Defining Small Business In FSSI Purchasing Programs

While there are many exceptions, the U.S. Small Business Administration defines a small business as one that employs up to 500 people for most wholesaling industries, and makes between $5 million and $21 million in average annual receipts for retailing industries.

The GSA’s definition for a small business leaves room for interpretation. They use Federal Acquisition Regulations (FAR) 2.101, which is states a “small business concern...is independently owned and operated, not dominant in the field of operation in which it is bidding on Government contracts, and qualified as a small business under the criteria and size standards in 13 CFR part 121. Such a concern is ‘not dominant in its field of operation’ when it does not exercise a controlling or major influence on a national basis in a kind of business activity in which a number of business concerns are primarily engaged. In determining whether dominance exists, consideration must be given to...volume of business, number of employees, financial resources, competitive status or position, ownership or control of materials, processes, patents, license agreements, facilities, sales territory, and nature of business activity.”

“There are 23 million small businesses in America. The cliche is they’re the backbone of the U.S. economy, but it’s true — if you look at it closely, small businesses account for 54 percent of all U.S. sales and nearly 70 percent of all new jobs. They’re the ones that drive the economy, and therefore the whole aim of economic programs is to stimulate small business because that’s ultimately how we grow our society,” Bornstein says.

For those who do make it into the top 21, the immediate uptick in sales volume could be a problem for small businesses, St. Germain says. To take the product velocity of more than 1,000 distributors and spread it between just 21 could pose some logistical problems, he says.

“How do you expect these small businesses to ramp up that much inventory? Do they have the warehouse capacity to store significant amounts of supplies? And will they have the capital required to acquire the products in the amount they need?” St. Germain asks. “I understand what FSSI is trying to do but I think there are a lot of challenges that haven’t really been addressed.”

The winners could very well end up losers, Bornstein says. Jan/san distributors work on a very low margin as it is, but to win these BPAs, distributors will have to dig even deeper to provide the lowest prices.

“Distributors should be concerned because if they’re one of the winners, they’ll be shrinking their margins so narrowly,” Bornstein says.