Effective Supply Chain Management for SMBs

Small and medium-sized businesses encounter significantly different challenges in managing their supply chains than larger organizations. Many SMBs lack the financial power to deploy technology tools, and are at a lower level of enterprise resource planning (ERP) sophistication.

SMBs have unique characteristics and concerns, such as:

• They need strong business-intelligence and reporting capabilities, yet are unable to afford complex supply chain software implementations.
• They’re unable to augment staffing required to support the required tools. Therefore, they need systems that can be easily implemented and managed by existing staff or minimal staff additions. 
• They can be technology savvy in some functions while not in others, and often lack the organizational planning, pathways and structure for technology adoption.  
• They tend to be very nimble and respond quickly to market changes, so they need systems that are flexible, and easy to configure and change.

The stages of a supply chain are broadly defined as design, source, make, deliver and service.   Each of these five functions must be managed both individually and as an integrated whole. 

For any SMB, the first consideration in designing a supply chain is where to focus. Is it incoming material quality, supplier risks due to location or disruptions, in-plant manufacturing, outbound logistics, or returns? Any given start point will require an understanding of the current state and baseline metrics, supported by underlying process data. Following are some metrics for each supply chain segment:

• Design: Quantity or percentage of product/SKU by design type; margin by type, and forecast-to-actual by product type. These metrics 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, and order lead time. These assist in developing a reliable supplier base and providing risk-management options.
• Make: Inventory turnover, shrinkage (actual stock count versus on record), inventory age, and order cycle time. While these are primarily inventory-related, they provide insights into what’s being made and should be consistent with the design and sourcing metrics. 
• Deliver: Order fill rate, order delivery quality, and average delivery time. These capture delivery effectiveness and efficiency. 
• Service: Service response time, service resolution rate and returns percentage of total. These capture the alignment of product quality with delivery.

A well-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 limited in their ability to collect and report data. How does a SMB overcome these constraints? Following are two case studies to illustrate approaches toward 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, resulting in increased operating costs and failed delivery for both companies. Company A and the SMB agreed to partner first in data analysis and review, then in remediation. Company A 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 included assay results over time and percentage defects by material type. Follow-up inbound sampling inspection was also conducted by Company A to validate the 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 more than 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 incur rework and losses in downstream manufacturing and assembly. The SMB can’t 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 sustaining internal and external failure costs to avoiding them altogether, thereby improving operating margins and reducing product delivery cycle times. The supplier quality process will track, among other things, defect types and amounts, where they’re 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.

Shubho Chatterjee is chief operating officer at worxpertise.com.