Upgrading SMEs’ Logistics Management
Source: Editorial Staff
Internal communication gap, excessive inventory holdings and high production costs are problems common to SMEs that lack systematic planning, simplified work procedures, and full understanding of logistics and supply chain management. Ongoing public sector support in strengthening SMEs’ logistics and supply chain management includes FTI’s SME Logistics Clinic and the Ministry of Industry’s waste minimization projects.
Funded by SME Promotion Office and by the Department of Industrial Economics, the Logistics Clinic is one of the public-private sector joint projects launched by the Federation of Thai Industries in 2007 to strengthen SMEs’ competitiveness. Dissemination of knowledge and logistics solutions coincides with the national policy to develop logistics personnel and mechanisms.
“SMEs supply goods and services to major corporations – they are the foundation of business and economic systems. Every unit within the logistics and supply chain plays has an impact on efficiency, accuracy and speed-to-market. Internally Integrated Logistics system is also pre-requisite for developing a world class Global Logistics & Supply Chain,” emphasized Pochaman Pasawat, Chairman Logistics Clinic Project.
Aside from analytical evaluation and in-depth recommendations, the Logistics Clinic also offers problem-solving support based on actual data collected by each organization. To follow-up on previous consulting services extended to 27 participants in 2007 and 13 in-depth evaluation projects, various activities are also organized to distribute logistics knowledge.
“As support is given to diverse industrial sectors, this project will yield concrete benefits and ensure cost-effective budget utilization,” added Isares Rattanadilok Na Phuket, member of FTI sub-committee and secretary of Logistics Project.
The first stage of each consulting project involves assessing the client’s logistics and supply chain capability based on Logistics Scorecard and Logistics Performance Assessment Tools (PAT). Results are then analyzed to identify and prioritize problems based on clear understanding of the nature of business, the organizational structure and culture, as well as the staff’s learning capacity and growth potential.
Recommendations concerning issues that have been jointly approved by the management and the consulting team include theories, guidelines for organizational adjustment, and active support in building up internal expertise and teamwork needed to launch and implement the project. Representatives of purchasing, inventory holding, storage, transportation and IT departments will participate in planning and implementing changes in each business area, starting with data collection through to continuous evaluation.
“In-depth consulting differs from general training as entrepreneurs have hands-on opportunity to implement changes based on actual internal data. Because problem solving in one area can cause new problems, we have to examine both upstream and downstream processes. The key success factor lies in organizational culture, employees and the management,” Apinya Rojanapanich, member of the Logistics Clinic Working Group, expounded.
Based on analyses and consulting services provided to individual organizations, the Working Group has identified the following logistics problems common to Thai SMEs:-
1. Lack of systematic internal management system, data-sharing and coordination exacerbate internal communication gap;
2. Neglect in analyzing and evaluating data leads to poor planning;
3. Inefficient inventory management accounts for outdated/frozen stocks;
4. Duplicated/ unwieldy work procedures hinder traceability;
5. Inaccurate prediction of customer needs;
6. Non-productive processes generate high production costs.
Measurable results achieved by the Logistics Clinic include reduction of surplus/ slow-moving stocks from Baht 4million to Baht 0.9million, thereby increasing net income by Baht 3million. Frequency of inventory turnover also improved from 4.1X to 4.5 X, generating Baht 16.8million in cost savings and reduction of incoming/outgoing/delivery errors from 6 to 0.6 incidents per year, and time required to move and store raw materials from 1-2 hours to just 15 minutes. Although this project will affect only a handful of SMEs while thousands more still lag behind, on-going public sector support is needed to strengthen the competitiveness of Thai SMEs and ensure their survival during the current global crisis.
The Cool Manufacturing
After participating in the Logistics Clinic project in 2007-08, The Cool Manufacturing Co., Ltd., overhauled internal data base and operational procedures to eliminate inter-department gaps, defined organizational goals, and applied new knowledge to add value to each business line. The Cool Manufacturing will now focus on creating 100% Thai brands. Hitherto, A H T (Asia) has been the producer and distributor of freezers, refrigerators, outdoor equipment for selling frozen food, and ‘Frizz’ gel pack.
“Previously we had no data base to facilitate business planning and problem-solving with respect to procurement, production, transportation and inventory management. After participating in the project, we were able to formulate systematic cost control plan, simplify procedures for selecting suppliers, production, storage, distribution and outsourcing. We expect to achieve 20-30% revenue growth this year,” said Pracha Prakoonsuksapan Chief Executive Officer, The Cool Manufacturing Co., Ltd.
Logistics Clinic recommended clear-cut and accurate production planning based on a reliable Material Requirement Planning, training warehouse personnel, measuring production efficiency and team work at various points, i.e., assembly line and welding station instead of final destination. Recorded transportation data enabled the company to calculate transportation cost structure, improve coordination and advance planning.
Performance evaluation based on clearly defined target and KPIs enabled the company to identify target groups, markets, marketing strategy and responsible agents. Average purchasing Term of Payment was also halved from 60 days to 30 days, resulting in higher liquidity and better bargaining power.
Weekly joint Sales and Operation Meetings and Operation Planning Meetings and Master Production Schedule jointly formulated by Purchasing, Production and Accounting departments ensure consistent data base and closer coordination among various departments. SWOT analyses are now applied to identify multiple targets, ensuring consistency with overall organizational objectives.
Logistics and supply chain management knowledge has also helped to improve work procedures in other departments, thereby creating value added. For example, statistics on customer complaints were used to identify appropriate solutions.
Waste management project
This year, the Department of Industrial Promotion will dispense Baht 129 million budget to fund 3 areas of activities:-
1.Training courses/seminars on “Reduce Costs to Increase Profit” for 10,000 entrepreneurs;
2.Collecting applications to participate in the cost saving project and organizing preliminary analyses for 2,500 enterprises;
3.Providing in-depth consulting services to 500 SMEs.
“During an economic downturn, it is difficult to increase sales and profits. Plagued by inefficient management of raw materials, time, data, machine and surplus stocks, SMEs need to focus on internal cost structures to eliminate waste based on the LEAN Manufacturing Technology concept,” said Pramode Vidtayasuk General Director Department of Industrial Promotion.
Center Container Co., Ltd., produces and distributes paper packaging & containers, including Regular Slot Carton (RSC) and Die-cut for food products, garment, medicine, motor cars and electronics. Recognizing the need to improve productivity and cut costs since the financial crisis in 1997, the company has participated 2 SME projects organized by the Department of Industrial Promotion.
“Internal costs include man, machine, equipment and working capital while external efforts involve joint planning to ensure win-win proposition for suppliers, customers as well as optimal cash management,” said Surachai Sothivorakul Managing Director.
Cost reduction requires systematic planning, measurable standards (KPI), and modern technology to reduce in-process waste as well as surplus stocks based on joint planning with suppliers/customers.
“This year’s profit will be generated internally through higher productivity and waste elimination. Having achieved Baht 23,500 savings in monthly electricity costs, 8.6% Productivity increase, 3.1% waste reduction valued at Baht 89,590 /month and Loss Time 4 %, we are now ready to implement ISO 9001: 2000 and ISO 14001: 2004,” said Surachai.