Wall Street Strategic Sourcing Defies Small Business Inclusion Success…

Valerie O'Donnell | September 9, 2014 | 0 Comments

How does Strategic Sourcing impact small business? Many majority corporations implement strategic sourcing programs – feebly intending to find best quality, best service, best price. This concept can occasionally come to fruition but is counterintuitive on many levels. We are all hard working individuals who are understaffed. So I pose to you that you might get 2 out of 3 on your wish list – but 3 out of 3 is less likely – the math doesn’t add up. If there are no problems, maybe this would work. However, when issues arise, and they always arise – corporate will analyze the bottom line and plan a strategic customer solution. Query, where do we put our resources? Answer, we put them toward our most profitable customers because they have the greatest negative impact on the bottom line. Gotta keep em happy, right? So low-ball projects go on the back burner, till the profit center is happy. Thus, best service has been eliminated from the fantasy equation.

Let’s look at recent trends in sourcing. We’re all aware that cost reduction has evolved into bundling – theorizing that supplier reduction = cost reduction. Looking again at the bottom line, assuming less managing, less RFP’s and fewer transactions = potential cost savings. However, in the big picture – we must consider reduction in product selection, increase in back-orders, fewer alternates AND where is the fair bid pricing benchmarking? More important, what about small business programs – how has their growth and survival been impacted in this process? How can SB’s compete with the billion dollar corporations? What will the impact of these GPO’s, IDN’s, FSS regulations in corporate and in the SBA be – to small business? One arbitrary solution is – smaller businesses partner with big business to bid on large contracts – again, a theoretical possibility fraught with problems. Consider that, the majority corporation 1^st tier lead is in charge and the small business is only second tier participation, beholdin’ to their mandates, whimsical rules and regulations.

Regardless of whether it’s public or private sector, I would argue that the basics of strategic sourcing (bundling, GPO’s, IDN’s, integrators, aggregate sourcing, consolidated spend intended to create leverage in negotiations and more strategic relationships overall) are in conflict with the drive to increase supplier diversity. This is the fallout of bundling. Huge corporations take over the playing field and then make feeble attempts at inclusion as an ancillary offshoot of the total project spend – poppycock. If metrics for cost savings are the primary measurable then “diversity inclusion is excluded” – this is the ultimate oxymoron.

RFPs and contract requirements must incorporate inclusion goals in conjunction with monitoring and enforcing participation utilization numbers & thresholds, measuring overall value and performance. In addition, tier one primes, must allow profitable margins for the small business. Dictating a 2-3% “profit” for the small business is bad business. My accountant has never told me that my company would be in good financial health working on 3%. And I know my banker would be unhappy if I presented him with that abysmal bottom line on my financials.

Strategic sourcing and supplier diversity/small business programs do not have to be in conflict in either the private or public sector. But when reducing costs through strategic sourcing initiatives becomes the bullseye target – private and public sector risk reversing SB progress just as it is gaining steam. This type of business, will ultimately destroy the growth and success for supplier diversity that we’ve seen, thus far.

There is true inclusion success when robust sourcing practices incorporate small business and enforce the participation with truth in profitability for all.