Social enterprises require a LOT of extra procurement work and handholding. So it’s totally fine to avoid them…right?
We love busting the most common myths in procurement.
And there’s no myth more satisfying to bust than one that can benefit everyone.
There’s a lot of misinformation going around about the pros and cons of social enterprises. So we decided to find out the actual facts from an expert.
We spoke to Mark Daniels, Head of Market & Sector Development -Social Traders and asked him to clarify a few of the most common misconceptions about social enterprises.
What is a social enterprise?
Social enterprises (SEs) are businesses that trade to intentionally tackle social problems, improve communities, provide people access to employment and training, or help the environment.
Using the power of the marketplace to solve the most pressing societal problems, SEs are commercially viable businesses existing to benefit the public and the community, rather than shareholders and owners.
Social Traders, Australia’s leading SE development organisation, define a SE by the following three factors:
- They are driven by a public or community cause, be it social, environmental, cultural or economic
- They derive most of their income from trade, not donations or grants
- They use the majority (at least 50 per cent) of their profits to work towards their social mission
We asked Mark Daniels, Head of Market & Sector Development at Social Traders, to bust some of the most common myths associated with SEs.
Myth 1: SEs are less capable
The idea that SEs are limited in terms of capability are generally not founded, explains Mark.
“But many are limited in terms of scale. There are very few SEs that can be a major tier 1 supplier, which is mostly what procurement teams are looking for.”
Procurement teams, instead, “have to become more creative and look to tiers 2 and 3 to buy from or work with organisations like ours to work out new and different ways to buy from them.”
Another option is to encourage tier one suppliers to buy from tier 2 SEs.
Myth 2: SEs are a risky business
“To date, we haven’t seen any examples where SE have failed during contracts,” asserts Mark.
“Delivery is comparable to private sector suppliers.”
Myth 3: SEs are expensive
“Just like any other supplier; some [SEs] can be expensive, or the same, or cheaper.”
“We run a SE audit of any new buyer members. Coca Cola Amatil, for example, was spending over one million dollars on SEs and didn’t even know it!”
“There are 20,000 SEs turning over 3 per cent of the Australian economy. They’re already winning work without preferential treatment!”
“In some cases corporates do assist SEs with capacity building. This might involve paying more now but they know that in three to four years they’ll achieve scale and prices will drop.”
Myth 4: SEs require a lot of handholding
A lot of the time, SEs won’t require any more support than their private counterparts. “Coca Cola discovered that they had four or five SEs that didn’t require any hand-holding – they simply won the tender processes.”
On some occasions, however, “procurement may realise that these suppliers need help.”
“Social Traders has shifted to invest heavily in capability building for SEs. Some SEs need help to transition from a $1m to a $5m business. That’s the sort of assistance we’re giving – strategic support, accessing capital and so forth.”
“We’re also seeing things like 90-day payment terms being an issue.” Which is something procurement teams can work to change.
“The industry is starting to change the way they do payment terms – Broadspectrum, for example, has moved to 14 day payment terms for SEs and indigenous businesses.
“Suddenly more suppliers can work with Broadspectrum.”
Social enterprise policy
As we explored in last week’s blog , countries around the world are taking different approaches to improving their supplier diversity.
Buying from SEs is a great way to start.
In Australia, the opportunity around SEs came off the back of indigenous procurement proactive policies, which set targets and created social procurement systems in government to enable targets to be met.
“Level Crossing Removal Authority requires that 3 per cent of the supply chain must be indigenous-owned or SE businesses, or SE.
This has been quite powerful in changing behaviour in the infrastructure industry. We will see hopefully something to the tune of $300 million spent with SE or indigenous businesses.”
“France, Germany, Austria have requirement that around 6 per cent of your workforce and supply chain have to be people with disabilities. If that isn’t the case you have to pay a higher tax rate.”
“That tax was used to create more SEs to help people with disability. It’s an impressive policy.”
About Social Traders
Social Traders is an Australian organisation that works to put social enterprise into business and government supply chains. They do this in order to create employment for the most disadvantaged by increasing the trading activity of social enterprises and to create new value streams for buyers.
It emerged over time was that there was a new marketplace starting to establish, which was corporate and government buyers interested in delivering social value through their procurement processes.
Social traders enable more organisations to buy from SEs, certifying them to give buyers the assurance that they aren’t being deceived. Because, as soon as social enterprise becomes a competitive advantage in a tender process, people will claim they are when they’re not
The impact of Social Traders work is impressive. In 2017 they enabled approximately $20 million in deals, which translated roughly to 300 jobs for disadvantaged people.
Their target in 2021 is $105 million in deals, creating 1500 jobs.
“We can see a market where hundreds of millions will be going to SEs every year.”
This can start to make a real dent in the unemployment of disadvantaged people. Social procurement is a real lever for addressing social inequality.
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Through Procure with Purpose, we’re shining a light on the biggest issues – from Modern Slavery; to Minority Owned Business; and from Social Enterprises; to Environmental Sustainability.
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