Time - The first enemy of SMEs

Time and Economies of Scale.

The main problem of SMEs (Small and Medium Companies) I think it's time. Time is that type of resource that is expensive. You may say that you can't buy time. It is not entirely true, you can always hire more employees to do more work and complete it faster.

Let me give you an example. A company with 50 employees when buying 2 new laptops worth a total of 1,000 Eur shouldn't invest more than a couple hours getting the best price. Why? Because each employee hour can cost around 30 Eur. Thus 2 hours are around 60 Eur, or 6% of the total purchase price.

But if you are buying 200 laptops in an organization of 1,000 employees, than 6% is now 6,000 Eur and it is a good choice to spend a few days on it.

SMEs and Sourcing

In short, SMEs don't have time to buy smart. The problem is even greater because large corporations have the time, resources and skills to maximize the value extraction from each SMEs.

SMEs are squeezed by time and large corporations. This is one of reasons why the ratio of net revenue / sales is lower in smaller companies. ( there are others also important like product complexity, market access, etc).

A Call to Action

Each SMEs should join forces to other SMEs in a vast number of products and services that are common to all of them. The investment would not be on a specific product or service acquisition, but on establishing a shared buying department. If some 50 SMEs join altogether in such common service than their joint buying power would be similar to the large corporations.

However, this is easy to say but difficult to implement. Stay tunned for the next post.