Hi– I’m a management consultant that works in Southwestern Ontario. I’ve been an executive and worked at big consulting firms like A.T. Kearney and Deloitte Consulting, helping clients like Ford, RBC and others. I started Trow Avenue Partners because my passion is working with successful business in the $10-$100MM range on operations and strategy. I get to have a direct impact on clients owned by their founders or private equity, and get to help companies that I really like.

After over a decade of working with owners to improve their companies, these are some of my thoughts….

Strategic sourcing refers to the systematic process of identifying, evaluating, and selecting suppliers that can provide goods and services that best you’re your organization’s needs, including quality, delivery, cost, and performance.

In the last two decades, strategic sourcing has become an essential component of successful business operations at major corporations. It has helped businesses achieve cost reduction goals, increase efficiency, and improve quality of goods and services. Strategic sourcing can be a game-changer for businesses, as it enables them to focus on their core competencies while outsourcing non-core functions to capable suppliers.

As the COVID-19 pandemic recedes (hopefully), businesses worldwide are looking at the aftermath of disrupted supply chains and changes in their operations, pricing, and supply chain disruptions. The pandemic has shown that even the most sophisticated businesses were not prepared for such a crisis, and their sourcing strategies were not robust enough to withstand it.

Therefore, the post-pandemic business environment presents an opportunity for companies to revisit their sourcing strategies, reassess their suppliers and reexamine their supply chains. In this environment, strategic sourcing will be essential for businesses after the pandemic, and will bring operational benefits to companies that undertake this examination.

Strategic sourcing is often synonymous with helping to reduce costs. By reanalyzing their options, business can identify suppliers that offer the best value for money and open up bidding processes to suppliers that reward the most efficient suppliers.

When done well, it should also help to improve the quality of goods or services. A holistic look at what your company needs- including financing options, inventory options, delivery options or quality- can create a net impact on your business that is more important than just price.

Finally, strategic sourcing can improve supplier relationships. By working with suppliers and establishing fair, competitive long-term relationships, businesses can lock in for the long-term with committed suppliers that become beneficial for both parties. At its best, it’s a very partnership-based, Japanese approach to building your company’s strengths.

COVID-19 pandemic has exposed vulnerabilities in supply chains, and it is crucial for companies to revisit their sourcing strategies after the pandemic to ensure they are robust enough to withstand future crises. Taking a fresh look at your supply chain is leading more companies to favour a diversified supply chain that is less vulnerable to disruptions and future supply risks.

Revisiting your sourcing strategies provide a fresh opportunity to evaluate your supplier relationships including your suppliers’ capacity to meet demand, and how much the supplier will prioritize your if there is a supply chain issue. Its also an important time to assess the supplier’s financial stability, as the pandemic has caused financial hardship for many businesses.

The last point is to evaluate your sourcing strategies in light of technological advancements. The pandemic has accelerated the adoption of technology, and businesses need to incorporate it into their sourcing strategies. By leveraging technology, businesses can automate their procurement processes, reduce costs, and improve efficiency. They can also use data analytics to gain insights into their supplier performance and identify areas for improvement.

We have a lot of experience in strategic sourcing.  From initial training and implementation at AT Kearney and Deloitte, to working with manufacturers and financial services companies, we know the field and the opportunities that it can unlock.  Its no accident that ‘strategic’ is in the name- it can make a very real impact on margins, flexibility, and ease of delivering your product or service.

Strategic sourcing will likely experience a renaissance  as businesses feel inflation-related pressure to reduce costs, improve quality, and have a more robust supply chain. The pandemic has highlighted the importance of sourcing strategies, and businesses need to revisit their strategies to ensure they can withstand foreseeable future crises including trade-wars, on-shoring, and shipping issues. You will improve their operations, reduce costs, and de-risk your operation.

Many owners have a long-term goal to eventually sell their business to either another entrepreneur, or private equity.  If that’s your goal, its worth understanding the lens with which private equity firms view your business and some of the ways that they use to evaluate what your business is worth.

While there is no typical script or pattern, here is a list of capabilities that your businesses can learn and adopt.

