SMEs in the UK chemical distribution industry:

An ‘operations management’ perspective

Dr Evri LampadariosLeeds Trinity University

2nd March 2016

Introduction SMEs

◦ Definition(s)?◦ Importance◦ Characteristics◦ Success / Failure factors

Chemical distribution◦ Rationale◦ Definition◦ Classification◦ Services

My research ‘Operations Management’ perspective

Contents

No agreed upon definition….varies with country, no of employees and turnover UK Companies Act of 2006

SMEs must satisfy at least two of the following criteria:

◦ < 250 employees◦ < £25.9m turnover◦ < £12.9m annual balance sheet

European Union (2003): ◦ < 250 employees◦ < 50mEUR annual turnover◦ < 43mEUR total annual balance sheet

SMEs Definition(s)?

The Big Business of Small Enterprises: https://www.youtube.com/watch?v=h3AkfuaMSEo

Obama on the Importance of Small Businesses

https://www.youtube.com/watch?v=n-EIllwA0Ws

Small Business and the Economy https://www.youtube.com/watch?v=bQfjb530Aew

SMEs Importance

Integral to economic and social development and regeneration

Promote economic growth and increase a country’s competitiveness and wealth

An ‘engine of growth’ to stimulate recovery in the wake of recession

Facilitate rapid industrialisation Key driver to innovation and R&D

Above all…employment generation

Sources: Amoros et al., 2013; Dobbs and Hamilton, 2007; Cabinet Office, 2013; Halabi and Lussier, 2014; Simpson et al., 2012

SMEs importance

Absence of complex formal structures Dominance of owner-managers Limited resources Environmental uncertainty Limited customer base Firefighting opposed to strategic planning

But also.. Flexible Adaptable Close to customers

Sources: Adams et al., 2012; Forsman, 2008; Storey and Greene, 2010; Unger et al., 2011

SMEs Characteristics

No single agreed upon definitions Success: survival, long term viability,

growth (turnover, number of employees, market share) and profitability (profit, return on investment)

Failure: firm closure, ceasing to trade, entrepreneurial exit, dissolution, deregistering, discontinuance, insolvency, liquidation, organizational mortality and bankruptcy etc…

Success / Failure

Rationale Definition Classification Services

Chemical distribution

Chemical distribution originates in the gap between producers who wish to sell large lots without regulatory or logistical complications and customers demanding small volumes and who have very specific needs on technical,

regulatory and logistical level (Mortelmans and Reniers, 2012)

In essence, chemical distributors allow their principals to profitably reach smaller customers in many industries and

countries (Chemagility, 2012)

However… genuine chemical distributors add value through an extensive range of services to both customers

and suppliers (Hornke, 2012)

Chemical distribution Rationale

No universally agreed definition….wide variety of functions and confusion with other types of trading in the industry

Not logistics Not traders Not agents ‘A company that takes title to bulk and/or

non-bulk chemicals from a chemical manufacturer or supplier and re-sells the chemicals to an end-user’ (NACD, 2005)

Definitions

By products◦ Commodities◦ Specialities ◦ Full range

By geography / market coverage◦ Regional / national◦ multinational

Classification

Customers: broad product portfolio with complementary products; access to reputable suppliers; competitive (and stable) pricing; stock management and Just In Time (JIT) deliveries; competent and knowledgeable sales team; technical support and problem solving skills; product expertise for formulation purposes; value-added services, for instance, custom blending, repackaging); sample management; financing and credit in line with local terms; safety training and hazardous waste removal

Suppliers: market share and penetration; logistics services including storage and packaging; in-depth market intelligence and assist with the implementation of marketing strategies; demand forecasting and planning; market development capabilities; new product approvals; conforming to local regulations and language; repackaging and relabelling; arrangement of import authorizations; trainable staff with good technical knowledge; modern IT infrastructure allowing automated information exchange

Sources: BCG, 2013; Burns, 2010; Chemagility, 2008; Chemanager, 2013; Districonsult, 2009 and 2012; FECC, 2013; Hornke, 2012; Jung et al., 2014; Mortelmans and Reniers, 2012; NACD, 2005).

Services

…how hard can it be???

https://www.youtube.com/watch?v=noImfr7pvPE

Finding a chemical distributor

…but still academically understudied

Aim: Identify CSFs for SMEs in the UK Chemical distribution industry

Methodology: Mixed methods-Questionnaires-Census

Target group: SMEs as defined by the European Union; located in the UK; not part of a another organization or belonging to a larger corporation; no manufacturing activity and capability.

