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
rnet B
usin
ess
Solu
tion
Ad
op
tion
by
Sm
all a
nd
Med
ium
En
terp
rises
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
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