Business Process

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Received 17 February 2011 Revised 23 May 2011, 1 August 2011, 15 August 2011 Accepted 17 August 2011
Supply chain issues in Indian manufacturing SMEs: insights from six case studies
Jitesh Thakkar
Department of Industrial Engineering & Management, IIT Kharagpur, Kharagpur, India
Arun Kanda
Mechanical Engineering Department, IIT Delhi, Delhi, India, and
S.G. Deshmukh
Mechanical Engineering Department, IIITM Gwalior, Gwalior, India
Abstract
Purpose The purpose of this paper is to report insights on supply chain issues in small- and medium-scale enterprises (SMEs) based on an analysis of six case organizations. Design/methodology/approach A broad range of qualitative and quantitative data was collected during interviews and eld visits in a multi-case study research design. In total, six manufacturing SME units were investigated and analyzed. Findings The deliverables of the paper are two-fold. First, the paper documents six cases uncovering supply chain and operations complexities in manufacturing SMEs. Second, based on the critical analysis of the case organizations, insights developed are reported with a set of recommendations. Practical implications The eld of supply chain management (SCM) is reaching a new stage. After a period dominated by enthusiasm for the newness of the idea of managing the stream of products across the whole chain, from supply through manufacturing to end-users, it is now realized that one size does not t all. SCM has been considered an effective strategy for integrating suppliers and customers with the objective of improving responsiveness and exibility of manufacturing organizations. It seems that the supply chain issues are much explored in the context of large enterprises but less attention is paid to SMEs. Originality/value This paper draws an attention towards select supply chain issues in Indian manufacturing SMEs. The paper includes six cases highlighting their supply chain issues in the Indian environment. Subsequently, an analysis is reported to acquaint industry practitioners and contemporary researchers with the issues that inuence managing supply chain in SME sectors. It maps SCM orientation of case organizations and summarizes the critical supply chain issues in Indian manufacturing SMEs. Keywords India, Manufacturing industries, Supply chain management, Small to medium-sized enterprises, Large enterprises Paper type Research paper
Journal of Manufacturing Technology Management Vol. 23 No. 5, 2012 pp. 634-664 q Emerald Group Publishing Limited 1741-038X DOI 10.1108/17410381211234444
1. Introduction From an isolated and protective environment, the Indian economy is passing through the transitional period of integrating itself into the global economy. In all industrialized countries, small and medium enterprises (SMEs) contribute substantially to the total
industrial output. The competencies and business process outsourcing has led to sub-contracting of business activities to SMEs. The capacity of SMEs to offer products and assemble goods at lower prices within the quality standards stipulated by larger enterprises (LEs) has helped increase the overall competitiveness of the supply chain. For this reason, SMEs can no longer afford to remain isolated or allow redundancies in technology, management or marketing techniques. Today, India has a vibrant and competitive small-scale industrial sector that holds a substantial space within Indian industry. The SME sector contributes about 35 percent towards industrial production and around the same portion to the total exports of the Indian economy (Singh et al., 2005). There is an immense potential for cost savings in India if the cost of logistics can be reduced from the current level of 14 percent of GDP to a level similar to those in North America, where 8.7 percent of GDP is the norm. The savings in India would be around $20 billion, resulting in a potential 4.3 percent drop in the price of Indian goods globally, making Indian goods more competitive (Mitra, 2006). A concise break-up and comparison of supply chain cost in India is presented in Table I. India ranks 10th on the parameters of product quality, design and on-time delivery and 9th in the case of after sales service and managing distribution among ten developing countries (Sahay et al., 2001). The money blocked in the form of inventories raw material, work-in-process and nished goods are a measure of the responsiveness of the supply chain to market demand. On an average, the Indian organization carry a total of 33.41 days of inventories of raw material, 14.25 days WIP and 16.09 days of nished goods, which reects the poor state of logistics infrastructure within the country (Sahay et al., 2001). The current trends combined with reported gaps in the research and recent industrial developments justify the need of research in the area of supply chain issues in SMEs. For example: . SMEs must implement logistics procedures to improve their performance. Yet, very few researchers consider logistic development in SMEs (Halley and Guilhon, 1997). Sahay and Gupta (2002) conducted research for an Indian organization in fast moving consumer goods (FMCG), which conrmed the growing importance of supply chain management (SCM) for Indian industries (Sahay et al., 2001).
Supply chain cost break-upa Cost component In-bound transportation cost Out-bound transportation cost Warehousing cost Inventory carrying cost Cost of transit losses Cost of damages Other costs (insurance, international freight and clearances) Return inventory cost Return processing cost
a
Indian manufacturing SMEs 635
% cost 28 28 7 13 5 5 6 4 4
Logistics cost comparisonb Logistics cost as Country GDP (USD) % of GDP Australia China Mainland India Japan Korea Singapore Taiwan 393.0 1,237.1 460.0 3,996.2 468.7 87 281.5 10-11 14.5 14.0 10.5 12.4 12.4 13.5 Table I. Break-up and comparison of supply chain/logistics cost in India
Source: IBM (2003/2006); bIMD (2003)
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Car suppliers have been inuenced by a profound and on-going re-organization process, which particularly involves small rms that were once used as suppliers of production capacity but now are more deeply involved in decision making activities concerning the end product. India has emerged as an outsourcing center for auto parts for companies such as Ford, Toyota, Daimler Chrysler, Fiat, Volvo and Renault, Visteon and Delphi. The worlds largest component manufacturers have entered India for production. Some Indian organizations like Sundaram Clayton Ltd (Brakes Division), Lucas-TVS Ltd, Indo-Gulf fertilizers Ltd, Sonakoyo Steering Systems Ltd, SRF Ltd (industrial synthetic business) and Rane Brake Lining Ltd have won the Deming application prize. This is a positive sign of Indian SMEs becoming more competitive. The trend for component supplies, however, has changed drastically. Vehicle manufacturers now prefer to be provided with complete kits/systems in place of a large number of individual parts. SME suppliers can cater only to these needs if their own supply chain integration is appropriate (Singh et al., 2004, 2005).
The contemporary researchers, for example, Arend and Winser (2004), Halley and Guilhon (1997), Huin et al. (2002), Morrissey and Pittaway (2004, 2006), Power (2006), Quayle (2002, 2003) Sardana (2004) and Singh et al. (2004), etc. have evaluated the various dimensions of supply chain in SMEs. An evaluative assessment of literature has helped to summarize critical issues in the supply chain of SMEs in Table II. When research efforts are increasing in understanding SMEs orientation towards supply chain, we describe the objectives of this paper as: (1) to add to the existing body of knowledge on supply chain issues in SMEs by reporting six cases from Indian origin; and (2) to provide plausible insights to the contemporary researchers into the supply chain issues of SMEs using exploratory research insights. The focus of this paper is on describing supply chain difculties of Indian SMEs. The intention is not to generalize the outcomes but to raise select concerns for enhancing supply chain capabilities of SMEs. It should also help large enterprises to better understand the supply chain complexities of SMEs and hence adopt holistic policies and mutually agreeable supply chain norms. This paper is organized in following order. Section 2 provides theoretical background on supply chain issues in SMEs. Section 3 describes the research methodology adopted. Section 4 includes case description of six Indian manufacturing SMEs with a specic focus on their supply chain and operations issues. The insights are consolidated by mapping case organizations for set of supply chain characteristics. Section 5 reports critical analysis of case organizations. Finally, Section 6 summarizes supply chain complexities in SMEs. 2. Theoretical background The key research published in the recent time on supply chain issues in SMEs includes Arend and Winser (2004), Halley and Guilhon (1997), Mahadevan (1997), Shah and Sundar (2001), Hvolby and Trienekens (2002), Quayle (2003), Gunasekaran and Ngai (2003), Singh et al. (2004), Hong and Jeong (2006), Morrissey and Pittaway (2006),
More vulnerable to holding specic assets and more sensitive to contract costs (Oakes and Lee, 1999) 2. Trust Does not generally need to consider antitrust issues when pursuing networks and alliances (Power, 2006; Oakes and Lee, 1999) 3. Sensitivity to supply More sensitive to the assurance of supply issues because rm may have invested in specic assets to better serve a supply chain partner and, thus, be at a potentially devastating nancial risk if the partnership dissolves (Morrissey and Pittaway, 2006) 4. Expected communication Fast and direct communications in the network because of its own shorter hierarchical distance to decision makers 5. Organizational culture A small rm may have organizational culture differences with larger partners that can create problems in relationships that are based on shared, often tacit coordination and adaptation (Hong and Jeong, 2006) 6. Time frame and Less likely to have the long-term time frame required to build and relationships reap the rewards of relationships (Ritchie and Brindley, 2000) 7. Problems when enter into SMEs become potential acquisition targets of larger rms when the long-term relationships supply chain works well. This is not necessarily bad, but when the SME has not negotiated the acquisition ex ante, then, it is likely that the larger rm will have an advantage in valuing the target better after SCM and, with its operations intertwined, make the target look less attractive to other buyers; all of which means a worse price for the SME (Arend and Wisner, 2004) 8. Use of IT Computer usage by SMEs is largely restricted to operational or administrative tasks 9. Supplier selection Gather information about suppliers, but do not use the data for decision making due to lack of time (Power, 2006) 10. Attitude towards strategic SMEs perceive strategic planning costly and time-consuming and planning hence appropriate only for large rms (Kraus et al., 2006) 11. Formulation of strategy Behavior of Small rms formulates their own particular strategies and the logistics focus must adapt to different levels of formalization and integration (Kraus et al., 2006) 12. Development of logistics SMEs should develop a logistic based on the preparation of structures and competences for the introduction of logistics. The logistics objectives should be included in the owner managers objectives (Halley and Guilhan, 1997)) 13. Nature of workow Workows in SMEs tend to be less well organized due to a lack of organizational structure and unclear competencies. The majority of non-automated processes and related activities within and between companies enlarge IOR complexity (Hong and Jeong, 2006; Oakes and Lee, 1999)
