Much has been said about supplier diversity. In the UK public sector, the importance of demonstrating supplier diversity when bidding for contracts is underlined. Companies like Morgan Stanley, IBM, Serco engaged in strong supplier diversity activities in order to win public contracts.
I commend these initiatives, and firmly believe that they are of benefit. However, one of the biggest issues in managing a diversity of suppliers is ignored. The business imperative of cash-flow. We know that “cash is king” but somehow this is not considered when large corporations work with small businesses.
We know the eternal story: an invoice lands on the financial controller’s desk and is likely to stay there until after the end of the quarter – for the benefit of the business’ cash flow.
What about the small supplier however? They are dependent on that money entering their business to pay overheads and staff. Even sole traders with no overheads, depend on that money to pay their mortgage.
I would like to ask some of the accounts payable teams in the FTSE 100 companies the following:
- What would it feel like if your company sent you a letter to tell you that you will not be paid that month? Even worst, that you need to wait because somehow your details were logged on the system incorrectly and so you had to wait until that was reviewed and… Well you would just have to hold on the line, wouldn’t you?
- How would you then pay for the mortgage and the purchases you made expecting that you would be paid on time?
- You believe that all parties have good faith, and that the contracts will be honoured, don’t you? But do they? Are they?
As the founder of a small business, I have my fair share of managing these challenges. And the irony? They are all about perception….
If only, as I have argued previously, large organisations would take the time and stand in the shoes (or stilettos) of the other party – in this case their suppliers and understand the pressures they are feeling and how they could best support those. I believe that we need to look deeper into the supplier/purchaser relationship, beyond the typical metrics of:
- Ownership – number of cultures in the business/whether female-owned
- Number of employees, etc
The key to managing suppliers appropriately, should include measurements that look at the key requirements from the supplier’s side, on:
- Clarity of brief or tender requirements
- Transparency of purchasing process, and, critically
- Speed of payment/remuneration
If we are serious about fuelling entrepreneurship and diversity for the benefit for the global economy, then we need to consider and implement these metrics. So, if you are a large corporate working on supplier diversity please take note. The companies that will outdo their competition are the ones that take these initiatives seriously and make them work for them.
I know I am working on a plan to make this happen. More of this in due course.
