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How to Improve the Economy and Beat Bureaucracy: Hire Small Businesses as Suppliers
Becoming a supplier to a large business can be just a pain, particularly if you are a small business. The overhead involved can even consume more time and effort than the actual work itself. When you consider that in the US 70% of our businesses are small and medium sized, this is a large scale headache. More so, what is crucial is that small businesses hire employees faster. The White House Blog indicated that: "after a small supplier lands a big purchase order or a contract from a bigger company, the small company's revenues go up 250% and they create about 150% more jobs in just two or three years."
To get a stalled economy moving again, improving the purchasing process in large businesses particularly in relation to hiring small suppliers would do wonders for everyone. Within these processes, there can be small changes that can create large waves of transformations that help to open up the economy.
What is wrong with purchasing these days?
Consider this: A business user needs to get a new infographic created for a project in their Marketing team and found just the perfect agency after a lot of trial and error who have the right skills and ideas to produce it. Unfortunately, it is a small business who isn't currently a supplier to their organization, a large multinational company over 200,000 employees in offices spread globally.
To get the agency signed up as a supplier, first the business user has to hurdle why the company's primary supplier in this area is not the right fit. Then they need to find the right purchasing agent who has the time to investigate the company. The small agency then has to jump through a number of hoops: fill out several long forms, provide financial history, letters of reference, and other evidence that they are a reliable source. If the order is big enough, the small agency will probably put in the effort to do so. However, it's a frequent pain in working with large organizations that has to be repeated over and again, sometimes even with the same company's different departments.
The bureaucracy also starts to set in: Purchasing agents tend to favor suppliers they already know rather than work through the forms for new companies. Purchasing departments choose to minimize the number of suppliers they work through to try to manage all their endpoints. Sometimes, laws and regulations within different countries and regions affect the rules for doing business which then requires a review. The most troubling is that most organizations' supply chain and purchasing are spread across multiple tools and databases.
Looking from even higher, you can see each of these large organizations attempting similar things: they each a form to sign up a new supplier requesting over 80% of the same fields and information from each supplier, yet different enough to require the supplier to have to redo the same work over and again. Across these companies, Purchasing often maintains their own databases and directories of current and past suppliers for their employees to navigate. These are all redundancies that aren't apparent on a single company level but visible across many.
"To help small businesses grow, innovate, and add jobs, big companies can expand the search for high-potential small companies; provide training and mentoring to help those companies qualify as preferred suppliers or distributors; open access to domestic and international business opportunities; and help lower supplier costs through pooled purchasing or insurance."
In 2010, a number of the largest companies including AT&T, Bank of America, Citigroup, IBM, and UPS, joined together to create Supplier Connection, a joint partnership to tackle some of these problems. Since then other companies including Pfizer, Dell, Caterpillar, John Deere, Kellogg's, AMD and Office Depot have joined in as well. Together these organizations spend over $150 Billion annually in goods and services through their global supply chains.
The partnership is focused specifically around job growth in the US with member companies making the organization-wide executive-level commitment to buy from small businesses. They are aiming in particular for suppliers with less than 500 employees and less than $50 Million in annual revenues.
The primary task is to take a page from all places, student application process in the academic world. Years ago, universities and academic institutions in the US realized that they were unnecessarily making it complex for students to apply for college by each having their own process and form. In 1975, fifteen private colleges created a common first-year application form for use by any of its member institutions. In 2011, there were 456 such institutions across the US and even some in France, Germany, Italy, Scotland and Switzerland, including Yale, Dartmouth, Columbia, Cornell, Carnegie-Mellon, and Northwestern, just to name a few.
This idea, simple in theory, takes quite a bit to deploy across the business infrastructures of many organizations, but the benefits are well received by many millions since its inception. Supplier Connection aims to do the same for how small businesses can sign up suppliers to large enterprises through its supplier self-registration.
The registration process asks each company to submit information in several categories: basic company profile, general information on number of employees, products and services, financial information on annual revenues, their ability to support electronic business transactions, any quality and environmental management certifications, details on their ethical dealings and social responsibility, information on data security, information on diversity policies, and on their use of independent contractors. They estimate that if you have this information in hand it would take about two hours to fill out. Consider that not two hours spent but countless other hours saved of submitting the same forms to multiple companies.
According to John Dischinger, a Program Director at IBM and part of the Supplier Connection team, as of November 2011, there were 930 small businesses who have self-registered. The program is still young and awareness has been mostly through word of mouth. The results are starting to show: we are now seeing a reverse in the 10-year trend in the supply chain industry of buying primarily from large suppliers.
The other aspect of Supplier Connection is the common directory it maintains. Unlike a typical marketplace, this is an equal listing service which does not maintain past history of dealings like other sites like eBay or Alibaba. The difference is intentional so as not to allow any mistake of this as an attempt by large businesses to engage in collective bargaining with the suppliers. Each member company can look up suppliers from this network, but the actual business interactions with a particular supplier need to happen outside Supplier Connection. Per this point, the members of Supplier Connection cannot see the overall amount of business conducted through this network unfortunately, although individual members may share if they choose to do so.
We have seen how ideas like the Common Application for college admission has transformed the forms process for enlisting prospective students, simplifying the lives of both the institution and the students. This however, takes some time to become a widespread trend. The value is in the network effect as more and more institutions sign up. The same goes for Supplier Connection.
The larger picture beyond easing the process to get more small business suppliers is to look at it as a new form of corporate social and public responsibility: encouraging the global ecosystem that enables growth, innovation and new opportunities. This in particular easily goes beyond ethical foundation that other CSPR efforts such as the sustainability movement, and working with companies that abuse ethical labor practices. By hiring more small businesses, it can help to drive growth and employment that on a large scale helps the economy overall.
Supplier Connection is not standing still. It continues to draw new corporate members: 15 other large companies are now considering it. The Department of Commerce Minority Business Development Agency has agreed to collaborate with Supplier Connection. In 2012, they are looking to create virtual trade shows to allow small businesses to demonstrate their capabilities and wares. This will be set within a limited number of days to help focus buyer agents and suppliers' time to participate. They are also present through their Web site (www.Supplier-Connection.net), and actively on LinkedIn, Facebook, and Twitter.
[Note: While my employer IBM is a founding member of Supplier Connection, each company is an equal member. I am not directly involved with that area of business in IBM. ]
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