Population: 180 Key informants: Owners and Senior managers

(CEOs, MD, Directors)

My research

Twenty two (22) factors critical to small business success identified and their impact is investigated.

Categorised in:◦ entrepreneurial (relating to the personal characteristics

of the owner/manager)◦ enterprise (relating to the firm) and ◦ business environment (external) factors

Positivistic philosophy, deductive approach, uses a concurrent embedded mixed methodology and utilises a survey strategy involving the use of self-administered questionnaires.

Response rate 65.5%.

My research

Success factors

Entrepreneurial Factors

• Age• Education Level• Entrepreneurial

Orientation• Gender• Personality • Prior Work Experience

and Management Skills

Enterprise Factors

• Age and size of company• Business Networks• Customer Relations

Management• Financial resources• Internationalisation • Human Capital• Market and Product

Development• Marketing• Strategic Planning

Business Environment

• Political• Economic• Socio-cultural• Technological• Legal and Regulatory• Ecological and

Environmental

SMEs Success

UK chemical

distribution

Entrepreneurial factors:

Entrepreneurial orientation

(MR: 2036)Prior work experience

and management skills (MR: 1812)

Enterprise factors:Customer relations management (MR: 2028)Market and product development (MR: 1938)

Human capital (MR: 1800)Strategic planning (MR: 1643)

Business Environment:

Regulatory compliance (MR: 2047)

Economic (MR: 1651)

Critical Success Factors (CSFs)

Entrepreneurial factors◦ Entrepreneurial Orientation◦ Prior Work Experience and Management skills

Enterprise factors◦ Customer Relations Management◦ Market and Product development◦ Human Capital◦ Strategic Planning

Business Environment factors◦ Regulatory compliance◦ Economic environment

CSFs explained…

…remember distributors do not manufacture products

Significant part of CRM and MPD, HR and SP Suppliers / Principals key to success Suppliers need to be treated as best customers Input in NPD and R&D Providing resources: technical expertise,

training, product knowledge, applications etc… Integral part of strategic planning

Suppliers Management

Why don’t we have a break?

‘Operations management’ perspective

Quality Speed Flexibility Dependability Cost

Supply Chain management

There is no capacity in distributors only inventory Types of inventory:

◦ Finished goods inventory – completed and waiting shipment◦ Goods in transit – to warehouses and customers

Inventory: to stock or not to stock? Distinction between commodities and specialty

products Takes up working capital and space Out of shelf life products / damaged Customer do not give forecasts Price fluctuations / Spot vs Quarterly Depends on country of origin and lead/transit times

Capacity & Inventory management

Inventory chart

Slack et al. identify the following key questions:

Why should an organization take a total supply network perspective?

What is involved in configuring a supply network?

Where should an operation be located?

Key operations questions

Plastic homeware

manufacturer

Operations network for a plastic homeware companyFirst tier

suppliers

Packaging supplier

Plastic stockist

First tier customers

Wholesaler

Second tier suppliers

Ink supplier

Cardboard

company

Chemical company

Second tier customers

Retailer

Retailer

Direct supplyInformation

Can you draw the operations network for a SMEs chemical distributor?

Way to survive and solve issues?

Integration

Raw materials supplier

ManufacturerDistributor Distributor Warehousing

/ LogisticsCustomer

Manufacturer Distributor

Final customer

Way to survive and solve issues? Main functions to outsource:

◦ Logistics◦ Warehousing◦ Sampling◦ Accounting

Outsourcing

Where would you base your offices / warehousing?

Criteria:◦ Infrastructure◦ Access◦ Customer base◦ Suppliers

Location

Suppliers◦ Selection◦ Single or multiple sourcing? / Exclusivity or not?◦ Global sourcing / internet◦ ‘Market based’ or ‘relationship’ supply relationships?

Customers◦ Expectations / Do they know what they really want?

Internal issues◦ Manufacturing delays◦ Shutdowns: planned and unplanned / FM◦ Inventory / Warehousing◦ Logistics / Transportation◦ Changes in demand? Seasonality / environment / trends?

Challenges in real life

Need for extra services Strong supplier relationships Focus on operations management

Future

Thank youAny questions?

Adams, J. H, Khoja, F. M. and Kauffman, R. (2012) An Empirical Study of Buyer–Supplier Relationships within Small Business Organizations, Journal of Small Business Management, Vol. 50, No. 1, pp. 20–40.

