VIDEO: Diversifying your supplier base

Video transcript.

Leigh Hatfull: Well, there are two reasons that I can think of. One is concerning the, well it’s going to be supply chain resilience and ironing out risk from within your supply chain. And I think the second one, the second reason, is more applicable to public sector where there’s a general drive by government for public sector to not always use the same, kind of, obvious suppliers, but to actually increase the diversity of suppliers in competition for contracts. One of the challenges with that at the moment is that small to medium enterprises are not generally on many of the existing frameworks, they’re not very proficient at responding to tenders and there is a challenge there in terms of them being able to access competitions and win them. So I think there’s a couple of reasons there around diversity and then it becomes the how – how to address the supply chain risk on the one side, and then on the other side, getting some SMEs to the table more often and getting them winning contracts.

Mick O’Donnell: The only thing I’d add is, I think, in terms of there’s a balance. Sometimes there’s an obsession with ‘we need to change suppliers’ and there’s a view of changing suppliers is a good outcome and actually you kind of get into this cycle nearly because you’re not building strategic relationships with them, you’re not really understanding how you extract value, that you get in this loop of every five years the supplier and the contracts failed and they haven’t delivered what you needed it to do and therefore you’ve nearly got a mindset of ‘if we change supplier then everything will be better’ but you’re probably going to replicate the same mistake as before if you don’t manage them properly and it’s not clear what you need, then you’re probably not going to get the outcomes you want. And I think the point is a really valid one in terms of diversification and I think it’s forgotten a little bit sometimes in terms of how important that is to build. And I think that’s been proven over the last couple of years, with things like the logistical problems, the changes with BREXIT and everything else, actually having that resilience in the supply chain so that you’re not just not reliant on a single supplier or products coming from a single region, you have to consider how do you actually make that more robust and do you think – I don’t know what you think, Leigh, but is the focus more about price or is it more about risk in terms of why you think suppliers are focused on diversifying?

LH: I think it’s probably both, I think if you increase diversity in theory you increase competition, you bring new, potentially hungry entrants to market, but I think diversification by it’s very nature is a really good hedge against the risk of single supplier failure. I think it’s been quite interesting, picking up on a comment you just made talking about the kind of Covid-era. Lots of business came under financial pressure, as we know, and I just wonder how many suppliers to public sector that are out there are actually not in a great state in terms of financial standing. So it’s probably worth public sector organisations, or any organisation actually that’s procuring from a supplier, if they haven’t done a review on the credit risk side with their supply chain, they probably ought to. It’s probably of a key activity to be undertaking if it’s not be done recently.

MOD: Yeah, I think that’s changed a hell of a lot, but I think we do a lot with the SME space and it’s not just an SME challenge, I think it’s the same with some of the other organisations. I think there’s a real feel that it’s a bit of a closed shop and I think that’s a frustration that shared both sides if I’m honest because I think if you speak to clients, they are nearly fed up in some degree of dealing with the same suppliers because they’re the only ones that are available or they are the only ones in public sector that are available on frameworks and it becomes a very stale market place that the suppliers become complacent, there’s a lack of innovation, the clients have frustration because they can’t do things differently, and I think that’s replicated supplier side – they think that unless you’ve got, unless you invest hugely in a dedicated bid team, and it’s nearly like an industry on it’s own, that you can’t successfully grow in public sector. And so, from our side, I think we find that really frustrating in that we think there’s a real value in bringing in new suppliers and helping them to understand the procurement process and break that down into a simple thing, but when we’re running procurements we have to make sure that they are easy for these guys to follow and we’re encouraging them to bid and try and break that, kind of, very stale environment that exists at the moment. I don’t know if that’s what you see?

LH: Yeah, absolutely. And I think one of the key things that’s with the small to medium enterprises and making it easier for them is that given those small to medium providers as much notice as possible about competitions and tenders coming out because one of the challenges they have, because they’re so thinly resourced, it’s the cost of dealing with that opportunity they need to be kind of galvanised towards it, otherwise if they’re not respecting the tender, essentially they won’t be able to mobilise any kind of resources to bid. The bigger organisations, they have bigger teams and they’re able just pick this stuff up and make it happen, so I think that’s a kind of key factor for me as well.

MOD: Do you think organisations are sympathetic enough to how expensive and time consuming it is for people to bid? I get the feeling sometimes that clients don’t necessarily, they’re not necessarily dialed into those elements and that actually in a lot of these industries now – especially in construction – it’s so competitive, that the balance is shifted to the suppliers in some degree and they’re much more selective about what they’re willing to bid on and how good a job the client’s done in terms of building specifications and having a clear routes to market strategy, and if that’s not there and they’re not articulated, they’re not willing to get engaged.

LH: Yeah, definitely, I definitely see that. The buying authority has to be very mindful of the market and how the dynamics have swung. I think, again, over the last few years there’s a lot of work out there now and definitely on the supplier side they’re picking and choosing about what they get involved with. And sometimes you get funny days with tenders dropping in, the tenders come out perhaps pre-Christmas, or pre-a bank holiday weekend and it just, again, adds extra pressure to smaller organisations where they’ve got a small team already and people will be taking holiday etc. It kind of just precludes them from getting involved in a lot of cases and that’s not really ideal. So I think, when we work with clients we obviously do try and steer them away from doing those sorts of things and be a bit more mindful of including SMEs and giving good forward notice and involving them in market engagement, and so on.

MOD: And I think it’s the appropriateness of the process is what gets lost. It think what I often see is that there’s a tendancy within organisations to just dust off the tender docs from before and go again, and the world’s changed. So what they are asking for isn’t appropriate, the solution isn’t appropriate and I think people find that very frustrating that they actually have a better way of doing it and they’re nearly not given the opportunity to articulate that because they’re working within the confines. But what I think the SMEs really struggle with is that sometimes the size and the expectations of these tenders is so big and so time consuming that they just dial out and I don’t think necessarily that that’s considered enough in terms of the appropriateness of the questions and the size of the documentation and how easy it is to navigate, I don’t think that’s always factored in to really appreciate the effort that suppliers have got to put in to responding.

LH: I completely agree.