Michèle Routley manages the Business Process Support Section at TWI and co-ordinates an advanced design centre to support one of TWI's member companies. She started at TWI in 2001 in the Microtechnology Group focussing on reliability and life extension. She also had responsibility for the EPPIC Faraday Partnership marketing, training and seminars work packages. Prior to TWI, Michèle researched Germanium implantation as a method of fabrication for SiGe Heterojunction Bipolar Transistors in the silicon processing cleanrooms of the University of Southampton.
Within the increasing integration of total product systems to achieve competitive advantage challenges that must be overcome by the participants include efficient production and delivery, continuous improvement of quality and design and awareness of the environmental impacts of a product's life cycle. As Michèle Routley reports globally there is a high proportion of SMEs (small to medium enterprises) involved in most product systems, and they encounter not only these challenges, but also others, caused specifically by their size. This impacts on their resources, relative power, lower production volumes and the organisational culture.
It is difficult to treat SMEs as a homogenous grouping, since they occupy different levels within different industry sectors and have many different roles to play as part of supply systems. Here three contrasting consumer product sectors; automotive, fashion and grocery; are reviewed to investigate the different challenges.
Within the automotive sector there are numerous firms involved through a complex hierarchy of tiers of suppliers ( Figure 1) producing highly complex and often expensive artefacts. As a consequence SMEs are often providers of precisely machined components. The automotive industry has a producer-driven chain as it is a capital and technology intensive industry. Specific challenges seen by SMEs within the automotive industry supply chain are:
- Cost-downs required by OEMs and tier 1 organisations within tightly controlled supplier networks dominated by huge conglomerates.
- Resource difficulties in monitoring and implementing increased regulation such as the End-of-Life Vehicle Directive.
- Lack of interaction with the end-user or ultimate customer due to the hierarchical structure.
- As a truly global production industry there can be barriers to entry into the most profitable areas and disproportionate profit received for amount of value added.
In the grocery industry sector, there is a huge volume of products carried by many retail outlets. SMEs are often dominated by major multiples - supermarket chains. Relationships can be that of the SME acting as a supplier or as a competitor, or, sometimes, as both (Fig.2). Specific challenges for SMEs in this sector are:
- In the UK there have been investigations into the payment terms used by large supermarket chains.
- SMEs can have limited distribution capabilities for fresh produce.
- Large out of town hypermarkets can provide much lower prices than SME local stores.
- Increasing competition from cross-border, exotic and organic food ranges.
- Health and safety regulations are increasing, which again can be difficult to monitor and implement.
The fashion industry is considered 'disaggregate' ie there is a plurality of suppliers and sub-contractors (Fig.3). It is a very dynamic industry, which attaches great importance to branding, is innovative in terms of products and tends towards buyer driven chains. It is certainly a global industry, with much use being made of low cost sourcing. Particular challenges for SMEs include:
- A high churn rate for suppliers by customers in search of the lowest cost
- Potentially exploitative practices, especially in developing countries
- Retailers having enough stock to cope with seasonal and unpredictable demands
There are various approaches that SMEs can take to try to tackle the supply chain challenges identified above. Looking at three in particular, SMEs can use their characteristics to their advantage. SMEs can use each other by participating in a collaboration or partnership, or SMEs can make use of information and communication technology (ICT) developments to address some of the limitations of their size.
SME strengths
SMEs have various strengths compared to larger organisations. By using their specialist knowledge, flexibility in production, innovation, responsiveness, customer service and networking capabilities they can search for new market niches, new markets, innovative products, diversification or alternative outlets.
The strategy depends on the openness of the SME (in particular the management) to new ideas and innovation and they need to have the time and resource to review their core skills and competences critically against the market needs and competition. It can be difficult for SMEs in a highly specialist area to benchmark against a similar organisation and in this instance generic core skills can be chosen as comparatives.
By noting weak spots or gaps in the product offerings of large organisations they should be able to identify new opportunities. To assist this process it is often necessary to provide market intelligence, and facilitation of the process as SMEs find it hard to articulate their needs and often lack the management skills for the interface with external expertise. There is a need for assistance in these business areas as the risk involved in new strategy areas is proportionately greater for SMEs than for larger organisations.
SME collaborations
There are various relationships SMEs can form to tackle supply chain challenges. In some cases SMEs work together with complementary skills to provide a product offering to compete with large firms, such as the Advanced Aerospace Technology Guild and co-operative buying groups in Eastern Europe (CBA) who use their collective buying power to counter the progress made by major multi nationals into their local market. In the Far East, 'techno-spatial clusters' have evolved for electronics, automotive and textile industries, with companies located close to each other and the rest of the supply chain.
Co-location can provide such a rapid response that in some cases it will take away the threat posed by outsourcing in low cost countries. There is a range of network organisations that provides facilities for organisations or personnel within them, including Knowledge Transfer Networks such as the Health Technologies KTN or the National Composites Network. Some can be formal organisations whose members benefit from market information, training, new product strategies and collective buying power. Other groupings can be more informal such as through a Chamber of Commerce or professional society.
To collaborate in any meaningful way, again raises issues of trust that must be conquered and networking is not as prevalent as might be. It is thought that this is due to: SMEs' desire to protect their independence, protection of their intellectual property, a 'mindset' of other SMEs being competition rather than allies and the management of the interface between companies. SMEs have their own suppliers and it is important that they assist their supply chain to develop or they will still face challenges related to quality, cost and delivery. Supply chain development can also be used by lead companies to counter negative associations from globalisation activities. As SMEs evaluate their product offering and changing market conditions they should also review their connections as sometimes it is necessary to change relationships to progress.
Use of ICT
The development of ICT has significantly changed the marketplace, time of response and information sharing within most product sectors and this is a strategy available to SMEs that can address many challenges as on the internet, the playing field levels out. There are many examples of lead companies sharing data through electronic data interchange (EDI) in their supply network. If SMEs can make skilful use of ICT they can gain a lot more information about their customers and hone their production.
Many SMEs emphasise innovation and design of new products as one of their competitive advantages. Use of ICT enables rapid design and communication with customers, significantly reducing lead time and extending their market worldwide. Computer aided design is another key component of many industries. However, many SMEs lack the necessary skill and capability in-house to know how to implement a suitable ICT system and to then make the most of it, or indeed they may be wary of the amount of business that may be generated through e-commerce and how this may affect their lifestyle or capacity to cope with demand.
Although it is impossible to apply a single remedy to the challenges faced by SMEs in supply chains dominated by large lead organisations, it is possible to generalise solutions that are available for 'growth-oriented' firms - those with a culture and attitude ready to embrace the opportunities offered by increased supply chain integration. These strategies may not be easy and SMEs will have to undertake an honest self-assessment within a holistic look at the total product system to discover their most appropriate path forward. However, in most cases the challenges they face can be not just overcome, but SMEs can use their strengths as an opportunity to become an integral part of the new product systems. Choices that are made will depend on the personalities involved, the industry sector, technology, resources available and culture within and surrounding an organisation.
