Mr. Gustin Goes to Washington and Other Musings on SupplierPay

Our fearless compatriot David Gustin at Trade Financing Matters recently attended a White House meeting on the SupplierPay initiative. You can find more coverage on SupplierPay here. David is one of the world’s leading experts on trade finance, and The White House was smart to invite him to share his insights. He wrote about some of those insights here and here. Spend Matters also talked to him about the experience – check it out here.

For my part, I’ve had a few discussions with the US Small Business Administration tasked with running SupplierPay. The people at the SBA were very interested in the financial supply chain study that I did with ISM and with my other research analysis findings on how extending payment terms statistically correlates with lower enterprise value. More specifically though, I’ve reviewed the draft set of metrics that SBA is thinking about implementing with the program, and I provided it some detailed feedback.

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David and I have also counseled the SBA on how it can roll out this program with a higher likelihood of success. We’re a bit jaded with these type of things, but are always willing to help out. For example, in my last call with SBA, I recommended not running this effort internally and was against just outsourcing it to one of the many providers that have already been knocking on the door hoping to "help out," but rather find a credible non-profit to administer it.

That said, there certainly are providers that could embed some of their capabilities within the service or provide value-added services on top of it. I also recommended this to SBA, but making sure that there is a choice of providers (no providers should have a proprietary lock on this initiative). This might obviously include banking lenders (top 100 for SBA are here), but also non-bank lenders, "matchmaking" providers (David discussed Intuit’s in one of his pieces), and solutions providers (e.g., Taulia and Orbian have been quick to jump on this initiative). Intuit and D&B were smart in signing up for the pledge to implement on their buy-side while also seeing an opportunity to potentially offer their services to the broader program and small business community.

David wrote about Intuit’s case study and its 80 contractors initially in scope. He also cited Coca Cola and its “Toolkit” project. We featured a CCBCC (Coca-Cola Bottling Co. Consolidated) case study here, and it also dealt with engaging small, but important, suppliers. What’s interesting here is that as large firms move to supplier consolidation of all forms: 3PLs, CMs, MSPs, BPOs, independent contractor aggregators, etc., buyers are just starting to move toward enabling their tier-2 suppliers to proactively help them (e.g., similar to a "buy sell" arrangement like highlighted here except it’s for cash rather than materials), and also to see which might be hungriest for cash – and why.

Interestingly, this focus on helping smaller tier-2 firms is actually related to the issue of tier-2 diversity reporting. How? “Diverse” firms (based on gender and ethnicity) tend to be small firms. Secondly, diversity based on ethnicity will become increasingly difficult, and it’s basically impossible to implement globally, especially as cultures melt and merge. So, many diversity managers are changing the narrative toward enabling small businesses rather than diverse businesses. David pointed this effect out based on the fact that diversity managers were showing up to The White House versus the CPOs.

The upside, though, is that for firms that are already collecting supply base demographics for "socially and economically disadvantaged" suppliers will have an easier time providing the additional working capital analysis needed for this reporting (see here for more on tying working capital analysis into spend analysis). So, there’s nothing wrong with SBA targeting these large firms that basically have this capability already to sign the pledge since it’ll require less incremental investment. But, the key is not make it a compliance regime and also to make it something beyond a social responsibility marketing exercise.  Engaging commercial and non-profit entities will be important to helping tap supply markets (which is what procurement is all about) and offer the massive small business community some "freemium" (and premium) services to help them and their broader supply chains in a win-win-win-win manner (i.e., wins to buyer, seller, third party and government).

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