Size wise: fitting small suppliers into a sustainable supply chain

Sometimes, small is better.

The growth of global businesses has often supported the growth of their suppliers, from original equipment manufacturers to firms that provide accounting, legal, or travel services. For companies entering new markets with smaller economies or for companies aiming to contribute to local economic growth, smaller suppliers are critical.

So how can global companies with a commitment to sustainability engage suppliers whose budgets and resources may be tight?

Some industries, and some governments, require that companies work with smaller businesses as suppliers.

Extractives and energy companies operating in countries including Brazil, Indonesia, and Nigeria face specific regulatory requirements related to supporting “local content”—the goods and services (including labor) procured within the country—often as a percentage of their total project spend. Meeting these requirements means developing supplier relationships with small- and medium-sized local companies in sectors like construction, transportation, or food service.

US companies often have supplier diversity programs linked to government guidelines, which prioritize suppliers based on characteristics such as ethnicity, gender, and size. Similar regulatory support in countries like the UK and Australia provide incentives or requirements for companies to monitor and promote diversity in their supplier pool.

Beyond compliance

Beyond compliance, smaller suppliers can make a company’s supply chain stronger. A more diverse supplier base can help a company weather business interruptions, and smaller firms are often able to be more flexible and respond quickly to ad hoc or specialized requests. Working with diverse suppliers is also becoming a hallmark of corporate responsibility (see, for example, Johnson & Johnson’s commitment), and a valuable tool for demonstrating economic benefit to local communities.

In the case of food production, small suppliers are often an integral part of local communities and landscapes. The purchase of agricultural products from small-scale growers directly supports rural livelihoods, and several companies have made ambitious commitments to supporting them through sourcing: Walmart plans to buy USD1 billion of food from small- and medium-sized farms in emerging markets, and Unilever wants to improve the livelihood of 500,000 smallholders in its supply chain.

This places such companies squarely in the middle of debates over the future of global food production—including concerns over food security, optimal land use, and what kind of production systems can best feed the world. Nonetheless, companies seem to agree that buying from small farms – whether it be onions in Azerbaijan, milk in Colombia, or mangoes in Kenya – is a positive development.

While working with small suppliers may be preferred or even necessary, effectively engaging them in supply chain sustainability programs takes additional work. Most companies’ systems were designed with a relatively sophisticated, large-scale supplier in mind.