The Role of Supply Chain Relationships in the Growth of Small- to Medium-sized
Manufacturers (SMMs)
ABSTRACT
Existing research on Small- to Medium-sized Manufacturers (SMMs) pays
scant attention to factors affecting their growth in the contact of paradigms of
competition and, particularly, segments of the supply chain in which they
operate. This work adopts a supply chain perspective to propose a business
definition and model for the process of the SMMs understanding of, responding
to, andinf1uencing customer need. Preliminary results are described and
discussed.
INTRODUCTION
The Small- to Medium-sized Enterprise (SME) sector is an important part of any
national economy. (Storey, 1994). In Europe, while industrial giants continue to slash
jobs, high-growth SMEs are creating thousands of new jobs in manufacturing and
services (Flynn, 1998). The growing Sma11- to Medium-sized Manufacturers (SMMs),
whi1e a minority of the SME sector, play an increasingly important role in new job
creation. (Cosh and Hughes, 1996) However, little has been done to examine the
SMMs’ growth potential as part of the supply chains in which they operate.
Recent increased interest in supply chain management has led to a recognition of the
interdependencies which exist between firms in the supply chain and subsequent
emphasis on relationships among them. Both the logistic and behavioral aspects of
these relationships have been the focus on research in marketing, manufacturing and
logistics.
However, this extensive study of supply chain relationships has been largely biased
towards po1icies which large companies do, or should, follow for developing the
supply bases and channel relationships. The perspective of the SMM who is often an
upstream player is largely underdeveloped, although specific industries (e.g.,
automotive) have received some attention. This work adopts the perspective of the
SMM and focuses on how supply chain relationships affect the growth of SMMs as
links in the supply chain.
BUSINESS DEFINITION AND THE ROLE OF SMMs IN THEIR SUPPLY
CHAINS
The way a company defines its business is essential in setting objectives and
formulating appropriate strategies (Abell, 1980). Increasing recognition of
interdependencies among firms in supply chains makes it imperative for any business
definition to describe the role of the company as part of a supply chain and provide a
tool to describe how this role changes over time. The business of the SMM can be seen
as a function of the products/services which it offers to customers.
Research in the service sector has suggested that companies which seek to grow by
offering new products/services to existing customers may be more successful that those
who offer current products to new customers. But all are more successful than
competitors who seek to grow through the simultaneous development of
products/services and new customers.
The basic premise of this work is that the ability to add customers and add business with
existing customers is influenced by the SMMs understanding of, responsiveness to, and
influencing the needs of current and new customers. Drawing upon the manufacturing
and industrial marketing literatures (for example, Abel, 1980; Forrester, 1961;
Hakansson, 1982; Shapiro, 1988), a model has been developed to describe this dynamic
process. This model makes explicit reference to the role of the manufacturer as a
service provider. Service is reflected both in day-to-day operations, and I strategic
choices of the SMM in responding to customer requirements, and influencing customer
needs. These choices are assumed to surpass conventional notions of customer service,
and inc1ude any program or activity which aims to redistribute allocations of roles and
responsibilities along the supply chain.
RESEARCH METHODOLOGY
The state of current knowledge about the nature and role of supply chain relationships
in the growth of SMMs calls for adoption of a mixed research methodology –the
complementary tools of case studies and a general survey. This work has begun with a
set of semi-structured interviews with SMMs, designed to help confirm and identify
key issues for SMMs in managing supply chain relationships. From the analyses of
these interviews, case studies will be developed; analyses of these data will also
contribute to the design of the planned sample survey of SMMs in Engineering Industry
in the UK.
PRELIMINARY RESULTS
The first nine semi-structured interviews with SMMs have been completed. The firms
range in size from 18 to 25 employees: three have remained stable in terms of products
and customers over the past three years; two have added new products or services, one
has added new customers and two have added both. One SMM has added new products
while "rationalizing" its customer base. This small sample does not allow the
emergence of clear patterns of companies ' behavior and activities. However, some
preliminary indications can be reported.
Growth companies in this small sample tailor products to a customer's specific request.
Their product catalogues tend to serve as a demonstration of capabilities rather than
setting boundaries on product offerings. Growth companies also tend to undertake
design tasks. The degree of control over design varies since some companies are
subcontractors. However, even in this case, growth companies make systematic efforts
to influence design by offering suggestions for improvement.
The growth companies tend to make systematic efforts to increase their share of valueadded in the supply chains in which they operate. This is done in various ways, from the
supply of subassemblies through development of supplementary services which were
previously performed by other suppliers.
It is worth noting that such developments are often of a customer-oriented rather than a
customer-led origin. Some of these SMMs combine strong market awareness with
heavy involvement with customer problems in order to identify market opportunities
and exploit gaps left by the competition. In contrast, some firms with stable
customer/product profiles have adopted a "push" philosophy, relying heavily on the
technical expertise of owners.
One SMM provides a remarkable example of small-firm management of a customer
base. This firm has developed a world-wide network of distributors and close
relationships with independent service engineers through an aggressive effort of
personal selling. Shop f1oor employees train customers in product use, and the
company provides training and exchanges market information with distributors.
Development of such close relationships with independent service engineers who are in
daily contact with customers has allowed the SMM to avoid fixed service cost while
helping inf1uence buyers’ purchase decisions.
Dealing effectively with big customers with complex and often uncoordinated (as
perceived by the SMMs) decision-making is a problem faced by all of the SMMs
interviewed. However, there are indications that provision of support services and an
empowered position in the supply chain provides some of these SMMs with the
opportunity to increase channels of communication as well as the degree of inf1uence
they can exert on customer requirements and behavior and, ultimately, on customer
needs.
CONTINUATION OF THE RESEARCH
While the semi-structure interviews are being complete, the survey instrument is being
designed and tested: it will be administered in about nine months. At the same time, an
appropriate sample of the population is being developed. Hypothesis development is
being reviewed in light of preliminary findings from the interviews. Candidates for full
case studies are being approached.
The objective remains insight into factors affecting the growth of SMMs, with
particular focus on the role of supply chain relationships in that growth. Analyses of
survey data will permit some generalizations; analyses of cases will add more
qualitative insight into effective practices for SMMs.
REFERENCES
Abell, D.F., Defining the business: The Starting Point of Strategic Planning,
Prentice-Hall, New Jersey, 1980
Cosh, A. and A. Hughes, editors, The Changing State of British Enterprise: Growth,
Innovation- and Competitive Advantage in Small and Medium-sized Firms 1986-95,
ESRC Centre for Business Research, University of Cambridge, 1996
F1ynn, J., "Startups to the Rescue", Business Week, 23 March 23 1998, pp.50-52
Forrester J. W . , Industrial Dynamics, MIT Press, Cambridge, Massachusetts, 1961
Shapiro, B.P. "What the Hell Is 'Market Oriented’” Harvard Business Review vol.66,
no.6 (1988), pp.119-125
Storey, D.J., Understanding the Small Business Sector, Routledge, 1994