Amorós, J. E., Bosma, N. S. and Levie, J. (2013) Ten Years of Global Entrepreneurship Monitor: Accomplishments and Prospects, International Journal of Entrepreneurial Venturing, Vol. 5, No. 2, pp. 120-152.

Boston Consulting Group (2013) The Growing Opportunity for Chemical Distributors: Reducing complexity for producers through tailored service offerings, [online], Available at: https://www.bcgperspectives.com/content/articles/process_industries_supply_chain_management_growing_opportunity_chemical_distributors/#chapter1, [Accessed 20 February 2014].

Burns, N. A. (2010) Chemical Distributors, [online], Available at http://www.neilaburns.com/2010/11/chemical-distributors, [accessed 15 December 2010].

Cabinet Office (2013) All public bodies to adopt SME-friendly business rules (Press Release), [online], Available at http://www.gov.uk/government/news/all-public-bodies-to-adopt-smefriendly-business-rules, [Accessed 20 February 2014].

Chemagility (2008) UK Chemical Distributor Market Report 008: Information, Insight and analysis of the UK Chemical distribution industry, Surrey: Chemagility.

Chemanager (2013) Distribution & Logistics for the Chemical and Life Sciences Industries, [online], Available at: http://www.chemanager-online.com/sites/chemanager-online.com/files/printausgabe/epapers/SDL/SDL0113/blaetterkatalog/index.html, [Accessed 14 February 2014].

DistriConsult (2012) Chemical Distribution in 2012: What’s next on the horizon?’ 6th Brazilian Congress of Chemicals and Petrochemical Distributors (EBDQUIM), Praia do Forte (Bahia), 16th March 2012, [online], Available at: http://www.associquim.org.br/ebdquim2012/palestras/Ebdquim2012_G%C3%BCentherEberhard.pdf [Accessed 10th May 2013]

Dobbs M. and Hamilton R. T. (2007) Small business growth: recent evidence and new directions, International Journal of Entrepreneurial Behaviour and Research, Vol. 13, No. 5, pp. 296 – 322.

References

FECC (2013) The Chemical distribution Sector in Europe [online] Fecc.org., Available at: http://www.fecc.org/fecc/about-fecc/the-chemical-distribution-sector-in-europe, [Accessed 9 March 2015].

Forsman, H. (2008) Business development success in SMEs: a case study approach, Journal of Small Business and Enterprise Development, Vol. 15, Iss. 3, pp. 606 – 622.

Halabí, C. E. and Lussier, R. N. (2014) A model for predicting small firm performance, Journal of Small Business and Enterprise Development, Vol. 21, Iss. 1, pp. 4-25.

Honrke, M. (2013) The future of chemical distribution in Europe: Customer relations as key value lever, Journal of business Chemistry, Vol. 9, Iss. 2, pp. 65-66.

Hornke, M. (2012) Chemical Distribution 2012, [online], Available at http://www.chemanager-online.com/file/track/11755/1, [Accessed 20 February 2014].

Jung, U., Wolleswinkel, R., Hoffmann, C. and Rothman, A. (2014) Specialty Chemical Distribution-Market Update, Boston Consulting Group, [online], Available at: https://www.bcgperspectives.com/content/articles/process_industries_go_to_market_strategy_specialty_chemical_distribution_market_update/?chapter=2, [Accessed: 17 April 2015].

Mortelmans, S. and Reniers, G. (2012) Chemical distribution in Belgium from 2007 to 2010: An empirical study, Journal of Business Chemistry, Vol. 9, Iss. 2, pp. 105-113.

National Association of Chemical Distributors (NACD) (2005) The Chemical Distribution Industry & Its Focus on Security, [online], Available at: http://www.chemserv.com/pdf/NACD%20ChemicalSecurity.pdf, [Accessed 15 February 2015].

Simpson, M., Padmore, J. and Newman, N. (2012) Towards a new model of success and performance in SMEs, International Journal of Entrepreneurial Behaviour and Research, Vol. 18, Iss. 3, pp. 264-285.

Storey, D. J. and Greene, F. J. (2010) Small Business and Entrepreneurship, London: Pearson Education Limited.

Unger, J.M., Rauch, A., Frese, M. and Rosenbusch, N. (2011) Human capital and entrepreneurial success: A meta-analytical review, Journal of Business Venturing, Vol. 26, pp. 341-358.

References