When Big Isn't Always Best
Mark Trowbridge, CPSM, C.P.M.
Robert Dunn, MBA
May/June 2010, eSide Supply Management Vol. 3, No. 3
Selecting the right supplier should be based on much more than size.
It's often assumed that procurement professionals are skilled at choosing the right supplier. In strategic sourcing circles, the best practice is to use a weighted scorecard to comprehensively evaluate each bidder's proposal. True, that practice is a great one — when done correctly.
But, providing numerical scoring of predefined categories sometimes misses the more important question: Is this really the best supplier for your organization?
A Skewed Perception
Many scorecard elements reward larger companies — but, do high scores in all the following competencies actually make a large company the best choice for your organization?
Financial stability. Usually, a large publicly traded company is chosen versus a smaller or privately held company because its balance sheet contains more impressive numbers. Be cautious, however, that smoke and mirrors aren't evident in the numbers shared by large enterprises. For example, sometimes the subsidiary providing support to the buying organization submits a parent company's financial information.
Number of company locations. Again, in this regard, a nationwide or international company usually wins; but, what if your organization only has regional locations? Perhaps the appropriate metric should measure whether different suppliers have distribution points that are geographically close to your organization's sites.
Product or service offerings. Multidivision companies often win here because they offer many additional products or services. Yet, if the buying organization doesn't need those additional products or services, is it really a benefit?
Standardized product or service quality. Large firms typically achieve success by standardizing the processes used to deliver uniform products and services. This is certainly an advantage when the same types of products are provided to disparate clients, especially geographically diverse ones.
However, it is often difficult to ask a large company to customize or tailor its offerings. It requires them to alter a companywide standard.
Sometimes, Smaller Is Better
There are many occasions in which smaller suppliers might be preferable to larger ones.
When you need a skilled SWAT team rather than an army. In general, the larger the supplier, the more spread out its top personnel is among different customers. Sometimes, it's more beneficial to hire a nimble SWAT team that is skilled, experienced and willing to customize a great solution for its customer. Unless your organization actually needs an army, a specialty supplier's services might be a much more productive and cost-effective choice.
When you need a customized — not standard — solution. Large companies tend to standardize their offerings (be it goods or services) for a legitimate reason. Doing so is important to their efficiency because standardization reduces costs and allows for sufficient channel management as companies grow and their volumes increase. It's a natural and important part of growing larger.
So, if you need a nonstandard solution, do consider the large category leaders; however, also investigate smaller companies known for innovation, creativity and adaptability. For the "big guys," customizing a solution is often inefficient, whereas small companies might be more willing to customize for the right opportunity.
When people are more important than product. Often, compartmentalization of people comes along with standardization. For example, large suppliers' teams are often made up of five to nine spokespeople who address service concepts individually, not comprehensively. Additionally, as the customer, you might not see these people again because their main role is to deliver similar presentations to other potential customers, not to provide ongoing service to the customer.
If you expect a supplier's top talent to be involved in supporting you as a customer, you are better served making sure the firm is sized so that your customer relationship is a top priority. One tactic is to require that their presentation team include the actual persons who will provide service to you as a customer, as well as an operations person who will support the account.
When a big supplier tries to act small. Usually, being a large company is advantageous. Sometimes, however, big firms try to act like small ones, and it doesn't work.
A recent example involves lawsuits filed by multiple government procurement agencies against a leading global supply company (and also against the supply chain consultancy some of the agencies used to award the business to the supply company). Claims against the supply conglomerate included failure to honor contractual pricing and failure of minority-owned firms to play a legitimate role in processing orders on their behalf.
Because they have earned their positions as industry leaders by offering quality products and services at a competitive price, large suppliers often provide strong value. Even so, don't underestimate the possibility of nimble, niche companies to be superior matches for your organization's needs. If you give them a fair evaluation and solicitation process, you might be surprised by the results.
Mark Trowbridge, CPSM, C.P.M. and Robert Dunn, MBA are the principals and co-founders of Strategic Procurement Solutions, LLC headquartered in Coleville, California. To reach these authors, please send an e-mail to email@example.com.
For more strategic sourcing articles, visit the ISM articles database.
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