Management and technology consultancy BearingPoint says big organisations should ‘be nicer’ to small and medium sized suppliers.
BearingPoint also warns that overly rigid procurement policies threaten the survival of SMEs.
A report by BearingPoint recommends that big companies and public sector organisations should partner more with SME suppliers rather than continually squeezing them on cost.
“Many Irish SMEs have railed against the growing power of procurement managers with an overly rigid focus on price, not only in the private but the public sector also. Our findings suggest that the balance of power may be starting to shift towards suppliers rather than buyers,” says partner Michael O’Dwyer.
The report says there is a diminishing pool of low cost countries from which to source, due to rising wages and the financial crisis.
“The nature of supply has changed, and it has changed for ever. While some organisations are still looking for lower cost sources, there is no longer an excess of global supply.”
The study says organisations have arrived at a “fork in the road” in terms of how they treat key suppliers. “The bottom line is that if your suppliers fail, so might you,” it adds.
Mr O’Dwyer comments: “Today’s reality is that organisations are more dependent than ever on their suppliers and so the cost of changing them is also high.
“Leading businesses are looking to engage in a more sophisticated manner with their supply network to reduce costs and benefit from its increasing knowledge base. In today’s networked world, innovation and know-how can be more valuable than gaining additional marginal cost savings.”
The report highlights the risks: “Some suppliers are ticking time bombs, operating at very low levels of profitability. The risks to purchasing organisations are mainly financial and operational such as stock-outs leading to revenue loss, costs of shifting suppliers, reputation risks with customers, but also governance and other dangers.
“Industrial companies need better ways of working with their suppliers, as the current relationship model risks undermining their own businesses.”
Against conventional thinking, the report advises businesses to forge closer ties to suppliers and to build a more sustainable and strategic partnership.
‘Will your suppliers turn from strategic to catastrophic?’ may be found at: http://inst.be/ 004ST