Common Business Supply Chain Issues

Many issues are common to businesses of all sizes in the supply chain. For instance, all businesses need to ensure that production and delivery of goods is efficient and environmentally sound. Additionally, all companies should continuously improve product, service and process design and increase their ability to meet evolving customer requirements.

Additionally, all businesses face similar challenges in relation to how they deal with multiple customers and suppliers, how they interact with the legislative and regulatory environment and how they manage the internal dynamics of departmental and individual communications and change.

SME Vulnerability

Nonetheless, Small and Medium Sized Enterprises (SMEs), that is businesses with less than 500 employees, do face a special set of challenges by virtue of the position of relative weakness they occupy within supply chains.

This vulnerability comes about either by dint of the fact that SMEs find themselves as suppliers to dominant lead companies such as large retail chains and Original Equipment Manufacturers (OEMs), or by dint of the fact that they are in competition with such lead companies.

Consequently, an issue of premier importance to SMEs is the management of the relationships that they maintain with these customers. These relationships are pivotal to the ability of SMEs to maintain their supplier status.

Diverse Supply Chain Issues to be Faced by SMEs

Although it is true that SMEs do share this supply chain vulnerability, the sector itself is diverse. SMEs provide a wide range of products and services at many different points within supply chains or networks.

To maintain their positions SMEs must pay constant attention to their costs, responsiveness, quality and reliability. Let’s have a look at a selection of real life supply chain issues being faced by some typical SMEs operations at different points in various consumer products supply chains.

SME 1: Media Products Retailer on Main Street

1. Ensuring consistency of standards across its own supplier base in terms of advanced shipping notices (ASNs), delivery documentation, barcodes and, packaging.
2. IT systems fragmentation/integration. IPOS data is collected at point of sale but is not integrated to the warehouse order picking systems or to the supplier re-ordering systems. Suppliers have no visibility of the IPOS data.

SME 2: Logistics Service Provider to Consumer Products Manufacturer

1. The SMEs manufacturing customers has become very sophisticated in the application of the concepts and practices of lean production. These customers expect the LSP to apply these tools and techniques in its own business to integrate ever more seamlessly with the requirements of the production plants.
2. The LSP faces a challenge to articulate the value of the services that it provides and develop a pricing model that supports this value proposition. An inability to do this runs the risk of customers appropriating the lion’s shear of the gains derived from the improvements.

SME 3: Speciality Food Manufacturer Supplying Multiple Retailers

1. Constant erosion of margins due to high levels of competition in the retail food market and a constant pressure from the large multiple retailers for cost down as consumer spending goes through a period of contraction in the on-going recession.
2. After a long period of ad hoc growth, the company faces the a challenge to generate internally innovative change in processes and ways of working to drive cost out and to compensate for the downward pressure on margins.

Supply Chain Opportunities for SMEs

There is an ever increasing tendency for lead organisations such as OEM manufacturers and large multiple retailers to focus on core competencies internally and to develop external networks to provide support activities and functions.

This presents a golden opportunity for those SMEs who are aware of the trend, can identify the opportunities, develop the requisite capabilities and proactively put forward credible value propositions to form part of these support networks.

In some cases, lead companies are prepared to work with, support and even invest in the development of those SMEs that demonstrate a disposition and willingness to upgrade capabilities.

A Proactive Approach Required

However it is not a matter of just responding to the lead company exigency in the short term and hoping to then be left to get on with the business thereafter. Rather SMEs must continuously identify and develop new opportunities and improvements using their own initiative.

Taking this proactive approach to develop independent capability will contribute to insulating SMEs to a degree from having the benefits of improvements rapidly appropriated by the lead players. SME owners and managers can present themselves to their lead company customers as people with independent, high value knowledge, skills and capabilities.

Internal Organisational Challenges

SMEs do of course still face a number of organisational factors, some internal and some external, that will constitute serious challenges in this endeavour.

Some of the common intra organisational factors that can make it difficult for the type of company discussed to apply the approaches described above include a tendency among SMEs towards an inward focus and complacency, the old “we have always done things this way” mantra.

Further areas of difficulty are a general lack of awareness of business trends often the result of chronic fire-fighting which tends to tie down and exhaust managers and workers alike leaving little time or energy for professional development and strategic thinking.

Another common trait among SMEs is a fear and insecurity in relation to of formal expertise and technical know how that can feed the self-fulfilling belief that this type of stuff is not practical in the “real” world.

External Organisational Challenges

On the external front some of the organisational challenges that can come into play are the ability to communicate effectively to negotiate, collaborate and challenge lead company managers.

Many SMEs are family owned, entrepreneurial businesses in which the owner-managers do not have a great deal of technical training and education. This can put them at a disadvantage when interacting with the highly technically trained managers at many of the lead companies.

Some large retailers and OEMs in response to the business pressures that they themselves are facing have adopted a manner of interacting with supplier SMEs that is often, rightly or wrongly, understood or interpreted as aggressive and exploitative.

This sometimes has the effect of producing a resentful compliance on the part of the SME accepting lower margins as the trade-off for retaining the business but often missing the opportunity to engage fully with the lead player to learn, develop and improve.

Informal Networks

To overcome these types of limitations requires an opening up of the mind and putting aside the time to take stock of what is happening in the wider business world.

SME entrepreneurs can usefully begin their journey to greater awareness through more informal interaction with like-minded individuals from similar business backgrounds that have already made positive progress and who can offer advice and references to appropriate sources of trusted expertise and resource

There are many industry and official forums that can act as the catalyst for these exchanges such as trade organizations, professional institutes, chambers of commerce and business circles as well as the state and regionally funded business support services.

Reaching Out

In the current business environment, anecdotal evidence would seem to indicate that may SMEs are reaching out more and more to look for interaction and guidance.

This is a product of the fact that the business downturn has led to people having more time on their hands to think about their business and consider the future. In turn this is leading to a growing realisation that things will be very different in the supply chains of the future. Many SMEs now understand and that new approaches and creative ways of creating value for their customers will have to be found to ensure success and survival.