SMEs are the backbone of any economy – they need to drive growth and be green in the 21st century. Here’s “How To”
Small and medium sized enterprises (SME) make up around 90 per cent of the world’s businesses and they employ 50-60 per cent of the world’s population.
SMEs are commonly recognised as making large contributions to the global economy and results in many social benefits. National governments increasingly promote SMEs development in recognition of the critical role they play in the socio-economy.
The total number of SMEs in the UK is 5.2 million, and they employ approximately 15.2 million people. Employing close to 40 per cent of India’s workforce and contributing 45 per cent to India’s manufacturing output, SMEs play a critical role in generating millions of jobs, especially at the low-skill level. The country’s 13 million SMEs account for 40 per cent of India’s total exports.
While it is widely accepted that SMEs play a significant role in the economic development in the Asia-Pacific region, they also exert considerable pressure on the environment, not individually, but collectively. Available research data suggests that SMEs are responsible for more than 50 per cent of the industrial pollution in the Asia-Pacific region and there are numerous examples which suggest that SMEs contribute significantly to environmental damage and GHG emissions. Hence, Sustainability of SMEs supply chain in both developed and developing countries is questionable.
Moreover, SMEs perceive that environmental and social performance could be enhanced only through sacrificing economic returns. Therefore, an attempt has been made to examine whether SMEs could be green through lean approach.
Firstly, a supply chain mapping has been carried out along with identifying issues and challenges across the supply chain through workshops. The root causes of these issues and challenges are identified through analysing synergy between competitive strategies and supply chain strategies with respect each supply chain driver (facility, transportation, inventory, information, sourcing, and pricing) in strategic, tactical and operational levels. This helps develop business case for each improvement project using most appropriate trade-off between responsiveness and efficiency.
The lean and green relationship is then observed. The following paragraphs briefly demonstrate four case studies to examine the relationship between lean and green initiatives.
A surgical kit manufacturing SME based at the West Midlands in the UK has 75 per cent business through National Health Services (NHS) and 25 per cent through European distributors. While for European distributors the lead time for delivery of finished products is considerable, the NHS allows only 48 hours. As the lead time for manufacturing the kits are more than 10 days, on anticipation of customers demand the SME manufactures several customised kits, which may not be ordered at all for several years. This results huge finished products inventory for the company concerned and made them building huge warehouse. Additionally, as they procure most of their raw materials from China, in order to reduce risk of supplies they also keep considerable raw materials inventory.
In order to make them lean, the prioritised project was to manage inventory of both raw materials and finished products effectively. The following approaches have been undertaken – developing a model for demand forecasting, establishing effective communication with customers, developing right inventory policies for raw materials and finished products, and adopting right procurement method. This helps the SME to be lean at the same time green as the proposed lean approach helps them to reduce energy consumption, and enhance resource optimisation and jobs creation.
Another SME based at Derby (East Midlands) in the UK, whose business is manufacturing and calibrating gauges for railway industry. Their major customers are the numerous railway workshops across the countries. When a specific gauge needs calibration the workshop raises an indent via their online system. The SME concerned arrange to collect this from the workshop, brings it to the plant at Derby, calibrate this and returns to the workshop. The cycle time for the entire process is currently seven days. However, the desired lead time is five days. The company currently own two vehicles that are used for the logistics and also deploy third party logistic services providers (e.g. DHL, FedEx, UPS etc.). Their own vehicle drivers need to remain occupied for 14 hours in a day in average. On time delivery is one of the major critical success factors for their business. The company considers improving their logistics function. A geographical information system (GIS) specialised in transportation problems (TransCAD®) was used to model their logistics that resulted not only achieving delivery scheduled but average vehicle running hours in a day came down drastically. This also shows that the concerned SME could achieve lean and green targets together.
An engine reconditioning company based at Chesterfield (East Midlands) wanted to implement telematics in order to monitor their engines’ condition on real time basis while in operations with their clients (e.g. Aviva and Stage Coach Bus service providers). Currently their business is reactive i.e. when clients suffer any breakdown they contact the company for fixing the engine. The company on anticipation of demand keep nine different types of engines (e.g. Cummins, Volvo, and Mercedes Benz) ready to install. If the broken down engine matches with one of the ready to install engines the breakdown period becomes shorter. Otherwise, the engine is serviced in their workshop and installed on the bus as and when the engine is ready for operations. This takes longer and bus remains out of service for considerable period. The proposed telematics will allow the engine reconditioning company to monitor the health of the engine and the problem will be resolved before the engine breaks down. Additionally, as the company is aware of the engine condition prior to it’s out of operations, they will make similar engine ready for the replacement.
This will help to achieve almost zero breakdown for their clients. This will be a win-win situation for both the client and supplier. The client will be able to serve their customers without interruption and the engine reconditioning company will be able to assure the business from the client. Currently, the business case is being analysed covering technical, market, and financial bits. Reconditioning itself is a green initiative as it extends life of the engines. However, this initiative will not only improve sustainability of engine reconditioning business but considerably effect positively the environment and social issues as with the growth of the SME, the life of each engine will enhance along with additional job creation.
A carpet manufacturing company based at Kidderminster (West Midlands) manufactures premium customised carpets for commercial customers such as airport, hospitality industry, cruise ships etc. They import raw materials (wool from New Zealand and Jute from India and Bangladesh).
In early 2000, they have started manufacturing in India and that helped them to win several bids for carpeting airports across India. In recent past, they have started manufacturing in China to capture Chinese commercial carpet market. Raw materials quality is one of the major critical success factors for carpet manufacturing. Therefore, they have developed strategic relationship with their raw materials suppliers in India and Bangladesh. While selecting the most appropriate suppliers along with quality, delivery schedule, and cost performance, they emphasised on business risk taking capability of the suppliers, and their environmental and social practices and performance. This helped them to manage their business effectively during recession period through deferred payment agreement from their major suppliers. This is another example of becoming green through lean.
Similar method has been undertaken within more than a dozen of SMEs in the UK and India.
Every SME came out with their improvement project and business case and currently the projects are in various stages of implementation.
This study concludes that most of the business decisions require trade-off between responsiveness and efficiency. Considering environmental and social criteria in decision-making helps achieve sustainability. Achieving environmental and social targets needs modelling business decisions with the consideration of both operational and economic aspects. Considering supply chains principles help achieve sustainability. SMEs could achieve their green targets through lean approaches.
Dr Prasanta Kumar Dey is a professor of Operations Management at Aston Business School, UK. He specialises in supply chain management covering risk, performance and integration management in manufacturing, process, construction, and healthcare industries.