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SME's - why tendering is bad for business

Guest post by: Dr. Rob Smorfitt

Article Overview: SME's - why tendering is bad for big business and SME's

SME's - why tendering is bad for business

Big businesses, and in particular government, are wont to use tendering as a means to make their purchases. Does this make sense? In my humble opinion it does not!! It goes completely against the grain of what supply chain management is all about.

The expected benefit of tendering is a lower price that supplies a product that still meets your need/specification. However, I have over the years seen many methods which are used to ensure that none of these intended outcomes are really achieved. The tendering system is one of the most imperfect and fraud-ridden systems I have seen. The beauty of this system is that it is excellent for the fraudster, as no one person has to take responsibility.

Let us look at the system where the person who needs the product gets budget approved, and must then do the process themselves. They have to get comparative quotations and submit them to the buyng department with their recommendation. While this method is also open to fraud,the user has to provide the justification and take responsibility for the buying decision. This changes the focus dramatically. Your success and growth in the organisation become linked to your buying decisions (among other criteria). It forces a whole new level of responsibility on to you. It makes you focus on the organisation's real needs when making a decision.

The problem is that somewhere along the line, it was deemed that a relationship with the saleman would lead to improper behaviour. In fact the reverse is true. The stronger the relationship, the more insight the salesman gains into the organisation's needs, and the better solutions and products he tables. He works harder and harder to grow and sustain that relationship. This leads to the creation of a sustainable SME supplier who has an intimate knowledge of your business, and your success is his success. The client then shares his needs which allows the SME to budget properly and grow his business.

Tendering however is an anonymous process that creates no relationships, where no one cares about each other, no one can build relationships, and no one really understands the needs. The buying organisation does not get up to date information and therefore becomes less competitive themselves. Then the process itself turns the business into a lottery, and those SME's with knowledge and skills move on and all government and big business are left with are the people who tender purely on price without any market knowledge, the market's vultures. This becomes a lose/lose situation. The SME invariably does not get business a second time. Therefore he is unable to budget and grow his business, and so he seldom gets to run his business much beyond when he spends the profit from the first deal, if he made any at all?!

Yes it may seem unfair that one or two people build relationships and get all the business. But consider the value add they are contributing to your organisation. How can you improve your efficiency and efficacy if your suppliers are not keeping you on the cutting edge? But this is how the world economy got to where it is today, and there is no reason why it should not continue to work.

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Article Tags: entrepreneur, entrepreneurship, SME, SMME, Smorfitt, tender, tendering, tendering is bad for business, tenders



Related Forum Posts
Re: In-House or Outsource? - Unfortunately, in the South African context, very few SMEs see outsourcing as an option. They believe it is too expensive, and they are paranoid that someone will "steal their ideas". I believe that the three main functions that cannot be outsourced are marketing, sales and strategy. These must be done in house I believe. If you do not have the marketing skills then get them. Hire a consultant or attend a course, but get the skills. Even if you use a consultant, you need to understand what marketing is about, as no one knows your market like you do. Marketing is made to seem difficult and complex, but everyone who really understands their markets, can easily learn to do their own marketing. In South Africa, labour legislation is extremely inflexibile, and consequently labour broking is a large industry. This is an ideal starting point for SMEs in South Africa, as it is a legally complex area, whih comes with severe penalties. I say do it! Rob Smorfitt
Re: Women and Financing - It's Difficult! - I found this paragraph of interest (in the article from Nana's link: [quote="Nana":3r7womqv]Other studies show that women operate more service and retail establishments than men, which might explain their difficulty in getting financing since financial institutions often consider these two sectors more risky. However, although women are generally less inclined than men to apply for financing, when they do, they are more likely to get it. According to a study by Industry Canada on SME financing in Canada, in 2000 majority female-owned SMEs obtained a loan approval rate of 82%, which is slightly higher than the approval rate for majority male-owned businesses (80%). This suggests that when they do apply for financing, businesswomen submit excellent applications. [/quote:3r7womqv] They say, "Women are more likely to get [financing]." But the difference is only 2 percentage points! Big deal! And, that was only for one year, 2000. I'd like to know what the 10-year average is. Numbers can be manipulated to mean anything you want them to mean...it all depends on what you want to show.
Re: Is A Business Plan A Waste Of Time? - I don't see a business plan a waste of time. Actually it's a great goal-setting tool for a business and it also helps evaluate a business' performance which allows the business owner to see where the business is going. Others say that it is only important when seeking funding from lenders or banks, but I believe it is more than that, that's why I have mine written and it's a work in progress since I first started in business.
Is A Business Plan A Waste Of Time? - According to various government statistics, up to 80% of businesses will fail within their first five years of operation. That number is staggering to me. At the same time, when I look at most business owners, most of them do not have a business plan for where they want to go. When you ask entrepreneurs why they don’t have a business plan, most of them will say something like: “it’s too much work”, “I’m not trying to raise money”, “it’s all in my head already”, or “my business changes too often for a business plan to be worthwhile.” Sound familiar? Did you write a business plan for your company when you first started? Are you planning on doing it for your new business idea?
Is "Good" - Good Enough - I was just reading the thread about whether people need a business plan and this idea hit me. Someone commented that if you don't have a business plan and you're doing all right - then why spend the time or money. But, is doing good or doing all right - good enough? Maybe you're a business that is getting by and making the bills. What if, taking the time to really evaluate your business with a detailed business plan could help you see places to make some changes which could take your business to the next level? Would it be worth your time? I think it would definitely be worth the time. That could be because I've worked with a number of business owners who were "getting by", but once they committed to having someone evaluate the business - they saw a drastic increase in their revenue. So, why couldn't or wouldn't an entrepreneur do an evaluation to determine where the business is, where it isn't working and where it should be going? This could be done in a business plan format. Just some random thoughts. Shri


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