Contribution by Joseph Toe – CEO at VendorMS
One of the largest challenges facing small to medium sized businesses (SMEs) is competing with larger, more established competitors for access to the best suppliers, goods, and services. The general train of thought is that SMEs can’t effectively compete because they don’t have the purchasing volume to: drive cost reduction, garner significant attention from suppliers, and unlock access to a large and diverse supplier base. This doesn’t have to be true…
As the global business environment becomes more competitive, it’s evident that overcoming the challenges surrounding SME procurement is paramount to driving innovation, and thus organizational growth. There are a number of ways to attain the aforementioned traits of a successful procurement strategy without being a large multi-national.
1. Build Great Relationships with Suppliers
A lot of attention is directed towards building relationships with your customers and employees, but of equal importance is building GREAT relationships with your suppliers. Your suppliers ensure that you can deliver your best product to your customers and are a large determinant of what cost for which you can offer your product. They also help determine if you can make the ever-incremental changes to your product that will make you an industry leader. Having a great relationship with your suppliers means that they’ll take your calls, respond to your RFQs in more timely fashion and will give your work the extra amount of consideration that is typically reserved for their high volume customers.
‘That’s great, but how…’ you ask. Supplier relationships are no different than any other relationship that you have in your life (family, friends, and co-workers).
Relationships Take Work and Attention
You shouldn’t only interact with your suppliers when you need something from them. In a quarter where you may not be purchasing from them, give them a call to see how they, and their business, are doing. When you attend a trade show, make time for them, not just your customers. Maybe the most important thing you can do is treat them like a human. Your job is tough… but so is theirs. Having a bit of empathy for your suppliers can go a long way in building the supplier human relationship.
Relationships Are a Two Way Street
A successful supplier/customer relationship should be one in which both sides benefit from the interaction. Not just monetarily but also in terms of idea exchange. When you interact with your suppliers, especially the ones you’re trying to build relationships with, give them the complete picture and involve them as early as you can in the process. This will allow your suppliers to be a partner instead of feeling like a cog in the wheel. It’s natural human behavior to be more engaged when one feels valued. This doesn’t mean that you need to share all the minutiae, but it does mean that you’ll need to be inclusive and listen to your suppliers’ feedback.
2. Get Recommendations from Suppliers
Once you’ve done a good job of building a human connection with your suppliers, ask for recommendations. (This could be recommendations for materials that will perform as well, but may be less expensive, or it could be for industry connections that could propel your business.) Most professionals will be glad to share what they know, and who they know, and that is a benefit for you. Maybe they can’t currently provide what you’re looking for but they may know someone who can. Again, this is a two way street so make connections for your supplier too!
3. Analyze Data Like the Big Guys
Every business, big or small, has data and historical information that can be analyzed to improve your future decision making. Yes, the larger, more established companies have more data to analyze but that doesn’t mean that you can’t learn something from the information you do have. There are some really great tools, out there that will help you to efficiently analyze information about your historical spend and supplier base. By leveraging your supplier data, you can not only prevent making the same mistakes again, but you can also find areas for innovation and cost reduction.
4. Be Realistic about Pricing
One of the greatest procurement professionals I’ve ever worked with once told me that he always tried to “leave some fat on the bones” when dealing with suppliers. This meant that he didn’t always beat them down to purchasing ‘at cost’ but rather purchased at a fair price and with suppliers he knew would take the profits and re-invest in their business / processes. His goal was to strengthen his suppliers, and therefore his supplier base, and garner loyalty from his suppliers. I’m certainly not advocating for spending more money than you have to. I am however, advocating for bringing realistic expectations to the negotiating table. Just like your company is in business to make profits, your suppliers are also expecting to make a profit out of their sales. If you’re a SME that repeatedly tries to push your suppliers towards ‘at-cost’ pricing, they’ll take their products & services elsewhere, or divert resources the minute they have a higher profit margin elsewhere. Invest in your suppliers and they will invest in you.