What is the most effective way for government to engage the SME supply base? (Part 2)

Posted on August 13, 2010

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The following is the second of a 2-Part series in which Part 1 (Defining “meaningful accessibility” across the spectrum of spend (Part 1)) appeared in the Procurement Insights blog on August 9th.

It seems like a fairly simple and straight forward question to which an immediate answer should be readily forthcoming.  However, for those of us who have operated within the realms of public sector procurement, there is no such thing as simple or straight forward answer to any question.

This is perhaps one of the main reasons why software vendors have found it challenging to automate the government procurement process, despite the significant dollars that are often left on the table through lost savings and growing inefficiencies.

For example, one of the most interesting disconnects in terms of unrealized benefits is directly linked to eAuctions.  Now before you point to the predatory nature of these platforms including concerns that are centered on issues such as decimating the Value-Added Reseller or “VAR” market – which consists mostly of SMEs – as it makes it easier for large manufacturers to go direct, let’s hear a comment or two from our usual panoply of respected industry pundits.

For example, this is what IACCM’s Tim Cummins had to say when asked the question “what would you believe is the best and most effective way for governments to engage the SME suppliers?”

“My immediate reaction is that public sector can be innately attractive because it is reliable and pays its bills. These are traditional strengths – they need to be maintained.

Public procurement rules are often interpreted in a way that passes extensive risk to the supplier, but many SMEs are happy to live with this (more than large vendors) and they welcome the level playing field that such rules imply.

However, the downside is that public procurement tends to be extremely bureaucratic, slow and risk averse in its process management. So it can take years – and massive investment – to realise business. SMEs frequently have to expend many hours of effort in demonstrating they are serious, building a relationship etc. It can be very difficult getting guidance on true requirements and the decision process is frequently opaque, involving dozens of invisible stakeholders.

Once in, things probably improve. But opening the door to business is far too costly and complex. That is where improvements must be made. Things like eAuctions could improve all this – if the procurement staff and their masters understood how to use it. In the SME market, they cannot ignore risks, but need to find ways to streamline the process of bidding and selection.”

Note: be sure to check out Tim’s Commitment Matters Blog

Of course access alone should not be the only focus as reflected in the following observations by 30 plus year UK public sector veteran Colin Cram, whose “Towards Tesco – improving public sector procurement” paper is something about which I have written extensively.

Tim Cummins

In what I would refer to as coming from a position of meaningful access, Cram had this to say:

The first suggestion I would make is to measure where one is. I did this for local government in the north west and, against all the conventional wisdom, found that over 60% of contracts were let to SMEs, over 30% of spend. SMEs were competing with each other for business, not with large companies. Arguably the percentage of business with SMEs was greater than was ideal. However, there was another downside. Many of the SMEs – possibly the majority, had been used for years, getting repeat business rather than competing for it. So, instead of being a way to get new ideas and innovation into the supply system and the business, they represented ossification.

Another point about SMEs is that there often tends to be confusion between ‘SMEs’ and ‘local’. SMEs are not necessarily local; so supporting SMEs does not necessarily support the local economy. So one has to be clear about what one is trying to achieve.

There are various ways to make life easier for local suppliers. One is to advertise in local journals about future contracting opportunities. Another is to make on-line tendering easy and to make sure all local businesses know about it – again briefings can help. One can also look at one’s tender documentation to see if it inadvertently discriminates against SMEs, e.g. requiring unrealistic and irrelevant amounts of business insurance. Also, one needs to keep ones processes and documents simple and relevant. Directors and staff in SMEs do not have the time to wade through masses of legalese and often don’t understand it. Specifications can be slanted in a way that may provide greater opportunities for SMEs and local suppliers, though some people would say that is anti-competitive and in danger of distorting the market.

Educating local suppliers about the procurement process and about how they can best respond to tenders to increase their chances of winning can be helpful. Tendering is an art and large companies have a major advantage as they can employ full time tendering professionals, so the aim of education is to even up the odds.”

Colin Cram, Towards Tesco

What is great about the above statements is that they reflect the convergence of what I had referred to in Part 1 as being the “differences between procurement expertise and technological innovation.”

In many instances these two dependent yet inextricably linked elements of a successful eProcurement initiative have moved in the unrelated orbits of client responsibility and vendor ROI promise.  The fact is that you cannot really have technological innovation without procurement expertise, nor can you practically leverage procurement expertise without the tools as IACCM’s Cummins put it “to streamline the process of bidding and selection.”

In this new paradigm of collaborative and collective understanding, vendors today have to possess both the functional expertise and technological wherewithal to effectively bring these key elements together under a single, shared platform.

This means that the realities of the changing landscape is that suppliers will be engaged at the point of their strengths versus through the mirage of a level playing field.

Going back to what I had earlier referred to as being the concern that eAuctions would decimate the VAR market because large manufacturers could now go direct, the truth is that while one avenue of declining revenue may indeed close, other more lucrative and better aligned opportunities will be made available to these “displaced” SME suppliers.

In the end, suppliers will benefit by gaining faster and more meaningful access to opportunities that are best suited to their capabilities, while governments will be assured of consistently driving best value results through a proper realignment of their supply base.

One suggestion . . .

With the software industry going through a transformation of sorts as vendors such as Ariba and SAP move into the clouds with Software-as-a-Service “SaaS” solutions, it is becoming increasingly difficult to know the players without a scorecard.

In this regard, one company (and yes they are a sponsor) that immediately comes to mind as a player to watch is SRS.

Through the recent expansion of their intelligent contracting platform RFPBlaster to include the U.S.-based FedBid solution, SRS now collectively provides the meaningful access we have been discussing across the entire spectrum of government spend.  As always, I will let you judge for yourself in terms of the effectiveness of their offering however, do check them out as I am certain that you will find their approach quite interesting as well as effective.

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