1. Vertical integration
Table II. Issues in SMEs supply chain
Williams (2006), Harland et al. (2006), Harland (2007), Lenny Koh and Simpson (2007), Vaaland and Heide (2007), Faisal et al. (2006), Thakkar et al. (2008), Thakkar et al. (2009) and Singh et al. (2010), etc. The present state of literature uncovers both agreements and disagreements on the adoption of SCM practices in SMEs. Thakkar et al. (2008) provide an extensive and evaluative review of literature on supply chain issues in SMEs. The majority of work has focused on use or adoption of IT tools in SMEs. The majority of work is found mainly of exploratory kind. However, both case study and survey based approaches were adopted. The prime focus of work has remained pertinent to mainly the area of supply chain strategy and planning. Not much work is reported on network design and customer focus. This may
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be because of newness of concept for SMEs. The fact has been supported in the detailed literature review carried out by Thakkar et al. (2008). Thakkar et al. (2008) had reported the present status of research in SCM of SMEs in exploratory stage (74 percent papers are in descriptive category; p. 108, Table III) and hence more thrust is found on development of case studies and conceptual model making rather than going for statistical generalization. SMEs rely on a few main customers, face a limited number of competitors and stress the importance of qualitative competitive factors such as personalized service rather than cost and price factors which demands the effective planning and management of their supply chain activities. The key enablers for implementing SCM in SMEs include: . greater degree of maneuverability; . greater sense of responsibility in the owner and employee; . personal contact with the employee and customers; and . greater exibility to cater limited and uctuating demands. On the other hand, few obvious shortcomings are: . less scope for the use of modern machineries; . little scope for division of labor; . disadvantage in the purchase of raw materials and other accessories;
Market winners
Performance measures
Reported organizational practices
Cost reduction Inventory levels (raw materials, through lean work-in-progress, nished goods) manufacturing
Table III. Market winners and associated measures/practices of studied Vithal Udyognagar SME cluster
Development of 5S, single unit ow, quality at source, modication of plant layout, kanbans, supplier integration, development of dedicated supplier base, outsourcing Delivery Manufacturing throughput time, machine Production scheduling, JIT, single minute exibility and changeover times, batch sizes, inventory exchange of dies, multi tasking and responsiveness levels, production ow multi-skilling, cellular production in manufacturing Internal operational Flexibility Capacity to Employee development/training, Continuous improvement (kaizen), change suggestion schemes, employee (labour culture building/work discipline training and management) turnover, absenteeism programmes, inter-rm cluster based industrial relations and benchmarking rates, employee output Quality Order returns, internal reject, rework and Quality control structures, statistical scrap rates, return rates to suppliers process control, quality circles, team working, multi-skilling Innovation No. of attempts for relationship building Concurrent engineering, R&D capacity with customers and OEMs, R&D expenditure (process and product) Business process engineering, Delivery lead Time from customer order to delivery, time and cycle delivery frequency of suppliers and standardization in order processing and time reduction supplier delivery reliability, delivery dispatch, adoption of lean manufacturing concepts, Six Sigma and SCM frequency to customers and delivery reliability
. . .
higher cost of rent, interest, advertisement, etc. per unit of output; inability to meet uncertainty; and unutilized by-products.
In a broader way, on a growth based approach, SMEs may be divided into two main groups growth oriented (to grow and create the most valuable company) and quality of life (to provide an income for the owners). Some conicting understandings on SCM for SMEs include: (1) SME views SCM as an exertion of power by customers and is perceived as one-way process. (2) On one hand, concept of SCM is believed only to be more benecial to large businesses because of their well-established organizational structure, ability to invest in IT and system development and culture of business. On the other hand, heavy investment in IT, system development software like ERP, single minded pursuit in the absence of dened responsibilities and higher dominance of owner are considered as few detriments to SCM in SMEs. (3) Large enterprises manage SMEs at arms length and if they want to continue in business they are expected to obey the norms. (4) SME may lose the business with others by entering into long-term contract with particular contractor. (5) Failure by large company could disrupt the entire supply chain but, as SMEs are unique, if they fail they could easily be replaced (Karuppan and Karuppan, 1998; Rich and Hines, 1997). (6) Huin et al. (2003) reported few supply chain interdependencies for ERP development in Asian M-SMEs which include: . low levels of organizational hierarchy; . CEO involvement in operational decisions; . blurred departmental walls; . production modes in manufacturing SMEs; . planned forecasts vs real forecasts; . rate of changes in orders; . short lead time in manufacturing; . high staff turnover; and . customers special demands. An evaluative review of literature reveals factors that hinder SCM implementation in SME mainly include: . lack of trust and sincerity; . myopic view focusing more on internal gains; . outdated organization structure; . focus on supply than demand; . IT, considered as fashion and not as a part of business strategy;
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poor storage and warehousing functions; vulnerability inherent in the reliance on SCM partners for relation-based rents, especially for SMEs; lack of modication of the underlying SCM theories to account for the effects of rm size; and self-selection effects in the relevant strategy-choice, strategy-outcome link.
3. Research methodology If the research problem is essentially exploratory in nature, then using a statistical procedure such as linear regression (which is more appropriate for evaluating well developed hypotheses) should raise concerns (McCutcheon and Meredith, 1993; Handeld and Melnyk, 1998; Williams, 2006; Johnson et al., 2007). Shaw (1999) and Gill and Johnson (1991) warn the use of hypo-deductive approaches to understanding small rms which can restrict the generation of knowledge about their processes, activities and outcomes and their advantages tend to be behavioural stressing qualitative differentiation and innovation (OGorman, 2001). Therefore, it calls for an approach that allows the researcher to get close to participants, penetrate their internal logic and interpret their subjective understanding of reality (Johnson et al., 2007). Thus, we consider that our research enquiry on SCM in SMEs is of interpretive kind which can further be considered under the category existential on a matrix proposed by Meredith (1998). The present study focuses on theory development which is mainly of exploratory kind and aims at identifying the factors that appear to inuence the supply chain function of SMEs. The selection of qualitative case study research is based on the reasons such as: . there is little formal theory describing supply chain complexities in the context of SMEs (Arend and Wisner 2004; Williams, 2006); and . the issue needs to be explored in its most natural and social context to learn about possible unforeseen variables inuencing the phenomenon (Eisenhardt, 1989; Meredith, 1998). A multiple case study approach is adopted to increase external validity (Voss et al., 2002). We chose to visit each company thrice. For all companies, a number of quantitative and qualitative data were collected: business specic characteristics (volume, turnover, lead time, position in supply chain. . .), issues related to various business functions (production, marketing, manufacturing. . .), perception and vision of CEO/GM. The rst visit consisted of an introduction, a plant visit and a semi-structured interview based on the researchers questions. The second visit helped to interact with various departmental heads in more detail and uncover some of the more issues affecting the premise of present research. In the nal visit, gaps and missing data were lled. Moreover, the key informants reviewed the tables with quantitative data, and the researchers interpretations, increasing triangulation (Meredith, 1998) and construct validity (Voss et al., 2002). Most interviewees (18 in number) were CEO/owner or other departmental heads with a clear view and knowledge of operations, products and buyers. The varying motives, differing control structures and owner-led planning process of SME organization requires triangulation utilizing multiple sources and means. In order to limit the effects of subjective biases and improve the validity and reliability of study,
