But as pressure from OEMs mounts to satisfy these needs electronically, so has the anxiety level and investment misfires for their suppliers — the many small- and mid-sized manufacturers (SMEs) throughout the United States. With the overstated “dot-com” hype of the ’90s, thousands of small and mid-sized companies rushed to implement Web sites and e-business strategies, only to find that this is not a business strategy that can be rushed.

The result has been a misalignment between OEMs and their suppliers – and an inability to leverage the Internet’s potential to help improve the performance of U.S. supply chains. To turn the tide, what has to happen from here?

Understanding SME Internet Anxiety

To bridge the gap, it helps to understand where most SMEs are in the process of embracing the Internet.

A recent study by KPMG Consulting, LLC, undertaken on behalf of the National Institute of Standards and Technology’s Manufacturing Extension Partnership (MEP) and its network of manufacturing assistance centers, shows that SMEs are embracing the “basics” – with nearly 90 percent of respondents at least connected to the Internet.

Of those who are connected, 65 percent indicated that they have a company Web site. However, many are not using Web sites to their fullest potential. More than 60 percent of SMEs primarily use their Web sites to provide information about their companies, products and services, while only 20 percent actually allow customers or suppliers to link electronically with their company.

The study also revealed that many SMEs fail to see the growing importance of the Internet and its impact on the exchange of information within supply chains. In the survey, SMEs indicated that they perceive “sharing and exchanging information with suppliers” as the relatively least important use of the Internet when compared to the other topics.

Authors of the report note that the SME response to this question may demonstrate an inability to see themselves as part of a supply chain in which they may be required to share and exchange information.

But as experience has revealed, large OEMs are looking for suppliers who can deliver on-time, at the right cost and with the right quality. They’re also beginning to look for suppliers who can participate in Internet-based knowledge sharing. If small and medium-sized manufacturers cannot meet these requirements, OEMs will find someone who can.

MEP’s mission involves providing hands-on assistance that covers the entire range of manufacturing issues. The assistance is provided through a nationwide network of not-for-profit centers in more than 400 locations across the country, whose sole purpose is to provide small and medium-sized manufacturers with the help they need to succeed.

“We know that whether they’re a tier 1 or a tier 3 supplier, most manufacturers should prepare to move into an e-business world,” said Bill Barnes, business group manager, CAMP, Inc., an MEP network affiliate. “Many larger manufacturers have adopted the Internet as a strategy to decrease costs and improve communications within the supply chain, and SMEs who fail to understand and adapt to this evolution risk losing customers.”

For SMEs, implementing a successful e-business strategy takes careful planning, commitment at all levels and a business culture that’s ready to change.

Unfortunately, many small companies don’t have the time, staff or budget necessary to plan and implement a successful e-business strategy. And, since many large OEMs and their tier 1 suppliers have begun using the Internet to optimize their entire trading network, which includes suppliers at all tiers, SMEs are feeling the crunch. Some have felt it earlier and harder than others.

Roadblocks for SMEs in Implementing e-Business Strategies

Initiatives like Six Sigma and lean manufacturing, in addition to e-business implementations, have placed numerous demands on small and medium-sized manufacturers. With all of these competing initiatives, it can be hard for companies to prioritize, especially when they have many customers making multiple demands on them.

What makes e-business different from many of the other mandated initiatives is that it requires more preparation and thought. Among the issues facing SMEs in their attempt to respond to OEM e-business pressures:

1. There are no industry-standard Internet technology platforms.

Because industry-standard technology platforms don’t currently exist for e-business applications, many of the large OEMs are pushing different enterprise integration systems down the supply chain. Some encompass a broad scope and try to cover all major business functions, while others target specific pieces of the business – like electronic data interchange.

Although supply chain organizations are working to adopt industry e-business standards, technology changes and unpredictable developments are inevitable, and it’s impossible to predict which platform will become the standard.
“With smaller technology platforms like EDI, there were at least standards,” Barnes said. “Unfortunately, there are no current standards for Internet-based business strategies. If you’re lower on the supply chain, you have virtually no power – you’re being dictated to by large OEMs and tier 1 suppliers. Everybody’s doing it a different way, and the little guys are getting totally beat up.

2. e-Business strategies are expensive to implement.

If an SME has more than one large OEM customer and each of those customers is pushing its own technology platform, the IT investment can be overwhelming – in terms of time, staff and money.

