The advantages of connectivity, e-commerce and exploiting other tools for more effectively purchasing products or reducing supply chain inefficiencies are clearer to small businesses than to larger ones. The reason is simple: small packaging suppliers, in many cases, compete with some of the largest companies but do not have the same bargaining power when it comes to purchasing raw materials or being able to force suppliers to expedite a delivery when absolutely necessary. If they can do anything to get that extra penny out of their costs, they are in a more competitive position.
The major problem facing small suppliers in our industry, however, is the lack of availability of suitable products that enable them to do that. As e-marketplaces are trying to build their businesses, their focus is on increasing the number of transactions. Since large companies typically conduct more business transactions, there is a greater tendency to design products for them and to pursue their participation more aggressively. To many in the packaging industry, this means that the game has not changed a whole lot. Wasn’t the Internet supposed to be the greatest equalizer?
Issues before small- and medium-sized suppliers
While discussing the unmet buy-side needs of this highly diverse and fragmented group of packaging companies, I came up with the following themes that were consistent across the industry:
- Need for relatively simple system requirements for e-commerce. They simply do not have the resources to build a new IT department and then be forced to update their systems every quarter because of revisions and upgrades.
- Flexibility with regards to minimum requirements to participation — for instance, the number of transactions or the value of business conducted in a given period.
- Less stringent requirements for approval to be included. Small suppliers generally need more cash-flow and credit help.
An equally important, but not as critical in the industry yet, is enabling these suppliers to sell online and to streamline their back-end processes. Most estimates put the number of small businesses at this stage at just 10%. This does not appear to be a serious problem right away since customers in our industry continue to buy through traditional channels and the point at which they will no longer do business with a company that is not integrated into their system is about 12 to 18 months away. (This period can shrink somewhat as the slowdown in the economy puts increasingly higher pressure to cut costs.)
Recommended roadmap
The turmoil in the business world is not likely to subside any time soon as we see slower growth in the economy, higher competition from global suppliers and, consequently, pressure to reduce costs. Some of the tools available today already enable small businesses to take advantage of purchasing over the Internet (though I am told that only about a quarter of the companies use the Internet to procure even office supplies, airline tickets and other similar products that every company should be doing today). While it may be difficult to procure specialized raw materials for small-volume buyers right now, they can definitely start with other products. This will not only reduce cost but also make the company’s executives more web-savvy and hopefully speed up the implementation in other areas.
The second solution that I am proposing may appear to be less practical right away but I would like to generate an industry debate on this issue. The larger packaging companies are already making or are planning to make significant investments into their IT infrastructure to address the realities of business today. Since the new economy thrives on partnerships and alliances, the larger companies should allow smaller companies to take advantage of their bargaining power, IT infrastructure and memberships of e-marketplaces. This will be a win-win situation for everyone because once the IT infrastructure has been set up, the marginal cost of an additional transaction approaches zero.
I am convinced that we can still compete in a healthy environment while enabling everyone to grow.