Facilitating SMEs Participation in Regional


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Facilitating SMEs Participation in Regional

  1. 1. Facilitating SMEs Participation in Regional & Global Supply Chain : Destination Bangladesh, Bhutan, Mongolia & Timor-Leste Presented at UN-ESCAP, Bangkok, 9 Nov.05 Dr. SAILENDRA NARAIN UN-ESCAP Consultant & Chairman, Centre for SME Growth & Development Finance Email : snpn@vsnl.net
  2. 2. Economies of Bangladesh, Bhutan, Mongolia & Timor-Leste (BBMT) Land locked Developing Countries Bhutan & Mongolia Least Developed Countries Bangladesh & Timor-Leste SMEs constraints in the Select Four - BBMT Besides traditional hardships SMEs in today’s digital economy suffer from Obsolete technology & production process Lack of modern marketing/delivery mechanism Information asymmetry Lack of knowledge management Inability to integrate in global supply chain
  3. 3. Supply Chain Network- A tool to make SMEs globally Competitive • SMEs can become globally competitive by entering into international supply chain system • Advantages may be enhanced through proper use of ICT and knowledge management exercise • Countries China, India, Japan, Philippines, Taiwan, Province of China, Thailand etc. are the fore-runners in Asia, but • Many developing countries particularly the “Select four” have yet to make a kick-start
  4. 4. Supply Chain Network- More a gift of Business Sector rather than Public or Govt. Sector • Private sector of countries in Asia which have successfully experimented with Supply Chain Network (SCN) have definite experience to share and lessons / road map to be followed • SMEs of developing economies can derive benefits from those initiatives
  5. 5. Supply Chain Network in Private Sector • MNCs/TNCs have contributed significantly in developing Supply Chain in the Private Sector- Japan, China, India, Thailand, etc • Supply Chain Network has been promoted & implemented by business sector instead of Governments • Use of ICT and knowledge management critical to supply chain for competitiveness
  6. 6. Response of Companies Approached • Sample of the companies which have derived benefits by introducing Supply Chain Network system: • Tata Motors (VCM network) • Maruti Udyog (supply chain for cost benefits) • Indian Oil Corporation(Xtrapower Fleet Card) • LML (auto supply Chain) • SembCorp Logistics (SCM for outsourcing) • Bajaj Auto (VCM network) • Mahindra and Mahindra (Buyer-suppliers dynamics)
  7. 7. Supply Chain Network includes activities from raw materials to delivery to customers The companies adopted supply chain as an integrated system covering materials operations distributions marketing after-sales services customers’ satisfaction
  8. 8. Supply Chain Network TNCs/MNCs contribution to SMEs Developed large base of suppliers and vendors from the SME sector SMEs developed competitive edge by placing due emphasis on value addition Their success largely came from: mutual trust, alliance, cooperation, information sharing and harmonious relationships with all players of Network, especially customers Mc Donald’s “Supply Logistics” is an interesting example.
  9. 9. Logistics • Companies established capacity building programmes to establish relationships between Logistics and Supply Chain Network. • Some viewed Logistics as integral part of SCNM covering the entire business processes- raw material to customers. • They used the generic function of Logistics management “to make available the required quantity of products when required at the least cost” by resorting to designing, developing, producing and operating an integrated system which responds to customers’ expectations.
  10. 10. Logistics (contd.) Components of Logistics Management Customer Generic Service Network Order Design Processing Inventory Primary Transportation Management Material Protective Storage Handling Packaging Warehousing Supportive Procurement Information Forecasting
  11. 11. Reducing Logistics Costs through lean supply chains leads to… Increases private sector Reduced number and cost competitiveness of transactions Increases productivity Frees up working capital for Reduced Inventory productive uses levels Facilitates capture of larger proportion of value added within Reduced Costs of Goods delivered country Provides for product and economic diversification Improved information flows Increases trade Promotes economic growth Increased market access Facilitates more and higher value employment
  12. 12. Global Logistics Indicators Focus Areas Examples of Indicators CUSTOMER Clearance Time PERFORMANCE Percent of consignments inspected Time and cost for processing a typical BUREAUCRACY/ export or import order REGULATIONS Number of signatures PORT Vessel turn-around time PERFORMANCE Container waiting time at port Time to enter port
  13. 13. ICT & Information Companies could successfully utilize the ICT and Information sharing techniques by: • giving more focus on reducing response time • redesigning the business processes • streamlining logistic activities across the supply chain to reduce cost and improved efficiency • developing high valued supply chain relationships • enhancing customer services for competitive advantage, and • trying to attain global standard and access to world market.