Which system does an SME really need? OEMs can pilot a new IT system to work out the kinks – maybe try it on a single manufacturing line first before expanding it internally. Small manufacturers don’t have that luxury. For many, there is only one line, so if it doesn’t work, it spells disaster.

Many small manufacturers also don’t have the internal staffing capabilities needed to implement and maintain the various technology platforms. Hiring staff and/or outside consultants to do this work can really start to add up – and make an SME question the return on investment.

3. Many OEMs are no longer loyal to their supplier base.

Large OEMs are searching for suppliers who can deliver on-time, at the right cost and with the right quality. They’re also beginning to look for suppliers who can participate in real-time, Internet-based information sharing. If their current suppliers can’t do that, OEMs will find companies who can – even if it means looking overseas.

Another place OEMs are finding suppliers who can meet their ever-increasing e-business demands is through online and reverse auctions. These auctions, a sometimes brutal arena for small and medium-sized manufacturers, provide OEMs with hundreds of companies who are willing to compete for their business – and they are becoming more and more common every day.

4. Use of the Internet raises some serious security concerns.

Many experts believe that interoperability between different applications will be the only way e-business can work in the end. Although several organizations are working to create industry standards and/or centralized portal or hub architectures for the free flow of real-time information between OEMs and their suppliers, the technology still isn’t there. Why? Security concerns must be addressed if companies are going to place proprietary business information on portals also used by their competitors.

5. e-Business adoption requires a change in business culture

Small manufacturers see the obvious benefits of implementing e-business strategies, but they don’t know how or where to get started. Many try to do it with their current staff, only to find that many of their current employees are under-trained.

“For many companies, implementing e-business strategies requires a monumental cultural and organizational transformation,” said John Stiehl, manufacturing consultant, Mid-America Manufacturing Technology Center (MAMTC), another MEP affiliate. “I’ve seen a lot of companies who simply jump in too quickly, and some have died trying to make this change.”

e-Business Implementation Requires Careful Planning

Even though manufacturers face these and other barriers when it comes to e-business implementation, industry experts agree that it’s still better to join the game than to stand on the sidelines. Non-participants will likely lose, no matter what.

Using data from IndustryWeek’s fourth annual Census of Manufacturers, a report by PricewaterhouseCoopers highlights that e-procurement is one area where companies may find it easier to start. “With regard to e-business, the trend among manufacturers is to begin with the area of purchasing, specifically in the indirect materials space, where e-procurement has been proven to deliver quick wins.”

Some SMEs view these e-procurement efforts as another way for larger OEMs to demand changes down the supply chain, viewing suppliers as a simple commodity rather than as a strategic business partner. However, the report goes on to say that the e-procurement opportunity is compelling because “the number of re-sources required for implementation is modest, the timing is relatively short, and the potential payback is large. Beyond a manufacturer’s traditional customer/supplier network, e-procurement opens the door to more strategic relationships with customers and suppliers.”

Although e-procurement may be a logical place for many manufacturers to start, Stiehl, who has helped numerous companies implement e-business strategies, offers the following advice for small and medium-sized manufacturers as they begin exploring e-business implementation:

1. Look at your existing business plan and see where it makes sense to implement e-business strategies. Identify processes that can be streamlined, removing non-value added steps, and then and only then Web-enable the streamlined processes. Keep in mind that automating a bad process will only result in bad processes that run faster!

2. Plan carefully. Have an e-business plan in place before you get started.

3. Make sure the application you implement will bring value not only to your company, but also to your customers. Will it enhance the customer experience? “If you don’t put the customer first – he’ll be gone.”

4. Don’t be afraid to diversify. “If an OEM or major customer is placing unreasonable demands on you, consider diversifying so you’re not relying on this one customer for most of your business.”

5. Don’t be afraid to ask for help. Just as there are a number of large OEMs and tier 1 suppliers trying to mandate and control the supply chain, Stiehl has found there are a handful of exemplary companies out there who understand that the supply chain is their lifeline. “Companies shouldn’t be afraid to ask for support if they’re being asked to adopt new Web-enabled technologies. They may be surprised at the reaction they get.”

As for OEMs? “It’s important that OEMs help point their suppliers to resources that can assist them, and to provide some support and incentives for tier 1 suppliers to share their expertise with other smaller suppliers,” Barnes said “The bottom line is to have a network of strong, performance driven companies throughout the supply chain.” //

Copyright © ASTM, 2002