SMEs face similar supply chain challenges to large companies, but can find them financially harder to overcome. Cash flow and a scarcity of skilled human resources are among the challenges affecting SMEs emphatically, as compared to the same issues’ effects on their big-business counterparts.
Putting the Spotlight on SME Supply Chain Challenges
As a consulting company specialising in helping small businesses improve their supply chains, we like to think we’re well aware of the specific challenges SMEs face in managing the balance of supply and demand.
Many of those challenges are similar to the ones faced by larger enterprises, but are there any supply chain challenges unique to smaller businesses?
In this article, we’ll explore that very question. Let’s begin with some of the challenges SMEs share with larger enterprises, and take a look at how and why they might be tougher for small businesses to overcome.
Top Supply Chain Challenges for All Businesses
If you’re running a small to medium-sized enterprise, or are engaged in supply chain management for such a business, you can probably relate to all of the following challenges:
- Meeting increasingly high customer-service expectations
- Keeping control of costs, especially those related to transportation
- Risk identification and mitigation
- Achieving supply chain visibility
- Building and maintaining supplier and partner relationships
- Keeping up-to-date with technology developments
- Targeting global markets
All of these challenges exist for large enterprises too, but the last four on the list above can be particularly tricky for smaller businesses to get to grips with.
This is largely because of a lack of investment power, along with the limited accessibility of supply chain talent, which at a time of apparent scarcity, tends to gravitate toward larger corporations with the means to compensate at the highest rates.
Let’s look at each of those last four challenges in turn though, before exploring briefly why money and manpower present challenges of their own, and make it harder to overcome the other challenges mentioned above.
Supplier and Partner Relationships
Smaller companies often find themselves at a disadvantage when it comes to supplier relationships, since unless suppliers or partners are also small businesses, the buyer does not have the scale to create leverage.
If yours is a company with a $50 million annual turnover, for example, it’s not going to be easy to create a balanced relationship with a supplier turning over $500 million.
You’re always going to be a small fish with little in the way of clout. One way to avoid this issue is to choose suppliers and partners that operate on a similar scale to your own company, but in reality, this is often not possible, especially as global consolidation continues to cultivate markets with fewer and larger participants.
Whatever the size of your enterprise, it is essential to earn your suppliers’ trust with honest and open communication. Involving them in your processes and listening to their concerns can potentially inure them as a vested partner in your business.
On the flip side, try to avoid unreliable suppliers, as they can create bottlenecks in your workflow and have a negative impact on your clients and customers.
Supply Chain Visibility
Without the information technology budgets to match large corporations, it can be a huge challenge to achieve the levels of visibility required for your supply chain to be competitive.
Let’s face it, even the majority of large enterprises struggle to achieve full transparency, despite heavy investment in increasingly sophisticated solutions.
While many supply chain technologies are subject to falling prices, supply chain visibility (SCV) is not one of them, and vendors, in the main, are focused on solving the visibility problem for multinational corporations, leaving SMEs with a limited range of SCV options.
Keeping Pace in the Technology Race
It seems that ever since spreadsheets gave way to powerful enterprise computing platforms, such as ERP, WMS, TMS, and SCM, the pace of technology development has left even the largest corporations struggling to keep up.
Many large supply chain organisations are struggling with the transition from legacy solutions to the latest cloud platforms, and it’s not at all unusual for a company to have a “patchwork quilt” of systems and applications in place.
Small and medium-sized enterprises typically have modest IT budgets, making it even tougher to apply technology to gain efficiencies and supply chain cost savings. They are less able to upgrade capabilities frequently or invest in expensive warehouse automation, even though to do so could save significant sums of money over the longer term.
Targeting Global Markets
For many SMEs, the thought of accessing global markets holds much attraction, not only because of the prestige that comes with it but, more pertinently, because there are often better prices to be fetched compared to selling locally. Reaching new markets also allows firms to increase their sales and, ultimately, to grow their businesses in a globalised world.
Since they lack the international expertise and impact of big businesses, however, many SMEs flounder when trying to meet some, if not most, of the following challenges faced by those entering foreign markets :
- Language differences
- Travel costs to create business relationships
- Product/packaging redesign for foreign markets
- Import tariffs in the destination country
- Obtaining a letter of trade credit from a bank
- Limited, or no, experience in running a smooth operation at large volumes of business
Entering additional markets involves meeting many fixed costs, which multinationals spread throughout the operation. SMEs operate on a much smaller scales and find it difficult to absorb the fixed costs. They usually have little option but to sell through exporters, who, as to be expected, capture a percentage of the per-unit profits.
Globalising on a Budget
As difficult as it may be for the SME though, targeting global markets is not impossible. To qualify that statement, here are some low-cost options that can help smaller enterprises like yours to break into the big time:
- Don’t try to compete product-by-product with large-scale industries—they are way ahead of you and are already planning how to take even greater leaps forward. Your product should be exceptional and geared for a niche market.
