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The application of the Quick Scan Audit Methodology in SME’s Tillmann Boehme*, YiXuan (Oliver) Ma*, A Prof Paul Childerhouse, Prof James Corner, A Prof Stefan Seuring, A Prof Chuda Basnet and Dr Eric Deakins

University of Waikato Department of Management Systems Waikato Management School Private Bag 3105 Hamilton 3240 New Zealand [email protected] [email protected] Tel 07 8384466 Ext 6318 Fax 07 838 4270

Track 6 - Innovation, clusters, supply chains and networks Track 7 - Advising and supporting small business (preferred)

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Abstract One of the main themes in supply chain management is integration along the supply chain. An integrated supply chain enables companies to improve performance and competitiveness. The Logistics Systems Dynamic Group at Cardiff University developed the Quick Scan Audit Methodology (QSAM) in order to be able to assess the current performance of an organisation’s supply chain and identify potential improvement opportunities. The methodology has seen application in both a wider range of industrial sector such as the heavy industry and countries; however the QSAM has been predominantly applied to large organisations. This paper aims to present the application of the QSAM in a New Zealand based SME. The research findings are twofold. Applying the QSAM to an SME expands the initial focus of the QSAM (supply chain) to an enterprise scan by researching supply chain related areas (e.g. staff development or strategic direction of the company). Secondly, the investigation identifies possibly generic poor supply chain management practices of a SME.

1. Introduction Globalisation and intensive world-wide competition along with the technological advancements create an entirely new business environment for organisations. Initially, companies have accomplished massive productivity gains through the implementation of lean production in response to this intensifying competition. The “waste” has eliminated from many different local operations for the sake of better productivity (Koh, Demirbad, Bayraktar, & Zaim, 2007). Supply chain management, the integration of key business processes among industry partners to add value for customers, tightly links together several consecutive elements of the industry supply chain, from upstream suppliers to subassembly manufacturers to final manufacturers to customers to make the process more efficient and the products and services more differentiated (Arend & Wisner, 2005). Recent studies have identified problems with the implementation of advanced supply chain management practices especially within small medium enterprises (SMEs) (Arend & Wisner, 2005).

The aim of this research is: •

to explore the methodological changes required to apply the Quick Scan Audit Methodology (QSAM) to a SME

•

to understand current supply chain practices in SMEs

•

to identify potential paths for SMEs to improve and further integrate their supply chain 2

This paper will firstly review the literature on supply chain management applications in SMEs and its barriers before introducing the QSAM enabling companies to advance their supply chain practices. Further, a successful application of the QSAM in a New Zealand based SME is presented.

2. Supply chain management application in SMEs SMEs substantially contribute to country exports around the world (Neupert, Baughn, & Dao, 2006). Not only are SMEs becoming increasingly international, they appear to be entering the international arena at an earlier age. Yet exporters may face daunting challenges that limit their ability to realise such growth opportunities. Smaller firms may be particularly susceptible to export barriers, as resource constraints and organisational limitations increase their vulnerability (Neupert et al., 2006). This is one key reason why the literature distinguishes between SMEs and large organisations. Table 1 provides a comparison of supply chain practices between large organisations and SMEs.

Table 1: Comparison of supply chain management practices vs. SMEs Category

SCM by large organisations

SCM by SME

Competitive priorities

Market dominance through sustaining large market share

Market niches through sustaining profitable market position

Key strategies

Exert influences in supply chain – both upstream and down stream; strategic alliances with suppliers and distributors

Focus on specialised market; build on unique competencies, effective customer/supplier management

External control structure

Command and control toward their small suppliers and distributors; collaborate with more dominant suppliers and distributors

Either accept command and control by OEM or 1st tier suppliers or utilise their negotiation strengths; pursue collaboration with other SMEs

Internal control structure

Decentralised, structured and highly specialised ; multiple core competencies development

Centralised, semi-structured and moderately specialised; specific core competencies development

Goals of supply chain management processes

Operational effectiveness with multiple performance outcome requirements (e.g. cost, quality, delivery, time, customer value, and disposal) bigger scopes of information and product flows

Operational effectiveness with focused performance outcome requirements (e.g. specific definition of order qualifiers and order winners); smaller scopes of information and product flows

Source: (Hong & Jeong, 2006)

The SME survival strategy is to be innovative, flexible and efficient, to outsource simple tasks and concentrate on the complex activities by collaborating with other SMEs’. Often SME is the weaker part in the supply chain and thus the ability to adapt to changes imposed by customers or suppliers will be an important competitive factor (Olsen & Saetre, 2007).

