Nine Tips for Strategic Supplier Survival

DPA Insights

Strategic Sourcing

By Richard J. Hernandez, CPCM, Senior Consultant, Daniel Penn Associates

In a world where there are many more suppliers than buyers, strategic sourcing is the ‘new normal’ for organizations who want to streamline how they buy goods and services, reduce costs and compete in a global economy.

Small businesses cannot ignore the threat that strategic sourcing may push them out of their contracts with major buying organizations or prevent them from even getting considered.Nine Tips for Strategic Supplier Survival

Companies that lead in strategic sourcing incorporate these elements into their planning:

  • Total cost of ownership (TCO). This is also referred to as Life Cycle Cost.
  • Strategic suppliers: provide key supplies and/or services in a particular commodity area; add a high degree of value to the supply chain management process by reducing costs, aggregating demand, etc.
  • Optimizing the supply base by reducing the number of vendors to a manageable level.
  • Supplier development through mentoring and pre-qualification programs.
  • Aligning purchasing with business strategies, e.g. supporting strategic growth programs.
  • Developing organizational strategies to meet future needs, e.g. developing a world-class quality program.
  • Developing commodity and supplier strategies, e.g. using strategic suppliers as “Commodity Captains” as is done in the auto industry.
  • Supply performance and relationship management to better measure the value from strategic relationships.
  • Alignment of purchasing activities with the company’s long-range business planning goals

For better or worse, strategic sourcing is impacting small businesses in several ways:

  • Contract bundling: combining two more previously separate contracts
  • Major reductions in the (non-strategic) supplier base to consolidate vendors and save money
  • Increased use of preferred vendor programs such as with medical supplies
  • Additional pre-qualification costs such as the use of consultants and process documentation

Here are recommended strategies to protect your business from being ‘down-sized’ during your customer’s strategic sourcing efforts:

  1. Plan strategically. Plan long-term like your customer(s).
  2. Develop a branding/niche strategy. Find the best place for your company in the supply chain – then protect it.
  3. Develop a targeted set-aside contract strategy. Use small business programs such as 8(a), MBE, WBE, HUBZone, etc) and other set-asides to get contracts.
  4. Create strategic alliances. Build new relationships and seek new markets.
  5. Find a mentor who can help you increase your capacity to handle larger strategic contracts, help you innovate and create value, educate you on process management improvements (operations, quality, safety, security) and help you build strategic relationships.
  6. Find ways to manage larger contracts.
  7. Develop a sound price/cost structure. Make sure your pricing is competitive.
  8. Develop multiple contract vehicles. Offer customers more than one way to buy from your company.
  9. Attempt to become a pre-qualified supplier. This helps ensure you get the best contracts with a high strategic value to your customer(s).

Small businesses can survive strategic sourcing by finding where they can offer the most value in the supply chain, create value and innovate their products. Great mentors and business coaches can help increase their capacity and improve their core business processes.

What challenges and opportunities have you encountered in maintaining (or establishing) your small business as a strategic supplier? What practices are helping you add value for your large customers? Leave a comment below – we value your opinion.

Want to fuel your organization’s continuous improvement?

Richard J. Hernandez, a Certified Professional Contracts Manager (CPCM), has more than 25 years of experience in government procurement. He is a nationally-recognized expert in procurement and supplier diversity best practices. He is an accomplished MBE/WBE program manager in both government and corporate sectors, has developed MBE/WBE/DBE policy, procedure and guidelines, and has helped numerous government agencies to set and achieve their supplier diversity goals.

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