Supply Chain Process and Technology Challenges for Small and Medium Businesses

Over the coming weeks, we at Supply Chain Matters plan to broaden our commentary to include specific supply chain business process and technology challenges being experienced by mid market manufacturers, distributors or service providers.  The supply chain challenges being experienced by small and medium (SMB) businesses are indeed different and unique, and our goal will be to open various channels of specific themes and commentary relative to answers to needs.

To get started, I reached out to John Brandt, CEO of MPI Group, an organization that conducts annual proprietary research projects on manufacturing best practices, including the Census of Manufacturers for the U.S., China, Mexico and Canada and the Census of Distribution. John called my attention to the  recently published Next Generation Manufacturing Study (NGM), developed in conjunction with the American Small Manufacturers Coalition, to identify strategies necessary for world-class performance and success.  More than 2500 U.S. based manufacturers, located in select U.S. regions, were included in the responses.  The study was conducted in the spring of 2009 at the height of the severe recession and consisted of a questionnaire to assess awareness of designated NGM strategies, progress in implementing best practices, and operational and financial performance.  To give our readers a sense of survey demographics, the average participant had been in business for an overall average of 41 years, had an average of 445 employees, and average revenues of $159.6 million.  For those readers with further interest, the report is priced at $95 USD and can be downloaded at this web link.

The report summarizes responses to capabilities in four broad areas:

• Customer-focused innovation
• Engaged people/human capital acquisition
• Superior process improvement
• Supply chain management and collaboration
• Green/sustainability
• Global engagement

In this commentary, we will focus on some rather interesting findings brought out in the supply chain and global engagement categories.

While the majority of small manufacturers acknowledge the importance of having superior processes, these same organizations are ill prepared to deploy advanced supply chain process and technology competencies. Only 6% of manufacturers report a perceived world-class status for supply chain management and collaboration, and only 38% deem these capabilities as important.  However, exploring some other responses reveals some important indicators. Slightly over 17% of respondents indicate little regular monitoring and review of metrics with the CEO, senior staff, or key suppliers and customers, a process most would describe as active sales and operations planning process (S&OP).  The report cites 57% of national respondents reporting no measurement systems or reviews.  That alone is a significant finding to consider. Few consider themselves at or near the capability for being competitive in global markets, with over 50% not having any direct workforce located overseas, or a domestic employee responsible for global business activities.

Almost 50% indicate that the percentage of workforce dedicated to supply chain management and collaboration lies between one and five percent.  Based on the overall average of employees, that would equate to a rough average of 11 people spanning the entire spectrum of procurement to customer fulfillment. To no surprise, few indicate confidence in the ability to quickly respond to any sudden changes in customer demand  Most report minimal or ineffective inventory management strategies, with an implication that inventory practices equate to shifting inventory to lower-tier suppliers.  Keep in mind that many SMB’s are already lower tier suppliers.

After reviewing this data, I came to some further observations.  First, SMB’s have to obviously step-up their awareness of best practices and competencies in the important areas of supplier collaboration, inventory management, product demand forecasting and S&OP.  The data points to a pattern where preserving cash and working capital remain a dominant need, no doubt dictated by current business environment and the CFO. You cannot fault SMB’s for this condition since this past, unprecedented recession has severely restricted flexibility to raise working capital in financial markets.  Larger companies stretch out payables to smaller suppliers, who are obviously feeling the effects of being squeezed by the needs to be profitable as well as agile to business opportunities. SMB’s probably realize that new top-line revenue growth may lie in expanding presence in global markets, but currently lack the supply chain expertise to tap such markets.

A general observation is that supply chain operations probably falls under the responsibility of a single manager, and that manager probably has other responsibilities such as procurement, planning or other activity.  In most cases, process knowledge has to be broad, and includes some aspects of business IT applications support.

Many supply chain and other enterprise technology providers continue to view the mid-market as the new area of customer growth.  It should be no surprise that cloud based services or software-as-a-service (SasS) can gain favor in this segment, if they can add to best practice adoption.

From my lens, this MPI survey data is another reinforcement that needs in the segment are not solely technology alone, but a combination of best practices adoption and specialized supply chain services that are coupled with technology.

We will continue to add to this theme of supply chain process capability for mid-market companies in the coming weeks and months.  In the meantime, you can share your own observations or experiences regarding this market segment in the Comments section related to this posting.

Bob Ferrari

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