How to partner with small businesses

Covid-19 has been a wake-up call about the importance of supplier diversity. Small businesses could be part of the solution, but many struggle to maintain positive working relationships with larger organizations. So how can companies work towards more sustainable agreements?

Preventing overreliance on one supplier or one region of the world is a key argument for supply chain diversity. But there’s also a need to better understand the pros and cons of using smaller providers, says Deepak Shukla, CEO of London-based digital agency Pearl Lemon.

“There is obviously a difference in size and therefore speed in terms of adaptability,” he says. “It has a diminishing effect in terms of people, budgets and time allocated per project. On the other hand, the best thing you can get from SMBs is that they are very nimble and can often identify issues that you cannot.

And it does not stop there. For organizations that are successful in building viable relationships, the benefits include “proximity, agility and accountability for innovation”, says John Pearce, CEO of non-profit manufacturing body Made in Britain. “Plus, working with local companies makes it easier to develop new product iterations and change specifications, because you can pick up the phone to call the person responsible for the product or, potentially, even drop by.”

So, despite value for money, high levels of customer service, opportunities for innovation, and often more localized operations, why do so many large companies struggle to integrate or maintain relationships with SMBs?

According to some small businesses, dealing with larger organizations can be frustrating – during the early stages of the RFP and throughout the working relationship itself – putting both parties at risk. to miss out on what could be a positive and mutually beneficial partnership. . For SMEs, managing bureaucracy is a recurring theme.

Cut the bureaucracy

“One of the biggest challenges SMEs can face when working with blue chip organizations is the extremely long processes and timescales needed to get things done,” says Richard Osborne, Founder and CEO of UK Business Forums . He says that on one occasion, it took his company nearly seven years from an initial engagement to being able to issue its first invoice.

According to Shanker Singham, CEO of trade law and economic policy consultancy Competere and partner in the Digital Trader Services consortium, the reason for this is that large companies often run procurement projects as if they were governments or public sector organizations. “Small businesses have a harder time coping with large government-style procurement programs, and those can’t be administered at pace in any way,” he says.

“The advantage of a completely private process is that it can be tailored to the specific needs of the supply chain itself. Large companies should avoid setting up public procurement based on pre-agreed frameworks or pre-qualification of companies, as this creates a barrier and reinforces the incumbent’s advantage.

Research by software company Ivalua supports this claim, revealing that two-thirds of suppliers find procurement systems difficult to use. By reaching out to small businesses to understand their particular pain points, organizations can try to improve the customer experience to reduce the cost and complexity of interactions and introduce an easier way for small businesses to benefit from their involvement.

Examine the purpose of your processes

Convenience is a luxury for large companies and an obstacle for SMEs. Moving away from normal practice, Pearce urges big companies to look for different ways to select their suppliers, such as avoiding the temptation to buy from as few suppliers as possible. This streamlining makes it difficult for smaller providers to do their jobs and means larger companies could miss out on what others have to offer.

“Trying to source, say, 100 related products needed for same-day, same-place delivery requires sourcing from far fewer than 100 suppliers — ideally just one,” Pearce says. “This one-stop-shop approach hurts manufacturing SMEs that only manufacture goods in one or two specific categories. Facilitating temporary cooperation agreements is a good way to help and encourage SME suppliers to work together and remove the common “multi-product, volume purchase” barrier to entry.

Another well-known problem relates to payment delays, especially since SMEs are often required to finance the cost of orders several weeks or months before receiving payment. Research from Ivalua reveals that 30% of suppliers have seen their payment problems worsen since the pandemic, and 65% believe that late payments put them at financial risk.

“While large suppliers have the equity to go longer without payment, SMBs can’t always last and run the risk of running out of funds altogether,” says Thompson. “Late payments can also harm SME relationships, limiting effective collaboration and suppliers’ willingness to share innovations with late-paying customers. To work successfully with SMEs, large organizations should seek to provide transparency on when suppliers will be paid. »

This could mean not extending an SME’s standard payment terms or including clauses in contracts stating that late payment interest cannot be charged, Osborne says. “Large buying organizations need to be more aware of the challenges that their rigorous processes and producers place on SMEs,” he says. “It’s so important, now more than ever. There have been some positive changes to level the playing field, such as invoice financing, but larger companies need to be more receptive to other options.

Look for partnerships rather than agreements

In the long term, reviewing internal approaches will help, but investing in external development can also help enrich relationships. Singham suggests that, for example, some larger companies can help smaller ones by supporting their customs processes, as a service, where international trade is involved.

“It’s in their interest to do so, because their just-in-time supply chains depend on these small businesses following customs procedures,” he said. “Big companies could also revise the terms of trade to accept the burden as an importer of the customs process and not leave that to the supplier.”

Such partnerships can help ensure security of supply in an uncertain market. “Maintaining a diverse supply chain is critical to avoiding the continued supply chain disruption that businesses will face in the coming year and to mitigating other regulatory, environmental and geopolitical risks. “Thompson said. “Companies that work closely with SMEs can foster growth and become customers of choice.”

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