Why SMEs should consider spend control

Daniel Ball at Wax Digital asks why businesses aren’t considering controlling their spending and managing supplier contracts in order to reduce costs.

Many small to medium-sized firms have little insight into their spend control

Many small to medium-sized firms have little insight into their spending

Research by the British Chambers of Commerce highlights that more than half of small and medium-sized firms plan to increase control on their prices this year due to the weak pound. A similar number also say that currency is having a negative impact on their profitability.

The BCC says that rising import costs are squeezing SMEs’ margins and that UK firms might find themselves locked into contracts with suppliers and unable to be responsive to currency fluctuations.

However, dealing with profitability related issues like this should not simply be about raising prices to accommodate additional costs. The honest truth is that many small to medium-sized firms have little insight into their spending, essentially who is buying what from whom and at what price?

It’s perfectly feasible therefore that there are opportunities to control spending through improved procurement practice and ensure that buying power is being leveraged properly with carefully selected suppliers rather than distributed across a range of unmanaged providers.

There’s also a distinct advantage to improving spend controls in this situation. Customers don’t like price rises and if you’re the one company out of ten in your market that works to limit increases or stave them altogether, you’ll gain the benefit of client loyalty but also potentially a drop in the loyalty to you competitors from their customers.

Spend control may create a competitive differential opportunity out of what is initially see as a business challenge.

The BCC research also highlights the importance of supplier information management for smaller firms. Again, because many of these haven’t yet invested in formalise procurement they don’t keep tabs on key supplier data or contracts.

For example on paper you might be locked into a supply contract, but if you were able to access supplier performance data and discover that the supplier had actually breached the contract due to service levels, there could be room for negotiation. This knowledge is vital even in relatively complex mid-sized firms.

This situation faced by many in the mid-market also validates why it is important to have an instant and accurate view of all supplier contracts; it’s vital that you can assess whether our contractual terms match your needs based on market dynamics like this.

Seeing the signs of currency weakness post-Brexit, organisations could have been forecasting potential market effects and reviewing their supply relationships back then. Its possible many might have simply ‘rolled over’ evergreen supplier contracts in the months since the pound has weakened consistently last summer.

Any business concerned about rising import costs should consider how their spending and supplier relationships could be adapted to accommodate this change rather than simply passing the harsh impacts onto their own customers through price hikes.

This article was written by Daniel Ball, director of eProcurement provider at Wax Digital.

Further reading on spend control

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