- Attend as many international trade missions as you can in your area. Instead of you having to travel abroad to meet international buyers, this is a situation where they come to meet you. After all, they, too, are on the lookout for new marketing opportunities.
- Link up with other small to medium-sized businesses to plan and evaluate offshore business opportunities. This will minimise your risk and increase your chances of success.
Cash is a Key Challenge for SMEs
If there is one supply chain challenge that besets SMEs more emphatically than larger enterprises, it’s cash and finance, as you might have surmised from the commentary in this article thus far.
However, this issue extends far beyond the ability to invest in digital systems and negotiate favourable prices with suppliers.
Cash-flow in particular, can be a constant source of worry, with little resilience to issues like late payments from customers or overestimation of inventory requirements. The need to minimise working capital requirements is ever-present, but it’s never easily met, given constant pressure to ensure inventory availability is not compromised.
Why is cash flow such a big challenge? A number of factors play into the answer, including:
- Reluctance among suppliers to offer favourable credit terms (as the SME’s buying power is limited)
- SMEs sometimes have little or no formal history of credit or borrowing from financial institutions
- There may be few assets available to serve as collateral for borrowing
These issues can be more serious for the SME operating in a B2B market, since customers may insist upon credit terms for their own payments, creating extended cash-to-cash cycle times and delaying the availability of funds to pay suppliers.
Study Shows the Size of the Problem
According to a recent global study by Intuit QuickBooks, 69 percent of 3,000 small business owners surveyed in the United States, United Kingdom, Australia, Canada, and India, admitted that they are kept awake at night by worries over cash flow.
The survey revealed that 61 percent of small enterprises run into cash flow difficulties on a regular basis. Of these, 32% said that they have been unable to meet financial commitments, either to themselves, their employees, vendors, or creditors.
Nearly a third (32 percent) of the survey sample reported that it takes more than 30 days to get paid by customers, clients, vendors, or banks. The average wait is 29 days.
Taking a loan is also not always the answer. Of those surveyed, 29 percent said they would not seek a loan because interest rates were too high, while 19 percent thought that they wouldn’t be approved.
The survey serves to illustrate that there are no easy solutions to cash flow problems, and small-business owners could do worse than consult an accounting professional or financial adviser.
The SME Human Resources Challenge
Aside from access to cash, human resource availability is one of the most important challenges affecting SMEs, and one that is typically less of an issue for their larger counterparts. More specifically, from the supply chain perspective, SMEs may be less able to afford a team of supply chain managers and specialists.
This places many smaller businesses in a position where managers wear multiple hats, each perhaps taking responsibility along with their teams, for specific elements of supply chain operations.
The problem with this plate-spinning approach (which is often more of a necessity than a preferred strategy) is twofold. Firstly, supply chain management usually takes a back seat to other areas of business functionality, especially during busy times. Secondly, there is seldom any room or time for managers and teams to align and collaborate to manage the supply chain holistically.
As a result, synergies and efficiencies are overlooked, and when problems arise, it can be hard to isolate the root causes and hence, apply robust, permanent solutions.
Not only is the lack of logistics expertise a challenge in itself, it also makes the other challenges, such as those already discussed, more difficult to overcome. Without a dedicated supply chain or logistics team, SMEs can find it tough to meet all the challenges presented in the list at the start of this article.
Where There are Challenges, There are Opportunities…
Early in the life of a small or medium enterprise, supply chain challenges can be a major cause of concern, but they don’t have to threaten performance or growth. Indeed, there are opportunities hiding within every challenge and in some respects, SMEs have the edge over larger companies when it comes to unlocking them (greater agility and shorter reaction times, for instance).
…And Increasingly, Solutions Too
Furthermore, as time goes on, SMEs should begin to gain access to new services and solutions, as the importance of the smaller enterprise becomes more apparent in global markets. After all, together, SMEs deliver over half of the GDP of many countries.
Cloud computing solutions, Uber-style freight, shipping, and warehousing platforms, and SME-focused 3PLs are all emerging as sources of supply chain support for the small to medium-sized enterprise. Even warehouse automation is becoming more affordable with the advent of “robotics as a service”.
Meanwhile, online virtual assistant services provide the opportunity for SMEs to outsource many back-office activities, enabling internal resources to be redirected to value-adding processes, including supply chain management. All of the aforementioned services, in fact, offer the possibility for SMEs to reduce labour costs, and the amount of human capital necessary to manage supply chain operations.
Get Some Help to Meet Supply Chain Challenges Head-on
As promising as they may be, none of the potential solutions mentioned above necessarily makes immediate supply chain challenges seem less troubling, which is why it can often be worth engaging some external help to address the issues directly.
If you’d like some assistance in confronting procurement, inventory, freight, warehousing, or customer service challenges in your company’s supply chain, Dawson Consulting is here to help.
The chances are that whatever your supply chain challenges, we have the skills and experience to help you overcome them, so why not contact us and speak to one of our team members?
Editor’s Note: This post was originally published in November 2017. It has now been revamped and expanded to make the content more current and comprehensive.