The APQC Blog

Small Suppliers Face Pain from Changing Requirements

Small Suppliers Face Pain from Changing Requirements

“This will kill small companies.” 

“This” refers to the increasing complexity in sales and contracting processes. Dramatic sentiment? Yes, and this statement reflects the frustration I’m hearing from small service providers dealing with large, global buyers that have adopted a “one size fits all” approach to contracting and procurement. In many cases, small suppliers find their customers are requiring increased compliance with requirements that are not applicable, relevant, or feasible. 

And at the same time, we hear larger, global organizations expressing increased interest in sourcing from suppliers that are more diverse, local, and sustainable. However, the unbalanced distribution of power coupled with rigid processes can lead to painful results that are making it tougher for those smaller organizations to serve larger customers. Recently I’ve been talking with smaller service providers about their experiences. 

Compliance Requirements Hurting Small Service Organizations

Many small service organizations report facing numerous compliance requirements when selling services to bigger buyers. Here are a sample of challenges I heard first-hand where the requirements don’t fit the deal that is on the table. 

  • Burdensome insurance requirements – One supplier was required to have auto insurance coverage, even though all work was to be done remotely (and the supplier doesn’t own any vehicles). 
  • Expensive compliance audits with no guaranteed deal – One large customer requires all suppliers to undergo audits that cost the supplier about $50,000. However, the supplier isn’t assured of getting the work. They told me, “You don’t even know if you are going to get to supply them in the end.”
  • Automation exhaustion – Suppliers are spending quite a bit of admin time entering similar but slightly different information into multiple platforms and portals for customers, consuming valuable time from limited resources. While automation helps the buying organization, the impact of interacting with many different systems on smaller suppliers is not trivial.
  • Cycle times are sloooower – For some small suppliers, it is taking significantly longer to close deals with more approvers involved and more discussions required as part of the buying decision. One supplier said it currently takes 50 percent longer than defined or known for every individual customer. Another said they now have 10 times the number of discussions compared to the past for each deal. And unfortunately, sometimes government clients just cancel RFPs after the supplier has submitted a response, so all that effort gets wasted.

I think it’s fair to say that most suppliers are in business to make money, or at least they can’t stay in business if they don’t make money. However, the smaller service providers I’ve talked to are happy now when they get paid in 45 or 60 days (vs 30 days ideally) because a growing number of customers are paying a minimum of 120 days. That’s four months after services are rendered before payment is received. And for a small company, that is a massive time gap that impacts working capital, the ability to pay bills, and even—at the extreme—survival. 

Solutions For Smaller Suppliers   

As they continue to get squeezed, small suppliers are looking for ways to increase revenue (e.g., additional fees or price increases), or they are considering not accepting certain jobs. For the future, many want smaller and shorter engagements with fewer compliance requirements and headaches.

In requests for proposals (RFPs) that require certifications, one supplier said they will submit a question to see if certifications are showstoppers. If they are, the supplier will drop the RFP and not respond. For some certifications or clearances, it’s a matter of time and not just money, e.g., it could take a few months to obtain the clearance, and the RFP is due in 30 days. One supplier stays away from those projects. “I have to weigh the probability of winning an RFP vs the effort and cost required to respond.”

Awareness is Key

As larger organizations look to standardize their procurement processes and automate more of the buying process, they need to keep in mind the impact of their actions on their suppliers, especially smaller ones. Many systems are built for transactions between two large organizations. If complex buying processes and compliance requirements effectively eliminate many of the smaller service providers those large buyers strategically want to include, then is that truly a win?

To read more about how to make life easier for your small service providers, look at this article from APQC: Burdensome Contracts are Pushing Service Providers Away. 

APQC and subject matter expert Kate Vitasek want to explore additional research on this topic. We want to encourage organizations to consider when a “one size fits all” approach needs to be replaced by a “best fit” model. Want to discuss this further? Please contact me on Twitter at @MB_APQC, or connect with me on LinkedIn. You can also comment below or reach me via email by clicking here