Last week we wrote about why you should build relationships with your Suppliers, but this week we’d like to share our thoughts on why Small and Medium Businesses (SMBs) should not be overlooked and what procurement departments can do to engage this marketplace.
Many large procurement departments skip over using SMBs as suppliers due to the perceived risk of them not being able to deliver, however ignoring SMBs means turning your back on half of the potential supply base – in the US, 49% of manufacturers have between 5-99 employees.
According to Edward Huller, chairman of the board, Council of Supply Chain Management Professionals (CSCMP) “Small companies often are real product and process innovators. They’re nimble because they do not have to deal with a lot of bureaucracy, and they usually have low overhead issues, eliminating major cost barriers. Their processes can be more simple and more streamlined than larger companies.”
SMBs’ inability to invest heavily in IT can also work to their advantage: with no significant legacy infrastructure to worry about, they can take advantage of newer technology without concern for heavy integration or reconfiguration to fit existing business processes. Instead, they can tap the best practices built into many solutions and services.
So how can you engage with SMBs and build the relationship together?
Communicate and be clear who the decision makers are in your company. SMBs are more used to working with real people, so giving out details such as your department’s contacts names will build the relationship. If possible have video meetings instead of communicating by email.
Provide case studies of any similar relationships you have built with SMBs. Be open as why you are looking for a new supplier and use the case studies to show them what they can expect working with you.
Larger companies are used to dealing with longer invoicing periods, SMBs may not be so fortunate and may not be able to wait 90 days for payment. If payment terms are decided by the finance department, not the buying organization, procurement and supply chain managers need to “stand up to finance” and communicate why payment terms are compromising their supply chain.
It sounds simple, but many Buyer/Supplier relationships flounder specifically due to non-communication. A simple “how’s things” email or chat via Koble for example can keep the relationship going. A lack of communication can lead to frustration and sour, or even end the relationship.
Additional trust is needed for SMB’s to overcome their fear of oversharing and losing their ideas to a big company. Also important are any concerns you may have about business continuity or their production capacity. Regular communication can get answers to these questions.
Many SMBs may not have dealt with a larger procurement process, so it may be all new to them. When sourcing suppliers, make it clear that the contract is winnable by SMBs. If this isn’t understood, you’ll find that these SMBs won’t even make the effort to bid for the contract as they may think it is unachievable.
Explaining the whole process of how your company works and how the buyer/supplier relationship will proceed will help alleviate any worries the SMB supplier may have. Be clear and don’t let any questions go unanswered.
By working together and building the relationship and engaging with your SMB suppliers, you will find that they will be more flexible for you, as they have the advantage of being smaller and quicker to adapt to surprising situations. Their inability to invest heavily in IT can also work to your advantage: with no legacy infrastructure to worry about, they can take advantage of new technology and innovations without worrying whether it will fit with their existing business processes allowing you to reap the benefit.