Manufacturers of the world, unite!
By: Liisi Karindi
Tags: Logistics, Manufacturing, Supply Chain Management, Information Technology, Software

It is time to unite. Never before has it been as relevant as now. Global supply chains are breaking. Businesses are struggling to adapt, and they are crying out for help. And, it’s not over yet.

This crisis is our chance to unite through digitisation!

Globalise yes, but also digitise.

It’s all about input, production, and output. We want our inputs to be competitive in price and quality, production to be efficient, and our products to sell well. If we can’t do it all locally, we look globally. Easy to do for the large companies, less so for the small- and medium-sized enterprises (SMEs).

There are almost 2 million manufacturing enterprises in the European Union (EU). Manufacturing is the largest segment in value-added with SMEs making up 99.2% of all enterprises in this sector! They are the backbone of our economies, provide us with our jobs, and are vital to our well-being.

But SMEs struggle even more than the large companies. According to the Future of Business survey, the most common challenges include:

attracting customers

increasing revenue

and maintaining profitability

To overcome these challenges, some SMEs use online tools. Mostly to show their products or services and provide information, but less so to manage their internal business processes.

According to an OECD report, less than 28% of SMEs used enterprise resource planning (ERP) software applications to manage business information flows compared to 78% by large firms. A considerable adoption gap exists also for cloud computing, which would allow smaller firms to use Big Data without having the high fixed costs of ICT investment.

The use of digital technologies, however, is crucial for local and global competitiveness. Digital technologies improve market intelligence and streamline access to global markets and knowledge networks ⏤ at a relatively low cost.

Figure 1: Share of innovating SMEs in EU-28 and other selected OECD countries in 2014–2016. Source: European Commission, Annual Report on SMEs 2018/2019.

Companies that use digital technologies can more easily innovate their products or services and improve production processes. They get a better understanding of the processes within the firm, the needs of their clients and partners, as well as the overall business environment. And they could discover a range of new opportunities for scaling up and different forms of business growth.

Figure 2: Shares of innovating EU SMEs in services and manufacturing industries introducing various types of innovation in 2014–2016. Source: European Commission, Annual Report on SMEs 2018/2019.

Sharing is caring.

The way no man is an island, no enterprise can thrive without a well-functioning ecosystem. According to Accenture Strategy research, manufacturers that use a higher percentage of third parties are more likely to have higher productivity, revenue, and margin than those trying to build and own the entire network. As the customers’ demands become increasingly complex, companies need to rely more on flexible ecosystems that leverage strategic partners and digital technologies for shared resources, skills and knowledge.

SMEs benefit from greater flexibility and capacity to customise and differentiate products. That provides them a competitive advantage in global markets relative to larger firms, as they can respond rapidly to changing market conditions and increasingly shorter product life cycles. This makes them perfect partners in flexible ecosystems.

According to the afore-mentioned OECD report and the Future of Business survey, only a few SMEs export directly. Whereas from those that do, half identified “selling to foreign countries” as a challenge due to finding business partners, market access limitations, and regulations.

However, through their indirect contribution, as suppliers to larger domestic firms or multinational companies (MNCs) that export, SMEs contribution could account for more than half of total exports in value-added terms. Thus, ecosystems that connect large companies and SMEs are beneficial for both.

According to the SME Competitiveness Outlook 2018, digital platforms are becoming dominant players in business ecosystems. They replace specialist providers, aggregating business services into a one-stop-shop. Digital platforms improve competitiveness because they:

reduce the costs of market entry and transactions

offer more extensive access to buyers and suppliers

provide more accessible access to information

improve access to financial capital

and even lower gender bias

Figure 3: Industrial revolutions’ affect on the business ecosystem. Source: International Trade Centre, SME Competitiveness Outlook 2018.

Thus, it is no wonder that, in a survey conducted by Agility, 86% of SMEs felt that technology was “levelling the playing field” for them to operate globally.

By participating in digital platforms and sharing their data, businesses open up new opportunities not only for themselves but also for the whole ecosystems in which they operate.

Platforms like GLIS (Global Logistics Information System) unite SMEs and large companies and help them to build flexible ecosystems, allowing everyone to participate in the global value chains most efficiently.