inventory ownership on suppliers, leaving them with the physical and financial responsibility for maintaining inventories. Unless suppliers can perform these services at lower costs and are appropriately compensated, this practice only moves costs around and potentially weakens suppliers. Improved communications and coordinated materials and capacity planning are required for the cost-effective reduction of inventories, the elimination of bottlenecks and idle capacities, and matching of capacity to demand. To participate at this level of planning, an SME must be able to articulate capacity plans and strategies and understand their implications up and down the supply chain.

Worldwide transportation costs can be low compared to costs associated with inventories and labor. For instance, suppliers in regions with low labor costs routinely ship heavy rolls of steel all over the world. Although transportation can provide added value and competitive advantage, the costs and benefits of using advanced transportation methods must be monitored carefully. Reliance on overnight deliveries can be an expensive alternative to on-time production. Some companies are finding that the transportation costs required to enable low inventories and just-in-time manufacturing exceed the savings. Thus, SMEs should attempt to implement the "right" logistics strategies to minimize overall costs.

Recommendation. In response to increasing demands for rapid delivery and customized products, small and medium-sized manufacturing enterprises should consider using advanced supply chain communication systems, flexible manufacturing techniques, and modern transportation capabilities as alternatives to investing in large inventories and production capacities.


Customer expectations for timely service before, during, and after a sale continue to increase and, aided by the Internet and modern transportation methods, suppliers are responding to these demands. Web sites are being used to post all manner of nonproprietary information, including maintenance manuals, service bulletins, and responses to frequently asked questions. e-Commerce enables customers to place orders around the clock from anywhere in the world without incurring the cost of long-distance calls. Replacement parts can be delivered overnight in the United States and within a few days almost anywhere else.

In February 1999, Boeing executives warned Graybar Electric, Inc., that it would soon eliminate suppliers that did not have a Web presence. In March, Motorola warned Graybar that suppliers that did not implement Web-based commerce within the next year would probably be

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