Procurement question of the week; small suppliers and electronic sourcing

I was late with my write-up of responses from last week's QOTW so it didn't appear till about 5pm on Friday - my apologies.  If you missed it then, do take a look at it here. And watch out for the unicorn...

Now for this week's question, suggested by one of our regular readers and commentators.   There's a lot of talk about supplier diversity; in Europe (and perhaps even more so in the US), organisations are encouraged or legislated to use small, minority, or veteran owned businesses.  In the UK, Ministers regularly talk about the need to support smaller businesses in public sector procurement; both to get better value, and to promote economic growth. (We might argue that there is limited evidence on either of those assertions, but that's for another day).

So, if we make the assumption that CPOs and organisations would like to have more and better SMEs and diverse firms  amongst their supply base,

What are the barriers that smaller firms face in winning contracts with large private and public sector organisations? And in particular, is greater automation of the sourcing process helping or hindering small suppliers?

That second point is interesting; as a supplier, I've responded to badly structured and frustrating tenders, both paper based and electronic.  But there's an assumption , certainly in UK Government, that electronic tendering is better for SMEs because it should be less time consuming and easier than traditional paper.  But is that true?

Answers on a postcard please.. or in the 'comments' section!

Voices (9)

  1. Richard Hogg:

    Peter, my postcard is on the way – first class. In the meantime I hope this electronic post reaches you in time, and saves you having to re-key it 😉

    I think electronic tendering / sourcing benefits small suppliers because the automation provides ease of use, a defined process and reduced effort. As a result, purchasing organisations (public/private) can be more inclusive while reducing the overall sourcing cycle. However, automation is only a canvas with which sourcing managers define their process and the success of automation is largely dependent on the contracting authorities ‘skill’ in using the automated solution.

    Aaaah, the wonderfully recurring budget / politics paradox: public sector procurement needs to deliver better value AND support varied SME / MOB initiatives.

    Public sector organisations are, and have been for a few years, attempting to drive ASAP ‘savings’ through aggregating the heck out of any category / supplier spend volumes and competitively sourcing whilst complying with EU Directives. Another paradox? No doubt a discussion for another day…

    The main barriers we see are the often wholly irrelevant requirements (hurdles?) suppliers must meet to even qualify for the right to subsequently submit a commercial bid. Recent and personal experience has seen me, on behalf of BravoSolution (as a provider of eSourcing solutions, a biased blog contributor), have to provide multi-year and audited evidence of H&S accident rates and corrective measures (server dropped on foot anyone?) for the provision of these services. No doubt this is one example of thousands suppliers are facing.
    There is no dispute that relevant qualifying information must be gathered to assess the suitability to Contract / Invite To Tender, however this MUST be relevant to category / requirement / contract size. Personally, I would also like to see a greater move towards a pass / fail indication of minimum qualifying requirements (eg: revenue must be > 3x contract value, distribution points must be within 2 hours of delivery-points etc). This is improving, SLOWLY.

    Regarding electronic tendering / sourcing:
    Ease of Access: The overwhelmingly standard public sector procurement process includes: Opportunity Alerting (OJEU or otherwise), Expression of Interest, Supplier (Vendor) Information provision, Pre-Qualification (or RFI), Invitation to Tender (RFQ or ITT or RFP or ITPD…) and contracting. Contracting Authorities using electronic tendering make it significantly easier for suppliers of all shapes and sizes to at least participate at each of these stages, generally for free and requiring nothing more than an internet browser (an internet enabled phone or swanky iPad will also do).
    Within minutes of first seeing an opportunity advertised, for example within SIMAP or local advertising sites, a supplier can typically Express Interest and view relevant information to determine whether to further participate. Our current client record for EOI / PQQ response start is 6 minutes from OJEU / TED publication visibility. No delays due to buyer holidays, inadvertently lost EOI information or miss-keyed supplier contact details.
    Ok, so some long-standing SME businesses may need to wait for the ‘IT Director’ to return home from school to turn the computer on, but a simple web-interface and robust support approach will easily support this (we’ve had some enthusiastically youthful help-desk callers).
    This also works for the bidders, SME or otherwise, regarding their submissions. Courier or recorded delivery? Costly and not guaranteed. Weather or traffic problems? I’ve never seen this affect electronic tendering. Hard-copies x 5, in Arial Font, size 12 bound and in neutral envelopes, oh and a CD copy please…?

