Many procurement teams and large buying organizations want to engage with small- and medium-sized businesses (SMBs). However, just getting those businesses to respond to RFQs can be a big challenge. To help bridge the gap, Thomas hosted a presentation that provided insight into the mindset of SMBs.
We were joined by Natalie Menke, President of Universal Blower Pac & INOHVA Pneumatics, a small original manufacturer of custom blower systems with headquarters in Indiana, who lent her unique perspective.
After months of anticipation, ISM2016 — the premier procurement and supply chain event — officially kicked off in Indianapolis. Whether you couldn’t make the trip or just couldn't decide which of the many great sessions to attend, we’re here to fill you in and give you an insider’s perspective with daily recaps straight from the conference.
Why Should Procurement Want To Do Business With SMBs?
SMBs make fantastic and valuable partners in the supply chain. One of the main reasons why is because they are flexible and responsive, not weighed down by corporate bureaucracy,
“We don’t have shareholders that are demanding things; we’re able to make decisions more nimbly,” Menke explained.
In addition, SMBs help buyers satisfy the desire to source locally and regionally. According to a THOMASNET.com survey, 58% of buyers always prefer to work with local and regional suppliers, and SMBs are the perfect way to keep the supply chain nearby.
Another advantage of working with a SMB, surprisingly, is cost competitiveness. Smaller businesses have less overhead and lower average salaries. Thus, you are paying for the quality of the product or service as opposed to the quantity of headcount.
Lastly, when suppliers work with a SMB, they work with someone who is completely invested in their products and services, as well as in meeting the customers’ needs.
“When you work with a small business like ours, you get my heart, and I want to help you,” Menke said.
So What’s The Problem?
THOMASNET.com helps buyers source suppliers on our supplier discovery and evaluation platform every day. Recently, a large buying organization issued an RFQ to 219 suppliers, many of which were SMBs. Only 26 of those suppliers responded, or less than 12 percent.
There’s an obvious disconnect, but what’s causing it?
Menke explained that it just takes too much time, effort and guesswork to respond with little chance of success.
“It will take us five times longer than any one job, and the odds of getting it are 10 percent or less,” she said. “So we decide it’s not worth our time, because we’re going to have to put aside 5 jobs with a small chance of winning.”
Looking closer, there are four major perceptions that SMBs have of larger buying organizations which may prevent them from responding to requests. They are:
- Bureaucratic process: The RFx 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.
- Long odds: As Menke mentioned, 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.
- 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.
- 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, doesn’t have the line of credit necessary to float cash for long periods of time.
Top Tips For Working With SMBs
To overcome these perceptions and build stronger relationships with SMBs, follow these tips:
Be transparent throughout the process: In order to convey that winning the business is possible, buyers should:
- Outline the process up front
- Provide a timeline with milestones
- Be specific regarding vendor selection criteria
- Divulge who the decision makers are, either by name or by role
- Convey the number of suppliers under consideration
- Provide case studies of existing relationships with SMBs
- Share why you are looking for a new supplier
- Be specific regarding quantities
Simplify the process: Make it easier for SMBs to participate by:
- Asking for information that is critical to the specific supplier qualification process
- Breaking lengthy and unfocused questionnaires into smaller chunks
Humanize the process: You want to build trust with SMBs and reduce downstream confusion. Here’s how:
- Leverage phone communication early in the process
- Provide specific procurement and engineering contacts to address questions and provide insight
- Provide feedback; let suppliers know if they’ve been eliminated and why
Consider shortening payment terms and offering financing: Adjusting payment terms can ensure suppliers have working capital while minimizing the risk of them running into issues of quality or cash flow. It’s a win-win. Here are some measures to consider:
- Create special programs with reasonable payment terms specifically for SMBs
- Adopt a reverse factoring finance solution to leverage your credit rating and achieve more favorable terms for your SMB suppliers
Utilize the tools and resources of THOMASNET.com: Large buying teams can take advantage of THOMASNET’s robust features. After reviewing, evaluating and shortlisting suppliers, you can submit your RFx directly to them through the platform. Our team may even be able to personally follow up with each supplier to gauge where they are in the response process and ensure they have the information necessary to provide a quote.
We help make the bid process more human for suppliers and more successful for buyers. In fact, with our assistance, buyers have consistently improved their response rates from the 12 percent mentioned earlier to above 50 percent. And, like always, sourcing on THOMASNET.com is completely free. To learn more about the features and services we offer, or to schedule an onsite demo or live webinar, click here.
That wraps up our coverage of ISM2016 in Indianapolis. We look forward to seeing you next year in Orlando!