How do procurement companies make money? Could I run a procurement company of my own one day?
Procurement is a business function that determines what to buy and from whom. It may not be a big deal for a business at the startup stage, but the need for dedicated procurement staff rises as it grows.
For instance, a freelance software engineer can buy his own laptop from a local depot or online. Still, a software development firm that employs 15 people does require a dedicated person to find the best equipment at the best price. The company can hire a full-time employee, but ideally, handing over the task to a good procurement company can save their time and money.
So, why can’t that be you? If you have an eye for the best deals, good negotiating skills, and high willpower, you could end up running a hugely successful procurement company.
Procurement Business Ideas
We live faster than ever before age, and everyone is looking to save time and money. Businesses of all sizes often prefer hiring an outside company’s services to handle procurement, simply because they do not want to spend their employees’ time on market research and negotiating with vendors.
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So, if you are planning to start a procurement business, it certainly has great potential. However, to start and run a profitable procurement business, you need to make strategic moves. This article will discuss the six most important steps when starting a procurement business with a limited budget and successfully taking it to the next level.
Before you start reading, we want to emphasize that starting any type of business isn’t a guarantee for quick success. If you want to make it big one day with your own procurement company, you’ll have to go in it for the long haul at some point.
1- The Market Research:
You may already have in mind the category that you will focus on. Still, it is vital to know the real market statistics and understand the industry dynamics before finalizing a particular product line. For instance, sourcing for IT services is very different than sourcing for construction; gather the stats and see where you can offer more value.
Another question that you need to explore at this stage is, “who is your target companies that can buy your service.” Identifying the potential clients will also reveal your competitors, and by examining their offers, you can always come up with a more valuable offer.
Remember that this step is neither easy nor quick; you have to do your own research, and it requires parallel time. Having a mentor at this stage can be a big plus, and networking with entrepreneurs in the procurement industry can open more doors for you. To run a procurement company requires a lot of perseverance and intuition.
2- Identifying the Profitable Niche:
Your initial market research ends with a list of products/services, potential buyers, and competitors. You may already have tens of items on your list. However, experts suggest focusing on the smallest possible niche in the beginning. It is easy to build a successful business with a few items, and you can always add more categories in later stages as it seems profitable.
While working on finalizing the product line, look for passionate advocates of your offering in parallel.
Some ideas for Procurement Niches:
- Medical Equipment
- Business Materials
- Development Materials
- Landscaping Equipment
So, there are countless niches that you could begin with. Take the time to find the right one, calculate how you can make a profit, and get started. One thing to note is that these niches tend to be found in the public sector, but that’s not your only option. You could work in the public, private, or governmental sectors with a procurement company.
4- Meeting Legal Requirements:
The legal requisites may vary depending on your location; you must check with your local authorities for complete details about setting up a procurement business. Remember, legalizing and registering your business is a first practical step towards success because no organization would want to do business with a non-registered/un-authorized business.
Sometimes, this step can prove to be slightly difficult, especially when you don’t have any legal background. It can be a good idea to hire out for this role, perhaps through an online platform or by calling up lawyers in your area. Chances are, you can find someone well-versed in this area for a reasonable price per hour.
Especially in this field, you want everything done with utmost accuracy and attention to detail so that no hiccups arise down the road.
5- Having a Team of Leaders Onboard:
Even if you start a procurement business with the smallest possible niche, you need a team to take it to the next level. A successful procurement firm cannot happen with a one-person army, and you must get well-experienced team members with the prior purchasing experience. Ideally, you should hire one expert who is well-versed in the sourcing process rather than hiring three entry-level executives.
The success of a procurement business is all about active industry connections, and for that very purpose, you should work on building a team of leaders, not just workers. This is important because the more autonomous your team is, the faster your business will grow.
Moreover, as your business grows and adds more categories, with a team of leaders, you can segregate your procurement/sourcing team into groups, i.e., each group handling a different purchasing category.
Make sure you have your human resources department figured out as well. When you’re writing your business plan eventually, you’ll want to have this be clear-cut so you can include it. Having a strong human resources department is a good look for a business looking for investors.
6- Paying Close Attention to the Technology:
In the present-day business world, no company can survive without using technology. You especially can’t run a procurement company without the proper research tools! So, it’s crucial to back your business with good purchasing & procurement management software. Besides that, look for the tools and resources that can optimize the business process and bring efficiency; here are some ways technology can make a big impact on your business.
- Incorporating automation tools can greatly lower the costs and increase the profitability of the business.
- Using better communication tools can lower the risk of mismanagement and increase efficiency.
- Taking advantage of free applications can considerably increase the overall productivity of the company.
- Using technology to enhance customer experience can multiply your sales.
The Bottom Line:
Procurement is a vast field with unlimited opportunities for enthusiast entrepreneurs, but without a specific business scope, chances of success are very rare. Whether you want to establish a procurement agency to work with the government or private sector, start small and grow it big!
We hope this article helped you figure out the basics of how to run a great procurement company. Businesses nationwide (and even worldwide) will consistently need an expert in procurement so that they can work at their full potential. We hope that you find success, thanks for reading!