Small businesses are the engine room of the economy, providing jobs and fresh ideas. Here’s how to make sure your business is SME-friendly...
Small businesses are anything but small fry. The vast majority of firms are micro to medium-sized enterprises, with ‘small’ usually meaning less than 200, but they sometimes include up to 500 employees.
They are an essential part of the supplier network of larger companies and play a crucial role in contributing to more prosperous societies across the world. In addition to boosting GDP, they’re a key source of employment, and their entrepreneurial success may improve living standards for all.
Many larger corporates and public sector bodies are cognisant of SMEs’ importance and are increasingly using spending power to ensure small businesses are part of their supply chains. Some have set percentage targets for themselves or sub-contractors, or have adapted sourcing strategies to level the playing field for smaller firms bidding for work. Other organisations, however, are struggling to know where to find smaller suppliers, how to promote opportunities to them and retain their interest throughout what can be an arduous and expensive procurement process.
But, when a major project is initiated, or a global event is brought to a region, it is a unique opportunity to benefit the region and its economy, particularly by engaging SMEs.
When Dubai was selected to host Expo 2020, the programme set out to leave a lasting economic legacy, contribute to new business generation, GDP growth and job creation in the UAE and across the region.
Expo 2020 follows a five-year cycle, continuing the 168-year history of great exhibitions held around the world. The six-month event will open in October 2020 in Dubai, and will host 192 country pavilions, include more than 200 restaurants and feature 60 live shows a day. It will showcase everything from hyperloop travel to the future of food.
Her Excellency Reem Al Hashimi, a UAE minister of state and director general of the Dubai Expo 2020 committee, says the project’s procurement processes have been designed around the principles of “simplicity, transparency and inclusivity” to allow anyone, anywhere, to tender as easily and competitively as possible.
The programme has already won professional merit with a CIPS Procurement Excellence award in 2018, and also won Best Cross-Functional Teamwork Project in last month’s CIPS 2019 MENA awards.
Understanding the process
Richard McGuire, vice president of procurement, says that having experience of being an SME on the other side of deals and having “stood at a copier for more hours than I care to mention making duplicate hard copies or answering a gazillion tender questions, it’s a personal crusade to make it as simple as possible” to engage SMEs.
Expo has committed to spending 20% of its budget with SMEs and has a multi-pronged approach to attracting them.
“We looked at traditional means of getting the word out through newspapers and adverts,” says McGuire, “but we weren’t reaching the right demographic and it cost a fortune.”
Looking for higher impact at lower cost, they used social media platforms including Facebook and Linkedin for more targeted campaigns. They also asked suppliers already engaged in Expo to become ambassadors for the project and are doing things differently to stand out from the crowd. One way is through prompt payment terms and even paying upfront a proportion of the contract sum to smaller suppliers. “Word gets out very quickly about that,” McGuire says.
The team also holds ‘Business Connect’ sessions, interactive workshops exploring categories of spend with potential suppliers – everything from design and facilities to the cultural side of the event.
McGuire and his team have also responded to feedback from small suppliers requesting easier registration. “It used to be a bit laborious to register on our online marketplace (OMP), so we’ve made it as simple as possible. Anyone can register, from a street performer to a multi-national, and we realise SMEs might not have all the same documentation as bigger companies.”
McGuire recognises that while some such portals are not free for suppliers, Expo is serious about getting businesses to work with them, therefore the service must be free.
And more than a one-way tool, the platform is a genuine marketplace where suppliers can make their profile visible to other vendors. Complementing the Expo’s theme of ‘connecting minds, creating the future’, suppliers can post questions or launch their own opportunities.
The system has been developed with Dubai Smart Government. “Expo 2020 is a government entity and when building the portal we kept an eye on the future, potential legacy and how other UAE government entities may benefit from the OMP,” says McGuire. “Our hope is we have built in functionality to make the portal usable long after Expo shuts its doors.”
McGuire says his team already has around 35,000 vendors registered. The team has also held webinars and an annual conference to flag future work. “We announced 240 opportunities, AED4.7bn of business for 2019 alone, which has subsequently grown.”
Expo has also issued grants to a number of start-ups. It launched a campaign featuring Lionel Messi kicking a puncture-proof football, which has been distributed to communities across a number of countries. “It’s a product we’ve helped to develop with a start-up. It aligns with our own goals of creating something that can be enjoyed not just today, but over a far longer period,” he says. And at a more grassroots level, it has facilitated links between large and SME suppliers.
In the UAE alone, the demographic of smaller businesses is incredible, he says. “The size of the community is huge and it contains a massive breadth of knowledge that is agile and quick to come to market.”
In the UK, SMEs produced a combined turnover of £2tn, more than half all private sector turnover in 2018, says the Federation of Small Businesses. One project making use of SME power is the Super Sewer, a 25km pipe to clean up London’s 150-year-old beleaguered sewer system. Built for a population less than half its current size, it results in millions of tonnes of overflow raw waste spilling untreated into the Thames each year. Tideway, an independent regulated water company, was awarded a licence from Ofwat in 2015 to build the Thames Tideway Tunnel. It has procured main works construction with three joint ventures (JVs) that are carrying out the work overseen by a project manager, and runs its own corporate procurement function.
Working with SMEs supports both the economy and the programme’s legacy commitments, says Lee Taylor, programme supply chain manager. “SMEs can be more flexible and quick to change compared with larger businesses and often provide innovation and fresh thinking.”
