Supply chain management is the conscious effort to ensure that inbound and outbound goods and supplies are delivered most efficiently and effectively. Here we discuss effective Supply Chain Management for SMBs.
Small and Medium sized Businesses (SMBs) encounter significantly different challenges in managing and maintaining their supply chains when compared to larger businesses. Many SMBs do not have the financial power to deploy supply chain solutions and are also often at a lower level of ERP sophistication. SMBs also have unique characteristics and concerns such as:
- Significantly complex businesses unable to afford complex supply chain software implementations. Their need is easy business intelligence and actionable reporting.
- Inability to augment staffing required to support the implemented solutions. They, therefore, seek solutions that can be easily implemented and managed by existing staff or minimal staff additions.
- SMB organizations can be technology savvy in some functions while not in others and often lack the organizational planning, pathways, and structure for technology adoption.
- SMBs are usually very nimble and respond quickly to market changes. Thus, they also need supply chain solutions that are easy to implement and use, while being flexible to configure and change.
A supply chain is broadly considered to include Design, Source, Make, Deliver, and Service functions. Usually, an organization will design its products or services, source components necessary, and make, deliver, and service the product or service. Effective supply chain management requires effectively managing each of these five functions individually and as an integrated whole.
For effective Supply Chain Management for SMBs, the first consideration is where to focus on its supply chain. Is it incoming material quality, supplier risks due to location or disruptions, in-plant manufacturing, outbound logistics, or returns? Any start point will require an understanding of the current state requiring baseline metrics supported by underlying process data. Provided below are a few metrics examples by each supply chain segment- Design, Source, Make, Deliver, Service:
Design: Quantity or percentage of product/SKU by design type; Margin by types, Forecast-to-Actual by product types. These metrics will assist in product rationalization and, subsequently, improving the supply chain by reducing sourcing.
Source: Number of suppliers. Supplier compliance rate, Supplier availability, Supplier defect rate, Order lead-time. These metrics will assist in developing a reliable supplier base and provide risk management options.
Make: Inventory turnover, Shrinkage (Actual stock count vs, on record), inventory age, order cycle time. While these are primarily inventory related, they provide insights into what is being made and should be consistent with the Design and Sourcing metrics; that is, ensuring a rationalized design portfolio is aligned with sourcing and manufacturing.
Deliver: Order fill rate, order delivery quality, average delivery time. These metrics capture delivery effectiveness and efficiency.
Service: Service response time, service resolution rate, returns percentage of total. These metrics capture the alignment of product quality with delivery.
A well designed and executed Design-to-Service process will enhance revenues and margins for the business. Improvements within the supply chain will only occur from actions triggered by diligent analysis of data. However, SMBs are often constrained with resource capacity and processes for collecting and reporting meaningful data. How does a SMB overcome these constraints to improve their supply chain? We present two case studies to illustrate approaches towards solving this problem.
Case 1: The SMB was a supplier of precious metals to a large company (Company A). The received materials regularly failed to meet minimum material purity levels. This impacted both companies from increased operating costs and failed delivery. Company A and the SMB agreed to partner first in data analysis and review, and then in remediation. Company A also assisted the SMB in an enhancement of in-process material data collection and analysis, as well as, final quality checks prior to outbound delivery. Company A also trained SMB internal resources in root-cause analysis. The SMB was thus, able to drive structured upstream process improvements with correct data collection, analysis, and identification of process gaps. Metrics considered were assay results over time, percentage defects by material type, and others. Follow-up inbound sampling inspection was also conducted by Company A to validate meeting of acceptable quality levels.
Over time, this process not only improved supplier quality levels while reducing cost burdens due to returns, but also improved Company A’s first pass yield to 95%+. This illustrates how collaborating can improve a supply chain across tiers.
Case 2: This is a work-in-progress at an SMB, a manufacturer of automation products. Defects found in incoming raw material significantly incur downstream manufacturing and assembly rework and losses. The SMB cannot afford to recruit and staff a quality control department. Thus, one objective is to create a cross-trained internal resource pool to operate and manage supplier quality. Other overarching objectives include creating a repeatable process for supplier qualifications, and gradually migrating from an internal and external failure costs to preventive cost avoidance, thereby improving operating margins and reducing product delivery cycle times. The supplier quality process will track, among others, the defect types and amounts, where they are impacting, minimum acceptable quality levels, supplier reliability, and trends.
These two examples illustrate how simple and effective supply chain management practices can be implemented at SMBs without major expensive software installs.