  14. 14. Role of ICT Role of ICT in supply chain has emerged as under: Negotiating Multilateral trade agreements Finalising Bi-lateral trade agreements Expediting communications and transportation of data / information Lowering the cost and time reduction In the ICT sector, there are three fast emerging technologies namely, (i) Voice system, (ii) memory buttons and (iii) radio frequency tags which facilitate efficient functioning of logistics and supply chain. These technologies would now require serious consideration for adoption
  15. 15. Integrated IT Solutions for L&SCM Source : D.K.Agrawal (2000), ‘Integrated IT Solution for L&SCM: A Case Study of TELCO, ‘ presented in ICQRIT, GGS Indraprastha University, New Delhi, 21-23 December.
  16. 16. Integrated ICT for Logistics & Supply Chain Network Most of the companies had considerably invested in the development of a probable integrated IT infrastructure solutions for logistics and supply chain network management (L&SCNM) in terms of Computer hardware Software Electronic Data Interchange (EDI) Bar Code System (BCS) Enterprise Resource Planning (ERP) Intranet, Extranet and Internet
  17. 17. Intranet, Extranet and Internet Applications in Customer service logistics and supply chain network management • Information and support products and services (L&SCNM) • Electronic help desk Electronic distribution • Mass customization and order Financial transactions • Product, data, Information processing • Selling and payment • Managing accounts Internal communications Marketing channel • Credit and payments • Complete internet, external, vertical and horizontal communications • Public relations and advertising • Groupware • Market research and test • E-mail • Electronic malls and • Collaboration catalogues • Knowledge transfer INTERNET • Telecommuting Information retrieval INTRANET Human resources and employee • Online news EXTRANET relations • Statistics, reports and • Job opening posting databases • Expert search • Data mining • Employee training and support • Competitive analysis • Distance learning Supplier Relationships Building strategic alliances • Logistics • Newsletters, bulletin boards, Sales force automation • Product search discussion database • On-site configuration and order • Electronic data interchange • Sharing knowledge and processing • Ordering and payment experience • Sales process transformation • Supply chain integration
  18. 18. Supply Chain: Carpet Exports from Nepal to Germany (Time – hrs) 1 Packing of consignment in factory Time (hrs) 2 Loading onto 1 Nepalese truck 3 Trucking from factory to Birgunj over distance of 165 km Total time : 50 days 4 Customs clearance and containerization at Birgunj Logistics time (% of total time): 32% 5– 6– Customs time (%f total time) : 13.5% 7– Total cost of moving to market: 5.9% of 8 Waiting to enter Calcutta Port value of product) 9 Unloading at Port 10 Customs inspection and clearance (fees, informal payments, etc Logistics cost (% of total cost): 67% 11 Terminal handling, incl. of waiting for vessel Logistics Cost (% value of prod): 4.4 % 12 Other terminal charges (river dues, labor fund contr., etc. 13 Liner shipping from Calcutta Port to Bremen Port
  19. 19. Value Chain Distribution of Costs Cotton T-Shirts One dozen T-shirts= US $21 Includes margins of Branding: e.g. Hanes Retailer margin-e.g. Walmart Source: Walmart, Survey interviews
  20. 20. Building Competitiveness of SMEs through Supply Chain Tata Motors Ltd., India A case study
  21. 21. Enhancing export competitiveness Speed and flexibility across value chain through VCM Supplier Administrator Dealer Help-Line Buyer Transporter Delivery the key for existence in the Global economy
  22. 22. TML is nurturing SME linkages as a source of increasing value creation Systems & Technology Now Parts & Aggregates Early 90s Activities & Operations Before 1990
  23. 23. The experience of an SME supplier to TATA Motors - Auto Profiles Ltd. Range of Products Chassis Components for Heavy Auxiliary Items Commercial Vehicles Gusset Skin Panel Assemblies for Valve Guard Driver’s Cabin Cover Indirect Export Canopies and Cabins for Driver Cabin for Dumpers Excavators, Cranes and Dumpers Tractor Components Products for Export Suspension Arms for After Sales Engine Components Market Mini Front End Loader cum Fiat Uno Dumper Ford Mondeo Fort Escort Mobile Concrete Mixer Ford Fiesta
  24. 24. Experience with TATA MOTORS Mo ATA TATA Motors at ba nce s u r T bo to ck s Boom SMEs growth Recession with TATA and our Motors Survival Pre 1990s Mid 1990s Early Y2K 2003-04
  25. 25. Auto Profiles Ltd. On the basis of Customer Inspection report confirming the acceptance Schedule is /rejection, Hundis are received by raised & accepted Vendor TATA Motors is Against Good operating with SAP Receipt Note, QA Dept. Schedules are to (SPECIAL ACCESS PROGRAMME) is preparing the be Accepted by Acceptance / Venders Rejection report. SRM (Supplier Relationship Management) As per accepted Against ASN No. Schedule, components are Components received by customer are Dispatched and Good Receipt No. ASN numbers to customer Generated. are allotted on the basis of details sent through SRM by the customer