    Defined process: All half-decent electronic tendering technologies MUST support online questionnaires, and be clear in what the format of response is (Yes / No, Multi-Choice, Values, Free Text or a freestyle-contribute-whatever-you-want attachment). This will be coupled by defining what is mandatory to submit a response and flag incomplete responses as the bidder progresses. This is important to buyers and critically means SME suppliers (without a commercial bid team including process and QA specialists) have significantly less chance of submitting a bid without mandatory content. Clearly this does not determine the quality of the bid content.
    Without stating the obvious, closing deadlines, formats etc are clearly visible and any dynamic amendments are automatically communicated to bidders.

    Reduced Effort: In the simplest form, SME suppliers find a single on-line submission SIGNIFICANTLY easier than printing 5 copies (all bound and with counter-counter-counter-signatures of any relevant company officer, including the IT Director once they’ve returned home from school). Unfortunately, as Jonathan Betts points out above, “Even then, many organisations still require hard copies of submissions to be sent in addition to the electronic form”. Fortunately this is generally an existing policy issue that is removed as soon as the next Standing Order / SFI review meeting minutes are approved.
    More sophisticated organisations are using advanced vendor management solutions to integrate with the wider eSourcing suite, standardising on vendor information gathering at a generic, category specific and individual requirement level during each bid, and meaning this supplier information can be automatically re-populated and subsequently reviewed by supplier for each bid submission without re-keying – a massive supplier effort reduction irrelevant of size. Also providing interesting procurement trending reporting…

    Despite all of the positives, there is clearly much work still to be done:

    Electronic tendering is purely the canvas for tenders to be built on. Contracting Authorities may still create tricky content on whatever medium – does anyone blame Microsoft Word for the content of the letter they received?
    Standardisation of processes and information from suppliers is all too transient, we alone are currently dealing with 5 so-called ‘mandated’ supplier information standards across the public sector, heaven knows how suppliers feel.

    If the public sector want to support smaller businesses in the public sector, reportedly working towards a contribution of 25% of public sector spend, where do we start?

    Most initiatives are focussed purely on what is ‘spent’ with SME suppliers through varied levels of spend analytics. Whilst this is fine to determine the end-position, it doesn’t remotely help identify the root-cause. What are the relevant ratios of SME suppliers participating at the various procurement phases?

    EOI: What % SME’s?
    PQQ submission: What % SME’s?
    ITT shortlist: What % SME’s?
    ITT submission: What % SME’s?
    Contract award: What % SME’s?
    Actual spend: What % SME’s?

    Only with this granular and integrated stage-level reporting can public sector identify where to focus SME engagement initiatives…

  2. Flog:

    Over the last 2 weeks I’ve been speaking at a number of mentoring events for micro, small, medium and emerging businesses that are interested in or have started bidding into the public sector. At each of the events, an attendee has raised the question of e-tendering systems. Some weren’t bidding into public sector, so were not really aware of them, however, the majority of those that had (tried) to use them had started and given up because they couldn’t understand / be bothered ‘wading through’ all the screens. I know that, personally, I’ve also given up after deciding I really couldn’t be bothered and didn’t need the opportunity that much – mind you my 3.5Mb broadband speed and 124 screen had much to do with it.

    Some of the systems, where the potential provider has to enter everything on screen (and in the case where I gave up, you couldn’t even ‘cut and paste’ in your answers) are far from friendly. So, I’m not convinced that they are as bidder friendly as they need to be.

