Supply Chain Management for Small and Medium Size

Enterprises

Nadeen Rasim, Sabbir Ahmed, Soroosh SharifAmin Kamali, Jennifer Chrest

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Agenda

Introduction Small and Medium size Enterprise (SME) SCM for SMEs SCM Effects on SMEs

E-Business & SCM Performance E-SCM for SMEs Comparative Analysis Case Studies & Examples Recommendations

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IntroductionSCM’s common features: “ it is an end-to-end coordination and a focus on integration

with other entities to deliver value to the end customer.”

The growing importance of having effective SCM: To cope with the consumers demands: better quality, lower

prices, higher responsiveness, shorter lead times and greater cost efficiencies.

Growing demand to take SCM as: Professional practice at the heart of organization's corporate

strategy. Competitive advantage.

› To Secure profitable outcomes for all parties in the chain.

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Introduction

Small and Medium Size Enterprise (SME): Fewer than 500 employees. Comprise 70-90% in most emerging countries. Contribute to entrepreneurship, gross domestic product (GDP) and

employment (50-80%). SMEs have significant impacts on supply chain performance as

they function as suppliers, producers, distributors, and customers. In LEs’ supply chain they act as:

› the 1st and 2nd tier suppliers, the largest group of manufacturing firms, and support services.

Though supply, process, and logistics cost represent 70% of SMEs of their total supply spending, SMEs, have a differentiation advantage than a cost advantage (e.g. Superior quality, and customer service, are methods to differentiate their products and services).

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SMEs vs. LEs Strengths and Weaknesses:

SMEs LEs

Flexible, cooperative, and quick decision-makers

Innovation & Qualitative differentiation

Long term gains

Financial resources, Technical superiority, and Infrastructural facilities

Economies of experience and learning capacity

Certainty

Transaction cost

Products, customers, volume and marketing skills

Introduction

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Definition of SCM for SME “Supply chain in SMEs is a set of business activities,

including purchase from open market, manufacturing or processing of subcomponents and delivery to LEs, to enhance value of end product and in-turn to ensure long-term regular purchase orders”

Although SCM can improve the SME’s performance and profitability, however:› Only 25% had a strategy for operating SCM and of these only

10% had a senior executive responsible for it. › Most SMEs do not employ SCM and at all times view it as a one-

way process that exert customers’ power.

Introduction

SCM’s Three Levels

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Integration Strategic Planning

Implementation

SCM’s Three Levels

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Integration

Strategic Planning

Implementation

• Integrating company’s logistics with different functional areas• Integrating the internal process with the external supply chain network at the strategic, tactical and operational levels. • Improved through partnerships, alliances, cooperation, collaboration, trust, information and technology sharing.

SCM’s Three Levels

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IntegrationStrategic Planning

Implementation

• With the growing complexity of SME’s business in size and scope, SME will carry high expenditure and considerable risk. • To achieve the most efficient, and highly profitable supply chain system, they need to switchover from simple financial plans to forecast based planning to plan its future rather than just responding to changes within the marketplace.• The responsibility of the top management/owner. Done only for short term.• Vary among SMEs with respect to:

Success of the past, current operating results, top management’s attitude, values, aspirations and desires towards change.

SCM’s Three Levels

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Integration Strategic Planning

Implementa-tion

Enablers to successful implementation in SMEs• Good contact with the customers, the sense of responsibility, the flexibility to cater the fluctuating demands, and the commitment to any new strategic direction.

• Value (relationship between cost and benefit), risk (probability of success), method (the approach to balance value and risk).

• The visibility across the whole supply network. Barriers to successful implementationLack of finance, resources, managerial skills, and inability to overcome traditional practices, absence of frameworks to establish alliances with partners, lack of integrated information systems, when IT not considered as a part of business strategy, and the lack of tools to measure the effectiveness.

SCM’s effects on SMEs

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Supply chain efficiencies• Include many quality and leverage benefits (improves customer service, responsiveness, and develop clarity on business strategy and core competences). • Include many reduction benefits (Provides reduction in cost, risk, product development cycle time, waste, procurement and inventory).

SME’s efficiencies• They shift from being suppliers to LEs, to important entity in decision making process. • From having contractual relationship towards partnership, and progressive integration and coordination (as co-design, JIT, etc.).• Become able to adopt technology and develop new skills.

SCM’s effects on SMEs

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Supply chain inefficiencies• Lose the business with others by entering into long-term contract with particular contractor. • Lose their private differentiation advantages, as a result of the greater pressure and control of LEs:

to minimize system cost. to produce the best product, at the cheapest price, with the

shortest lead time.

• Limited power and resources with the challenges of shorter product life cycle and mass customization put higher demand on SMES to adjust its production planning to changes in orders by their customers.

Reasons SMEs did not engage in SCM with the same strategic focus as LEs partners have on enhance chain’s performance, extend the chain, develop new product. Thus, LEs are using the SCM as a method to decommoditize their products, reap the best prices from the market.

