nations in manufacturing is an example. Now, this is not a new principle as it has been practiced for some decades. Nevertheless, there are many people and entrepreneurs today who have no clue about this. Let’s be fair to everybody. Someone in some remote part of the world might start seeing the light today with this principle. Are you with me? When you purchase economic quantities that are just in time to meet your demand at the right time, your enterprise saves money in stock or inventory carrying costs such as warehousing, insurance, financing costs (interest) etc. With JIT you aim at having the product supplied at the precise time demand requires it – hence zero or near-zero stockholding. You can analyse your data regarding supply and demand, to guide your decisions on procurement fundamentals.
  • Use your common sense. Common sense is not very common and I’m not going to mince words here. I desire to see more smart and successful entrepreneurs. Why do you think I’m taking time to document these principles? I believe that more successful, law abiding and society friendly enterprises that create and deliver good value consistently, mean a whole lot more to humanity. This is why common sense is good. Mr. Entrepreneur, don’t be lured by some aggressive salesman and start buying silly. There are entrepreneurs who have regretted some purchases they made because of psychological pressures from salesmen. It’s either a new product with ‘multiple benefits’ or a trade-off. It’s either a product or lot that is very rare and if you miss that chance you will never get it again or the best priced offer ever. If you just picked a phone and rang two or three more suppliers you will see your vibrating salesman rushing out for another appointment. You might also be coaxed into buying so much quantity that will lock a huge portion of your working capital for years. The bank manager will not understand your story about huge stocks when you are meant to retire your overdraft. Don’t even hesitate to sleep over a procurement deal. Possibly by the time you wake up the next day you could have seen some light that will make you stop that purchase.

Now, I don’t intend to make you sleep on this blog. For this matter, let me make a swift conclusion here.

I’ve been blogging about the top 8 fundamentals of procurement or buying. I know they are key issues, but you may think otherwise. It’s a free world but be smart. Procurement usually constitutes a significant portion of expenditure for many enterprises, and mistakes here can be very costly for your enterprise. Glance at these points whenever you want to make an important procurement or buying decision, even if you have an encyclopedia on procurement principles. OK? You won’t regret it. I’m certain!

Till then – and with every good wish,

The Wise Entrepreneur

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