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However, many researchers (Dainty, Briscoe, & Millett, 2001; Olsen & Saetre, 2007; Vaaland & Heide, 2007) identified barriers to advanced SME supply chain practices. Vaaland and Heide (2007) found out that SME’s gave less attention to planning and control methods than large organisations. SMEs are also less concerned with methods supporting supply chain management and less focused on system integration internal and with other actors in the supply chain (Vaaland & Heide, 2007).

Further, prior studies indicate a significant gap between large organisations and the SME with respect to implementing various tools and ideas included in the supply chain management concept (Arend & Wisner, 2005; Quayle, 2003). Studies also indicate a considerable gap between what is normally considered as important supply chain management tools and ideas and the reality that SMEs operated in. This implies that some of the crucial tools and concepts that enhance supply chain competitiveness do not receive the necessary degree of attention among SME business managers (Vaaland & Heide, 2007). Quayle (2003) pointed out in one of his latest studies that SME’s supply chain need to improve and that a credible methodology needs to be developed to do so (Quayle, 2003). One possible methodology named Quick Scan Audit Methodology (QSAM) is highlighted in this paper.

3. Quick Scan Audit Methodology 3.1 Scope and Application The methodology applied is termed Quick Scan Audit Methodology (QSAM). The Logistics Systems Dynamic Group at Cardiff University developed the QSAM in the late 1990s. It has since been developed into a robust diagnostic tool. Figure 1 highlights the scope of the QSAM within the business process re-engineering procedure.

Figure 1: The UDSO business process re-engineering procedure Select Business Process

Within the scope of longer term projects including redesigns

Understand

U

Document

D

Simplify

S

Optimise

O

Within the scope of a Quick Scan

Re-engineer Business Process

Source: (Watson, 1994)

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The major focus of a QSAM is on the first two stages of a re-engineering program namely understand and document business processes. However, the QSAM is valuable for organisations because the outcome provides recommendations on the simplification and optimisation of business processes that require long term change projects aimed at advancing the business process towards the seamless supply chain. The QSAM started of in the UK Automotive sector and since has seen application in both a wider range of industrial sector such as the heavy industry and countries. Table 2 provides an overview of QSAM applications worldwide.

Table 2: Quick Scan applications worldwide Country

No of QSAM

Sector

SME’s

UK

16

Automotive (11), Process (3), Service (2)

2

Thailand

9

Manufacturing (9)

0

Germany

2

Automotive (2)

1

New Zealand

6

Manufacturing (2), Process (3), Service (1)

2

Source: (Authors)

Currently, 33 QSAM have been undertaken in four different countries (Banomyong et al., 2005; Basnet, Childerhouse, Foulds, Ma, & Martin, 2005; Potter & Bowles, 2006), in four different sectors (Potter & Bowles, 2006) and in three different organisation types including large organisations, family owned businesses and # SME’s. The following section presents the quick scan process in detail.

3.2 The Quick Scan process The QSAM follows a structured approach. To satisfy the time requirement, the QSAM procedure have been designed to be completed within a one week period, of which only three days has to be spent on site to minimise resources and time allocation of the site’s personnel who are busy with operational duties. In order to facilitate this short time scale the QSAM team normally consists of four diagnostic staff and a business champion. The structured approach of the QSAM is highlighted in Figure 2.

The first stage of identifying a suitable supply chain is usually straightforward because organisations and business units have a perceived problem and hence a need for a QSAM to be conducted. It usually naturally follows that the perceived problem is defined by a business

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champion so that buy-in is a matter of outlining the method, explaining the resource implications as well as the benefits and determining the scope of the QSAM.

Figure 2: The Quick Scan process IDENTIFY A SUITABLE SUPPLY CHAIN BUSINESS PROCESS GET BUY IN FROM THE BUSINESS CHAMPION PRELIMINARY PRESENTATION (Half a Day, On Site) • • • •

Identify product/ Issue questionnaires Identify personnel for interview/ Develop interview Plan Quick tour/ Agree dates for feedback Explain purpose/ Issue request for data requirements

DEVELOP OVERVIEW OF SUPPLY CHAIN STATUS (One Day, On Site) • • •

Completion and collection of questionnaires Process map material and information flows Conduct interviews

BRAINSTORM MAJOR SUPPLY CHAIN INHIBITORS (One Day, Off Site) • • • • •

Discuss main findings from three data sources Agree outline of the supply chain Identify good/ bad first impressions Develop hypotheses to be further investigated Identify additional data requirements

