Supply Chain rationalization means fewer jobs in small businesses

At a recent conference an entrepreneur at the $25 million sales level mentioned that all the bigger organizations preferred to deal with $100 million level firms for purposes of supply chain rationalization. Quite understandable, but this does affect  employment in US small businesses. Let's see how:

  • Supply (procurement) managers buy goods and services that must fit reliably and seamlessly to the process and supply chain of the buying organization. Reliability of the supplier is absolutely important and rises exponentially according to the items risk value position.
    • For big volume leverage items like raw materials or direct materials and services it's difficult for the buying organization to take a risk with a small business.
    • For strategic items and particularly high knowledge content services sometimes a big firm will hire a small business but again large suppliers have an advantage as they come across as less risky.
    • Bottleneck items do not have volume and do require large investments as in making pneumatic valves for food process industries. Here too small businesses are at a  disadvantage.
    • Non-critical items like stationery also favor large suppliers primarily due to the ability of the larger firms to offer on-line ordering and better servicing.
  • The alliance mechanisms for smaller firms to achieve scale in B2B markets are just not well developed. The only option is to merge and become big and in the process rationalize the merged organization that inevitably leads to job losses.
  • Small businesses inevitably collapse to operating nail spas, restaurants and liquor stores that are strictly B2C and offer only low wage US employment.

Given that a large part of alliance and B2B marketing thinking derives from the human marriage model, perhaps it is time to have some kind of easy ways of arranging small business alliances and entities. These alliances and entities should be able to give comfort to big organizational buyers so that small businesses get orders in the value add – high tech- high pay segments of the economy. Or else the US economy and its small businesses will only be creating low paying jobs in nail spas and restaurants. Contact StratoServe.

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