There is no denying the value that small and minority-owned suppliers offer to businesses, but securing that value has proved to be trickier for procurement.
Small and medium-sized suppliers, and in particular those owned by minority groups, are more innovative and more responsive than their larger counterparts tend to be. For their customers and the procurement teams they work with this means they can benefit from them being more nimble, able to respond quickly to the changing needs of the business, the function and consumers. They also open up opportunities in terms of access to innovations, which can help boost market share while, importantly for procurement, they have also been proven to deliver a greater return on purchasing activities.
Research by The Hackett Group found that those companies who have an established supplier diversity programme in place tend to generate a 133% greater return on their buying operations than those that don’t.
Not only this, the researchers also found that those organisations who work with a smaller and diverse suppliers also had lower operating costs, spending on average 20% less on their buying operations, and had half the number of people within their procurement teams.
The question then is why aren’t more companies working with small and medium-sized enterprises (SMEs) and minority owned suppliers?
For some it is simply because they feel that these types of suppliers aren’t practically able to work with them, believing that their operations simply aren’t up to the job when it comes to coping with the levels of production required.
But, while this is a challenge, the bigger problem, said speakers and delegates at a recent Minority Supplier Development UK (MSDUK) policy summit, was communication and awareness.
It was suggested that many of these diverse, SME suppliers don’t know about the programmes and initiatives that exist to help them supply larger organisations. There exists a raft of government private business schemes out there to try and bring these suppliers into the fold but not enough is done to get the message out there to them
Martin Chown, procurement and supply chain director at Balfour Beatty, told those gathered at the MSDUK event that his company had set up a supply chain finance scheme, completely voluntary for suppliers to take part in, established a supply chain sustainability school that is funded by the company and free for suppliers to attend, while the company has also created a document that explains exactly what businesses need to do to supply goods and services to the company.
Balfour Beatty itself has publically committed to spending £1bn of its UK construction spend with SMEs in 2014 therefore clear communication about these initiatives is key if the company wants to achieve its aim.
These minority owned SMEs are a vital part of the strategy for procurement to deliver that wider package of value, but it is only by making those suppliers aware of the initiatives you have in place and then bringing them into the fold that you will be able to reap such rich rewards.