The benefits of integrating small business practices into your supply chain

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I was reading a blog on the Supply Chain Expert Community by Peter Balbus on How can we make America’s Supply Chains More Dynamic and Innovative, which got me thinking about my own experiences in dealing with supply chains  and their impact on companies I have worked with. Having spent a considerable time consulting in the SME space (small to medium enterprise), I have seen firsthand how larger companies could harness the innovation and dynamism of these small businesses over here and abroad. It’s no longer the big that eat the small, it’s the fast that eat the slow.  And small businesses have the ability to react quickly and move fast, as the decision makers are close to the customer and have little to no bureaucracy to slow things down. Larger companies can take advantage of these benefits in the following ways:

  1. Data Integration: Smaller companies can be linked into the enterprise’s supply chain through the exchange of data. With the growing sophistication of Web Services, Portals, and other Internet based communication and collaboration tools, the supply chain can now be modeled in almost real-time in a bi-directional manner. However, this requires a greater commitment on the part of the customer to the supplier relationship, as a small supplier does not want to invest the time and money to connect to a customer’s virtual network, just to be dropped for a lower priced bidder. The loss of fully competitive bidding on sourcing must be weighed against the benefits of the virtual network. A connected supply chain gives the large corporation something it desperately needs: the ability to quickly react to changing customer demand  by getting the entire supply chain to work together to make the necessary directional change, and the ability respond to the customer in a timely fashion, based on the speed of the connected supply chain response.
  2. Leveraging their Ideas: Smaller companies operate in a different environment than large companies, and so their business practices are different. Setting up a round table with suppliers to get their ideas on performance improvements in the supply chain can yield some significant results. Ideas to better implement virtual networks, reduce component costs through design and engineering for manufacturability, and reduce logistic costs through transportation network redesign, can all yield valuable results.
  3. Leveraging Overseas Supplier: Oversea suppliers (especially in developing markets) can face radically different business and regulatory regimes, which forces them to come up with new ways of doing things in order to remain competitive. While most commonly associated with lower labor costs, the very fact they have to operate in a low cost environment can lead them to develop some innovative processes in order to compete. While some of these  practices will not work in our environment, some others may result in significant cost savings to the supply chain as a whole, or allow a faster  response to customer needs. Since the overseas supplier is generally hungry for export business, this gives the customer significant leverage to “pick their brains” for new and innovative ideas.
  4. Implementing Quality Improvement Faster: With a connected supply chain, information can be disseminated throughout the supply network faster and more reliably. This includes feedback from customers and other links in the supply chain on quality issues. If the connected supply chain also has processes built into to it to resolve issues, quality problems can be addressed in a more timely fashion, leading to reduced costs (scrap, warranty, replacement), and better customer relations.

Of course, all these benefits are dependent on large companies who are willing to spend the time, money, and effort to integrate their supply chains, and then listening to what their supply chains have to say and acting upon it.

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