approaches like questionnaire, interview schedules, observations and study of organizations archrivals were adopted. In addition, all the interviews were recorded and transcribed, thus allowing further detailed analysis. The interview schedule has included questions on various sections such as marketing/sales, purchasing, manufacturing, and production planning and control. The interview questionnaire has collected responses on a Likert scale of 1-5 related to the prole of company, basic supply chain issues, buyer-supplier relationship, and enablers/barriers to SCM implementation. However, the purpose of using interview questionnaire was just to ensure the consistency of qualitative data and not to use for any further statistical analysis. We attempted to capture the notion of SCM from operations point of view. For the purpose, departments like manufacturing, production planning, marketing, and purchasing were studied in detail. In order to avoid a too narrow collection of data and understand the effect of overall environment of organization, we also asked for variables related to overall business approach/orientation, operations strategy, products, markets, business strategies and relationships with their major suppliers and buyers. In line with Voss et al. (2002), we will rst describe our sample and then do cross case comparison followed by the analysis. This exploratory study summarizes supply chain issues in SMEs using insights gained from six SME units situated in cluster of Vitthal Udyognagar Association, Gujarat, India. Pseudonym (for example, ORG1, ORG2. . .) has been used to protect the anonymity of the case organizations involved in this study. 4. Description of case units This section describes supply chain and operations complexities of six Indian manufacturing SMEs. A multiple case study approach is adopted to increase external validity (Voss et al., 2002) in order to obtain theoretical generalization as opposed to statistical generalization (Yin, 2003). The case organizations (ORG1 to ORG6) are the members of Vitthal Udyognagar Association, Anand, India. The industry cluster of Vithal Udyognagar mainly houses all sorts of small-, medium- and large-scale industries in the area of 236.85 Hectares which has more than 207 manufacturing sheds. Before 30 years, giant groups of industries like M/S. Elecon Engineering Co. Ltd M/S. Gujarat Machinery, M/S Vallabh Glass Works Ltd came into existence in this area. Presently, it is the largest engineering estate of Kheda District having over 500 Units, providing employment to more than 15,000 employees in the various industries like 180 units of engineering fabrication and machine tools, 24 units of electrical and electronic panels, switches and accessories, 25 dairy engineering, 26 paints, varnishes, resins, 20 wooden furniture and related products, 28 foundries and oil furnaces, 72 food and feeds, leather goods. In addition, it also includes printing press, drugs and pharmaceuticals, chemicals, rice and pulse mills, textiles, hosiery, wire products, etc. The market winners and associated practices of this manufacturing industry cluster are summarized in Table III. ORG1 manufactures variety of Hitech-wood (35 to 1,000 liters), gas (50 to 700 liters), oil, diesel red and solar water heaters. ORG2 manufactures plants, systems and equipments required for chemical and allied process industries. For all the three case organizations managing their upstream supply chain and nancial ows are critical. ORG3 carryout the manufacturing of permanent magnet DC motors for original equipment manufacturers (OEMs) and retail markets. This organization is a typical example of SME experiencing varying kind of customers and suppliers expectations
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at the upstream and downstream side of supply chain. ORG4 manufactures valves for various applications of dairy and process industries. The prime challenges for this organization are to maintain the export quality, reduce delivery lead time and improve upon work-in-process inventories. ORG5 manufactures positive displacement pumps and it is a typical example of a SME organization which is involved in high variety, distribution and complex design and manufacturing activities. ORG6 manufactures precision components for sophisticated applications like aerospace, injection molding, etc. This organization is mainly faced with the challenge such as to meet the quality expectations of foreign counter-part through local poorly developed supplier base. In general, the units investigated are relatively small and highly unorganized to moderately-organized. The principal raw material used by the organizations is metal in different forms and kinds. All units produce discrete parts or complete equipment. It should be noted that turnover of the different units is probably not entirely comparable, as the units differ in the value of the raw materials, scope of business, opportunities under globalization and other purchased supplies. A brief summary of business characteristics of organizations is presented in Table IV. ORG 1: Heater & Co An ISO 9001-2000 and ISI certied company established in June 1974 is the pioneer and the largest manufacturer in India (30 percent market share, annual turnover of Rs. 30 millions) of variety of Hitech-wood (35 to 1,000 liters), gas (50 to 700 liters), oil, diesel red and solar water heaters. Company has formulated quality policy and objectives as:
We at ORG1 are committed to comply with the requirement of QMS and are also committed to continually improve its effectiveness. We intend to produce and market product meeting customer requirement to achieve and enhance cost.
The objectives include: (1) to achieve and enhance customer satisfaction; (2) to monitor continual improvement; and (3) to develop eco-friendly products. The intensied indigenous competition in the last few years has forced the company to go for aggressive marketing and cost reduction. The failure to meeting delivery dates with competitive prices and reduced inventory levels is a big challenge company is facing. Companys main strengths include focus on quality, innovation, entrepreneurial leadership but lacks in professionalism and motivation of its workforce. To cater the excess production loads, company hires temporary work force or offers overtime/extended hour of working to existing workforce. Use of dual facilities (dedicated and exible) is not within the purview of company as reduction in xed cost and inventory is necessary. Bad transportation and lack of communication many a times disturbs the delivery schedules. Company uses the proximity supplier base for the purchase of standard items but relationships and contract conditions vary depending upon their value of purchase. Company has adequate manufacturing facility but lacks in adequate utilization. The communication problems within the company and with other organizations many a times lead to poor forecasting accuracy (10-15 percent deviations), confusions in product specications and delivery planning. The biggest problem is to handle the seasonal demand peaks. Present supply volume does not allow the
Number Organization Turn of Core physical (ORG) overa employees processes Main markets 120 120 Equipment manufacturer Equipment manufacturer 1st tier supplier of D.C. motors 2,800 units 1/2 uit 160-180 units 20-30 80 Fabrication
Number Number of Position in supply of buyers suppliers chain
Specic Volume (per month)
business characteristics Delivery Average lead-time inventory (in days) levels (in days) 60
ORG1: Heater & Co. 60 100 50 200 30-35 20-25 160 40-50 80 No x number 170
30
120-180 30 15-20 15-20
60-90 30 30 30
ORG2: Process plant & Co. ORG3: Motor & Co.
20
ORG4: Valve & Co. ORG5: Pump & Co. 40 Precision machining 4 OEM 35-40 OEM & 500 retail 4 OEM 25
60
Process industries, home, restaurants Fabrication, Chemical and machining allied process industries Assembly lines 100 percent OEM manufacturers Manufacturing, Process and assembly dairy industry Manufacturing, 60 percent OEM assembly and rest retail 150-200 units 2,000 units 1,000 units Component manufacturer 1st tier supplier of positive displacement pumps 2nd tier supplier of precision instruments
ORG6: Precision & Co.
45-60
60-90
Note: aFigures in Rs Crore (Rs 1 Crore appx. US$250,000)
Table IV. Business characteristics of case organizations (ORG1-ORG6)
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organization either to go for global sourcing or to develop supplier base in geographical proximity. Company selects vendors mainly on criteria: reputation in the market, quality and cost. The use of computer for expediting and streamlining purchase function is found very low. This has affected the responsiveness of company, specically, for the immediate implementation of production plans, changes in delivery schedule and product specication, etc. The low level of trust in buyer-supplier relationship is mainly because of ad hoc purchasing patterns, opportunistic behaviour of owner and lack of mutuality between partners. Despite offering wide-range of products, company considers a low stake in the overall business of large customers and their ability to change the supplier as some of the reasons behind inequity in buyer-supplier relationship. To improve upon service levels, company has created dedicated service forces which include 10-12 sales representative and service engineers. Limited nancial capability and disturbed accounts payables damages the companys image in the market. To overcome excess production loads and resource constraints, company has outsourced the manufacturing of heater doors and their transportation requirements. Company prefers transactional or collaborative relationship more appropriate and considers partnership as an access to resources and not of establishing sustained demand for future. Companys performance measurement system is more biased towards typical nancial measures and does not include customer related measures and supply chain measures more rigorously. Some more facts describing the supply chain orientation of organization include: . costing system is based on traditional xed and variable cost computation which does not provide fair idea about the non-value added activities as can be derived through ABC accounting system; . the problems related to acquiring enough capital, resources and skills are acute which has affected the full implementation of IT systems such as intranet, internet, extranet, and ERP; . inventory management is ad hoc and is not supported by some well appreciated strategies like demand-pull system, material requirement planning (MRP), SCM and demand management. However, to reduce the inventory level company has mainly gone for standardization and lean manufacturing strategies like Kanban; . forecast calculations are based on position of stock, discussion with customers, past demand data, discussion with distributor and sales person and no formal technique or tool is used; . company has total 200 dealers. Dealers who sell only companys products are given 5 percent discounts, free delivery, and involvement in exhibition, free of cost publicity. If dealers do the advertisement then company bears the 50 percent of total cost. While small dealers are exempted from the same; and . CEO believes liberty in payments to the customers is must to survive in competition . . . . In nutshell, the select critical supply chain issues in case of ORG1 include: . difculty in deriving accurate forecasts and meeting seasonal demands; . poor intra functional linkages, specically, between marketing and production planning;
