• analysis of the differences between the new and old systems to validate the usefulness of the new system for gathering accurate job costs

Just as OEMs use outsourcing, SMEs must consider creating and integrating their own supply chains to optimize their own cost structures. The benefits available to OEMs from integrating supply chains are also available (on a smaller scale) to SMEs. This potential for cost improvement has yet to be exploited by most SMEs. Participants may, for instance, reallocate work among themselves to improve the overall efficiency of the supply chain. Several personal computer companies have implemented "channel assembly," delegating responsibility for final assembly to distributors with specific customer knowledge and lower labor rates. This practice can be used to reduce inventory levels and the probability of obsolete inventories. Other supply chains have succeeded in redeploying, consolidating, or sharing warehouse space and inventories among participants to reduce overall costs to the chain. Participants in integrated supply chains may also be able to share (or preferably eliminate) some administrative procedures.

Although cost reductions are critical, additional efforts will be required to maintain competitive advantage and meet the challenge of increasingly competent global competition.


Many SMEs will have to do more than provide low-cost parts if they want to become partners with demanding customers. They may have to simultaneously maximize the value and minimize the total cost of the goods and services they provide. Competitive advantage can be achieved through value-added services, including low-cost storage, rapid response in dealing with warranty issues, ready access to spare parts, and improved logistics. Investment in enhanced product design capabilities can create other opportunities for adding value, linking an SME more closely to the OEM. SMEs should also investigate other innovative opportunities, such as building subassemblies instead of just parts.

Although integrated supply chains are increasingly recognizing the benefits of added value, some customers may be unwilling to pay for it. Thus, SMEs may have to reposition themselves in new industries and find new customers that are willing to pay for value-added products and services. SMEs must carefully identify customer preferences, buying habits, and unfulfilled needs and determine whether efforts to meet them would be appropriately rewarded.

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