    Going to the other end of the spectrum, I was working with a multinational business today, it has a significant sized tendering section and even they were saying how unfriendly some of the e-submission systems are that they have to use – and they’re doing this as their ‘day-job’, not like micro businesses to do it now and then and, usually, need to learn how to use the system as a beginner each time.

    Picking up on Christine’s point about the value of the potential business to turnover – that makes me think of another concern I have. How many of the on-line systems are using automatic marking systems eg you put the ‘correct’ answer, eg Yes, and get a 1, a ‘wrong’ answer, eg No, and get a 0. What about where neither Yes or No is the correct answer, and the right on for the potential provider is Not Applicable – can these automated systems cope with that? I’m aware that some manual systems can’t compute a potential provider striking out both Yes and No and inserting Not Applicable because ….. For example, a one person business does not legally have to have an equality policy as it does not ’employ’ anyone. How many PQQs ask Do you have an equality policy? and then only offer Yes/No as the options. Too many, and OPB have been excluded for telling the truth, No (because they aren’t required to have one) – so, again like Christine mentioned, how may micro businesses have policies that they technically (and legally) they are not required to have because it’s easier to have one, get the 1 point and cause a few more trees to be killed off when the e-versions are printed out (because doing the evaluation on screen causes ‘eye strain’)!

  3. Garry Mansell:

    There are some real gems of advice in the comments so far. I actually can find almost nothing to disagree with from what has been written. So, I want to focus more on the private sector in my comment, because SME’s are big suppliers to the private sector.

    In my experience of running electronic tenders SME’s generally perform really well because they feel that they are at least on a level playing field in terms of their submissions to the buyers. Back in the late 90’s its true, we used to send out electronic tenders and get replies back from SME’s that ranged from, “Internet, nooooo we don’t have any of that here, we sell boxes”, through to “IT department? Well Darren works at Curry’s and he comes in on Saturdays to look after our PC’s”. Nowadays, most people are familiar with and have access to the net and the majority of tender responses are either online or via Excel spreadsheets, largely the technology is no longer a barrier, it can be an advantage for SME’s.

    The biggest problem they seem to have is still simply being invited to the tender. That’s where the point about a marketing budget is very astute, you have to be known in order to be invited to “play”, and your sales force has to be well motivated and trained.

    The formation of communities of suppliers hasn’t quite come to pass, and if the SME’s have to pay to be part of it, it becomes a barrier in its own right. Even then how does a buyer know that somebody in a community of suppliers can meet their needs? The answer is, the old fashioned way, by examining them and asking the right questions. In other words, by being a good buyer.

    We have built a community of logistics suppliers that our community of logistics buyers can call upon. The only way a supplier gets into that community is by recommendation from one of the existing buyers. This works because the buyers want it to, and they know they can get lower rates by helping suppliers reduce the number of empty miles they run. It becomes a shared benefit, but it still takes a buyer to have found the supplier in the first instance. We have not seen a requirement yet to build similar communities in other areas of purchasing even though logistics represents only 30% of our throughput. Ariba have those communities it would seem.

    Technologically SME’s can now use their creativity online. There are a number of e-sourcing software applications that allow the supplier to make alternative offers based upon the key criteria that the buyer has specified. So in that respect the technology really has helped the more agile company, but in truth even the largest corporate sellers have learnt this and have become more agile themselves in making their offers.

    Nowadays electronic tendering has become more like online negotiation rather than a robot, and if the buyer allows it suppliers can make alternate offers modifying any part of the tender. They can bid for parts of a contract, make packages offering conditional discounts or as I say make alternate offers specifying opportunities the buyer would otherwise have not known about. In this respect technology assists the SME greatly. We just haven’t found a much better way of getting the SME’s to the table in the first place for the buyers to consider. At least in my opinion.

  4. Christine Morton:

    Speaking on the public sector side of things, I agree that there is a problem about the question on PQQs about the percentage that the possible new business relates to annual turnover. If this is above a threshold, for example, perhaps there should be an option for the responder to put in how the impact of winning the new business would affect their business expansion plans.

