A call to integrate SMMEs into larger supply chains to promote their growth and sustainability
By Edward Heynes
22 January 2024, Johannesburg. Small, Medium, and Micro Enterprises (SMMEs) should prioritise providing effective supply chain management services in order to navigate challenges in the current economic landscape and capitalise on opportunities.
According to a report by the International Finance Corporation (IFC), SMMEs make a substantial contribution to the GDP, contributing approximately 34% to South Africa’s gross domestic product (GDP). In addition, SMMEs play a crucial role in job creation. So, it is important to make a concerted effort to actively involve and empower SMMEs in the supply chains of larger South African businesses.
SMME businesses, mainly informal and micro businesses, form the backbone of the economy. They hold the key to unlocking the untapped potential for growth, employment, and essential economic transformation in the economy. Collaborative efforts among stakeholders—suppliers, customers, and business networks – are crucial for SMME growth and, as such, collaboration should be tailored to empower SMMEs to leverage knowledge, expertise, and resources within their supply chain processes. This will not only open avenues for revenue growth but also facilitate cost reduction.
While SMMEs make a significant contribution to the economy, the current economic environment has been testing for them. The challenges include load shedding, inflation, and interest rate hikes, all of which have placed immense pressure on SMMEs. Their difficulties have been exacerbated by other challenges including skills shortages, talent acquisition, rapid technological advancements, and changing workforce dynamics, all of which have necessitated continuous adaptation and innovation.
Big businesses should recognise the need to support SMMEs by integrating them into their value chains as vendors and partners.
Critical aspects of this support include among others:
Virtual Integration – This is a strategic approach that replaces ownership with partnership, and it is designed to foster enhanced collaboration within the supply chain by integrating digital interfaces in SMMEs. The potential impact of virtual integration on Dynamic Strategic Planning (DSP) could prove pivotal in elevating the overall performance of SMMEs, making this support mechanism by big businesses crucial for enhancing supply-chain collaboration.
“Light” IT Integration – This aspect of support by big business can help address the financial constraints faced by SMMEs, which often prevent them from investing in advanced digital tools like Enterprise Resource Planning (ERP) systems and demand management tools. An increasing global trend involves web-based information sharing among supply chain partners, termed “light” IT integration. This method aims to share only the essential information for specific transactions through an encrypted web-based system. In so doing, it enhances the virtual integration strategy, eliminating the need for manual data sharing through non-encrypted methods. Notably, this approach is more cost-effective for SMMEs as it in turn makes digital tools more accessible and affordable for them.
Co-opetition: A cooperative business environment is derived from the fusion of cooperation and competition. Businesses that would normally compete collaborate for mutual benefit within this context. Co-opetition is an innovative approach, traditionally practiced among similarly sized competitors. Through it, larger companies can support resource constrained SMMEs. This novel strategy allows SMME businesses to supply certain capabilities on an outsourced basis, even if the larger company could have handled them internally. Consequently, SMMEs gain access to markets, management, and expertise, while larger companies alleviate the burden of capital and operational expenses associated with these activities.
Government Assistance: Historically, financial support from the government to SMMEs has predominantly centred around loans, blended funding, and aid in navigating routes to markets. In collaboration with the SA SME Fund, the government is in the process of establishing a R10 billion fund dedicated to fostering the growth of SMMEs. The government’s contribution will amount to R2.5 billion, with an additional R7.5 billion coming from the private sector. There is a growing recognition that governments should diversify the forms of assistance offered to SMMEs.
This support also extends to technical skills development, product certification, testing, and quality assurance.
While SMMEs contribute significantly to the GDP and overall employment, it is important to acknowledge the alarming failure rate of SMMEs, with 5 out of 7 SMMEs failing within their first year in business. In turn, it is equally imperative to establish mechanisms to support SMMEs, given their substantial contributions. These support mechanisms are designed to enable the survival of SMMEs and foster sustainable inclusion of SMMEs in larger supply value chains.
Big businesses in South Africa have a crucial role to play in supporting the government to drive some of these efforts, and it remains crucial for big businesses to identify areas in which to contribute towards the sustainability of SMMEs.
The opportunities are there; but instead of seeing SMMEs as competitors for the same pie, there is a need to rethink what the success of South Africa’s business landscape should be, and to start seeing SMMEs not as competitors but as collaborators and partners fundamental to the sustainability of big businesses and the development and success of the country’s economy.
Edward Heynes is the Group Supply Chain Director at Facility Management Company Servest