As procurement and supply chain organizations know, there are many benefits of working with small and medium-sized businesses — they diversify your supply chain, foster innovation, can often be more flexible, perhaps offer lower prices and a more intimate business relationships or even operate locally. But large buying organizations often struggle to effectively engage with SMB suppliers for various reasons.
It’s a challenge Ed Edwards, manager of audience outreach at ThomasNet, chose to discuss during a presentation at the ISM conference last week. We had a chance to talk to Edwards, as well as Tom Greco, vice president of ThomasNet, before the conference, and they offered advice on how large buying organizations can better engage with SMB suppliers.
“It’s a topic that is important to both sides, both the buyer and supplier, and we have great insight on how to bridge this gap,” Greco told Spend Matters.
At the moment, there is a disconnect in both how large buying organizations are approaching SMBs as well as how SMB suppliers perceive the request for proposals they receive from large companies, Greco said. The result is often low response rates from the small suppliers — sometimes as low as 2% to 3%. To improve this, here are three tips large organizations can take to work better with SMB suppliers.
Think Outside the Standard RFP
Large organizations typically have standardized processes. They have been around longer, have defined strategies in place and often take the same type of approach when engaging with all types of suppliers — large and small. This may be great for the organization’s workflow and organization, but it’s often a turn-off for small suppliers. The problem is a lack of customization in the RFP process as well as overall transparency on what the organization is really looking for, Edwards said.
There is often missing information in these standardized RFPs, and SMB suppliers are left with a lot of unanswered questions. If the supplier is unable to determine if they have a good chance of winning the contract, it’s more likely to pass on the RFP opportunity instead of spending valuable, and probably limited, resources on it.
A lack of visibility into the large organization’s entire bidding process is another complaint of smaller suppliers. Large organizations would be wise to lay out their process for SMB suppliers, Greco said. For instance, if the process begins with a questionnaire, moves to a short list of possible suppliers and then a request for a quote from suppliers on that list, communicate that.
“That should be clear up front so the supplier understands what they are getting into,” Greco said.
The goal for large buying organizations is to be as specific as possible with what exactly they are looking for from a supplier when sending out that first RFP.
All this information SMB suppliers want doesn’t just need to communicated on paper — it should come from an actual person. It’s not just about being efficient with communication, it’s about being effective. Greco suggests buyers from large organizations pick up the phone and call each supplier they just sent an RFP to. Make sure they received it and connect with them on a personal level. This goes a long way as far as RFP response rates, Greco said.
“The fact they heard a human voice alone will get them more interested, because at that point it becomes more real,” he said.
Communication also becomes important for the suppliers the organization chooses not to pursue a relationship with. If a supplier’s proposal doesn’t fit what the organization is looking for, offer that supplier feedback on why it was disqualified from the process, Greco said.
(Re)Consider Your Payment Terms
Another obstacle SMB suppliers say they face when working with large procurement and supply chain organizations is extended payment terms. When an organization increases payment terms to 90 or 120 days, small businesses realize they can’t afford to work with them and float working capital that long, Greco said.
If payment terms are decided by the finance department, not the buying organization, Greco said procurement and supply chain managers need to “stand up to finance” and communicate why payment terms are compromising their supply chain.
Edwards echoed that advice. While organizations may think extending payment options is a good decision, it will ultimately negatively impact the business in the form of the supplier increasing pricing, reducing quality or exiting the market altogether. When you extend payment terms, you are “not eliminating the problem, you are just moving it around,” he said.