SMEs’ presence in local supply chain vital as pandemic drives localized production

As global trends to localize production ramp up, now is the best time to fully integrate small and medium enterprises (MSEs) into the domestic supply chain, as they can support large enterprises (LEs) and help create a COVID-19 resilient supply network, according to a government official.

Adoracion M. Navarro, National Economic and Development Authority (NEDA) undersecretary for regional development, in an online forum on June 23 observed how the COVID-19 pandemic is expected to accelerate global trends for greater localization of supply chains.

This, she said, is due to pressure from governments as well as growing consumer preference to buy locally as an outcome of environmental concerns, developments that have started even before the pandemic.

Essentially, companies are “looking to bring production home,” a move further driven by the rise in automation, 3D printing, and small batch production as well as stringent travel restrictions, she added.

But COVID-19-related disruptions also underscore the “existing weaknesses in supply chain in the Philippines,” Navarro said.

She identified major chokepoints that have been highlighted during the lockdown and that the government is trying to solve.

These include lack of transparency and coordination; inadequate transport infrastructure; lack of logistics capacity; inefficient clearance at the border such as at checkpoints; burdensome procedures for documentation including for health clearances; poor connectivity due to underdeveloped multimodal transport capabilities; and variations in cross-border standards and regulations for movements of goods, people, and services.

While the government is already acting on these issues, Navarro also proposes a number of recommendations for a more COVID-resilient supply chain. These are:

          ♦ Implement technology applications at postharvest processing to reduce risks to shelf life
          ♦ Improve staging and transport network infrastructure, including for cold chain
          ♦ Upgrade standard operating procedures for perishable environment, staging, storage and transport
          ♦ Maintain timing/scheduling with checklists and monitoring
          ♦ Review all stages in order to increase yields and reduce waste
          ♦ Upgrade platforms and apps for tracking and traceability
          ♦ Have contingency operational plans like alternative sourcing
          ♦ Apply packaging and supplementary technologies for products at source

In addition, SMEs must be allowed to play a greater role in creating a resilient supply chain.

“Strategies should include improving the participation of SMEs in localizing supply chains,” she stressed.

“Engage SMEs more and more as suppliers to large enterprises (LEs),” she added. “In the Philippines, since most SMEs are in wholesale, retail and trade, they are more often the channels of LEs for distributing their goods. We need more SMEs to be engaged as suppliers of intermediate inputs or as contracted production units by LEs.”

She said that for this to happen, there is a need to invest in warehousing, and to set up infrastructure for checking and improving quality and standards.

Navarro also recommends providing inventory solutions for SMEs in the lower tier of the supply chain.

“The inventory turnover for them tends to be high because they do not overstock due to the proximity to the market (for example, SMEs in retail). So we need to provide innovative ICT solutions; for example, scale up ICT solutions like Digi Palengke app cashless payment system.”

She likewise suggests providing financing solutions to the SMEs’ need to earn quick returns. “Their desire for quick returns is due to their shorter recapitalization needs. Therefore we need to expand credit and make it easier for SMEs to access credit,” she said.

Navarro also emphasized the importance of a resilient supply chain for balanced regional development, citing updated Philippine Statistics Authority statistics on family income and expenditure released this June 4 showing the widening economic disparities across Philippine regions.

She pointed out that “improving connectivity and enhancing the supply chain structure including transport, communications and the overall logistics network” will help to address the growing inequality in the country.

“Given varying levels of lockdowns, many firms can aim for recovery by continuing operations and designing resilience in supply chains,” she concluded.

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