  26. 26. Auto Profiles Ltd. Flow Chart Shearing TATA Steel RAW Pressing MATERIAL De-Coiling/ Pickling Cutting INPUT Assemb. SAIL Painting Dispatch
  27. 27. Auto Profiles Ltd. Advantages: 85% of business is with TATA Motors only 1. All information's related to production planning, PO, amendment etc. are appearing in the screen before the month begins. 2. Any amendments in schedule are given, drawing amendments are communicated through SRM 3. The advance production programme helps in planning, procurement of Raw material, m/c loading , tools programme etc. 4. Man power is saved at various stages including collection of enquiries upto receipt of payment. 5. Lot of paper work is eliminated in the whole system. 6. Payment is received very fast
  28. 28. Issues to be addressed (I) Whether Bangladesh, Bhutan, Mongolia and Timor-Leste are ready to render necessary policy and logistic support to their private sector particularly the SMEs, which dominate the economic scene of the Select Four? For this what form of situation analysis for SMEs in the four countries is needed? (II) Whether SME sector in those countries are attitudinally ready and strong enough to absorb and develop the required capacity to undertake the programme? And if so; the required frame work of capacity building programme? (III) What policy and operational measures be further taken to successfully foster SMEs’ participation into the global and regional supply chains, which will eventually make them competitive?
  29. 29. Recommendations (A) National Strategy: • Strategy for SME development through Supply Chain Network and use of ICT and knowledge management should not be stand-alone but linked to national development programmes leading to income generating activities and poverty reduction programmes. This will bring about wider acceptance of the programme components in the private sector, which plays critical role in developing these innovative concepts among its members. . • National strategy for development of Supply Chain involving private sector extensively should be built on strong base of consultations among the private sector, stakeholders and civil society at large. This should be so designed that the process of consultations gets suitably reflected in the strategy document. • The strategy should not only revolve round capacity building of the SME sector in the designated areas but should also cover policy makers in the government, extension agencies, financial system and private sector trade related bodies.
  30. 30. Recommendations (contd.) • Government policies should aim at building conducive information technology environment, foster partnerships including foreign partnership with TNCs for integrating SMEs into global market with the increased use Supply Chain Network • Formulation of suitable policy package which fills the existing gap coming in the way of SME development. Development of Supply Chain /ICT policy programmes must find suitable place in the government’s annual plan and more importantly their implementation strategy should be spelt out very clearly so that effective monitoring may be undertaken by the responsible agencies. • Suitable awareness creation programmes should be pressed into service on a regular basis to disseminate latest and accurate information on technical advancements of the products and the processes, their resultant benefits or otherwise, status of neighbouring countries, etc. so as to soften the rigid mindset and arouse acceptability to innovative ideas by SMEs.
  31. 31. Recommendations ( contd.) • Especially designed programmes on importance, cost effectiveness, and criticality of Supply Chain Network with usage of ICT / knowledge management in business, production and marketing should be introduced for upgrading the status of SMEs and make them competitive in the global market. • Delivery mechanism of support service providers to SMEs, mostly in the public sector, needs to be drastically reformed as the existing delivery system has totally failed in achieving the objective. They are all supply driven instead of demand. The institutional setup, mindset, style of operation and attitude will need to be changed.
  32. 32. Recommendations (contd.) (B) Private sector including TNCs / MNCs • Supply Chain has been widely promoted more by the private sector rather than governments. All support must flow to the Business Associations in promoting this concept among their member SMEs. • TNCs and MNCs should be encouraged to have outsourcing arrangements with SMEs and given fiscal support by the governments for establishing Supply Chain Network with SMEs. • Based on UNIDO pattern, private sector may adopt Cluster Approach to establish Supply Chain within the designated area. • Intranet, Extranet and Internet system should be encouraged in the SME sector.
