SME Enablement

Business Case

Innovation and adaptability

SMEs often bring niche expertise and innovative solutions, helping buyers stay competitive and adapt quickly to changing market demands.

Legal and regulatory compliance

Regulations in some jurisdictions increasingly require evidence of SME inclusion in supply chains, creating legal exposure, not just reputational risk, for non-compliance.

Operational continuity

A supplier base that includes local and small suppliers reduces concentration risk, strengthening the buyer's ability to absorb disruptions and adapt to market changes, especially in markets at risk of oligopoly and monopoly.

Productivity and quality

SME and local suppliers may offer greater flexibility, faster response times and stronger willingness to align with buyer requirements.

Stable sourcing communities and sustainable livelihoods

Directing spend toward local and small suppliers supports job creation, income generation and economic development in sourcing regions, strengthening the buyer's social license to operate in those communities.

Strategy & Planning

Assessment

Initial Action

Analyze current supplier base to understand current share of spend with local suppliers, SMEs and smallholders, map the various legal forms of target SMEs (e.g., cooperatives, SRLs, foundations, associations) in each sourcing jurisdiction and identify structural barriers within procurement processes that may limit their participation.

Intermediate Progress

Map and assess supplier markets by category and region to identify the availability of local and SME suppliers and pinpoint areas where they are underrepresented in your supply base relative to their presence in the broader market.

Advanced Practice

Conduct qualitative assessment with suppliers and relevant stakeholder organizations to understand.

  • whether procurement processes are perceived as neutral, transparent and accessible
  • procedural or informational barriers related to SMEs, local suppliers and small-holder suppliers
  • alignment between stated procurement policies and lived supplier experience
  • effectiveness of procurement design in enabling SME participation

Policy

Initial Action

Include the following:

  • definition of what "local" and "SME" means in the context of procurement
  • mechanism to identify these suppliers (certification and certifying entity, spend threshold, etc.)
  • review of standard contract templates to identify and remove clauses that structurally prevent SME participation (including liability provisions disproportionate to contract size, insurance requirements above what is commercially available to small suppliers and minimum annual turnover thresholds)
  • procurement principles that enable SME participation, such as proportionate requirements, accessible tender processes and appropriate payment terms, ensuring all clauses are consistent with applicable procurement and competition law in your jurisdiction
  • grievance policy and access to an effective non-judicial remedy for affected parties, so supplier have a formal, accessible and non-retaliatory channel to report barriers encountered in procurement processes.
Intermediate Progress

Factor local and small supplier considerations into procurement strategy and category planning (e.g. local business types and constrains) and establish requirements for SME inclusion in supplier selection process, within the constraints of your legal jurisdiction.

Advanced Practice

In alignment with local laws on procurement or fair competition, integrate expectations for strategic suppliers to adopt their own procurement policies supportive of SMEs, apply them to their own sourcing decisions and implement responsible procurement practices that support SMEs and other local business types and social inclusivity, through proportionate requirements, fair payment terms, inclusive subcontracting practices and transparent reporting where feasible.

Targets

Initial Action

Set targets for improving percentage or spend of local and small supplier participation in procurement processes.

Intermediate Progress

Set targets for closing participation gaps between SME suppliers and market availability, with category specific requirements for spend with SME groups reflecting the availability within key procurement categories.

Advanced Practice

Set targets for the percentage of strategic suppliers with their own active procurement programs supportive of SMEs and local suppliers within their supply chains.

Supplier Selection

Screening

Initial Action

In the screening process, consider whether unnecessary barriers exist such as minimum financial thresholds, excessive past‑performance documentation or unreasonably high insurance limits that disproportionately exclude SMEs. Add questions to RFPs to identify local and small suppliers:

  • business location and ownership
  • company size (revenue, employees)
  • smallholder status or cooperative membership (when relevant for industry)
Intermediate Progress

Adjust screening questions to allow for inclusivity of SMEs, such as self-declaration checklists as a starting point for quality or environmental management certification or equivalent self-declaration (e.g., ISO 9001 or a proportionate checklist alternative) and request information from suppliers on their own SME and local supplier sourcing practices and.

Advanced Practice

In alignment with local laws on procurement or fair competition, require suppliers to confirm commitment to support SMEs as a condition of eligibility to respond to RFPs.

Selection

Initial Action

Establish evaluation criteria to ensure fair evaluation which does not disadvantage smaller suppliers.

Intermediate Progress

In alignment with local laws on procurement or fair competition, allocate points in selection criteria for suppliers that demonstrate active engagement with SMEs.

Advanced Practice

In alignment with local laws on procurement or fair competition, select suppliers that are able to demonstrate how they will provide opportunities for local and small suppliers or in their supply chain.

Contracts

Initial Action

For SMEs, offer contract terms appropriate for small suppliers, such as:

  • shorter payment cycles
  • arrangements such as purchase-order (PO) financing or factoring arrangements where direct payment reduction is not possible
  • smaller lot sizes
  • simpler terms
  • simplified reporting
  • clear performance expectations
  • faster onboarding
  • reduced bid bonds
  • proportionate risk, insurance or guarantee requirements, removing clauses requiring suppliers to absorb currency or commodity risk disproportionate to their size
Intermediate Progress

Include contract clauses that require suppliers to track and report their engagement with SME and local suppliers.

