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SME Supply Chain: Philippine SME Perspective

Dennis T. Beng HuiCenter for Operations Research and Management ScienceDepartment of Industrial EngineeringDe La Salle University-Manila

CORMS-IE Dept. De La Salle University-Manila 2

Outline of Presentation

• What is Supply Chain?• Why focus on the Supply Chain?• Basic Supply Chain Structures• Typical SME Supply Chain Structures• Subcontracting in the SME Supply Chain• Current Problems with SME Supply Chain

Structures• Some future Interventions for the SME Supply

Chain


Development of Supply Chain Concept

Operations Management

Logistics

Distributions

Supply Chain


What is Supply Chain?

• A Supply Chain is the alignment of firms that bring products or services to market (Lambert, Stock, and Ellram)

• A Supply Chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. This includes manufacturers, suppliers, transporters, warehouses, retailers, and customers (Chopra and Meindle )


What is Supply Chain?

• The systematic and strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across business within the supply chain, for purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer, DeWitt, Deebler, Min, Nix, Smith, and Zacharia)


Why Supply Chains?

• Competing in a Global business through Alliances

• Reaching the Global Market

• Focusing on Core Expertise/Business

• The “Bullwhip Effect” on Inventory


Bullwhip Effect (Jörg Nienhaus, Swiss Federal Institute)


Critical Success Factor of A Supply Chain

Alignment of Business Strategy

– Understand the Market your company serves

– Define core competencies of your company

– Develop needed supply chain capability


Major Goals of the Supply Chain

• Efficiency

• Responsiveness

Efficiency Responsiveness

These two directions are mutually conflicting goals and it is important to determine where your strategy lies within these conflicting goals


Drivers of the Supply Chain (Chopra and Meindl, 2001)

ProductionWhat, how, and when to produce

InventoryHow much to make and how much to store

TransportationHow and when to move the product

LocationWhere best to do what activity

InformationThe basis for

making decisions


Typical Effects to Supply Chain based on Goal

Goal

Driver

Responsiveness(Highly Competitive)

Efficiency(Limited Competition)

Production - Excess Capacity- Flexible Manufacturing- Many small factories

- Little excess capacity- Narrow focus- Few central plants

Inventory - High Inventory levels- Wide range of items

- Low inventory levels- Fewer items

Location - Many locations close to customer - Few central locations serving wide areas

Transportation - Frequent shipments- Fast and flexible mode

- Shipments are few and large- Slow and cheaper modes

Information - Collect and share timely, accurate data

- Cost of information drops while other costs rise


Types of Supply Chain Structure (Hugos, 2003)

1. Simple Supply Chain

2. Extended Supply Chain

Supplier Company Customer

Ultimate Supplier

Supplier Company Customer Ultimate Customer

Service Provider-Logistics-Finance-Market Research-Product Design-IT


Example of an Extended Supply Chain Structure (Hugos, 2003)

Raw Material Producer

Manufacturer Distributor Retailer Retail Customer

Product Designers

Market Research

Logistics Provider

Finance Provider

Business Customer


Supply Chain of the Costume Jewelry Sector (Beng Hui, 2005)

Collectors of Raw Materials Middle Men/Resellers

ExportersSubcontractorsForeign Buyers/Retailers

Final Customer

Manufacturers of Foreign Made components


Supply Chain of the Processed Mango Sector (Beng Hui, 2005)

Independent Farmers

Middlemen

Company Owned Farms

Mango Processor

Fresh Mango Exporter

Foreign Buyers/ Retailers

Foreign Customer

Local Retailers

Local Customers


Supply Chain of the Fine Jewelry Sector (Beng Hui, 2005)

Local Miners

Middlemen/CB

Jewelry Manufacturer

Foreign/Buyers Retailers

Local Retailers

Foreign customers

Local customersSupplier of

Imported Jewels


Supply Chain of the Leathergoods Sector (Manalang, 2005)