. .
absence of scientic inventory management approach; and procurement/purchasing are governed by short-term planning horizons.
ORG 2: Process plant & Co Company with a more than 20 years of experience manufactures plants, systems and equipments required for chemical and allied process industries. Company has developed in-house pilot testing facilities like continuous beadmill, dryer, agitated nutche lter, grinding and classication system. Companys major business comes from Australia, UAE, Saudi Arabia, Russia, Kazakhstan, Bangladesh, Myammar, Malawi, Kenya, Tanzania, Nigeria, etc. Company offers plant capacity in a range of 1,000 TPA to 25,000 TPA. CEO exhibited reservations for the adoption of supply chain philosophy for the reasons such as: . restricted scope of business; . localized manufacturing; . no distribution network; and . ow of ownership, money, inventory and nance are very low. This is mainly reected in: . consideration of materials management decisions at operational level; . use of internet/IT is only for inquiring on the status of order (or operational level tasks) and not for any kind of joint planning; . very low consideration to ethical standards; . highly opportunistic and competitive market and hence sharing of information on planning and involvement of suppliers in product design means loosing the condentiality; . inventory is considered necessary to improve customer service and cater uncertainties in prices; . CEO does not see any benet for developing buyer-supplier relationships in improving their overall value of product or business scope or service; and . outsourcing of some of the manufacturing job work is mainly to improve upon delivery lead time and minimize production loads. In addition, CEO considers opportunistic and short-term view of business partners, motive to safe-guard SMEs advantages like differentiation and innovation, lack of managerial skills, and lack of culture as signicant barriers to supply chain implementation. Higher variability in inventory levels at various points is mainly attributed to frequent changes in demand, higher procurement lead time and higher manufacturing lead time while reasons like imbalanced batch ordering, price uctuations and inated orders are not signicant. Company considers superior product quality, durability and efciency of product and after sales services as their order winners. In summary, the select issues making supply chain planning difcult in case organization ORG3 include: . lack of positivism towards supply chain philosophy; . lack of scientic approach in inventory management;
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ORG 3: Motor & Co An ISO 9001:2000 company was started in 1993 to carryout the manufacturing of permanent magnet DC motors for OEMs and retail markets. Company owns almost 60 percent market share out of which 80 percent goes to OEM and 20 percent to retail markets. Company has two manufacturing units each manufactures 2,800 units per month. Company considers itself to be in high variety and low volume of business. Company has four to ve big OEM customers which demand the product in a range of 1-50 to minimize inventory levels at their end and follow JIT philosophy. Companys quality policy states that We at ORG 4 are committed to: i) building an organization that customers like to do business with and depend upon; ii) creating products that are world class yet cost effective continuously improving our capabilities by imbibing practices and processes that reect our leadership intentions. The objectives of company include: (1) target key customers and markets where our core strengths offer us a strategic advantage; (2) work closely with our customers at a pace which is expected by them; (3) adopt technologies and practices which will enable us to build products that are at the best in the world; (4) be result oriented and eliminate non-value adding activities; (5) develop a dependable supply chain that enable us to concentrate on our core activities and manage our costs; and (6) adhere to our commitments to customers, internal as well as external. Some of the issues related to companys materials management function mainly include: . maintains the double stock/inventory than monthly requirement; . follows bin system for periodic review and replenishment of inventory; . overall inventory include 1,500 items; . good supplier base is available in proximity; . higher nished goods inventory is maintained to cater uctuating customer demands; . good implementation of 5S; . inadequate present space capacity of stores to work with FIFO (First In First Out) system; . drastic changes in production loads and unbalanced resource utilization; and . company has reduced the inventory levels from 90 days of inventory to 30 days by working on KANBAN system.
Companys vendor rating is solely based on percentage rejection and no other criteria like ability to respond in emergency, collaborative design and planning, etc. are considered. Company rates the component/material defects in four categories like A/B/C/D/E - workman error/tooling/design/quality defect/eld return/improper use. Based on the severity of defect, further actions are taken in six categories return to vendor, scrap, rework, use in alternative product, initiate improvement, on-going improvement. In a nutshell, companys overall orientation for SCM is positive but still implementation is found fragmented. In summary, the select supply chain issues in ORG4 include: . high variety at raw material and nished product stage; . high volume and high variety product ranges makes the production and procurement schedules difcult; and . lack of clarity on market demand and customer schedules demands for preservation of inventory of nished goods. ORG 4: Valve & Co Company started 25 years ago manufactures valves for various applications of dairy and process industries. The present problems like inability to meet customer demand, backlog of orders, lack of responsiveness in meeting customer demand are the indication of poor supply chain status. The major stumbling blocks in managing supply chain include: . to cater to the immediate demands, pilling of inventories at all the stages raw material, WIP and nished goods. Company maintains on an average inventory of 30 days of raw material, 90 days of WIP and seven to ten days of nished goods; . heavy inventory of WIP is because of changing dispatch and order priorities of customers; . assembly line and scheduling problems are acute which has made the synchronization of components at nal stage difcult and hence build up of heavy WIP inventory; . large customers are not ready to accept small consignments; and . supply chain decisions are totally taken by CEO and lack of awareness exists at functional level. Respective functional leaders are only involved in routing follow-up procedures. In addition, CEO has expressed some of the difculties as:
We have four genuine parities for the purchase of steel. From one party we receive 4% of rebate and 100% relief in tax but lead time uctuates from 3 days to 6 weeks which disturbs our production plans heavily. Another party supplies the material in time but cost is very high. On the customer side, we do not have any scope to charge for little higher price for maintaining delivery schedules. The real complexity lies in achieving a tradeoff between uctuating lead time and purchase cost. Many a times, customer demand for the product is single or few units and it becomes difcult to produce as per EOQ (Economic Order Quantity). Company purchases steel from large organizations and the total annual order forms a very small part of their overall business. Because of which, company does not receive good treatment on cost, quality and quantity aspects.
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In nutshell, select supply chain issues critical in case of ORG5 include: . heavy inventory levels at raw material and WIP stages; . uctuating customer demands for different variety and quantity; . JIT customers expect delivery in small batches which is difcult to meet economically; and . dominance of select large suppliers and their one-sided delivery criteria restricts the organization from reducing inventory levels at raw material stage. ORG 5: Pump & Co Company is a family owned organization established almost 25 years back to manufacture positive displacement pumps. Recently, company was taken over by the multinational company of USA. This has helped the company to derive benets like addition of new products, design modication in existing product base, trade opportunities, and enhanced ability to counter indigenous competition. Company operates with one corporate ofce (mainly for decisions related to marketing and nance) and two manufacturing facilities with various branch ofces in metro cities like Chennai, Delhi, Kolkata, Hydrabad. Mainly branch ofces collect the orders and supply the timely information to corporate ofce. The prime raw materials of company include elastomer, steel/Al bar, stator casing, channels, motors, bolts, nuts, etc. Companys manufacturing activities mainly include design and production of stator, rotors, drive shaft, circlips, and connecting rod. The products are mainly consumed by food industry, transfer applications, efuent and waste water plants, paint industry, steel industry, etc. Company claims to have consistent increase in prot from last three years. Company receives 60 percent business from OEM and 40 percent from retail market. Company considers product design, customer faith, market share, quality, competitive price, excellent after sales service as strengths of their business. The responsiveness to market is ensured by maintaining certain stock of higher demanding products with inter-mediatory like agents. Companys supply chain includes 35-40 OEM, more than 500 retailers, and 30-35 suppliers. The spread of supply chain function is found at both tactical as well as operational level but strategic supply chain decisions like development of distribution network, number and location of warehouses, ow of material through logistics requires certain revisions. Company considers reduction in lead time, cycle time and improved service levels as signicant advantages of SCM for their organization but does not consider risk reduction as the benet company can derive, so far present level of trust and transparency exist in buyer-supplier relationships in India. In a thrust to improve its supply chain function, company has considered closeness to OEMs, supplier evaluation, information sharing with suppliers and customers on demand, planning and forecasting, and collaborative product design as some of the thrust area. For supplier selection, company gives higher importance to criteria like scope of suppliers business, geographical proximity, past experience, quality of parts, terms of payment and ability to meet delivery due dates compare to criteria responsible for building long-term buyer-supplier relationships like ethical standards, exible contract terms, etc. However, company understands the suppliers willingness to share production/demand information, willingness to participate in new product development as the most important one in meeting the market demands timely. Inventory and stock keeping policies are mainly governed by the required service level, reduced ordering cost, criticality of component or material, geographical position of suppliers, and discounts
