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11 June 2012 | Adam Leach
Purchasers are taking on the role of venture capitalists to develop suppliers and benefit from their increased competency, according to one CPO.
By investing spend, time and resources to develop vendors to take tangible benefits from improvements in their performance, buyers are essentially playing a role similar to venture capitalists.
Speaking to Accenture for its report The Sustainable Organization: Lessons From Leaders Series – The Chief Procurement Officer's Perspective, the CPO of a global mining firm that operates across Latin America, Africa and Asia likened supplier development to an investment fund.
The anonymous purchasing leader said: “It’s really an investment fund we create to provide seed capital. We then identify potential opportunities and expect a return on investment. We’re aware that some firms will fail, but we closely monitor their progress as we try to help them develop.”
Supplier development is particularly important for companies in the mining sector, as working with local suppliers and contributing to the economy surrounding mines is often a key requirement in getting a licence to operate.
Tata Steel has also taken steps to develop businesses around its operations. The company gives preference to small local suppliers over multinationals where appropriate, provided basic standards are met. To develop the strength of local suppliers, the company provides them with raw materials, as opposed to selling them to them, which are then turned into finished goods, spares and consumables.
By giving the suppliers raw materials, it reduces the need for capital investment and enables the businesses to grow. The company also provides training to the local communities to enable its suppliers to pick from a pool of skilled workers.
Kees Gerretse, CPO at Tata Steel, told researchers: “We train people in the local community, for example in information technology, so that children from poor families can have a realistic chance of getting jobs with these local suppliers in time.”
The report recommended CPOs “establish supplier outreach and training programmes”, “ensure that funds actually reach the disadvantaged suppliers being targeted”, and “consider that every deal you make is a representation of not only yourself, but also your organisation”.