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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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SMEs and entrepreneurs in Africa
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About the Author: Dr. Rob Smorfitt

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Have an MBA and a PhD in entrepreneurship. Three key areas of ongoing research are entrepreneurship and innovation in large business strategy, the impact of legislation on SME development and SME finance. Run my own SME blog at http://sme-smb-smme.blogspot.com as well as an entrepreneurship and innovation for large businesses blog at http://innoveur.blogspot.com. I have been self-employed since 1982. I have started or purchased in excess of 50 businesses since then. Most were sold again and a few were shut down because of a lack of profitability. Many were run by staff or family while I worked full time in my bigger businesses. Author of 6 books. Written articles for various magazines, newspapers and websites. Experienced in research within developing countries.
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