COLLECT DATA TO TEST HYPOTHESES (One Day, On Site) • •

Conduct probing interviews Collect archival data to verify hypotheses

ANALYSE THE FINDINGS (One Day, Off Site) • • • • • •

Verify and quantify good and bad practices Identify major pains Cause and effect analysis of major pains Identify root causes Develop and rank improvement opportunities Select key points with most leverage

FEEDBACK PRESENTATION (Half a Day, On Site) • • •

Present findings to management and business champion Initiate a round table discussion of findings Develop an agreed action plan

Source: Adapted from (Naim, Childerhouse, Disney, & Towill, 2002)

Day 1: Preliminary Presentation The preliminary presentation explains the QSAM and highlights specific objectives to all members of staff involved in the QSAM. Representative products are then selected for in-

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depth analysis. An interview plan is developed and questionnaires issued to the most applicable personnel. One staff member is announced to support the QSAM with any query. Finally, the QSAM team gain a first impression on the value added processes by visiting the site.

Day 2: Develop overview of supply chain status In the first half of the day team members collect standard supply chain data plus a process map including material and information flows. The collections of different data sources collected by a team of researchers allow triangulation of data to enhance the validity of findings (Eisenhardt, 1989). During an extended lunch break a brainstorming session is held to evaluate further avenues of investigation. This leads into a more focused approach on the second half of the day in order to validate and further investigate key issues.

Day 3: Brainstorm major supply chain inhibitors Day 3 starts with the development of a supply chain map agreed by the QSAM team including major business processes. Further, an initial brainstorming session is conducted to identify and document as many different positive as well as negative first impressions as possible. It is important not to question the validity of suggestions at this stage but to keep the impressions forthcoming. From these impressions, hypothesis are then developed and further data requirements to justify these hypothesis.

Day 4: Collect data to test hypothesis Day 4 is the second day of data collection on the plant. The QSAM team is focused on collecting and analysing data that validates the hypothesis developed the previous day. The data collection includes all four previously mentioned data collection methods.

Day 5: Analyse the findings From the early stages of analysis on day 4 the major pain is identified. This is then the focus of cause and effect analysis and the construction of a cause and effect diagram that illustrates the contributing factors to the major pain. From the cause and effect diagram the significant root causes of the pains are identified. The penultimate analysis stage is the identification of the improvement opportunities. Careful consideration is given to quantifying the financial benefits that will be gained by taking specific actions. Thought is also given to the likely ‘cost of implementation’ and to the time that it would take to implement each improvement 7

activity. Finally, each improvement opportunity is evaluated in relation to cost, time and benefit, therefore providing rankings for each feasible improvement opportunity. The resultant output of the analysis stage is a short list of validated and prioritised improvement opportunities for the short, medium and long term.

Day 6: Feedback presentation A critical phase of the QSAM is the final feedback presentation, during which the improvement opportunities are discussed, constraints regarding the proposed solutions are identified and future action plans are agreed. It is also necessary to outline the resources that will be required to initiate the actions and also whether the QSAM team’s further involvement is required.

A QSAM has been conducted on a SME based in the central of New Zealand’s North Island. The following section highlights the case specific and methodological findings.

4. Findings 4.1 Focal Organisation Findings In December 2006, a team of 6 researchers from Waikato University spent one week with a Waikato based SME. The company is a successful operating manufacturer, supplying customers with a niche product that requires unique manufacturing competencies. The company’s key focus is on a highly specialised market. The research identified strong supplier integration (mainly local SMEs) especially with regard to research and development. However, during the week three major areas of indifferent practices were observed, namely production planning, physical flow and functional silos due to a lack of staff development.

Observed production planning procedures showed weaknesses at the strategic, operational, and tactical levels of management, in line with Vaaland & Heide (2007) SME research. At the tactical-level the focal SME lacks a formal production plan, which is currently solely based on the shipping schedule for the finished product; this does not allow decomposition of activities and the related backward scheduling. Production decisions are based on historical, tacit production planning knowledge. At the strategic level, spare parts have still to be recognised as a strong value stream in their own right. Further the research identified some inefficient operating practices; including double handling and documentation of products, a ‘chaotic’

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production process flow and multiple WIP storage areas. The final area of shortcoming was termed functional silos. Reasons for the functional silos are many; for example, the physical separation of the production facilities and management offices fosters a ‘them and us’ mentality and the organisational structure obstructs the horizontal flow of information and teamwork across functional boundaries. Further, existing performance measures and reward systems are primarily functionally focused and show inconsistency ‘down’ the organisation. To counteract these shortcomings the research team identified multiple improvement opportunities. These are ranked in terms of duration to implement in Table 3.