available on bulk purchases. To focus on core manufacturing and reduce inventory levels, the manufacturing of casings; brackets and some fabrication work is outsourced. Top management exercises direct control over review and replenishment of inventories. Companys top most priority for enhancing customer value mainly includes conformance to requirement, relationship and experiences while price and brand are considered at second level. However, effective use of IT is not yet invoked for the collaborative planning and decision making among supply chain partners. However, to enhance internal coordination, company has completely networked the business functions and business units. The highest beneciary of IT is considered to be the marketing and nance for their enhanced ability to maintain customer closeness and doing market research. Company considers pricing and volume discounts, minimum and maximum purchase quantities, delivery lead time and service promptness as levers of negotiation for entering into the purchase contract. Presently, company considers a quantity-exibility contract a more appropriate one. Company considers the reasons like opportunistic and short-term view and low level of trust among trading partners as the biggest barrier to the successful implementation of SCM. Company perceives that implementation of Six-Sigma with lean manufacturing techniques can benet them more. ORG 6: Precision & Co Company established on a collaboration of Indian entrepreneur and their Canadian counterpart manufactures various precision components/machine parts for medical, aerospace, injection molding, electronics segments. The complete business volume is exported to various countries like the USA, Canada, Singapore, etc. with a motive to offer competitive quality at low prices compare to manufacturing units in North America. This is mainly supported by low labor and administrative costs and local availability of raw material in India. Company faces very low indigenous competition and considers lot of opportunity for further expansion. Company considers low prices of components, superior quality, dependable delivery, and ability to offer variety in design as their winning criteria. Purchase of imported material is from the select approved vendors where credit uctuates between 30 and 60 days. Company considers their inventory levels high (more than two month, 20 percent of total turnover) but they consider it as a cushion to cater the repeat orders. Bulk purchases are preferred to obtain quantity discounts. Companys supplier selection criteria mainly include: . ability to understand and supply the material as per international standards like ASTM, AMS, ASME SAE specications; . ability to cater in emergency; . payment conditions credit facility; and . ability to offer necessary modications. Company works with limited and dedicated suppliers to control over quality, price and delivery schedules. Company shares information such as production plans and forecasts with their suppliers as well as customers on a continuous basis. This has helped the company to: . streamline their planning process with demand; . improve upon forecasts; and . timely inform their suppliers about expected delivery schedules.
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Company generally offers two to three months advanced production plan to their suppliers. CEO continually remains in touch with his foreign based counterpart and customers through fax, e-mail and phone to make the production planning more effective. Company does have access to customers server and their production data to better plan their own schedules but similar competencies and readiness does not exist at the end of indigenous suppliers which makes the overall supply chain planning difcult. Customers are demanding more of modular products but this has not yet been started because of inadequate infrastructure and preparedness on the side of local suppliers. The late deliveries are in the range of 10-20 percent mainly attributed to the reasons like: . late arrival of raw material; . disturbed internal schedules because of absenteeism of workers, machine breakdowns; and . frequent changeovers and higher set up time to cater the small quantity requirements of customers. Company aims to go for controlled expansion (with existing facility) in next few years by improving response time to provide complete kit/set of items needed by customers. Company is negotiating with the existing customers to enter into the long-term agreements for more variety and x prices instead of entering into the business with new customers. CEO believes that it is benecial to supply more parts to the same customers than expanding the customer base for the reasons that: . opportunity to strengthen technology and learning curve; . assured business; . creating market goodwill and trust; and . becoming a dedicated supplier. In summary, select issues leading to supply chain complexity in ORG6 include: . absence of good indigenous supplier base which can cater to the requirement of case company for export quality products; . uctuating customer demands and continuously changing customer requirements; and . necessity to invest in nished goods inventory to meet uctuating demand schedules of global buyers. The above description provides an overall idea about case organizations, their select issues and supply chain orientation or preparedness. The case organizations were mapped for various supply chain issues. A brief comparison of this is presented in Table V. 5. Analysis and interpretation The facts revealed through the analysis of case organizations (ORG1 to ORG6) has helped to identify the potential areas of improvement for Indian SMEs. Though the severity of issues varies from case to case depending upon their variety of products, internal culture, supplier base and customer expectations, an identication of critical
Supplier Issues/ selection Organizations criteria Motives behind inventory Critical supply chain conicts Matching demand and supply Reduce delivery lead time Reduction in cost Minimize production load Factors responsible for late deliveries Higher manufacturing lead time Price uctuations Inated orders Improved customer service Reduced ordering cost Value added Material shortages services Relationship Production and bottlenecks experience Conformance Fluctuations in due to dates requirement Need to improve service level Price and Quality problems vs need to reduce inventory brand Dimensions of customer value
Factors responsible Motives for higher variability behind of inventory in outsourcing supply chain
ORG1
Ethical standards
Flexible contract terms Past experience
ORG2
Lower Internal functional purchase integration vs integration value of with external partner material Geographical Geographical proximity position of supplier Price and Sense of quality of security material Ability to Discounts on meet bulk delivery due purchase dates Fluctuations in prices of material Improved Need to improve service level Scope of suppliers customer vs need to reduce inventory business service Conformance Material shortages to requirement Reduced delivery lead time
Frequent changes in demand forecasting (continued )
Indian manufacturing SMEs
Table V. Comparison of case organizations on supply chain issues
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652
Supplier Issues/ selection Organizations criteria Critical supply chain conicts Product selection Price and Insufcient overall brand capacity Value added services Production bottlenecks Minimize production loads Factors responsible for late deliveries Criticality of component or material Ability to cater uncertainty
ORG3
Table V. Motives behind inventory Dimensions of customer value Factors responsible Motives for higher variability behind of inventory in outsourcing supply chain Higher procurement lead time Higher manufacturing lead time Focus on Frequent changes in demand corecompetency Batch ordering Inated orders Minimize production difculty Reduced delivery lead time Reduction in cost (continued )
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Relationship and experiences Commitment to purchasing Conformance Due date changes Flexible Improved large quantities vs exibility to customer contract service needed to cater changing requirement terms/ customer demands conditions Use of Reduced Matching demand and internet ordering cost supply Past Criticality of Inventory reduction vs experience component manufacturing of large production batches or material Geographical Lower Need to improve service level proximity purchase vs need to reduce inventory value of material Price of Ability to material/ cater parts
Flexible contract terms/ conditions Past experience Price of materials/ parts Quality of parts
Supplier Issues/ selection Organizations criteria Critical supply chain conicts Dimensions of customer value Factors responsible for late deliveries
Motives behind inventory
Factors responsible Motives for higher variability behind of inventory in outsourcing supply chain