  33. 33. Recommendations ( contd)
  34. 34. Recommendations (contd.) • SMEs in Bangladesh, Bhutan, Mongolia and Timor- Leste have yet to adopt SCM system to their full advantage. In recent times, with the entry of China in the world market, the SCM system has shown a number of changes. The primary economic returns in the chain of production are to be found in areas outside of production, such as design, branding and marketing. Value chain analysis provides not just a method of understanding these developments, but also a way of identifying key challenges in the promotion of upgrading. SMEs may have to be made aware of this system. • One needs to view the upgrading challenge in a wider perspective, capturing the central idea that it may involve changes in the nature and mix of activities, both within each link in the chain, and in the distribution of intra-chain activities. This relates both to the achievement of new product and process development, and in the functional reconfiguration of who does what in the chain as a whole. It is thus possible to identify four trajectories that SME firms can adopt in pursuing the objective of upgrading, namely: • - Process upgrading • - Product upgrading • - Functional upgrading • - Chain upgrading
  35. 35. Recommendations (contd.) Recommended value chain framework: Four categories of upgrading • Process upgrading: Increasing the efficiency of internal processes in such a manner as to ensure that they are significantly better than those of rivals, both within individual links in the chain (for example, increased inventory turns, lower scrap), and between the links in the chain (for example, more frequent, smaller and on-time deliveries) • Product upgrading: Introducing new products or improving old products faster than rivals. This involves changing new product development processes both within individual links in the value chain and in the relationship between different links of the chain. • Functional upgrading: increasing value-added by changing the mix of activities conducted within the firm (for example, taking responsibility for, or outsourcing, accounting, logistics and quality functions) or moving activities to different links in the value chain (for example from manufacturing to design). • Chain upgrading: moving to a new value chain (for example, Taiwanese firms moved from the manufacture of transistor radios to calculators, to TVs, to computer monitors, to laptops and now to advanced phones).
  36. 36. Recommendations (contd.) (C) International Agencies: • International agencies should be encouraged to provide initial push to the programme through Business Development Services (BDS), which may eventually find a place in the policy programmes of the concerned country. This will help bringing in the experiences of best practice adopted successfully elsewhere. • Donors may provide maximum support in these developing countries through BDS, technical skills and country exchange programmes. Suitable skill upgrading programmes may also be introduced. • Donors should also, based on their international experiences, bring in best practices and undertake coordination work as between government, private sector and various agencies. • Donors may also develop long lasting impact with local agencies “taking over” donors’ activities. • UNO may use the “Global Compact” platform to bring TNCs closer to SMEs
  37. 37. Kick-start of the Mission- Short term ( 2006-2007) Action Programme for UN-ESCAP 1. ESCAP may mount missions to quickly assess the “Gap” and inputs required for promoting Supply Chain in the SME sector of the select four countries. 2. ESCAP may setup a common platform in each country in collaboration with government, private sector, international agencies and TNCs / MNCs and work out “National Mission for SMEs’ integration in Regional and Global Value Chain.” 3. Each National Mission shall clearly setout the strategy, operational modalities and role of stakeholders for promoting Supply Chain / use of ICT in SME sector.
  38. 38. Action Programme for UN-ESCAP ( 2006-2007) 4. Four National and One Regional workshops may be organized by ESCAP in collaboration with other stakeholders to create due appreciation of the Mission and achieve acceptability by bringing about change in the Mindset of SMEs. 5. ESCAP may identify initially in each country, export-oriented / sector specific SMEs and related institutions for Capacity Building Programmes. 6. ESCAP may arrange for at least two rounds of capacity building programmes for identified SMEs and one round of programme for the institutions and policy makers. Since all value chain is by and large culminating from this region either in China or India/Thailand, their faculty must be involved to give true picture of international markets. 7. Identify a few TNCs/MNCs and open dialogue for their involvement in promoting the Supply Chain Network with select SMEs in each of the four countries. Global Compact may become handy in this direction . In this direction, Cluster approach of UNIDO may work better. 7. All the above initiatives may be taken as joint-institutional exercise by ESCAP and in the light of the experience gained the Mission may be further extended.
  39. 39. Thank you