Table 3: Improvement opportunities Area

Short Term

Medium Term

Long Term

Production Planning

Scheduling

Logic of Material Resource Planning

Enterprise Resource Planning

Physical Flow

-

Work in progress location

Factory layout

Staff Development

Operator Training

Lean Production Formalised upskilling

Knowledge Culture

Reward system Source: (Authors)

Suggested short term improvement opportunities to overcome this situation are, first, that management needs to take process ownership and schedule production on a daily basis, which naturally leads to the need for a daily production meeting. Secondly, to overcome the internal functionalism in the short term, the focal SME needs to emphasize the importance of crosstraining at all organisation levels.

In the medium to long term, the focal SME needs to map its processes and adopt Manufacturing Resource Planning (MRP) procedures including a Sales and Operations Planning (S&OP) system. The improvement of the physical flow requires a single dedicated area for WIP. In the long term, it is suggested that the focal SME develops a factory layout plan from a mapping of material flows across the entire facility and estimation of capacity limitations. Further, the production process flows need to be re-engineered towards more of a streamlined, lean operation.

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To overcome the functional silos in the medium to long term a formalised training matrix needs to be developed. Further cross-functional performance measures need to be developed, and staff on either side of the functional boundaries made aware of each others needs and problems. Second, shared total process performance indicators are needed, and staff should be empowered to make production improvements without the need to refer to higher authority. Third, a significant change is the introduction of total process owners having authority to operate across multiple functions and empowered to challenge the functional heads. This would result in a more matrix-type organisational structure. Further, investing in training and having clearly linked shared goals and reward systems tied to the strategic plan, will support the development of a knowledge culture.

4.2 Methodology Findings Initially the Quick Scan was developed to diagnose the health of large organisations. The research team and the focal organisation usually identify two value streams that are representative for the whole company. However, applying the Quick Scan Audit Methodology (QSAM) to a SME, the research team identified that the focal organisation only had two value streams namely original equipment and spare parts. Therefore, the two value streams represent the focal organisation’s entire internal supply chain, which results in a more complete picture of the focal organisation. Further, the size of company allows researchers to spend more time looking into supply chain related areas such as staff development, strategic direction of the enterprise, staff turnover, and leadership. Therefore, applying the QSAM to a SME expands the initial focus on value streams to an enterprise scan with a strong process focus. Further, QSAM does not only focusing on SME’s hard data such as process map and inventory level, it also highlights organization’s soft data such as company culture and staff motivations. Conducting a QSAM in a SMEs enable researchers to look at organizational, attitudinal and social problems, such as: inappropriate performance measures, low customer (internal/external) satisfaction levels, influent communication channels, union issues, lack of motivations, which will misalign staff with organization’s strategy and hence significantly impact on organizations’ supply chain performance.

The QSAM is highly valuable to SMEs. SMEs often lack resources in the form of financial and human resources. These organisations cannot afford expensive consulting organisations to support the upgrading of supply chain activities. Secondly many SMEs lack human resource 10

excellence in the field of supply chain management to further advance their supply chain. The QSAM is ideal for SME’s because the QSAM feedback is specific to the target organisation and the improvement opportunities are customised to the given circumstances. However, the small organizational size of the QSAM target enables researchers to have a more holistic overview / understanding to the alignment between organizational strategy and culture, and addressing people management issues accurately and efficiently. The process and the results of this QSAM also implies the necessity to further developing the QSAM interviews and questionnaires in order to further develop the QSAM research method.

5. Conclusion Researchers addressed the importance of having a credible methodology to advance supply chain practices in SMEs (Quayle, 2007). The Quick Scan Audit Methodology (QSAM) detailed in this paper is designed to support organisations including SMEs to achieve a best in class supply chain. The methodology can be defined as a robust diagnostic tool developed to assess the current performance of an organisation’s supply chain and identify potential improvement opportunities by applying a systematic approach. Applying the QSAM to an SME provided valuable insights and enables the researchers to have a holistic view over the SME’s organizational performance. Hence researching a SME extended the focus from a supply chain scan to an enterprise scan. Further, the research identified that some SMEs suffer from poorly managed supply chains.

Supply Chain managers value the QSAM as a positive experience. The following statement has been made: "For Heinz Wattie's Ltd the Supply Chain Quick Scan Audit had tremendous value for us. The interaction between our staff and the research team was outstanding and stimulated some healthy debate as you would expect between “Academics" and "Supply Chain professionals". The formal review process followed by an executive summary and documented detailed finding from the review was the perfect route map for us to change our behaviour and address major shortcomings. We are confident that from what we have seen of our performance in a relatively short time we will continue to deliver the desired improvements in our end to end supply chain" Max Birt – Supply Chain Manager – Heinz Wattie’s Ltd

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List of References

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