ORG4 Improved customer service Matching demand and supply Inventory reduction vs manufacturing of large production batches Need to improve service level vs need to reduce inventory Production bottlenecks Reduction in cost Minimize production load Minimize production difculty Reduced delivery lead time Conformance Due date changes to requirement
Ability to meet delivery due dates Flexible contract terms/ conditions Past experience
Frequent changes in demand forecasting Higher procurement lead time Batch ordering
ORG5
Lower purchase value of material Geographical Geographical proximity position of supplier Fluctuations Price of material/ in prices of material parts Quality of parts Ability to meet delivery due dates Scope of Improved suppliers customer business service Matching demand and supply
Conformance Changes in due dates Focus on High procurement lead to and material coretime requirement shortages affects competency moderately (continued )
Table V.
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Supplier Issues/ selection Organizations criteria Critical supply chain conicts Relationship and experiences Product selection Value added services Improved quality Minimize production load Minimize production difculty Factors responsible for late deliveries
ORG6
Table V. Motives behind inventory Dimensions of customer value Factors responsible Motives for higher variability behind of inventory in outsourcing supply chain High manufacturing lead time Product selection Material shortages Reduction in cost Frequent changes in demand forecasting (continued )
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Reduced Inventory reduction vs ordering cost manufacturing of large production batches Past Criticality of Need to improve service level experience component vs need to reduce inventory or material Geographical Lower Identication of core proximity purchase competencies and outvalue of sourcing of activities material Price of Geographical materials/ position of parts supplier Quality of Ability to parts cater uncertainty Discounts Ability to available on meet delivery due bulk dates purchase Presence of Safeguard ISO against certication changing demands Ethical Improved Commitment to purchasing standards customer large quantities vs exibility service needed to cater changing customer demands
Use of internet
Supplier Issues/ selection Organizations criteria Critical supply chain conicts Inventory reduction vs Value added Production manufacturing of large services bottlenecks production batches Need to improve service level vs need to reduce inventory Factors responsible for late deliveries
Motives behind inventory
Dimensions of customer value
Factors responsible Motives for higher variability behind of inventory in outsourcing supply chain Focus on Batch ordering corecompetency Minimize Inated orders production load Minimize production difculty
Criticality of component or material Past Lower experience purchase value Geographical Geographical proximity position of supplier Price of Ability to material/ cater parts uncertainty Quality of Discounts parts available on bulk purchase Ability to Fluctuations meet in prices of delivery due material dates
Use of internet
Table V.
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issues may help practitioners to evaluate their problems in greater detail. A brief summary of organization specic issues is reported in Table VI. In summary, select critical facts identied are summarized below: . SMEs are presently more focusing on internal business and prot maximization measures. The importance of innovation and learning measures is mainly realized by those SMEs which are forced by their OEMs or large buyers to improve upon their product design or process capabilities. . SMEs working with limited nance and technological capabilities and poor negotiation power in value chain put more emphasis on return on investment (ROI) and return on assets while considers concern for total supply chain cost beyond their immediate purview. . SMEs working with larger product portfolio and buyers put more emphasis on innovation and learning perspectives, specically, product and process innovation, vendor development and information sharing among supply chain players. Though the severity of issues varies from case to case depending upon their variety of products, internal culture, supplier base and customer expectations, a summarization of select recommendations may help contemporary researchers and practitioners to evaluate their problems in greater detail. This study makes following recommendations to assist the SME organizations specically operating in manufacturing sector to device the specic action and implementation plan for necessary improvements. (1) Company evaluates the suppliers mainly on price and quality basis but some other dimensions like delivery lead time, ability to serve in emergency, ability to offer items in small batch size should be included. A supplier rating/evaluation matrix should be designed. (2) Inventory levels need to be reviewed and revised. Company should go for the minimum level of component/parts variety and inventory by focusing on following areas: . standardization of components; . periodic review of usage of various items frequency of review should be decided based on criticality of component; . establishing good relationships with suppliers and ensuring timely and responsive supply base. For the purpose, company also needs to reciprocate positively with their suppliers by timely payments and prot-reward sharing mechanisms; . purchase should be in small batches instead of bulk order trade-off could be understood between inventory carrying cost (money tied-up in inventory) and discounts available on bulk purchase; and . close interaction and communication with customers to ship the product as soon as it is made ready. (3) Lack of knowledge on existence of potential suppliers is revealed. Mainly, companies are using their own contacts or past experiences to locate needed supplier base. This needs to be further improved with the extensive use of internet and trade-directories or magazines.
List of issues (I) emerged I1. Demand-forecast mismatch
Organization ORG1: variety of Hitech-wood (35-1,000 liters), gas (50 to 700 liters), oil, diesel red/solar water heaters ORG2: plants, systems and equipments for chemical and allied process industries ORG3: permanent magnet D.C motors for OEMs
Organization specic issues (I) I1, I2, I4, I9, I19, I11, I14, I22, I25 I2, I5, I6, I7, I9, I11, I18, I19, I20, I25, I26 I1, I9, I13 I3, I6, I13, I16, I17, I19, I23, I26 I16, I18, I20, I23, I24, I26 I10, I16, I18, I25, I26
I2. Higher employee turnover I3. Vendor rating based on quality and price and less importance to exibility and responsiveness criteria I4. Ad hoc forecasts I5. I6. I7. I8. I9. I10. I11. I12. I13. I14. I15. I16. I17. I18. I19. I20. I21. I22. I23.
ORG4: valves for various applications of dairy and process industries Opportunistic behaviour of owner ORG5: positive displacement pumps Lack of strategic approach in procurement ORG6: precision components/ machine parts for medical, aerospace Lack of understanding on partnerships Communication gaps leads to confusion about product specications and delivery schedules Use of internet/IT only for inquiring on the status of order and not for joint planning Lack of synchronization of material ow with production priorities More internal focus and lack of knowledge on supply chain Lack of standardization Erratic changes for quantity and schedule Outsourcing to take care of excess production loads and not with an intention to focus on core activities Changing nancial priorities at customer ends leads to delay in lifting of consignments Customer demands for single/few units makes it difcult to work with EOQ level Small purchase volumes deprives from receiving equity in business transactions Bulk purchases are preferred to receive benet of quantity discounts / full truck load / ensure material availability Lower use of IT solutions Multiple supplier strategy Disturbed accounts receivables Disturbed accounts payables Rush orders
(continued )
Table VI. Reported insights from case organizations ORG1 to ORG6
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List of issues (I) emerged I24. Disturbed material allocation during crunch time I25. Lower facility utilization due to lack of skill/worker absenteeism I26. Higher inventory levels due to frequent changes in demand, higher procurement/ manufacturing lead time Organization
Organization specic issues (I)
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Table VI.
(4) Companies consider their suppliers external to their business and no collaborative planning at design or production stage has invoked. Company may not nd it feasible to involve all the suppliers for the purpose but suppliers of critical components could be more sensitized through early involvement at design stage. (5) Companies appear to work with multiple supplier strategy to safe-guard themselves against supply disruptions. But development of single/dedicated supplier can surely help to reduce the cost as well as implementing design related changes easily. (6) No prot sharing arrangement exists between manufacturers and their suppliers. Company considers timely payments to their suppliers as the biggest reward to them. Early supplier involvement and reward sharing from the increased prot will surely help the company to improve its supply function. Studies focusing on the processes suggest that SMEs and LEs implement SCM differently, and apparently this difference in implementation is signicantly associated with SME performance (Arend and Wisner, 2004). The literature also indicates that SMEs in general are not able to implement SCM to its full extent, mainly because they are managed at arms length by larger customers and have to follow the norms stipulated by the buyer. Other ndings suggest that since larger companies consider SMEs as being easy to replace, buyers are reluctant to form partnerships with SMEs. Systems, tools and methods also represent signicant differences between SMEs and larger companies, for example, in relation to adoption of electronic interfaces between actors in the supply chain. Whereas larger companies have the resources and technical budgets to implement e-business and e-supply strategies, SMEs will continue to be challenged by resource limitations (Wagner et al., 2003). SMEs are not scaled-down replicas of large organization in experiences and business processes. The limited power and resources makes it difcult for SMEs to cope with the latest challenges such as mass customization which puts higher demands on the companys ability to attune its production planning to customers wishes and their suppliers. The select key differences between SMEs and LEs in terms of SCM could be narrated as below. . SMEs consider SCM as operational level task aiming towards short-term prot earnings for immediate future while LEs consider SCM as the strategy to compete through reduction of system-wide cost.