    I also think that we often ask on PQQs for listings of the other government customers of that potential supplier. If we’re always relying on those who have done it before, how are we to encourage new entrants into the market?

    Lastly, the PQQ process is extremely onerous on all suppliers, not just small ones. I recently had a supplier complain to me that they had a library of 50 different Health and Safety method statements, each suiting a different tendering style. And for as much as we go on and on about standardising PQQs, I’ve had many people say that once legal gets involved they want something different than the standard.

    I disagree with the correlation of marketing budgets to winning contracts, particularly in the public sector, but then again I’m not a marketing director!

  5. Jonathan Betts:

    The success of a business in winning contracts inevitably correlates with the level of marketing investment.

    Automated tools increase the opportunity for smaller firms to be identified/participate at the start of a sourcing process. Beyond that the procurement channel doesn’t impact on compliance to the requirements of the contract. The evidence required to demonstrate compliance (e.g. financial standing, technical capability, relevant reference sites, compliance to industry standards, etc.) remains the same.

    As far as the procurement process itself is concerned, uptake of tools such as electronic tendering is patchy and there is a wide variety of such platforms. More often than not the documentation required is the same – it’s just submitted differently. Even then, many organisations still require hard copies of submissions to be sent in addition to the electronic form.

    Smaller firms frequently have a very compelling offering through a combination of lower overheads, high levels of innovation and greater responsiveness. Large customers, whether in the public or private sector, are receptive to this but engagement results from investing in the relationship. So, whether suppliers win levels of business which is positively disproportionate to their marketing investment is doubtful.

  6. MarketDojo:

    As an owner of an SME, perhaps naively I would think that the only barriers we have in winning contracts with large organisations are those we self-impose or self-assess. Tender requirements these days, particularly automated ones, specify the criteria to a fairly high level, many of which are very objective, e.g. the contract value must be no more than x% of your annual turnover. If we satisfy, or believe we satisfy, the criteria, then I would see no further barriers. From that point onwards it is down to the quality of our response and our sales skills based on our knowledge, experience and capabilities.

    What may prevent SMEs from qualifying for the opportunity to bid for contracts (distinct from winning them) can often be the way the tender is structured. An organisation may decide to have a national supplier for say, lawn mowing services, which then greatly narrows down the list of candidates to the large businesses capable of such coverage. Instead, such contracts could be broken down into constituent ‘lots’ with the SMEs vying for particular regions and competing with the large outfits. Equality can be generated by structuring a contract(s) into segretated elements rather than one whole. In turn this typically identifies superior results.

    With respect to the automation, one challenge is being alerted to such opportunities, as an SME may not have a sales team dedicated to searching and responding to impersonal enquiries. SMEs are also less familiar with the automated processes and require more hand-holding, which could indirectly mark them down or cause fatigue and eventual drop out. From my experience, the surveys I used to do indicated that e-tendering does save time and is easier for participants to respond to, so I would say that it is a help, as at least there is (normally) a defined structure to the process.

    That said, the first thing a supplier should do when they get a new automated enquiry is phone the person running the event to build rapport. You can find out so much more about the process, the requirements and the people. Psychologically you are nurturing a relationship that may become an important factor when that organisation needs to make the final award decision. Although the process is automatic, don’t let your response be robotic.

  7. Colin Maund:

    In terms of automation in the sourcing process, there is no evidence that electronic tendering has any impact on SMEs either positive or negative. There is an assumption by governments that posting electronic “calls for competition” will make bidding fairer and open the door for more SME involvement. In fact the reverse may be true; the amount of data on these sites means that SMEs are bombarded with information and only large companies can afford to have specialists who keep looking at and responding to tender opportunities. Additionally, public sector buyers, nervous of hundreds of responses are likely to add selection criteria which, whilst objective, are difficult for many SMEs to meet. The move is constantly towards procurement becoming more scientific and therefore it is more likely that SMEs in mature business areas will find competition tougher so the best thing they can do is innovate to create a valid difference from larger and better equipped rivals.

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