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E-Business & SCM

Transportation & Warehousing

World Wide Web – Manufacturing, Procurement & Order Management

EDI & DSS – Suppliers & Customers functions

integrated

IT- Product Development, Marketing & Customers

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Supplier Exchanges

Logistics Exchanges

Customer Exchanges

Manufacturers

Wholesale Distributers

Retailers

Virtual Manufacturers

Contract Manufacturers

Logistics Providers

Interconnected Supply Chain

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E-Business & SCM Performance

Purchase order cycle time

Order lead time & Delivery lead time

Supplier cost saving initiatives

Information carrying cost

Buyer-Supplier partnership level

Supplier rejection rate

Accuracy of forecasting techniques

Operational cost

Effectiveness of distribution planning schedule

Customer perceived level of value

Total Supply Chain cycle time

Responsiveness to urgent deliveries

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Click icon to add picture

Extended Supply Chain Management Framework

Inter Supply Chain Collaboration

SME Collaboration

Customer Interaction

Supplier Collaboration

Trading Partners

Enterprise Customers

External SCM

SMEs

Suppliers

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Suppliers’Supplier

Suppliers’Supplier

Supplier Buy Add Value Sell Customers

Customers’ Customers

Customers’ Customers

Intranet

Extranet

Internet

Traditional SCM

Extended SCM

Supply Supply

Traditional SCM vs E-SCM for SMEs

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E-Business on SME’s SCM

Purchasing/Order Processing /Procurement

Customer Service

Customer Order Processing

Inventory Management

Relations with Vendors/ Integration with Manufacturing

Transportation

Production Scheduling

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E-SCM for different type of SMEs

Smaller Companies

Purchasing/

Procurement

Inventory Management Transportation

Customer Processing

Order

Customer Service

Medium Sized Companies

Vendor Order Processing

Production Scheduling

Vendor Relations

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Manufacturing Companies

Service Companies

Inventory Management Transportation Customer Processing Order Customer Service Production Scheduling Vendor Relations

Purchasing/ Procurement EDI programs with vendors in inventory

management Receiving information requests from vendors Providing information regarding vendor requests

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CANADA

Inte

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Solu

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Ad

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Med

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SMEs: enterprises of fewer than 500 employees—account for 99 percent of Canadian companies

A typical firm adopting advanced e-business solutions could increase profits by 150 percent

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Barriers

Costly and difficult to implement

Some believed that old ways of doing business: strong reliance on personal connections

Lack of time

Smaller firms are concerned about their ability to recruit and hire proper staff

Uncertainty about ROI

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SWEDEN Over 99% of all enterprises are classified as SMEs 60% of total private employment 66% of the total net investments made. 91% companies surveyed used internet on their SC 75% of Swedes use the internet.

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Challenges for SMES in Developed Countries

Atomistic approach required:

› Large number of components in the supply chain

› Increased product and process complexity

Two sides of the coin:

→ adoption of the Internet in SCM decision areas

→ frequency of usage in the whole SC

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INDIA Spends 14 percent of its gross domestic product (GDP) on

logistics. US$25 billion is tied up in inventories in the supply chain

network countrywide.

Barriers: Investment in IT for managing supply (like DSS) low priority given to purchasing functions and delivery

times to myopic viewpoints and short-sightedness Transportation decisions are based on transport

infrastructure.

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PAKISTAN Employment size up to 250 SMEs sector is the backbone of Pakistan economy: annual Sales up to Pak-Rupees

250 Million 3.2 million business enterprises in Pakistan, (44% Rural & 56% Urban)

Barriers in the SME sector of Pakistan and other developing countries: Lack of Resources: Energy, Water etc Difficulties in marketing and selling products Obsolete technology Limited R&D support Lack of capital and financial resources Low skill mix of the labour / work force Limited productivity of works Rising competition due to imported products Excessive Regulation, Legal Framework : Taxes Consumer rights Intellectual property Self-regulation-

Not viable to implement ERP, CRM,MRP solutions

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Recommendations & Conclusion Industry associations and sector councils can play a key role in

sponsoring creation of e-business solutions that are easily adaptable and scalable among SMEs within their sector.

Use of cloud computing can alleviate the need of hefty investment & other requirements, enabling adoption of ERP, MRP and other solutions

  Certifications procedures should introduced to validate the

credentials business vendors by the regulators in order create a sense of accreditation in encouraging the adoption of IT

Greater need for collaborative approaches between large firms and their small suppliers and distributors, and with industry associations that can help increase awareness of the benefits of e-business among their memberships.

Complete support of Government Ministries and support of the bodies that are directly responsible for the development of SMEs are requisite.

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References Lenny Koh, S., Demirbag, M., Bayraktar, E., Tatoglu, E., and Zaim, S., “The impact of

supply chain management practices on performance of SMEs”, Industrial Management & Data Systems, Vol. 107 No. 1, 2007, pp. 103-124.

Meehan, J., and Muir, L., “SCM in Merseyside SMEs: benefits and barriers”, The TQM Journal, Vol. 20 No. 3, 2008, pp. 223-232.

Thakkar, J., Kanda, A., and S.G., “Supply chain management in SMEs: development of constructs and propositions”, Asia Pacific Journal of Marketing and Logistics, Vol. 20 No. 1, 2008, pp. 97-131.

H. M. Beheshti a , M. Hultman b , M.-L. Jung b , R. A. Opoku b & E., Salehi-Sangari, “Electronic supply chain management applications by Swedish SMEs”, Enterprise Inform ation Systems, Vol. 1, No. 2, May 2007, 255–268.

L.Aravindh Kumaran, R.Ganesan, “Influence of E-Business in SME’s Supply Chain Management: A Status Review”, European Journal of Social Sciences, Volume 23, Number 3, 2011.

S. khan, F. Khan, B. Zhang, “Supply Chain Management for SMEs in Pakistan”, International Conference on E-Business and E-Government, 2010