Foreign Makers of Components

Local Middlemen

Local Tannery

Local Fiber Processors

Foreign Tannery

Foreign Merchandisers

LeathergoodsManufacturer

Local Wholesalers/ Direct Selling

Local Retailers

Foreign Wholesalers

Foreign Retailers

Local Customers

Foreign CustomersSubcontractors

of non-leather components


Supply Chain of the Footwear Sector (Manalang, 2005)

Foreign Makers of Components

Local Middlemen

Local Tannery

Subcontracting for some large companies

Footwear Manufacturer

Local Wholesaler/ Direct Selling

Local Retailers

Local Customers


Supply Chain of the Holiday Decors Sector (Mutuc, 2005)

Local Supplier of Imported Materials

Processors/Collectors of Local RM

Local Middlemen

Subcontracting

Holiday Décor Manufacturer

Foreign Buyers/Retailers

Foreign Customers

Local Retailers

Local Customers


Supply Chain of the Furniture Sector (Mutuc, 2005)



Local Middlemen

Subcontracting for special designs (i.e. weaving)

Furniture Manufacturer


Foreign Customers

Local Retailers

Local Customers


Supply Chain of the Houseware Sector (Mutuc, 2005)



Local Middlemen

Subcontracting

Manufacturing


Foreign Customers

Local Retailers

Local Customers


Comparison of Supply Chain Information Across Sectors (PEARL2, 2005)

Sector levelsProduction Cycle

Time (PCT)Ave PCT (weeks)

Volume (Units)

Value (Pesos)

% with Subcon

Level of Subcon

Fine 5 1 to 2 weeks 1.5 Low High 10 fewMango 4 2 to 4 weeks 3 High Low 0 NoCostume 6 4 to 6 weeks 5 High Low 95 highFootwear 5 2 to 4 weeks 3 Med Med 33 fewLeathergoods 6 4 to 6 weeks 5 Med Med 82 highFurniture 6 5 to 6 weeks 5 Low High 90 highHousewares 6 4 to 7 weeks 5.5 Med Med 80 highHoliday 6 8 weeks 8 High Med 95 high

PCT – cycle time is based from order acceptance to release of shipment


Supply Chain tiers and Subcontracting

• Sectors with high Subcontracting resulted to as much as 6 to 8 weeks of cycle time

• These are sectors with 6 tier (level) supply chains

0% 50%

% of Companies with Subcontracting

Processed Mango

Costume Jewelry

Holiday Decors

Houseware

Leathergoods FurnitureFootwear

Fine Jewelry

100%


Current Problems with SME Supply Chain

• No unified or common strategy within its supply chain

• Companies do not have a clear supply chain strategy (focusing on responsiveness or efficiency?)

• Highly dependent on subcontracting resulting to more tiers in the supply chain.

• Significant presence of “Bullwhip Effect” on raw materials causing fluctuations in supply availability and price


Possible Interventions in the SME Supply Chain

• Reduce tiers/levels of supply chain– Remove/streamline supply chain by integrating

subcontractors into the manufacturer– Create direct links to Materials

• Share information to improve responsiveness– Real time Monitoring and Regulation of material

consumption (reduce bullwhip effect)



• Create unified strategy for supply chain– Strengthen Supplier to Customer Relationships by

creating/distributing proportional benefits to other business units in the supply chain

– Make subcontractors more responsive/efficient by sharing information

– Create ownership among all firms within the supply chain.



• Create Strategic Partnerships– Material partnership across the Sectors.

Costume Jewelry

Fine Jewelry

Housewares

Furniture

Holiday Decors

Processed Mango

Footwear

Leathergoods



• In general, it takes a common objective to work together. Go for Virtual Integration not Vertical Integration.

• The current state of most companies in each sectors are focusing on efficiency not responsiveness.

• There is a need to shift to responsiveness and deal with the resulting effects in each of the drivers of the supply chain.


Challenges in Supply Chain Integration

• No quick fixes and solutions

• Focus on compromises and the good of the sectors.

• Create consolidators across sectors.

• No sector interest above the other sectors.


End of Presentation

Date post:	17-May-2015
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