The dam has burst in regard to the demand for supply chain management (SCM) services in the small business segment, according to recent Aberdeen research. The results of a December 2007 outsourcing survey of more than 300 organizations reveal that small businesses (with annual revenues of US$50 million or less) are reporting a major uptick in demand for SCM services.
Small business owners are often forced to spend an inordinate amount of time managing vendor relationships rather than focusing on core competences. While small companies with simple operations can often take care of supply chain management activities in-house, the time and effort required to manage the supply chain grow sharply as volume swells or delivery complexity increases.
Attending to requests for information and managing the many 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. At the start of 2008, small businesses are seeking help with SCM activities ranging from help desks and order entry to contract management, logistics support and compliance and performance management.
Access to Professional Resources
The top reasons small businesses are seeking help with SCM initiatives from outside providers are similar to those of all revenue classes. However, small businesses are more likely to choose outsourcing to access professional resources they lack in-house, to decrease expenses and to improve service quality. Working with SCM outsourcing providers gives small businesses access to trained professional resources, 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. 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 used by organizations of all revenue classes, according to Aberdeen research. They choose outsourcers with trained and experienced professionals that can provide dedicated teams to their projects.
Providers offering defined service level agreements are also 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 nearly always involves the management of concurrent shipments, customer inquiries and contracting activities.
One selection criterion that stands out is the added emphasis small businesses place on the ability of the outsourcer to provide on-demand services. Because many logistical activities are prone to unexpected interruptions caused by circumstances like traffic congestion, shipping delays and other transportation-related bottlenecks, it is understandable that small businesses would place a high premium on SCM provider responsiveness.
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. Here are additional actions:
- Create a globally integrated supply chain organization.Recent Aberdeen research shows that while 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 towards 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 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 real-time acts as the grease in the wheel for uninterrupted supply chain operation that leads to higher levels of customer satisfaction and smoother SCM overall.
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.
Click here for recent supply chain management research from Aberdeen.
Michael Guilbault is a senior research analyst in the technology group at the Aberdeen Group. He can be reached at [email protected].
Tom Karol is a research associate in the Aberdeen Group’s enterprise integration area. He can be reached at [email protected].