Ray Newell is a co-founder of Oakwell Management Services, a specialist in purchasing and quality training and consultancy. He has worked with the UK’s Chartered Institute of Purchasing & Supply on small business training programmes, and has co-written a workbook onSustainable Purchasing for SMEs. He explains its importance here:

What is ‘sustainable purchasing’ ?

Sustainable has a couple of meanings that only serve to confuse small business. Extract the word from purchasing for the moment and consider what it means:

It’s the challenge of using the skills of purchasing to lessen the impact of the environmental challenge and keep the business afloat by reducing costs/creating savings.

Do small businesses understand the importance of purchasing?

In general no — not fully. Most appreciate how margins are made, but they are unaware of how good purchasing can be used to enhance the bottom line much more easily than by increasing sales.

The key aspects of purchasing beyond cost control, such as quality, quantity and contract management are often completely ignored or considered irrelevant.

Our purchasing research with small and medium-sized enterprises (SMEs) indicates that most do not have a dedicated purchasing person and don’t, therefore, carry out most of the basics. Most common were lack of price reviews, lack of negotiation, and lack of sourcing and supplier management.

What are some of the techniques a small business can use to improve buying strategies?

There are many simple techniques that can be deployed but it is first important to understand the company’s competence in order to work out which strategy to adopt.

The quick test we deploy gives an indication of what needs to be done and then recommends courses of action.

Reply yes or no to the following:

• I know the percentage of turnover spent on purchased goods and services last year
• I know, to the nearest 10, the total number of suppliers used in the last financial year
• I know, to the nearest 10, how many suppliers invoices were paid in the last financial year.
• I can demonstrate practical differences between reducing expenditure and cost avoidance
• I am absolutely confident that the business is getting the best deal possible from suppliers.
• We can show good results from projects with suppliers to reduce our environmental footprint.

Three or more ‘yes’ -The basics are covered.

Three or more ‘no’ -Help may be needed.

How can they address issues such as late payment, which is common practice among large businesses?

Credit control is the downfall of many small businesses, as cashflow is critical and negotiation of payment terms with large business will always be challenging. Getting smarter with purchasing will reveal many techniques for such a dilemma, but each will be circumstantial to the individual case.

How has technology influenced purchasing for small businesses?

The introduction of small scale computing has revolutionised the SME’s management potential. Only a decade or so ago it would have been impossible to have a laptop to carry out all of a business’ management activity. Now it is possible to design products work out production flows, stock control and place orders online.

By far the most important technological advance is the internet. Sourcing supplies, searching out the best deal, looking for international sources or scare materials are now only a click away. Disappointingly most SMEs do not use the internet enough to secure the best sources of supply by scanning the marketplace. Most would do well to learn from how eBay now works.

How can small companies balance ethical values with the need to maintain healthy cashflow?

Sustainable purchasing of legitimate products rather than copies from black economy sources can only be a recommendation here. We advocate following the Chartered Institute of Purchasing and Supply code of ethics in all circumstances, irrespective of cashflow.

This is a guest post by Jo Higgings from the TurbineHQ.com blog.

Bank lending to business, or lack of it, is in the news at the moment. But it is possible to bootstrap a business without a ton of cash. I know. I’ve done it: I have started three different businesses without a penny of VC funding or any loans. And the benefits are more control, more flexibility and potentially less risk. Here are three options based on my experience:

• Organic growth. The first, IG, was a computer games company. I started it when I was 18 and I had nothing to lose. I got a job in my gap year as a programmer and that gave me experience and funds to develop games in my spare time. After I left university I had two games to my credit and I was able to parlay that experience into generous advances from three different games companies, including the creators of SimCity and The Sims. This funded our first hires and the first office. After that and for ten years, we funded growth out of revenues. When I sold it in 2000, we had a turnover in excess of £3m and around 70 staff.
    
• Small is beautiful. My second business, Articulate Marketing, is still running well and it takes a very different approach to growth. The company is small and focused on a specific market (multinational technology companies) and specific services (content and social media marketing). Articulate does not have a large number of staff – just three employees and a number of trusted contractors – but the company is growing by increasing the value of the work we do rather than the quantity.
    
• MVP. My third business, TurbineHQ.com, takes a different approach again. I was really impressed by the approach of 37Signals to distributed teams (check out their books Rework and Getting Real), Tim Ferris’s idea of radical outsourcing (although his book, the 4-hour Work Week, is a bit silly) and Eric Ries’s book The Lean Startup and his idea of the ‘minimal viable product’. With Turbine, I have team members in Ukraine, Argentina and the UK and the company is growing fast. It’s being funded / incubated with Articulate but the low cost of development is a revelation compared to the epic salary bills at Intelligent Games.

Of course, there are downsides of self-funding, staying small and organic growth. Perhaps the biggest issue is that it can be hard to grow quickly but I describe the VC-funded ‘big bang’ approach to business as running fast without necessarily knowing that you’re running in the right direction. But the big thing I’ve learned is that if you can keep your costs low and the value of your product high, self-financing is a viable option. 

It’s nearly 20 years since management writer Charles Handy introduced the concept of the ‘portfolio’ career, but management techniques are only just catching up with the concept of the mobile worker. So intent have businesses been on the cost-saving benefits of virtual working, they may have overlooked the need to adapt their management to fit the newly autonomous work style. Check out this free HP white paper to get the latest management thinking about flexible work patterns.

Click on the attached PDF file below to read or download it.