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This article explores the awareness of effective purchasing and the priority that purchasing is given within small and medium size enterprises (SMEs). Results of a survey of 400 small firms are used to identify the challenges and responses faced by SMEs. Finally, the author suggests paths which might be followed by such firms in seeking to achieve best in class performance in purchasing activities.

Local economies in UK contain a significant percentage of small and medium size enterprises (SMEs)–in many cases as much as 80% or 90% (CBI, 2000). While these SMEs are viewed with interest as suppliers, by customer firms who have coherent supplier development programmes, purchasing within the smaller firms receives little attention. There is a limited amount of analysis of purchasing in SMEs although there is a broad anecdotal agreement on a number of points. In particular, there appears to be a scope for improving purchasing and a need to improve and develop credible methodologies for purchasing. Over the past three decades, managers in major industrial customers have clearly tried to improve their purchasing image. This has progressed from a clerical function in the 1960s, through a commercial activity of the 1980s, to a strategic activity in the 1990s (Spekman et al., 1994; Kraljic, 1993). Some purchasers have clearly made significant progress resulting in the competitive advantage of an organisation. Heller (1999) and Carr et al. (2000) suggest that others have not made such moves; they quote examples of Marks and Spencer, J. Sainsburys, ICI, Nissan, Shell, Rover, BMW and Daewoo. It is important however to ascertain whether small firms have kept pace or been helped to advance (in terms of purchasing expertise) by major purchasers as the drive for competitive advantage continues. There are some fundamental issues associated with pursuit of competitive advantage. These include instability through changes of ownership (Ennis, 1999), changes in strategic direction (Gunasekaren et al., 2000), the speed of technological change (Curkovic et al., 2000) and globalisation of sources of supply for state-of-the-art products (Quayle, 1998). This constant drive for product/service improvement results in a tension between incremental approaches and radical innovation (Perrings and Ansuategi, 2000). Similarly, a desire for instant achievement of cost reduction, results in risk exposure being pushed down the supply chain (Lummus and Vokurka, 1999). This leads to an increase in contractual liabilities and can intimidate the small firm against supplying to a major purchaser (see, for example, Ringwald and Brookes, 1999; Alderman and Thomson, 1998). The fundamental issues as well as critical factors emerge from the pursuit of competitive advantage. Tikkanen (1998) suggests that there is a need for a Board level priority to be given to purchasing and, indeed, the whole supply chain. Effective purchasing needs resources and capital—a growing concern particularly for small firms as it can lead to risky adverse behaviour (Wrennall, 2000). The emphasis placed on specification purchasing (particularly those that are over precise) may stifle innovation where suppliers are not offered early participation in the design process (Tanner, 1998). Critically, smaller firms are often the minority partner within the supply chain. To counter this, both purchasers and suppliers (whatever their size) may need to focus on a fair and reasonable relationship—a non-“cheating” relationship (see, for example, McIvor et al., 1997; Harland et al., 1999). Globalisation and mobile markets introduce new logistics challenges—the benefits of local sourcing need to be considered, and perhaps offset, by the risks of losing control of product knowledge. For these reasons, the creation of future sources of supply may establish sources of competition. Another critical factor is the need for basic benchmarks for measuring purchasing (and supply chain) performance. The final critical factor in the context of this research is training. Surveys reveal that Purchasing specialists are in short supply and perhaps there is a need for a cross-functional orientation to ease the shortage (Humphreys et al., 1998). The research reported below provides evidence of the effectiveness of purchasing in SMEs and the subsequent challenges which must be faced in overcoming the credibility gap and achieving the competences needed en route to world class status. Finally, some responses to these challenges are proposed for purchasing in small firms and a future research agenda is suggested.

The issues that were of highest importance (i.e. leadership, strategy, marketing, waste reduction and financial management) were very positive. The issues upon which medium importance was placed are not surprising although one might expect customer management and time to market to be of a higher importance. Those issues of lowest importance to the small firms are surprising. Purchasing (ranked 14 out of 19 where 1 is highest), supplier development, EDI, staff development, benchmarking and investors in people are areas where competitive advantage can be improved and are those normally associated with innovation. It seems that customers generally do not pursue these issues. Accreditation by Investors in People has recently been suggested as mandatory for suppliers used by the public sector (MacLachlin, 1998). More importantly, the issues of lowest importance are factors concerning innovation. The reason for this may lie in both the small firms’ perception of their customers’ requirements, and, what small firms expect from their suppliers. The way the small firms perceive their customers’ requirements is interesting. The traditional buyer's results-oriented demands (such as quality, price, product reliability, service reliability and capability to support) are given high priority. The low priorities including time to market, EDI, R & D, purchasing expertise (ranked 9 out of 11 where 1 is the highest), value analysis and engineering should be of concern to customers. In particular, those who have long-term relationships with smaller suppliers. The priorities which the small firms have for their suppliers are not surprising. By comparing the high priorities (pricing, quality, time to market, product and service, reliability) with low priorities (capability to support, R & D, purchasing expertise ranked 9 out of 11 where 1 is the highest), value analysis, value engineering and EDI, would suggest that the customers’ message is unclear. It is remarkable that, with around 48% of the small firms in this research being part of customer–supplier development programmes, a clear message has not yet been received. It could, of course, be that their customers have conveyed the wrong message. Their customers may have focused simply on products and not the process as a whole. Whilst small suppliers aim to satisfy their customers’ needs, it may be that their customers have not identified their own needs. The analysis of purchasing activity of small firms has identified that just 19% have a purchasing function and 65% view purchasing as not important. There appears to be a lack of awareness that effective purchasing may positively affect profitability. A solution may be the use of a purchasing service or consortia. This option is attractive to 74% of the small firms. Overall, the research does indicate some progressive approaches and awareness of those factors critical to a company's success. The research does, however, highlight the elements of innovation as having low priority in small firms. It also highlights the fact that their customers do not focus on both results and capability development as part of their supplier development activity. In this case, the innovation might be the introduction of purchasing professionalism in SMEs and possibly in larger purchasers. Moreover, any firm, SME or larger, must manage itself. It may be that the SMEs’ customers may be trying to managing suppliers rather than managing the interface. There is an extensive case research to show that good purchasing can impact significantly on the profitability of the organisation—in both public and private sectors. It appears that SMEs do not recognise this and see no disadvantage in their own lack of purchasing capability. Given their contribution to the UK GDP and employment, noted above, and their opportunities for economic development both locally and nationally, it would appear that developing purchasing expertise in SME might be considered a key factor in industrial policy-making.