Strengthening Supply Chain Partnerships with SMBs: A Practical Guide

Small- and medium-sized businesses (SMBs) are an essential and valuable part of the supply chain, offering levels of flexibility, cost competitiveness and responsiveness that some larger suppliers often can't match. SMBs are typically more flexible and responsive than their larger counterparts, and they allow you to take advantage of the benefits of local sourcing.

However, while procurement teams want to engage SMBs, the feeling isn't always mutual. That's because larger buying organizations make it onerous for these smaller companies to participate in the bidding process. As a result, SMBs believe it takes too much time, effort and guesswork to respond to large buyers, all for a very slim chance of winning business.

So what's causing this disconnect, and how can procurement teams overcome it in order to build better relationships with SMBs? 

Some large companies suffer from surprisingly low response rates to their RFIs. Studies have discovered that large Fortune 500 companies were only getting a 12% response rate when they issued a sourcing event to 100 suppliers. Further investigation revealed that SMBs are increasingly unwilling to engage, and buyers need to make more effort in this respect.

SMB Common Perceptions Of Large Buying Organizations

There are four major perceptions that SMBs have of larger buying organizations which may prevent them from participating in supply chain event:

1. Bureaucratic Process

The process for large organizations can be repetitive, unfocused and, even worse, inhuman. SMBs want to deal with decision makers and experts who can help them deliver the best and most accurate bids possible.

2. Long Odds

The odds of winning the bid do not justify the amount of work that would be required to submit it. If SMBs think they are just one of thousands of shops competing for a job, they won’t bother.

3. Putting Too Many Eggs In One Basket

Large businesses want to dictate timing, contract terms and even production. This causes a lot of pain to SMBs who, naturally, are reluctant to change everything for one client. Also, the idea of tying their financial fortunes to one customer can be risky.

4. Long Payment Terms

Buyers naturally want to extend payment terms to improve cash flow, but this just shifts the burden to the SMB which, in many cases, don't have the line of credit necessary to float cash for long periods of time.

Another Angle: 3 Financial Risks In The Manufacturing Industry

Engage With Small Suppliers And Manufacturers More Effectively

Here are some practical, tactical recommendations for procurement teams to boost their connections with SMBs.

Be Transparent Throughout The Process

SMBs are likely to have doubts. Your goals should be to convey that winning your business is possible, increase the likelihood more SMBs participate, build trust and reduce downstream confusion and minimize your risk as a buyer.

• Outline your process up front
• Provide a timeline with milestones
• Be specific regarding vendor selection criteria
• Divulge who the decision makers are (if not by name by role)
• Convey number of suppliers under consideration
• Provide case studies of similar relationships you have built with SMBs
• Divulge why you are looking for a new supplier
• Be specific regarding quantities 

Simplify Your Process 

• Only ask for information that is critical to the specific supplier qualification process
• Break lengthy supplier questionnaires into smaller chunks 

Humanize Your Process

• Leverage phone communication early in process
• Provide specific procurement and engineering contacts
• Provide feedback and communicate timeline and process changes
• Let suppliers know if they have been eliminated from consideration along the way
• Let them know why they were eliminated 

Consider Shortening Payment Terms 

• Ensure your suppliers have sufficient working capital
• Create special program with reasonable payment terms for SMBs
• Consider adopting a Supply Chain Finance Solution (reverse factoring)

Thomas has been connecting buyers to the right suppliers for more than 120 years. Our eBook How To Make It On The Industrial Buyer's Shortlist will help you shore up any shortcomings that may prevent you from making buyers’ shortlists and put you in position to win more business. For other additional supply chain resources like this one, subscribe to our daily newsletter, Thomas Industry Update, or check out the links below:

• 4 Contract Management Best Practices For Improving Supply Chain Performance & Quality

• 5 Ways To Keep A Supplier Engaged And Build Supply Chain Partnerships

• 8 Ways Thomas Can Help Improve Your Industrial Sourcing
• Internet Of Things In The Supply Chain: 3 Challenges
• Top 6 Benefits Of Local Sourcing