Supply chain of Filipino SMEs

Supply chain management (SCM) has always been associated with large organizations (LOs). Although small and medium enterprises (SMEs) are part of the supply chain in both inbound and outbound logistics, focus on SCM has always been from the perspective of LOs.

In their books on SCM, authors Donald Bowersox and Ling Li have documented that SCM is often tied up with the use of information technology and adoption of e-commerce. Use of highly technical tools such as JIT (Just In Time), MRP (Materials Requirements Planning), and scientific inventory management system highlight the implementation of SCM.

Supply chain refers to the network that a business develops with its suppliers and customers. Suppliers pertain to all external entities that provide the firm with resources needed to operate the business efficiently.

Suppliers provide raw materials, equipment, human resources, information, equity or credit. Customers cover all firms or entities that participate in moving the goods from the business to the ultimate consumers.

SCM is the process by which a firm effectively and efficiently uses its resources and capabilities to accomplish activities necessary for the delivery of goods and services to the ultimate customer to meet the firm’s goals of profitability and sustainability. Hugos identified five drivers of supply chain: production, transportation, inventory, location, and information. SCM aims to deliver goods or services to an organization’s customers at the least cost, at the right time, and with the right quality.

SCM has always been a strategic factor in the profitability, growth and sustainability of LOs. The definition of SCM in SMEs, as proposed by Jitesh Thakkar in his paper “Supply Chain Management for SMEs,” covers activities from purchase of raw materials to production of subcomponent or subassembly to delivery to large enterprises. This definition assumes that LOs are the only customers of SMEs.

SCM in SMEs is always seen as a means to engage SMEs in the business of LOs as hypothesized by Calipinar and the Asian Productivity Organization. But SMEs in developing countries do not necessarily have LOs as their ultimate customers. SMEs are the customers of LOs.

They are more often the channels of LOs to deliver the goods to the end-user. The LOs act as the suppliers of the goods, and the SMEs are their ultimate customers.

This setup sheds a different light on the role of SMEs in the supply chain. The ultimate customers that SMEs serve can be the LOs they do business with or the end-users of the products or services they sell. Although the business of SMEs covers a narrower scope and lower economic value, SMEs, just like the LOs, adapt SCM processes.

Businesses in the Philippines are mostly SMEs, comprising more than 96.6% of all registered establishments in the Philippines (NSO, 2002). Ninety percent of business establishments are micro industries, and 59% are engaged in wholesale and retail businesses. Only 2,984 or 0.4% are classified as LOs, and 43% are in the manufacturing sector. These figures show that SMEs are active partners of the LOs in delivering goods to the ultimate consumers.

Filipino SMEs rely on two types of suppliers for their products: local and foreign suppliers. SMEs either manufacture their products or outsource production to sub-contractors to maintain or lower costs. SMEs distribute the products to the ultimate customers in different ways. Some use common channels such as distributors, wholesalers, and retailers. Convenience stores, locally termed as sari-sari stores, are more commonly employed as distribution channels. Large organizations in the Philippines rely on sari-sari stores to distribute their products to their ultimate customers. One multinational food company has estimated that 75% of its total sales are generated at sari-sari stores. Bringing the goods to the customers’ doorsteps is also literally done by Filipino SMEs through the use of the maglalako (street vendors or hawkers).

Bringing sari-sari stores and the maglalako into the supply chain stream creates a new perspective in understanding the supply chain system of Filipino SMEs.

This new perspective is now being used by big firms to efficiently move their products and services to the ultimate users. Given the important role of Filipino SMEs in the Philippine economy as movers of goods to the final consumers, it is important to understand the Filipino SMEs’ implementation of SCM.

The limited exposure of Filipino SMEs to large LOs does not prohibit SMEs from using SCM. Filipino SMEs are very sensitive to the needs of the markets they serve.

They have devised innovative ways of moving the goods in a timely, efficient manner and at a price affordable to the end-users. This has made LOs rethink their product designs and marketing strategies.

As SCM formally evolves in Filipino SMEs, LOs should begin to study how they can fit their SCM to the operations of SMEs to sustain their presence and profitability in the Philippines.

This is a worthwhile endeavor for a market nearing 100 million people.

Dr. Velasco is an associate professor at De La Salle University. She may be reached at aida.velasco@dlsu.edu.ph and aidalvelasco@yahoo.com.