The COVID-19 pandemic caused unprecedented challenges to global supply chains. Lockdowns, isolation and travel bans have resulted in disruption to almost every part of the economy and demand for certain goods and services has significantly reduced or surged. This disruption has recently been further exacerbated by the ongoing Russia and Ukraine war and further lockdowns in China.
Supply chain challenges can significantly impact efficiency, outcomes, and the bottom line for enterprises. With supply chain gaps or delays, organisations cannot provide goods and services to meet the needs of their customers and users.
According to McKinsey, organisations are now operating in a world where disruptions are regular occurrences lasting a month or longer every 3.7 years. With disruption expected to continue for the foreseeable future, organisations need to evaluate how robust their current supply chains are and find new ways to solve challenges and future-proof their business.
Benefits of SMEs within the Supply Chain
Small and medium-sized enterprises (SMEs) account for most businesses worldwide and are essential contributors to job creation and global economic development. They represent about 90% of companies and more than 50% of employment worldwide.
FSB research suggests that 77% of smaller businesses within the UK are part of supply chains. Furthermore, the UK government has pledged that one-third of central government spending goes directly or through the supply chain to SMEs.
When it comes to supporting supply chains, small businesses play a significant role. This was evident throughout the COVID-19 pandemic when the NHS turned to SMEs for their help in solving major supply chain challenges. Vast levels of personal protective equipment (PPE) were required, and shortages were caused because normal supply chains could not cope with the sudden increase in demand caused by the pandemic.
In fact, with the help of our technology and the support of Life Sciences Hub Wales, we developed an online portal to enable suppliers to upload offers of support for the health and social care sectors for consideration by NHS Wales.
By rapidly adapting and working with diverse small and medium businesses, the NHS was able to source vital PPE to hospitals and healthcare practices across the country. They also worked with partners to build the track and trace system in order to minimise the spread of the virus, save lives and reduce the impact of the pandemic.
While often overlooked by large organisations, there are many reasons why collaborating with SMEs can be valuable for all involved, such as:
Collaborating with SMEs in the supply chain is a strategic move to fuel growth and innovation for the public sector, big corporates and multinationals. Smaller suppliers encourage new and diverse ways of thinking and constantly bring fresh new creative ideas to the table. Smaller companies tend to have niche products, a fast turnaround time and close customer relationships that large organisations need to stay innovative and competitive. Additionally, SMEs have fewer staff members, which leads to fewer moving pieces in the decision-making process.
When it comes to improving efficiency, organisations that source from local SMEs work in the same time zone, making it easier and faster to communicate, resolve problems and launch products to meet changing customer demands.
Adaptable and Flexible
Compared to large organisations, smaller suppliers can adapt their operations to meet specific requirements, providing specialised or customised services for partners. Their agile and flexible nature leaves larger organisations better equipped to meet the ever-changing needs of consumers. Another benefit of incorporating smaller businesses into the supply chain is their flexibility to scale up to meet supply and demand needs. For local SMEs, lead times for production and delivery are vastly reduced compared to sourcing products from overseas.
Local Employment and the Economy
Many SMEs are embedded in local communities, so a wider benefit comes with working together. New jobs are created, demonstrating a commitment to corporate social responsibility and the potential to bring a positive impact to local economies.
Improved Costs & Sustainability
Sourcing from local suppliers and in bulk (where possible) can help reduce costs and reduce the organisations' carbon footprint. While the initial cost of sourcing products may be higher, the overall cost tends to be less given the reduced logistics involved. Additionally, SMEs know that to compete with suppliers abroad, they need to be competitive on price to attract agreements with larger organisations. This opens an opportunity to negotiate fair pricing that works for all parties involved. Furthermore, working with local SMEs doesn't just help reduce costs; it can also help generate more income by attracting more local partners.
Challenges Preventing Large Organisations from Using SMEs in the Supply Chain
Healthy supply chains can significantly benefit smaller suppliers, larger buyers, the wider economy and society as a whole. Collaborating with small or specialist businesses can provide great benefits for larger buyers and financial gain, and enhanced brand awareness for SME partners.
In a nutshell, good supply chain practice makes business sense, bringing a competitive advantage to every level of the supply chain. However, many organisations still fail to effectively work with SMEs for several reasons:
Risk and Reliability
An organisation's supply chain operations can be vulnerable or resilient depending on its effectiveness in assessing risk, implementing mitigation strategies, and establishing business continuity plans. One error from a supplier can have devastating knock-on effects throughout the entire supply chain; therefore, enterprises must work with reliable suppliers that measure up in terms of quality, price and delivery.
Large organisations need to be confident that the supplier is financially stable and capable of delivering. They are also looking for partners with specific quality certifications and those who can scale up production to meet demand. Given this, organisations need to shift from short-term transaction-based relationships and focus on long-term collaborative partnerships with smaller suppliers based on transparency, loyalty and open communication – allowing both supplier and buyer to achieve their goals.
Finding and qualifying new potential suppliers can be a time-consuming task for organisations. Procurement teams need to source products and services quickly and do not always have the luxury of taking risks with smaller suppliers. Additionally, large organisations cannot make decisions as fast as small businesses, which means they have less capability to adjust based on the circumstances. These large organisations can often be stuck in their ways by working with existing suppliers rather than investing time into new collaborations.
When approaching a new partnership with an SME, there can be additional costs to consider. Selecting the best supplier that meets deliverables is a strategic decision, and those that can deliver the best product at the lowest price and the shortest time are the obvious choices.
There is always the risk that a supplier will increase their costs, but by working more closely and maintaining strong communication with partners, organisations can negotiate to reduce the impact of price changes. The key to successfully negotiating with suppliers is to understand what they value, as some will prioritise the security of a long-term fixed contract over short-term financial gain.
Furthermore, complex procurement processes and rigid payment schedules can deter SMEs and large organisations from working together. Both parties need to practice fair payment standards and keep a level playing field to encourage positive working relationships.
The Role of Technology to Connect Large Organisations with SME Suppliers
For manufacturers, the supply chain is the lifeblood of their business, requiring a lot of man-hours and resources to operate effectively. From inventory software, automation and robotics, open IT platforms, advanced analytics, and on-demand transportation - the role of technology is vital to increasing operational efficiencies and reducing costs.
According to a recent survey by McKinsey, 73% of surveyed executive respondents encountered problems in their supplier base, and 75% faced issues with production and distribution. Additionally, 85% struggled with inefficient digital technologies in their supply chains.
Organisations must modernise their systems and processes to keep up with today's ever-changing supply chain. Now more than ever, it is vital for large organisations to review their supply chain and work hard to include small and medium suppliers by delivering significant value through an integrated and collaborative approach.
With supply chains continuing to grow longer, all participants require integrated backend systems and automated processes to monitor changes and updates within the supply chain. They also need the capability to establish, qualify and engage with potential suppliers to continue innovating and improving the supply chain.
At SimplyDo, we provide the infrastructure for organisations to manage their supply chain and minimise the impact of disruption. Our platform allows organisations to seamlessly connect and cross-collaborate with partners to enable the flow of new supplier capabilities to achieve organisational goals.
✔️87% reduction in staff time qualifying potential suppliers
✔️77% increase in quality of suppliers
✔️75% increase in the reach of suppliers globally