Small Business Week Special: Global Supply Chains
By Debbie Lawes | September 30, 2010
How small firms can tap into global supply chains
Think your company is too small to join a big multinational's supply chain? Heads up: seems they need small companies as much as you need them.
"The reality is that larger corporations are looking to partner with small, specialized companies," says Andrew Richardson, President of fast-growing Targray Technology International Inc., a single source supplier of raw materials to the photovoltaic and solar cell industries. "Smaller companies have the niche products, fast turnaround times and close customer relationships that multinationals need to stay innovative and competitive."
Montreal-based Targray is a case in point. Some of the world's leading solar cell manufacturers rely exclusively on Targray to provide the state-of-the-art products and solutions that enable them to make cells for solar panels at the lowest possible cost per watt.
The same goes for major electronics makers such as Sony and JVC, which use Targray's materials to produce CDs, DVDs and Blu-ray discs. It's a safe bet that at least half of the CDs and DVDs in your home contain material provided by Targray, which employs about 100 people and has annual sales of more than US$100 million.
With the U.S. economy recovering slowly, a growing number of smaller Canadian companies are tapping into global supply chains as a way to expand sales, particularly in emerging markets such as India, China and Brazil.
"We're seeing double-digit growth in some of these emerging economies because of economic development and a rising middle class," says JérÃ´me Nycz, Vice President, Strategy & Enterprise Risk Management at the Business Development Bank of Canada (BDC). "This represents a tremendous growth opportunity for Canadian firms."
But before seeking out a partnership with a multinational, here's a quick primer on what to expect.
Think reliability: Multinationals need reliable suppliers that measure up in terms of quality, price and delivery. One misstep from a supplier can have devastating ripple effects throughout the entire supply chain. The result is that many multinationals are shifting from short-term transaction-based relationships to long-term collaborative partnerships with smaller suppliers, according to a recent report prepared by the Conference Board of Canada for BDC.
At the same time, multinationals are being more selective about their suppliers. Nycz says large companies want to know their supplier is financially stable, complies with relevant standards and certifications and can scale up production to meet demand.
"A benefit of this rigorous vetting process is that all partners in the supply chain become more competitive," he notes.
Planning is paramount: Companies need a well thought-out plan that assesses your capabilities and how they contribute to building a resilient and flexible supply chain. Treat supply chain management as a core element of your business strategy, adopting best practices and developing the requisite skills in your organization.
As part of your planning, expect to share more risk and more responsibility with your supply chain partners, such as accepting longer payment terms or sharing the research and development costs.
"What large companies are saying is, 'we have a problem and we need it solved'," says Jayson Myers, President and CEO of Canadian Manufacturers & Exporters. "It's a reflection that no one large company has all of the R&D, the intellectual property or even the idea. It's counting on smaller suppliers to come up with these solutions."
Providing those solutions will also require up-to-date information communications technologies, says Myers, which can help companies respond quickly when a customer makes changes to a design, delivery or price.
As well, global buyers need integrated backend systems and automated processes that can be monitored online by all participants in the supply chain.
"Global buyers want to be able to see up and down the supply chain to make sure the inventory is available and the project is on schedule," Nycz says.
Partner with a domestic exporter: Too often small companies lack the resources and the expertise required to do business in a foreign market. Myers recommends partnering with a Canadian company already embedded in a global supply chain.
"This also serves the needs of the multinational, which doesn't want to be handpicking parts of a solution from hundreds of individual suppliers," says Myers. "They want fewer suppliers providing full turnkey solutions."
Put feet on the ground: The best way to understand your market, stay competitive and build intimate supply-chain relationships is to follow your customers to wherever they are located.
Targray's Richardson says his company has faced increased competition from local suppliers with warehouses near their customer. They speak the language and understand the business culture in that market.
"If you're going to be a successful supplier to that marketplace you have to follow your customers to that emerging market," says Richardson, whose company has 19 offices in 15 countries, including Mexico, China, India and Europe.
Open your books: Transparency is becoming the new norm in global supply chains. Be prepared to provide financial statements, a breakdown of your costing and details on your suppliers.
Protect your interests: All companies are vulnerable when customers fail to pay their bills. To protect your firm, Richardson says companies should have their receivables insured and use letters of credit-a standard instrument for international trade transactions to ensure exporters get paid what they're promised.
Seek advice: Before going global, take the time to prepare yourself by getting advice from experienced, knowledgeable sources in Canada. This can ease the often arduous tasks of getting started, making connections and understanding laws and regulations in other countries.