Effective Purchasing for Small Business, Part 2 of 5

Starting the Process: Specifications and Supplier Selection

business owner graphicIn this blog post, we continue our discussion of how small businesses can use purchasing for their strategic advantage. In the first post , we discussed why purchasing is strategically important. In this post, we get the process started with item specifications and supplier selection.

Specifying the Items You Want to Purchase

Before purchasing any item, you typically have in your mind a specification describing the item and your terms. For best-practices purchasing, you need to write a detailed product specification for each purchase. A specification should include all of your functional requirements and also your purchasing terms such as delivery method and time, warranty and service requirements, and payment terms.

For example, imagine you need to purchase 30 water heaters for the first phase of a condominium development. Your specification does not need to include the brand, but should include the capacity, your target price range per unit, the number of units, warranty requirements, and your delivery and payment terms. You can re-use this specification on the subsequent phases of the project or for other similar projects.

Writing specifications does not have to be a lot of work if you can easily save and re-use specifications for items you purchase frequently or share and learn from other businesses.

Choosing Suppliers

In order to reap the benefits of competitive bidding, you’ll need to have several potential vendors respond with quotes for your exact specification. Best practices dictate that you should get multiple quotes for any purchase over a few hundred dollars—set a reasonable standard for your business and stick to it. Get at least three competitive bids.

Do you know which one of your current suppliers sells this item? You might have to search through a record of past bids or transactions, or call several suppliers before you find the ones who can bid.

Can you find new suppliers to bid? Because it can be time-consuming to search the standard print and online directories to find new suppliers, many small businesses naturally fall into the trap of repeatedly purchasing from the same known and trusted vendors, without bothering with competitive bids. It can be hard to find trustworthy new vendors and risky to try new vendors on critical projects.

Expanding your vendor base can be worth the effort. Your best bet is to turn to your business network for referrals to suppliers who are recommended by someone you know. In the next blog in this series, we cover how to request and compare quotes.

2 Responses to Effective Purchasing for Small Business, Part 2 of 5

  1. Pingback: Effective Purchasing For Small Businesses, Part 3 of 5 « Buyful Blog

  2. Pingback: Effective Purchasing For Small Businesses, Part 4 of 5 « Buyful Blog

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