Some procurement and supply chain trends are so pervasive that it is easy to stop questioning the logic behind them. The benefits associated with small suppliers is a perfect example. It is almost a ‘tit for tat’ exchange in favor of working with small suppliers at this point…
Q: Why do we work with small suppliers?
A: They are more innovative than larger suppliers.
Conversation over. Right? Wrong.
Your greatest strength is also your greatest weakness. For small suppliers, their size is an opportunity as well as a constraint. While neither the opportunity nor the constraint is a reason for or against working with small suppliers, both are concerns that procurement needs to be well aware of before signing a contract.
Risky as a First Tier Supplier, but Riskier as a Second
Companies are often concerned about their small supplier’s ability to remain financially stable, deliver reliably, and maintain uptime in tough circumstances. Part of their ability to do this is dependent on the size of their own supply chain. In some cases (software, telecommunications) it is likely that they are using the same providers as large enterprises on a subscription basis. But with materials contracts, they have a level of negotiating clout that matches their demand: small. How they choose to handle that – either paying more to a larger but more reliable supplier, or paying less to a smaller supplier that may not always come through for them – will have a direct impact on their ability to serve your company. Procurement should have an in depth conversation with smaller suppliers to understand which points of your second tier (their first tier) suppliers are a source of risk.
Unlimited Vision, Limited Scale
Not all small suppliers are run by entrepreneurs, but they are more likely to be staffed by professionals who were willing to trade a percentage of their compensation and benefits for more autonomy and authority. These leaders are the core source of small suppliers’ innovative potential. They are not held back by legacy ways or administrative red tape, allowing them to think big and deliver big, albeit for just a few points of contact. Every special effort undertaken by the leadership team at a small supplier consumes a much greater portion of their capacity than would be the case at a large scale supplier with a deep bench and plenty of resources. Think carefully about how equipped they already are to satisfy your intended level of demand. If they will be ‘scaling up’ for your project, be prepared for bumps in the road – and potentially having to roll up your sleeves and jump into the effort yourself.
Whatever you want… what exactly do you want?
Sometimes it isn’t just innovative potential that provides the appeal for working with a small supplier. It may also be their willingness to let your company have a large voice in their roadmap or future vision. Specify your requirements, detail your desired functionality, even outline your ideal service provisions; just be prepared to be very thorough. In many cases, small suppliers hit the market with a general offering, planning to work with early adopters to broaden their value proposition and refine delivery as the product rolls out. Getting exactly what you want often makes you the first consumer of that exact offering, and even the best small supplier is unlikely to deliver perfection right out of the gate unless you can articulate it clearly.
Working with a small supplier is an amazing opportunity to get a unique solution – often for a great price – and help a foundling company at the same time. But there is no such thing as a free lunch. The additional benefits of working with a small supplier are often paid for through additional efforts on the part of procurement and their internal stakeholders. And while this might be a reasonable trade, there is no reason for anyone to be surprised by it.
What are the surprises (either good or bad) that you’ve experienced in working with small suppliers? Was the effort worth it in the end?