requirements of an integrated chain. The committee believes strongly in the value of business planning and suggests that SMEs that are unwilling or incapable of preparing business plans are unlikely to be successful in integrated supply chains.

Recommendation. Although extensive formal planning may not be justified, it is becoming imperative that small and medium-sized manufacturing enterprises periodically pause from the rush of daily business to survey their business environment of rapidly changing technologies and customer requirements and develop a brief, formal business plan.


Few SMEs have availed themselves of the benefits of integrating their own supply chains, a core competency that can have a huge effect on their success or failure. Management expertise in forecasting markets and technological directions, selection of the right portfolio of capabilities, and correct decisions regarding internal investments and outsourcing can largely determine a company's competitive advantage. Despite the natural desire to retain capabilities in house, an SME must be brutally analytical in deciding (1) which capabilities are essential for its competitive edge or can be done at lower cost in house, and (2) which are noncore competencies that can be outsourced at lower cost as part of a well integrated supply chain. Retaining knowledge, for example, is important. But outsourcing surge production capacity and noncore capabilities, such as information technologies to lower cost providers can often reduce operating costs and allow an SME to concentrate on the remaining in-house operations. Internal development, acquisitions, or expansion of the capabilities of external segments of the supply chain can fill gaps in the corporate capability chain. The right approach depends on many factors, including the availability of capital and the need to retain control of capabilities that provide competitive advantage.

Barriers to Integration

As SMEs strive to integrate their own supply chains, they must be aware of several barriers that can impede the integration process. First, and foremost, they must overcome the tendency of participants to work for their own advantage with little regard for the effects on other participants or the supply chain as a whole. Optimization of one part of the supply chain frequently results in suboptimization of the entire system. Greater benefits can usually be attained for all participants by optimizing the system as a whole. Other integration challenges can include:

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