Advanced Practice

Include contract clause that requires engagement of SME suppliers based on market availability.

Supplier Engagement

Goal Setting

Initial Action

Work with SME and local suppliers to set right-sized sustainability goals while avoiding rigidity in requirements.

Intermediate Progress

Work with all suppliers to set SME engagement target (based on market availability).

Advanced Practice

Co-develop multi-year SME inclusion roadmaps with strategic suppliers, including measurable targets for growing spend with SME and local businesses across their own supply chains and timelines for achieving them.

Capacity Building

Initial Action

Offer SMEs opportunities to advance in business and sustainability development, such as sponsoring participation in the UN Global Compact SPARK Programme, training on quality improvement opportunities, hosting information sessions on upcoming compliance or offering sessions on other relevant business development topics, such as targeted support on quality standards, pricing, documentation, digital tools, product/service positioning and certification readiness.

Intermediate Progress

Offer training to all suppliers on benefits, recommendations and success stories of SME engagement, as well as best practices on developing SME programmes for their own supply chains.

Advanced Practice

Host SME sourcing training for tier 2 and 3 suppliers, equipping them to identify, qualify and prioritize small and local businesses in their own sourcing decisions.

Data

Initial Action

Collect baseline data on SME and local supplier representation in the active supplier base, including share of spend, number of suppliers by size category and sector distribution, to establish a starting point for inclusion tracking.

Intermediate Progress

Collect data on SME and local supplier participation across procurement stages and establish regular reporting from suppliers on their SME sourcing practices in their own supply chains.

Advanced Practice

Work with SME and local suppliers to collect data on business growth, employment and sustainability performance attributable to the procurement relationship, to measure the development impact of inclusive sourcing programs.

Advisory

Initial Action

Provide SME and local suppliers with advisory on navigating the buyer's procurement processes, including guidance on tender requirements, qualification criteria and how to strengthen future submissions.

Intermediate Progress

Provide SME and local suppliers with advisory support on sustainability compliance and improvement, helping them meet the buyer's sustainability requirements without the resources of larger suppliers.

Advanced Practice

Support strategic suppliers in developing their own SME engagement programs, including supplier qualification criteria, spend tracking mechanisms and approaches to removing barriers for smaller businesses in their own supply chains.

Financial Support

Initial Action

Connect local and small suppliers with financing options and business development resources or support suppliers with purchase order financing.

Intermediate Progress

Award SME suppliers with financial incentives for exceptional delivery and advancement on sustainability objectives or support by offering early payment programs.

Advanced Practice

Link incentives such as contract extensions, volume increases, preferred supplier status, multi-year agreements or pricing adjustments to verified achievement of small and local business spend commitments across the supply chain.

Audits

Initial Action

For SME supplier audits, adapt audit scopes for SMEs with proportionate evidence expectations, avoiding the large‑supplier audit model.

Intermediate Progress

Support SME suppliers through the audit process by providing pre-audit guidance, sharing expectations in advance and offering follow-up support to address findings.

Advanced Practice

For supplier audits, work with suppliers to ensure their own audit processes for SME sub-suppliers are proportionate and development-oriented and share aggregated audit findings to identify systemic barriers facing SMEs across the supply chain.

Project Partnerships & Innovation

Initial Action

Create forum, platform or other opportunity for SME suppliers to propose sustainability project partnerships and innovative approaches to sustainable product development.

Intermediate Progress

Ensure SME inclusion in and/or create SME-specific innovation challenges or pilot programs for sustainable development.

Advanced Practice

Create program to implement innovative product ideas from SME suppliers and provide targeted support for financing and long term investment needs.

Continuous Improvement

Metrics

Initial Action

Track the following:

  • percentage of suppliers in the active base that are small or local businesses
  • average payment terms with SME suppliers
  • rate of SME success in competitive tenders vs. overall tender pool
  • progress against the baseline participation target set in Strategy
Intermediate Progress

Track progress against spend targets for SME suppliers by category and monitor whether participation rates are improving over time, with reporting on supplier participation and improvement of SME inclusion in their supply chains.

Advanced Practice

Require all suppliers to provide metrics on SME and local suppliers participation in supplier development programs and include in progress reporting.

Scorecards

Initial Action

Include indicators assessing suppliers’ use of SME-inclusive practices, such as fair working conditions (in alignment with local law) and payment terms and adapting requirements to enable SME participation where relevant.

Intermediate Progress

Include the share of suppliers' own procurement spend with SME suppliers as an indicator in supplier performance reviews.

Advanced Practice

Weigh SME inclusion performance in strategic supplier scorecards, with top performers receiving preferential weighting in tenders and bottom performers required to submit improvement plans.

Impact Verification

Initial Action

Gather feedback from suppliers on effectiveness of supplier engagement programs on SME support.

Intermediate Progress

Assess whether supplier engagement and capacity building initiatives are improving SME procurement practices among strategic suppliers.

Advanced Practice

Measure the economic impact of SME and local supplier spend, including business growth, employment and income generation attributable to the buyer's procurement relationship.

Sources consulted

AI Integrity and Transparency Disadvantaged community sourcing