The Daily Telegraph (26th June 2006)

SMEs can slash costs by flexing their collective buying muscle

Small businesses could be wasting thousands of pounds a year through poor buying decisions, according to a survey of owner-managers. And just because they can't afford to employ buying specialists - as their larger competitors do - doesn't mean they should miss out on the best deals.

By joining together as a co-operative or consortium, many could see savings of between 10pc and 35pc, claims the Cranfield School of Management and the Buying Support Agency, which is carrying out the ongoing research.

"We found that the buying decisions tend to be made by owner-managers who took on the role in the early years of their business," said the agency's Matthew Roper. "But as the company grows they don't have the time to get the best deals, yet are still too small to justify employing a specialist."

The answer, he believes, is that purchasing and procurement should be treated the same as any other non-core element to a business, and that means it can often be outsourced to greater effect. It's not simply about getting the best price, added Mr Roper. "A buying consortium can negotiate better payment terms, delivery frequencies and discounts," he said.

The concept is simple: by linking with similar organisations - usually in the same sector - companies can wield the kind of buying power enjoyed by their bigger competitors. Buying consortiums can negotiate better terms from large suppliers on behalf of its members. The idea is that the cost savings far outweigh the price of membership. Yet even though most know size matters when it comes to supply negotiations, fewer than 10pc of those surveyed belong to such a group.

The areas where the savings can be made cover the whole spectrum, said David Molian from Cranfield's Credo Centre, which specialises in SMEs. Factories buying in raw materials and shops ordering stock are the obvious areas but even offices, where people are the greatest expense, can benefit from collective buying power, he said. "Stationery, utilities, catering, computer hardware and software and printing are some of the areas where these companies can make savings."

Mr Roper agrees: "Domestically, many know that changing electricity, gas or telecoms suppliers can result in savings. But too few do it at work," he said. That's partly because it involves a conscious decision to make buying as high a priority as selling: with targets, reviews and constant monitoring. "Buying tends to get a low priority," said Mr Molian. The survey showed that one in four companies have no targets or plans to review their costs annually, while 90pc of owner-managers admitted they could be buying more effectively.

"Any business beyond a certain size has to budget for services and consumables. It all adds up," said Mr Molian. "Smaller businesses are inherently disadvantaged in terms of their buying power, and if they don't challenge the status quo they are condemned to live with it."

The research is ongoing and SME owner-managers are encouraged to add their voice to the debate by logging on to www.buyingsupport.co.uk. "Relatively little research has been done in this area," said Mr Molian, "We plan to extend this pilot survey."

By Philip Smith