Supply Chain Management for Small and Medium Size Enterprises

1. Supply Chain Management for Small and Medium Size Enterprises Nadeen Rasim, Sabbir Ahmed, Soroosh Sharif AminKamali, Jennifer Chrest

2. 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

3. Introduction SCM’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.

4. 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).

5. Introduction SMEs vs. LEs Strengths and Weaknesses:

6. Introduction 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.

7. SCM’s Three Levels

8. SCM’s Three Levels • 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.

9. SCM’s Three Levels • 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.

10. SCM’s Three Levels • 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 implementation • Lack 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.

11. SCM’s effects on SMEs • 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.

12. SCM’s effects on SMEs • 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.

13. E-Business & SCM Transportation & Warehousing • World Wide Web – Manufacturing, Procurement & Order Management EDI & DSS – Suppliers & Customers functions integrated IT- Product Development, Marketing & Customers

14. Interconnected Supply Chain Wholesale Distributers Manufacturers Retailers Customer Exchanges Logistics Exchanges Supplier Exchanges Contract Manufacturers Virtual Manufacturers Logistics Providers

15. 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

16. Trading Partners Enterprise Customers Inter Supply Chain Collaboration SME Collaboration Customer Interaction Supplier Collaboration External SCM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - SMEs - - - - - - - - - - - - - - - - - - - - Suppliers - - - - - - - - - - - - - - - - - - - - - - Extended Supply Chain Management Framework

17. Extended SCM Suppliers’ Supplier Customers’ Customers Supply Supply Traditional SCM Add Value Buy Customers Sell Supplier Customers’ Customers Suppliers’ Supplier Intranet Extranet Internet Traditional SCM vs E-SCM for SMEs

18. 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

19. E-SCM for different type of SMEs Smaller Companies Customer Service Purchasing/ Procurement Inventory Management Customer Processing Order Transportation Medium Sized Companies Vendor Relations Vendor Order Processing Production Scheduling

20. Manufacturing 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 Service Companies

21. CANADA • 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 Internet Business Solution Adoption by Small and Medium Enterprises

22. 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 Barriers

23. 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.

24. 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

25. 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.

26. 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 -

27. 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.

28. 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 ationSystems, Vol. 1, No. 2, May 2007, 255–268. • L.AravindhKumaran, 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