If they do things right, big businesses tend to get bigger. Whether they get bigger through organic growth or by acquisition, it is in the nature of businesses to grow in order to maximise profits. As they grow they tend to work their supply chains harder, using ever more sophisticated techniques. Procurement and purchasing professionals now increasingly focus on:
- supplier registration to ensure they know who they are dealing with
- analytics to understand their reliance on individual and related suppliers, and the supply chains of their suppliers
- monitoring to keep a watch on trends that may threaten their supply chain
- alternative supplier sourcing to ensure contingencies are in place.
- leveraging their purchasing power to ensure the best possible deals.
All of this makes perfect sense to the management and owners of such companies. It drives efficiencies and therefore profits and share prices. Furthermore, some of this activity is required by law if you operate in a regulated industry. So this is all great news for the economy, right?
Well it depends which side of the fence you are on. The resource and scale required to comply with all the requirements of these big businesses can be overwhelming, particularly if you do not belong to the same club. The overheads involved in complying with cumbersome procurement processes can be excessive, particularly if those processes go on for months, or even years, changing direction several times. Smaller businesses often have to make a call on whether to focus their limited sales resource on managing their way through these complex and unpredictable pitches or to focus their efforts on finding other opportunities — perhaps smaller — which may prove easier to close.
Those small businesses that do wish to trade with their bigger cousins may take the decision to take on the risk and cost and still find themselves falling at an early hurdle. Increasingly an early step in the process is to register with the prospective customer’s online portal, and pay hard-earned money for the privilege. For the larger customer companies, this is not only affordable but also a great idea. It acts as a nice revenue generator, funds some of the procurement activities and weeds out some of those troublesome smaller suppliers. However, for those smaller suppliers themselves, the cost can be prohibitively high and the work onerous.
A further barrier to success lies in the very nature of those smaller potential suppliers. As big companies, such as banks and supermarkets, have been a mission in recent years to cut down their suppliers, sometimes by factors of ten, the size of the business itself becomes a determinant in the future of the relationship. Put simply, some big blue chips have simply decided that they have had enough of dealing with small fry, and rationalisation, or selection, is primarily determined by size.
So does this matter? Again, it tends to depend on where you sit. The benefits to the large organisations and their owners are clear. And you don’t have to think about it too hard to understand that as taxpayers and beneficiaries of pension funds then we all benefit indirectly from their success as well.
The other side of the coin is that smaller businesses can often be badly hurt when they have large organisations within their customer base. Losing them will have a disproportionate impact on the business and the cost of keeping them can creep up undetected until it becomes an unwelcome burden. Smaller suppliers will very often provide higher quality products and services than their bigger relatives and more often than not will be more flexible and customer focused. Unfortunately, such attributes are often hard to quantify and so have insufficient impact on the procurement decision making process. Undoubtedly when smaller businesses flourish they can also have a very positive impact on localism, employment and green agendas. They are also often more likely to be contributing to the UK economy when compared to larger companies which might be headquartered overseas. We know big companies understand this in theory because they say it on their websites, but in practice it seems to be a different story.
What’s to be done? Well, as small business owners and managers we can all appeal to large customers and prospects to treat us fairly. Yet in reality, this is often likely to be about as effective as asking the leopard to change its spots. More critical is to find a way of positioning ourselves against our larger competitors by articulating the additional value that we can provide as a smaller supplier.
Don’t get me wrong, at Key Note we are very happy to be doing business with a number of large government organisations and blue chip companies. We value them, we hope they value us and we would like more of a similar shape and size. But we also have to be careful not to put all of our eggs into one basket.
Ideally, we want to derisk our business by having a good spread of customers. But just as we try to think and act like a much bigger business, it would be great if those big blue chips occasionally put themselves into our shoes and consider the great value that smaller suppliers provide them with every day.
Nigel Dickinson is the Managing Director of Key Note