The aim is to use as many SMEs as possible, with no specific target or ceiling on numbers. Tideway legacy commitments focused on SMEs (linked to planning conditions such as Section 106 or self-imposed) include: the promotion of procurement packages and support; a process that supports payment within 30 days of invoice; and ethical sourcing practices.
Tideway’s JV contractors are required to use contract opportunity platform CompeteFor, or an equivalent web-sourcing portal, to advertise all work packages valued below £10m. They must also ensure sub-contractors use the system or similar to advertise opportunities further down the chain.
“SMEs don’t have sales teams knocking on doors or their finger on the pulse of every opportunity – that’s the beauty of systems such as CompeteFor, they can involve them in the process,” explains Taylor. “CompeteFor was set up for the 2012 Olympics and taken forward to Crossrail and other projects. It is now best practice for projects of this value with a high use of public money and enables us to attract a greater number of diverse companies.”
Registration is free thanks to Tideway’s funding of the system and companies can connect with other suppliers, as well as find out about upcoming work.
JVs also sign the Fair Payment Charter within a week of an SME starting work, while project managers ensure arrangements are honoured, including the Prompt Payment Code’s 30-day goal.
Tideway also advertises deals expected to be above £363,424 in the Official Journal of the European Union and supplier engagement events are held local to work sites and at national events such as the UK Infrastructure Show. The team also carries out market research and pre-market engagement activity to find out about key providers and innovators.
Janet Chinnery, head of corporate procurement, says while corporate procurement is relatively small compared to the larger works, it’s vital Tideway adopts the same approach to sourcing that it expects of its main contractors.
“It’s a multi-faceted approach,” she says. “You have to have a system and culture of engaging SMEs – systems are an important part, but they won’t deliver it alone.”
Support beyond the project
Networking among suppliers has been facilitated on tours and at meetings, and smaller businesses are given extra support to develop beyond Tideway.
“We recognise we’re a time-bound programme, so we can be giving SMEs a lot of business, which will then stop. We ask them about future plans and what they’re doing to support their business. It’s a very supportive environment from a procurement perspective.”
Main contractors are expected to carry out robust contract management and constructive engagement with suppliers. They have regular meetings and forums with supplier groups to overcome challenges, discuss skillsets and hand over one section of works to another. This teamwork approach helps the programme, and enables connections to be made within the supply chain. Taylor concludes: “We want SMEs to thrive whilst working at Tideway and to use their experiences with us to develop and ready themselves for future opportunities.”
Thriving SMEs were also a goal for the UK’s Olympic Development Authority (ODA) during the build of the London venues for the 2012 games. It awarded almost £6bn worth of business, or 1,400 contracts, to UK companies, including many businesses further down the supply chain. While some of Britain’s best-known construction companies, including Balfour Beatty and Sir Robert McAlpine, were working to build the Olympic stadia, the majority of firms involved were SMEs such as Weldex in Inverness, RMD KwikForm in Walsall, and Burdens from Bristol, who supplied the materials and services.
“The big companies oversee the performance of the SMEs,” John Armitt, chairman of the ODA, said in 2011. All contractors went through a “detailed vetting process” based on price, previous track record and “their attitude to the values we wanted to adopt here”, he explained. That the 80,000-seat Olympic stadium in Stratford was completed on time, on-budget and with a near-impeccable safety record is testament to the work of the SMEs involved, says Armitt.
Indeed, as the UK’s Federation of Small Businesses says: procurement is an essential lever through which to support small business growth and innovation, and therefore enhance the productivity and the wider competitiveness of the economy.
Organisations that assume they know the market, always approach the same pool of suppliers, or fail to take a flexible and thoughtful approach to sourcing that could attract SMEs, run the risk of ultimately losing out on the innovation, variety and economic growth that these millions of enterprises provide across the globe.
Harsh payments terms will make SMEs walk away
Steve Dineen is CEO and chief storyteller at Fuse Universal, an alternative learning management platform that employs more than 150 people across the world and has FTSE 100 clients.
He says to be taken seriously, SMEs need to ensure they can demonstrate that all contracts, policies and procedures are documented and offered up to the prospect early in the process. It worked with consultancy Bridge Procurement to be able to better engage with large businesses.
However, Dineen says there is an inherent imbalance when it comes to winning work. “Corporates are professionally trained to negotiate against us and sales teams are often not sufficiently trained to take on the might of the corporate procurement team.”
As procurement is often late to the process, it could be pushing for lower prices when discounts have already been made, he says. Yet, these SMES can instead add value in other ways.
“Too often, the same procurement processes and procedures are applied whether you are a Walmart or an SME. Harsh payment and contractual terms are often requested with no opportunity to negotiate, leaving us in a dilemma of whether to pursue the opportunity or walk away.”
Tips and advice from peers
• Be careful not to preclude SMEs from bidding by setting the bar unnecessarily high in terms of turnover thresholds, insisting upon high insurance or health and safety requirements.
• Make online marketplaces and portals simple, free and quick to use.
• Enable suppliers to engage ideas and make connections.
• Do not place too much risk on smaller suppliers at the outset and set them up to fail – risk should be shared appropriately.
• Know whether your business is more than 50% of the SME’s turnover, which could be a cause for concern.
• Consider your typical non-negotiable terms, business processes, policies and financing methods and whether they’re appropriate for SME suppliers.
• Don’t overcomplicate your KPIs. Ensure they are clear, concise and supportive, with the requirements of your scope.
• Ensure prompt payment in line with fair payment codes. A massive proportion of SMEs fail because they’re unable to settle loans, settle debts or pay staff on time because clients delay payment. Good cash flow is key.
• Be a good customer. Communicate, support and be flexible.