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Michael Guilbault and Tom Karol

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Supply Chain

Supply Chain Management in Demand

Small businesses seek help

Published: Tuesday, December 2, 2008 - 17:00

The results of a recent Aberdeen outsourcing survey of more than 300 organizations of all revenue classes launched during December 2007 shows that small businesses (with annual revenues of up to $50 million U.S. dollars) are reporting a major uptick in demand for supply chain management (SCM) services.

Small-business owners are often forced to spend an inordinate amount of time managing vendor relationships, rather than focusing on core competencies. Although small companies with simple operations can often take care of supply chain management activities in-house, as volume grows or delivery complexity increases, the time and effort required to manage the supply chain grow sharply.

Attending to requests for information and managing transactions along the supply chain are vital to avoid customer dissatisfaction brought on by late deliveries and poor response timing. In most cases, it makes more sense to work with SCM outsourcing providers. Small businesses are now seeking help with SCM activities ranging from help desks and order entry to contract management, logistics support, and compliance and performance management.

The top reasons that small businesses seek help with SCM initiatives from outside providers are similar to those of all revenue classes. But small businesses are more likely to choose outsourcing to access professional resources that they lack in-house to decrease expenses and improve service quality. Working with SCM outsourcing providers gives small businesses access to trained professionals, bolstering the effectiveness of their SCM organizations. Outsourcers are often able to find ways to reduce the number of transactions per vendor and decrease associated paperwork, thereby lowering expenses. In addition, small-business owners can leverage provider expertise in logistics processes, systems, and infrastructure to improve the quality of customer service.

Small businesses also select outsourcing providers according to many of the same criteria as organizations of all revenue classes, according to the survey. They choose outsourcing providers with trained and experienced professionals that can provide dedicated teams to their projects. Providers offering defined service-level agreements are preferred, as are those with the ability to manage multiple projects concurrently. Trained and experienced staff can create process efficiencies and bring best practices to the table. The SCM function also nearly always involves the management of concurrent shipments, customer inquiries, and contracting activities.

One selection criterion that stands out is the emphasis that small businesses place on the ability of the outsourcing provider to provide on-demand services. Because many logistical activities are prone to unexpected interruptions caused by circumstances such as traffic congestion, shipping delays, and other transportation-related bottlenecks, it’s understandable that small businesses would place a high premium on SCM provider responsiveness.

Case in point

A small electronics-supply wholesaler was experiencing difficulties managing its supply chain following 50 percent year-to-year growth in sales and expansion into the Latin American market. With a highly fragmented delivery chain, limited visibility into its growing finished goods inventory, and declining customer service levels resulting from poor returns management, the company decided to hire an outside provider of SCM services to improve the timeliness and simplicity of deliveries, decrease inventory levels, and improve customer service.

“We had grown so fast that our previously satisfactory delivery partners couldn’t handle the volume or the cross-border transfers. We needed to completely revisit our supply chain and come up with new ways to do things,” the company’s chief operating officer says. So the company chose a SCM outsourcing partner with specialized expertise in retail to revamp its supply chain. The outsourcing provider developed a better demand-forecasting model, assembled an international delivery team using existing and new partners, implemented lean manufacturing techniques, and revamped the returns management system to handle the larger volume of returns for service.

Following the two-month engagement, materials planning accuracy jumped from 45 percent to 90 percent, on-time deliveries increased to 95 percent, finished goods inventory declined by 55 percent and the overall cost of the supply chain management decreased by $20 million. "I know we did the right thing, because in less than three months we saw tremendous improvement across the whole supply chain,” the company’s CEO comments.

Required actions

As small businesses grow sales and face increased complexity in their supply chains, many are finding that the best overall solution is to work with outside providers of SCM services. Additional actions include:

Create a globally integrated supply chain organization.
Aberdeen research shows that, although 38 percent of average companies have a centralized supply chain management organization, 67 percent of all others manage global supply with a single organization. Running different supply chains for different products or for different regions leads to unnecessary decision points and additional process steps, which can result in delays and missed shipments. Vendor and management consolidation is an important step toward optimizing overall supply chain management.

Improve demand forecasting capabilities.
Many off-the-shelf packages are available that in the hands of trained consultants can be customized to match your business conditions and integrated with other shipping, manufacturing, billing, returns, and warehousing to create real-time visibility and forecast forward demand. Using these applications can help ensure that inventory levels match shipments demanded, stock-outs are avoided and deliveries are consistently made on time, “first time right.”

Choose SCM partners providing real-time monitor/response service.
With the added visibility into your supply chain components and the improved demand-forecasting ability, your SCM partner needs to consistently monitor the performance of the many cogs in the wheel. Acknowledging and addressing problems in real-time acts as the grease in the wheel for uninterrupted supply chain operation that leads to higher levels of customer satisfaction and smoother overall SCM. By working with outside specialists, small businesses are making up for capability gaps, accessing trained professional resources, and improving service quality, all while cutting their supply chain management expenses.

Discuss

About The Author

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Michael Guilbault and Tom Karol

Michael Guilbault focuses on the managed services segment of the information technology industry. The goal of his research is to identify the capabilities, enablers, and practices that end-users employ to gain superior business results from investments in professional services. Guilbault’s analysis provides direction to the end-user community and insight to solution providers. He holds degrees from the Whittemore School of Business and Economics, the University of Arizona, and the University of New Hampshire, and is a senior research analyst, technology, with Aberdeen Group. Tom Karol is a research associate in Aberdeen Group’s technology markets practice area and has more than 20 years of experience in information technology, as an IBM mainframe systems programmer and as an internal consultant focusing on systems integration, strategic analysis, research, and documentation. He has spent the major portion of his career at Analog Devices Inc. and the Stop & Shop Supermarket Co. Recently, Karol worked as a technical writer and editor in a network design context. He graduated from Middlebury College in Vermont with a bachelor’s degree in psychology and did graduate study in arranging and composition at Berklee College of Music.