|Supply chain value and small business|
|SBE-corporate partnerships vital to survival|
|Published Thursday, September 8, 2011 7:00 am|
Responding to recent industry trends and fierce competition, leaders of large corporations are looking to streamline fragmented supply bases through supplier consolidation.
Increasingly, leaders are beginning to recognize the supply chain as a strategic asset, and as such, performance measures related to lean manufacturing, globalization, outsourcing, and risk mitigation are driving the decision to consolidate supplier bases.
The objective of supplier consolidation is to achieve competitive advantage through the improvement of pricing, product development, quality, and service through a more manageable supplier set.
But, where does that leave the small business enterprise (SBE)? The SBE and minority and women owned business enterprise (M/WBE) with only a few large buyers representing a significant portion of their customer base will need to be aggressive in achieving key supplier status or acquiring new customers to compensate for those lost to supplier consolidation. More importantly, SBEs and M/WBEs must develop strategic, operational, and tactical strategies to survive the threat of supplier consolidation.
Reducing the number of suppliers reduces the cost of sourcing, including but not limited to, acquisition, procurement, logistics, warehousing, and customer service functions. Moreover, managing a smaller supplier base enables large corporations to achieve a greater negotiation advantage based on volume.
By default, those suppliers fortunate enough to make the cut will gain a larger share of purchasing volumes. For those less fortunate suppliers, opportunities will likely dwindle until other options can be leveraged to achieve equilibrium.
Supplier consolidation poses a tremendous threat to the survival of many businesses, especially small businesses and M/WBEs. Given that 80 percent of employees in the United States work for small businesses, the implications are significant. Supplier consolidation may translate into the loss of jobs for many employees of SBEs suffering from a decrease in demand for their products and services.
Large organizations may be better equipped to absorb the excess employees resulting from supplier consolidation.
Unable to compete on the basis of scale, SBEs will be challenged to form alliances with larger suppliers or be locked out of supplying to large organizations. The onus for including small businesses in the supply chain will shift from the organizations that actually buy product and service to the large suppliers in their supply chain. But, what incentive does a large supplier have for partnering with a SBE or M/WBE?
For SBEs and M/WBEs, two challenges emerge from supplier consolidation, ‘how can SBEs and M/WBEs not only survive supplier consolidation trends, but also, prevent job loss due to fluctuations in supplier volumes?’
Mitigating the risks associated with supplier consolidation requires partnership between large buyers, large suppliers, SBEs and M/WBEs.
In addition to the desire to achieve pure-price and operational advantage, large corporations should consider prioritizing initiatives to positively influence the economy within the communities that they serve. As a condition of doing business with large buyers, large suppliers should partner with SBEs and M/WBEs to fulfill orders. Large buyers can easily add this condition on the basis of the greater volume leverage achieved through supplier consolidation.
Indeed, strategic partnerships between large suppliers and SBEs may provide competitive advantages otherwise forsaken and strengthen commitments to social responsibility.
It is absolutely imperative that SBEs and M/WBEs dedicate a single-minded focus on increasing supply chain competencies to increase competitiveness. There are seven components of a supply chain competency model designed to help suppliers weather the storm of supplier consolidation.
1. Increase operations capabilities to maintain or exceed buyer expectations in service, price, and quality.
2. Increase the focus on developing long-term, collaborative, interpersonal ties to buyers and suppliers.
3. Meet or exceed delivery schedules with reliability and flawless execution.
4. Form alliances, joint ventures, and other partnerships to deliver greater value to buyers.
5. Create operational efficiencies that increase value and decrease costs passed to buyers.
6. Leverage innovation to defend competitive position against competitors.
7. Consider co-locating with suppliers to increase the capability to compete on the basis of scale.
The impact of supplier consolidation is not confined to suppliers. Supplier consolidation has the potential to affect the economy of local communities. Therefore, partnerships between large buyers, large suppliers, SBEs, and M/WBEs hold implications for us all.
Let us start the dialogue with the business community to develop strategies to mitigate risks to the economic viability of organizations that employ the masses.
WESLEY CARTER DM, authors a column that leverages leadership and management strategies to solve common business problems. Carter is a partner at KRS Consulting LLC in Charlotte. If you have a question, email firstname.lastname@example.org. Call (704) 992-1211 or email to book an engagement.
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