SMEs rely generally on spot market or network and true vertical integration is generally not an option. LEs adopt both horizontal and vertical integration depending upon kind of corporate strategy. SMEs demand and forecast planning is mainly governed by OEMs schedules while LEs plan are based on the use of scientic tools and techniques.
6. Conclusion This paper has documented the supply chain and operations complexities of six Indian manufacturing SMEs. Although the specic form that the process follows varies among rms, in general, the supply chain complexities and implementation issues seemed to be quite general. The reported insights provide some evidence that SCM is progressively becoming important for SMEs to remain competitive in the supply chain of large enterprises. Further, managers in these rms recognize the competitive strengths that supply chain can provide. SMEs are varying in nature of output and their characteristics. In the last decade, during open economy and globalization, many organizations in engineering sector have entered into Indian market. Their low cost high quality products have put SMEs off the line, and made sick. Becoming competitive is a stipulated necessity of the day. SCM gives SME the ability to leverage its scalable competence (e.g. in product design and radical process innovation) in a cooperative network through fast and feasible access to complementary partner assets. The reported research has attempted to redene supply chain for SMEs sector which is mainly explored for large businesses. For the purpose, an exploratory multiple case study research was conducted. Inputs of large organization are mainly from SMEs and hence improved quality and cost at subassembly level can surely bring value products to the ultimate customer. In the present study, emphasize is placed on the scope of studying supply chain complexity which is mainly dependent on the position of SME in the supply chain and its maturity in terms of various SME life cycle stages such as Inception-Survival-Growth-Expansion-Maturity. SMEs operate with blurred departmental boundaries and often person with long experience with diploma or graduate qualication in engineering is given the overall responsibility of plant operation and maintenance which quite often even overlaps with marketing and purchasing functions. An assessment of supply chain issues of Indian SMEs reported in this paper has helped to deduce following key insights. (1) A view from reaction to anticipation has made the companies more focused on reducing non-value adding elements, use and adoption of IT solutions and outsourcing. SCM can be adopted more rigorously if SMEs can receive more positive benets and equity while operating within the power dominance of few supply chain players. (2) SMEs lack in technology based planning in absence of adequate organizational, nancial and human resource support. This deprives them from searching new processes, new materials, new vendors, new shop oor designs, new channels to deliver products, etc. It is also observed that the poor trust and transparency in buyer-supplier relationship affects the perceived risk related to a suppliers investment.
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(3) Indian SMEs have adopted select strategies to overcome the problems of sub-optimal scale of operation and technological obsolescence such as: . increasing market share through expanding geographical boundaries; . outsourcing some of the non-core manufacturing activities; and . exible work-force, etc. mainly with the motives to improve ROI and reduce the pay-back period. However, such initiatives fail to bring good results because of the reasons such as: . unawareness of potential suppliers, customers and partners in absence of adequate information; . uctuating market prices, specically, for raw materials like steel; . varying expectations and demand for heavy cost cutting raised by large organizations/OEMs; and . poor quality and support in terms of timely delivery, ability to cater in emergency and readiness to improve technology at the end of suppliers. The present state of literature uncovers both agreements and disagreements on the adoption of SCM practices in SMEs. The disagreements for the adoption of SCM in SMEs are primarily based on the reasons that these organizations are: . relatively opportunistic and in contact with relatively few rivals; and . more cash focused, short term and instill better communications and incentives for exploiting internal knowledge restricts the application of supply chain practices in SMEs. Despite of these, the select benets which SMEs can reap by implementing SCM include: . SMEs can consider SCM as a strategic weapon to improve their performance in competitive market. Practicing SCM may help SMEs to develop more clarity on their business strategy and core competence. . SCM can help SMEs to establish better relationships with their OEM or large enterprises and hence derive the opportunity to improve their learning curve and nancial and inventory ows. . Adoption of SCM by rst- and second-tier SMEs can help to consolidate the component level requirements of their OEM customers at few stages and in turn it can help to boost the prot of their own and overall supply chain. . SMEs generally face problems in meeting erratic demands of their OEM customers. SCM can help them to improve forecasts and hence purchasing schedules by streamlining inter and intra organizational activities. This can help to reduce waste and buffer inventories at SMEs factory and warehouses. . SCM may give SME an ability to leverage its scalable competences (e.g. in product design and radical process innovation) in a cooperative network through fast and feasible access to complementary partner assets.
In the era of globalization, it is obvious that the survival of an organization is dependent on its ability to operate supply chain most efciently and responsively. SMEs being a backbone of supply chain need to manufacture/supply more, at competitive cost, in less delivery time, with minimum defects, using fewer resources. In order to meet these challenges, an alignment of internal functions with the external players is must. This demands accessibility to right kind of information at right time, a collaborative scenario between large enterprises and SMEs and avoidance of the duplication of efforts (like inspection, material handling, development of component drawings, etc.) and resources (like engineering competence, technological expertise, etc.). The researchers when they have reported fragmented attempts in the domain of supply chain issues in SMEs, there is a need to put extensive efforts in modeling supply chain coordination, partnership development, inventory utilization, risk mitigation and information sharing issues. It should be acknowledged that the present study is subjected to some limitations. Perhaps, the most serious limitation of this study was its narrow focus on Indian manufacturing SMEs and hence without supporting replication of studies like this, our results should be considered tentative and should be generalized with care. In addition, our work was conducted on a sample of rms in engineering industry, and in a period when Indian industry has once again put themselves on a growth path after a tough period of globalization and removal of government subsidies. Further, research should endeavor to test the inductions and process model offered by this research based on a large survey and cross-industry study. The purpose of this research is to raise select concerns in supply chain planning in chosen Indian SMEs and not to opt for statistical generalization. Further research could be aimed at empirically testing the ndings of this research. Interesting in this respect is also to explore the possible link between supply chain structure, SMEs position and overall industry dynamics. This link is important because mutuality between supply chain partners and hence motivation to invest depends upon the structure of the supply chain.
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Further reading Quayle, M. (2005), The (real) management implications of e-procurement, Journal of General Management, Vol. 31 No. 1, pp. 23-39. Shewchuck, P. (1998), Agile manufacturing: one size does not t all, Proceedings of the International Conference on Manufacturing Value Chains, Troon, pp. 143-50. About the authors Jitesh Thakkar is an Assistant Professor in the Department of Industrial Engineering and Management at IIT Kharagpur. He obtained his Doctoral degree in the area of Supply Chain Management from Indian Institute of Technology (IIT) Delhi in 2009. He did his M.Tech in Industrial Engineering with 9.157 CGPA from Indian Institute of Technology (IIT) Delhi and his Bachelors degree in Mechanical Engineering with Gold Medal from BVM Engineering College, SP University, Gujarat. He is a recipient of the Excellence in Teaching and Research (for Year 2007) award given by Charutar Vidya Mandal a leading educational trust in Gujarat. He has 15 research publications in peer-reviewed international journals such as Production Planning and Control, International Journal of Productivity and Performance Management, International Journal of Six Sigma and Competitive Advantage, Journal of Manufacturing Technology Management, Journal of Small Business and Enterprise Development, International Journal of Innovation and Learning, etc. Jitesh Thakkar is the corresponding author and can be contacted at: jt@iem.iitkgp.ernet.in Arun Kanda was a Professor in the Mechanical Engineering Department at Indian Institute of Technology (IIT), Delhi. He has published research papers in many reputed international journals such as International Journal of Operations & Production Management, Journal of Manufacturing Technology and Management, International Journal of Six Sigma and Competitive Advantage, etc. S.G. Deshmukh is a Director of IIITM Gwalior. His papers have been published in many reputed international journals such as International Journal of Operations & Production Management, International Journal of Productivity and Performance Management, Production Planning and Control, International Journal of Production Research, etc.
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Indian manufacturing SMEs 635

