Terrence Belford
Financial Post
Monday, May 31, 2004
When it comes to leveraging purchasing power, small offices are often at a disadvantage. They do not have the ability to buy in bulk and pocket the deep discounts big orders bring. Nor can they afford the expensive software that gives large enterprises the ability to manage their supply chain efficiently and negotiate deals with suppliers.
But even small companies can take steps to remedy the problem, experts say: They can work with large enterprises that are willing to share their resources with small suppliers, they can join together to increase their purchasing power, and they can hire purchasing experts.
Many large and medium-sized companies that buy from small enterprises are undergoing a change in attitude and now are trying to help. Instead of trying to shave every penny they can from small companies, many are opting for enlightened partnerships where the big companies use their expensive software and buying clout to benefit their suppliers.
"A couple of years ago, marketplaces were all the rage. The theory was that big companies got together and beat down suppliers," says Peter Nikitopoulos, solutions architect for software maker SAP Canada Inc. "They quickly found that didn't work. Now they are coming around to supplier relationship management.
"Big enterprises are using their own sophisticated software and financial resources to help small business suppliers. They are extending down the line information and resources to help suppliers better manage their own costs."
At the same time, small companies recognize that collectively they represent Canada's biggest market for goods and services.
Garth Whyte, Ottawa-based executive vice-president for the Canadian Federation of Independent Business, points out small businesses in Canada account for half the country's gross domestic product and 60% of all employment. "The problem has always been getting them organized to use that cumulative purchasing power."
The CFIB has been able to translate the clout of its 105,000 members into deals with Alliance, formerly AT&T, to give members a preferred rate on long distance calls and with Scotia Bank to discount the cost of point-of-sale debit card transactions. The possibility of extending the CFIB's enormous purchasing power into other areas is slim, however.
"We worry because we don't want to be co-opted by big institutions," Mr. Whyte says. "We get maybe 400 companies a year, big ones like Staples Business Depot, coming to us offering discounts to our members. We say no because it is a conflict of interest. Many of our members are in the same line of business and we can't offer a service that competes with them."
A new online service, started by Small Business Big Savings Inc. of Markham, Ont., has brought together the suppliers small businesses regularly need to increase purchasing clout. Businesses with one to 100 employees can log on to the site
( www.smallbusinessbigsavings.com), pay for an annual or monthly membership and order business necessities with a guaranteed 24-hour delivery.
Members can take advantage of significant savings negotiated with SBBS, says Brian Daley, business network manager. "Office supplies average 35% savings and printer cartridges 25%." Other of the current nine categories offers similar savings.
The fragmentation of the small business market is a common lament among vendors who want to cash in on their massive numbers, says Steve Convey, partner in charge of consumer and industrial products at Accenture, the global consulting company. "There are very real impediments on both sides. Most are too small to gain volume discounts or to take advantage of the latest software. At the same time, that fragmentation makes them difficult to market to effectively."
Mr. Convey suggests small business owners and managers look at the long term. Today's small business may be tomorrow's medium-size enterprise. Even if it cannot exercise clout today, tomorrow may see it grow to a size where purchasing leverage is not only possible but essential.
"What they want to start with is attracting or training professional purchasing people," he says. "They can make an enormous difference even for a small company. They know where to go and how to develop beneficial supplier relationships."
As a budget item, purchases can account for between 40% and 70% of business costs. It is also the crucial interconnect between the enterprise and the supply chain, he points out.
"Small business tends to hold suppliers at arm's length. It has to learn lessons from the most successful large and medium-sized companies," Mr. Convey adds. "They leverage purchasing by working closely with suppliers to do the basics like improve delivery times, reduce inventory, guard against obsolescence, improve quality and reduce costs."
© National Post 2004
