Bulk procurement allows SMEs to add value in their sectors
A substantial prospect exists within the South African small to medium-sized enterprise (SME) market to create buying organisations for specific industries that would make it possible for SMEs to obtain cost-of-sale inputs at bulk rates and to use the marketing resources of an established ‘wholesaler’, Sean Krige of ED organisation The Hope Factory tells SmartProcurement.
This business model is simple: independent businesses procure all their stock through one dedicated buying company that specialises in breaking bulk, delivering custom orders, stocking a range of products and producing a quality print and online catalogue.
“After using this model, a small stationery supplier’s sales quadruple in two years,” says Krige.
The stationery business that Krige mentored had negotiated a bulk-buying partnership that completely transformed its cost structure and business channels. The stationer could do this through buying at bulk prices, receiving stock within 24 hours and selling stock using a professional print and online catalogue.
Competing with big businesses
Very often South African SMEs seem to be at a disadvantage – they are always fighting against other small businesses for a piece of the proverbial pie after the “big guys” (the large corporates) have had their fill, says Krige.
He illustrates his point with three example businesses that he has mentored. The businesses sell, respectively, gravestones, toilet paper and curtains.
First off, note that these three products are generally not purchased by large corporates, but instead people like you and me, says Krige. “Accordingly, supplier development plays no real role in improving these three products’ (businesses’) access to market.
In addition, these three products all carry relatively high cost of sale inputs, being marble, toilet tissue and fabric – none of which can be cost effectively sourced or produced by the business itself.
Finally these three products are usually sold on mass by large retailers or established franchises. For example, AVBOB (gravestones), Pick n Pay (toilet paper) and Russell’s (curtains).
Taking this into consideration, it is clear that the value proposition (the central element to any business model) of these three SMEs is fighting a losing battle (when compared with established, big corporate companies).
The 10 key elements of any business value proposition include:
• “Getting the Job Done”
• Cost Reduction
• Risk Reduction
When considering the elements listed above, SMEs lose the battle when it comes to Performance; Brand/Status; Price; Cost Reduction and Risk Reduction to the value proposition. The only elements not necessarily in favour of big corporates would be “Customisation” and “Design”.
However, SMEs have the opportunity to turn this around through the type of bulk-buying partnership that Krige’s stationer was able to establish: simply by being able to return Performance; Brand/Status; Price; Cost Reduction and Risk Reduction to the value proposition.
For more information on developing SMEs or joining their development programme please contact The Hope Factory.