Strategic Planning

Private equity firms have a strong strategic planning process that helps them identify the purchase opportunities and build a solid investment portfolio that is commensurate with the risk they are undertaking.

I have worked with many small businesses that have been successful but have lacked a strategic plan, or the plan has existed in the owner/founder’s head.  By not writing it down, or sharing it, it is often rarely communicated and can change often.

You need a clear plan that outlines your goals, strengths, and weaknesses and develop a roadmap to achieving your goals, including the resources required and the metrics for success. Update it regularly, and use it as the framework for your thinking.  Being able to communicate this to buyers is invaluable and offers insight into how structured- and valuable- your company is.

The benefit to your business are critical, but its also important to have this for potential buyers.  It de-risks their purchase by creating a vision that will live on past the owner leaving.  It makes your company much more sellable as a result.

Risk Management

Private equity firms see the world through risk management lens. Their process mitigates the risks associated with their investments, and puts the risks in context with the upside of buying a company.

Your business will benefit from taking a fresh look at your risks – including HR risks, supply chain risks, marketing risks and finance risks, and outline strategies for managing them.

You may already spend the early morning hours in bed thinking about where your business is exposed.  Developing a contingency plan makes your company more robust, and will make you and your team more ready  for whatever comes.

Operational Efficiency

Buyers will often buy a company because they know that they can improve operational efficiency. This extra efficiency immediately helps their bottom line, and help them de-leverage as fast as possible. They do this with smart, experienced consultants that have the experience to identify ways to reduce operating, purchasing or staffing costs.

The benefit that private equity operating teams have is that they have seen many businesses, and are not emotionally tied to the past.  Owners need to take a cue from this, and consider working with people that can quickly learn the business, and identify where there are inefficiencies.

It takes confidence to do this, and some entrepreneurs fear the process of bringing in fresh eyes. However, the return can often be 5x times your investment or more. This operations professional is a peer that can challenge you on your legacy processes, which can spur opportunities to improve by automation, outsource non-core functions, or reducing bottlenecks. This is an important step to take before you sell- the impact on the valuation of your company is often dramatic.

Cash Flow

PE firms generally employ leverage in their purchases, and cash flow becomes even more crucial when it does. Small businesses need to learn from this and constantly reexamine how they can improve cash flow, quicken payments, or reduce expenses. The stronger your cash flow position, the more valuable your business is. Even if your cash flow is strong, its worth following a structured process to see where you can improve your company’s cash flow.

Talent Management

Private equity firms place a high value on talent management and invest in the development of their employees. Small businesses, in general, don’t attach the same priority to this. You need to learn from PE and think of how you can increase your company’s margins, skill set, and growth capacity by creating a culture of talent development.

Take a critical eye to your training and development opportunities- are your people evolving? What do you wish they could do better- and do you need to invest in them to get to the level that you want? Are you recognizing and rewarding high-performing employees? Are you the centre of the business, or is there a strong team dynamic that can grow the business if you sell?

The more robust a team is, the more it will be successful when the current owner leaves. Investing in talent management can be an amazing way to improve productivity, employee longevity, and company value.

Market Research

Good private equity firms have conducted analysis of your market including opportunities, where you are vulnerable, and what you need to do to thrive in the future.  This is done by experienced analysts and they do this to understand how much risk is in your industry.

Its worth knowing this yourself and to learn from this.  Your sales team needs to periodically pull the back covers on your competition and conduct market research to stay ahead of their competitors. Do you know how they position you and if this is changing?  Have they adopted any new technology or service capability that you need to know about?

Successful small businesses are generally built on the market awareness of their owners, but that’s not enough.  You need to take a page from PE and create a process of monitoring market trends, conducting surveys, and analyzing customer feedback.

Exit Strategy

Private equity firms always have an exit strategy in place, which helps them achieve their desired returns on investment. You need to make an exit strategy that aligns with your goals and do it far enough in advance to get the benefit.  If you can implement the right changes several years prior to selling, you will incorporate the improvement into the valuation, while making the organization able to withstand your departure.  This need to happen well before the time you go to sell it.

This can be a multi-year process- and it is one that is worth starting now.