Strategic sourcing is the process, methods, systems and tools to optimize supply channels with a focus on achieving lowest total cost.
The Catastrophe of Strategic Sourcing, COVID-19 and U.S. Small Business Summary
- Over the past 10 years, U.S. Big businesses have shrunk the number of companies they purchase goods and services from to cut costs, a result of strategic sourcing initiatives.
- Strategic sourcing unfairly blocks U.S. Small B2B businesses from being able to compete for goods and services because U.S. Big business will only buy from preferred suppliers.
- In the United States, Small businesses employ 59.9 million people or 47.3% of the U.S. workforce as of March 2020.
- Even with the help of PPP stimulus, U.S. Small business bankruptcies are accelerating.
- Beginning in 2021, unless U.S. Big businesses change their policies and practices, we will see a catastrophic and systemic collapse of U.S. Small businesses resulting from strategic sourcing and COVID-19.
Strategic Sourcing Background
As 2020 comes to a close, the U.S. is beginning to see some light at the end of the COVID-19 tunnel. Recent news from Pfizer is that their COVID-19 vaccine is 90% effective and Joe Biden appears to be the winner of the U.S Presidential election. As the U.S. approaches over nearly 11 million total COVID-19 cases and 250,000 deaths, the U.S economy is quietly and quickly failing. More and more U.S. Small businesses are failing, while many U.S. Big business are achieving record profits.
COVID-19 and U.S. Small Businesses
The U.S. has taken unprecedented steps to keep businesses open, operating and employing people. The CARES Act and PPP stimulus has helped, but it was too late for a vast majority of U.S. Small businesses. Those U.S. Small businesses that are continuing to survive are now failing in record numbers as the stimulus is exhausted and economic activity has consolidated into only a few industry segments benefiting from COVID-19.
U.S. Small Business-to-Business (“B2B”) companies are disproportional impacted by today’s COVID-19 reality. To understand this impact, we must rewind back to the end of the Great Recession. In 2010, U.S. Big businesses moved quickly to optimize the purchasing of goods and services as a lesson learned from the economic downturn. Cost cutting was a driving trend and Strategic Sourcing was the mechanism used to achieve this goal.
Catastrophic combination of Strategic Sourcing and COVID-19
Strategic Sourcing initiatives were launched in thousands of big U.S. companies which aggressively worked to shrink their number of suppliers by negotiating volume-based or other sourcing agreements. This resulted in a small number of U.S. Big B2B businesses becoming the sole source for goods and services, and thousands of U.S. Small businesses being forced to close, merge, or sell their businesses.
Strategic Sourcing has since blocked U.S. Small B2B businesses from competing for the sale of their goods and services. Further, in most industries it is nearly impossible to become a supplier unless U.S. Small B2B business meet the demanding requirements (e.g. extraordinary annual revenue, tens of millions of dollars in insurance) for becoming a supplier, these requirements are designed to block U.S. Small B2B businesses.
The combination of COVID-19 and Strategic Sourcing is the “one-two punch” which will result in the catastrophic and systemic collapse of U.S. Small business in 2021.
Helping U.S. Small Businesses recover from COVID-19
In order to save U.S. Small businesses and the employment of over 59.9 Million people, U.S. Big businesses need to:
- Allow Small Business to compete. Change their procurement policies and practices and allow U.S. Small businesses to bid and compete.
- Make Small Business a priority. Buy American and prioritize U.S. Small businesses for all buying decisions and give them better payment terms.
- Reach out to Small Businesses for help. Reach out to U.S. Small businesses, engage them early and mentor them to provide the right products and services for your business.