As the United States continues to shift its focus toward consumerism and convenience, the mega-companies of the world have come to dominate the attention of the media. However, we rarely hear how the nation's small and medium businesses (SMBs) are largely unprepared to meet the supply chain's new rules and technologies, as they are often forced to adapt in order to continue doing business with the "Wal-Marts" and "Fords" of the world. Thus, the gap between SMBs and large business supply chains has widened, and the challenge presented to today's SMBs is how to do business and compete with large companies.
A supply chain is a coordinated system of entities, activities, information and resources designed to move a product from supplier to customer. The components of a supply chain typically consist of manufacturers, service providers, distributors and retail outlets, all working to fulfill customer demands through the most efficient use of resources.
Just what is the difference between the supply chain of an SMB and a large company? The main differences between the two entities come down to financial resources, staff size, expertise and overall critical mass. As one would predict, large supply chain companies typically have strong cash reserves and/or access to credit on favorable terms, which enables them to spend significant amounts of money on the newest emerging technologies. In contrast, SMBs need to balance their need for new technologies with cost-effective business strategies due to their limited resources. Large supply chains have more human resources, therefore allowing multiple people to complete tasks, whereas SMBs are often left relying on a limited staff to perform a variety of functions. In a demanding market, large businesses often dominate because they have the tools necessary to process an order from start to finish in record time, whereas SMBs often need extra time and resources to complete the same tasks. These differences are also directly linked to the challenges SMB supply chains face today.
The Challenges of Today's SMB
The challenges facing today's SMBs are numerous but include the need to keep pace with rapidly changing rules and technology requirements, anticipating changes in customer buying patterns and developing a supply chain that starts with the supplier and ends with the customers' customers.
Large customers will inevitably place more responsibility onto their SMB suppliers by demanding timely market forecasts and inventory management. Practices such as just-in-time delivery, on-time delivery, fulfillment of sales based on market demand and lower prices will eventually become standard operating procedure. In return, SMBs will be expected to anticipate changes in their customers' customers buying patterns to help their customers increase inventory turnover and raise profitability (1). The following questions naturally result: How does a small or midsize company satisfy the demands of large customers? In addition, is there a product that can enable SMBs to meet the demands and expectations of larger companies?
In order to effectively manage their supply chains and large customers, SMBs will often acquire new technology to improve their efficiencies. In a recent research survey, it was noted that 52 percent of manufacturing SMBs bought or upgraded their business management applications to drive operating efficiency, and 58 percent did so in order to increase their work productivity (2). However, investing in new technologies also presents a challenge to SMBs, as cost is a major factor. Large companies can justify expensive purchases of software for optimization, but smaller companies do not have this luxury, as most traditional supply chain management software is too expensive and complex to meet the needs of SMBs. Furthermore, smaller suppliers often do not have a sufficient volume of transactions to justify the purchase of a costly business management solution, and many of these suppliers do not have the capability or resources to avail themselves of advances in technology. Thus, the challenge for the SMB lies in balancing the need to gain efficiencies through technology with the cost and resource commitments associated with deployment of such new technology.
Where Do We Go From Here? Tactics for SMB Supply Chain Survival
In order to offset some of these challenges and compete aggressively with larger companies, SMBs must implement effective tactics to establish and operate an efficient supply chain. Success in today's competitive market requires the tactical management of production and delivery practices to meet increasing customer demands for quality and low prices. This is especially true for SMBs because, by nature, they encompass a large spectrum of duties while dealing with the strains on their infrastructure resulting from their high rate of growth. SMBs must acquire new technology to devise an integrated approach to managing their entire business, including inventory, logistics, distribution and sales.
Overseeing relationships with suppliers and customers, controlling inventory, and forecasting demand are the central components of managing an efficient supply chain. Improving performance within these three elements builds a stronger, integrated and coordinated supply chain, improving productivity and providing SMBs with a competitive advantage over larger companies.
Overseeing Relationships with Suppliers & Customers
The relationship SMBs have with their suppliers is imperative to the effectiveness of their supply chain and their business. It is important to develop a set of pricing, delivery and payment processes that are aligned closely with the company's goals. To gain a competitive advantage, SMBs must invest in technology that will manage the inventory of goods received from the supplier. Many business management software packages automate the entire supply chain by regulating shipments, verifying them, transferring them to manufacturing facilities and authorizing supplier payments all in one system. Business management technology gives SMBs an advantage by automating the flow of information between departments and reducing mistakes associated with the double-entry of information across discrete systems, thus creating a more efficient supply chain.
One of the central motives in creating an efficient supply chain is to reduce costs; however, another objective of successful supply chain management is to meet customer requirements and needs. Today's customers expect the same experience whether they are dealing with an SMB or a large company. The Internet has made customers less patient and forgiving about problems with transactions, deliveries, orders and customer service. It is crucial for SMBs to maintain a synchronized, efficient supply chain to provide higher product quality and improved customer responsiveness. Business management software allows SMBs to better serve their customers by having instant access to information regarding their order, status of shipping and payment information. Business management software provides SMBs with real-time information, which reduces response time to customers, and ensures faster order fulfillment and extended service.
Another important element in establishing a more successful supply chain is controlling inventory. In order to compete with larger companies, SMBs must be able to reduce inventory costs and optimize stock levels to ensure an efficient flow of their supply chain. Investing in business management software can help SMBs eliminate manual inventory management as well as serialize their entire inventory to track individual items by supplier, price and age. Business management software also improves warehouse operations to optimum levels of efficiency by enabling SMBs to track and control inventoried items to ensure adequate supply is maintained at all times.
To effectively forecast demand, manufacturers and retailers alike are utilizing highly developed techniques to understand how consumer demand should be estimated, planned for and influenced. For SMBs to gain a competitive advantage over larger companies, they must be able to utilize consumer demand information to drive the efficiency and performance of their supply chain.
To better forecast demands and customer needs, SMBs must overcome challenges with inventory replenishment, just-in-time inventory, backorders and drop shipping. Business management software allows SMBs to better plan and forecast with the use of analytical tools and wizards that play financial "what-if" scenarios. By being able to successfully forecast inventory and orders, SMBs can eliminate sales lost due to out-of-stock items.
In the end, successful supply chain management can enable SMBs to expand into new markets, create new products and ultimately increase their profitability. Improved customer responsiveness, higher product quality, faster product innovation and reduced inventory costs are only some of the benefits that SMBs can experience by creating and managing an efficient supply chain.
About the Author: Ali Jani is the co-founder and chief technology officer at business management solution provider Everest Software , based in Dulles, Va.
Chan, Helen. (2004) The SMB Supply Chain Squeeze. Optimize. February, 2004. April 10, 2006, www.optimizemag.com/issue/028/collaborative.htm?_loopback=1
2 Chan, Helen. (2004) The SMB Supply Chain Squeeze. Optimize. February, 2004. April 10, 2006, www.optimizemag.com/issue/028/collaborative.htm?_loopback=1