Differentiation in Supplier Development

Supplier Differentiation Necessity for Enterprise Development

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Ask any procurement manager what the first thing is that she looks for when making a purchasing decision and you will hear the words ‘ differentiation ’.  Procurement is looking for a supplier that is good at one specific thing.   This is in line with decades of procurement practices.  The nature of procurement is such that procurement managers like categorising their purchases neatly into specific silos called categories.  This allows for category specialists and managers that have domain expertise in a specific area.

Shallow Commoditisation vs. the need for Deep Differentiation

In contrast to this we have found that many small businesses in the public sector have become generalists.  Competing for tenders that can easily be outsourced to another company means that, sadly, many small suppliers are shallow in developing specific expertise.   Rather, they become experts at the tendering process, understanding the requirements of the documentation and building up outsourced partnerships that can assist in domain expertise.  In this line of thinking the goal of the entrepreneur is to hedge their bets, and one way that this is done is by becoming a company that simply does – trading.  Picture that guy playing three slot machines simultaneously at the local casino – this has become the sad state of many entrepreneurs in South Africa.  Open any supplier directory and you will be inundated by the number of companies that have chosen their brand name by sticking their surname before the word – Trading.
We can speculate as to the origins of this, but a strong hypothesis that has been put forward is the nature of open tendering in South Africa.  The public sector has done significantly more to lower the barriers to entry for SME’s in South Africa than many companies in the private sector.   Lowering barriers to entry has meant that small companies can gain access to the supply chain.  Differentiation has however been the trade-off that has been sacrificed in order to lower the barriers to entry.  Sadly the growth path within the corporate companies has also not been mapped and very few companies have spent time engaging in the necessary supplier relationship management that would facilitate these efforts.
This has led to a process of SME recycling that has kept deep domain expertise firmly entrenched in the hands of existing large companies and has commoditised the nature of many other industries.  When companies want to make the leap across the chasm from the public sector to the private sector they soon find themselves providing a profile in which the one major thing they lack is differentiation.

Planning the Supplier Growth Journey

Mapping a supplier growth journey within a company is not an effortless process and requires depth of data analytics as well as an insight into the company that is being developed.  It is not only a matter of backing the jockey and not the horse, both need to be developed.  The nature of the partnership relationships that the supplier has, the quality management systems within the company, and the core competencies of the employees need to be understood, while also making sure that the SME is growing in other commercial relationships relevant to their field of expertise.
In many cases within corporate South Africa the end user does not have the same level of insight into the data analytics that the supply chain has and supply chain does not have the same amount of insight into the technical domain as the end user.  Both functions are required to develop a company leading to the need for cross functional work teams.

Good Suppliers vs. Great Suppliers

What can companies do to remedy this?  Consider the story of Damascus, a furniture upholstery company that was developed by Virgin Active SA to adhere to international quality standards.  The goal with developing this supplier was never to just become part of the supply chain, but to complement the Virgin brand by becoming a world class supplier that would promote the Virgin brand nationally and internationally.
South Africa Inc. can only grow if we start lifting our eyes and start competing in the global playing field.  This will require us to subject the goal of job creation to world class competitiveness, while still maintaining the integrity of a truly diverse supply chain.  We need to start seeing “Good as the enemy of Great”.