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Why Startups Need To Worry About Procurement Practices

When on the verge of radically disrupting a market ecosystem and earning billions by shining the light of innovation down on the masses, it can be hard for executives at startups to get really excited about the procurement process.  Innovation is fun, funding is fun – procurement is a means to end, making sure that the right tools are in place to do the job.

The necessity of having the right tools for a job speaks for itself, but the process by which they are acquired from various suppliers is easy to overlook in the early days of a startup.  Mark Kozlowski of Mintec noted writing for Spend Matters that a small startup, with fewer than 10 employees, may not notice any huge deficits in productivity from an under-supervised procurement process because the problems with employees more or less paying as they go aren’t noticeable when there are only 3 or 4 of them.

“For the first few years of their existence, a startup advertising promotions company in the Mid-Atlantic had no process design for spending funds. With a roster of employees that never exceeded 8 people in its early days, all of the employees were given the go-ahead to make purchases as they saw fit and expense it to the company,” he noted.

However, the startup was bent on growing, and within a few years it had doubled in size to 16 employees.  While that doesn’t seem like a crushing amount, the difficulties in an unmanaged procurement process began to emerge in force.

“The company quickly doubled in size to 16 employees, it became harder for the owner to track spending. Additionally, more salaries to be paid out meant that the owner was more concerned with cutting expenses to help maintain a positive number in the bottom line. Now that there were 16 different people being asked to make purchases—some of them who weren’t even operating from the office all of the time—there was a real need for the organization to more closely monitor their spending.”

In the case of this particularly company, a mobile-based technological solution presented itself as the alternative.

Supplier catalogs were uploaded into a single procurement platform, which made price comparisons far simpler.  It also allowed for purchase requests from any device–with the stipulation that all purchase requests had to be funneled through the executive team before being processed.  Most usefully, the process is paperless and tracked entirely digitally, allowing even smaller startup to keep track.

Losing control of spending on materials is a minor issue that can be the death of an enterprise in its early years, writes Kozlowski precisely because it is so easy to slip into disorganized payment practices when companies are small.  Some smaller enterprises avoid solving these problems early, largely because of perceived personnel costs (they have to hire someone to keep track of spend) or over fears of long paper trails.  If technology can help companies at their early phases manage spend, however, it likely won’t cost them much on the front end, while saving them massive inefficiency costs on the backend.

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