Source: IBM (2003/2006); bIMD (2003)

Indian manufacturing SMEs 637

Table II. Issues in SMEs supply chain

Reported organizational practices

Indian manufacturing SMEs 639

Indian manufacturing SMEs 641

Number Number of Position in supply of buyers suppliers chain

Specic Volume (per month)

120-180 30 15-20 15-20

ORG2: Process plant & Co. ORG3: Motor & Co.

ORG6: Precision & Co.

Note: aFigures in Rs Crore (Rs 1 Crore appx. US$250,000)

Indian manufacturing SMEs 643

Table IV. Business characteristics of case organizations (ORG1-ORG6)

Indian manufacturing SMEs 645

Indian manufacturing SMEs 647

Indian manufacturing SMEs 649

Flexible contract terms Past experience

Frequent changes in demand forecasting (continued )

Indian manufacturing SMEs

Table V. Comparison of case organizations on supply chain issues

Motives behind inventory

Indian manufacturing SMEs

Motives behind inventory

Dimensions of customer value

Indian manufacturing SMEs

List of issues (I) emerged I1. Demand-forecast mismatch

Indian manufacturing SMEs 657

Table VI. Reported insights from case organizations ORG1 to ORG6

Organization specic issues (I)

Indian manufacturing SMEs 659

Indian manufacturing SMEs 661

Indian manufacturing SMEs 663

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