Sourcing and Procurement Mistakes You Cannot Afford to Make

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When you are running a business out of your own home, you likely don’t have a lot of capital to waste. Thus, you need every business process to be perfectly efficient — and sourcing and procurement needs to be the most efficient of all.

Unfortunately, many beginning entrepreneurs make too many mistakes in sourcing and procurement, leading to waste that holds their startups back and can even result in total failure. If you want your budding enterprise to grow, here are a few mistakes to avoid when it comes to sourcing and procurement.

Nonexistent Strategy

No strategy is always the wrong strategy in business. Every action that affects business operations requires careful planning, to include sourcing and procurement, which has great potential to impact business success. The foundation of your sourcing and procurement strategy should be your goals for your business’s supply chain.

  • Do you want a large network of diverse suppliers to provide continuous access to materials and products?
  • Do you want to move with agility from one supplier network to another as market trends impact demand in your industry?
  • Do you want to limit supply to a small handful of exceedingly high-quality manufacturers to develop exclusivity and high demand?

Once you understand how you want to grow your business’s supply chain, you can develop a strategy for sourcing and procurement to match.

Unclear Standards

As you are beginning to put your sourcing and procurement strategy into motion, you should build a set of standards that you and your staff can apply to potential suppliers as your supply chain grows. The standards you use should reflect your supply chain needs as well as your company values. For example, some factors you might consider in your sourcing and procurement process include:

  • Production prices
  • Output benchmarks
  • Turnaround times
  • Communication capabilities
  • Environmental impacts

You should make your standards clear to any supplier you decide to partner with. Then, partners in your supply chain understand how to deliver value to you and maintain your business.

Lack of Information

Sourcing and procurement are all about gaining more information about potential suppliers to make informed decisions regarding supply chain partnerships. Thus, lacking information about potential suppliers is a significant mistake that will inevitably lead to losses of critical resources and time.

Fortunately, it is easy than ever to avoid this mistake. Using strategic sourcing tools, you can collect information recovered about potential sources from online research and offline platforms. Business websites, review platforms and social media networks are valuable sources of information, as are trade shows and industry conferences. You should also ask suppliers directly for more information, as they can supply useful data related to their capabilities and performance.

Poor Security

Risk is an unavoidable element of working with suppliers. Still, if you do not engage with sourcing and procurement with security as a primary concern, you will likely suffer exacerbated risk and intense losses that can threaten your business stability and growth.

Before you sign contracts, you might engage in a pilot period with a supplier, which will help you gain more insight into their typical practices. If you are disappointed in any way by the samples you receive — in the quality of the products, in the time frame of delivery, in the amount of output, in the customer service provided, etc. — you might try to rectify issues with another pilot production period. Engaging in trials can help you build a stronger relationship with your suppliers or else determine which suppliers are not worth your time and investment.

handshake for contract
Photo by Sora Shimazaki from Pexels

Absent Contracts

Many entrepreneurs and small business owners, eager to grow their businesses quickly, will forego contracts in the hopes of securing fast and enviable deals with their suppliers. However, contracts are another layer of security that you cannot neglect. Your sourcing contracts should clearly explain your expectations from your suppliers, so then if they fail to meet your standards, you can terminate your relationship and potentially pursue remuneration for any losses you experience as a result of their improper behavior. Because contracts are useful for suppliers too, as it tells them how they should focus operations to satisfy customer needs, you should never do business with a source that is hesitant to use contracts.

The last thing your small startup needs is for your sourcing and procurement processes to weigh you down. By thinking critically about sourcing and procurement from the start, you can develop systems that will allow your business to grow and thrive into the future.

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