An analysis of factors affecting the performance of supplier SMEs

Purpose. While the performance of each company is still an important factor in gaining a competitive advantage, in an open economy, the performance of an entire supply chain becomes a crucial factor in the competitiveness of many interconnected companies. In this study, factors that might influence the performance of small and medium-sized enterprises (SMEs) that provide production services for the contracting company are analysed. Methodology. In this study, the performance data of harvesting (n=46), timber transportation (n=23), and chipping (n=3) service suppliers in the supply chain of JSC Latvia’s State Forests (LVM) are analysed. Based on the supplier’s performance data, a group of experts, including two executive directors and five process managers, defined the problems and their root causes. The Ishikawa diagram and 5Why method were used. The root causes were redefined as hypotheses and regrouped into three groups: 1) workforce factors; 2) managerial factors; 3) contract-term factors. Hypotheses were verified by conducting a survey of suppliers’ employees (n=594) and executives (n=59). Findings. It was found that employees’ dissatisfaction with shift work and salaries which do not correspond to work responsibilities, along with suppliers’ disregard of the evaluation of employees’ skills, complicated work requirements, the lack of training for employees, and the direct manager’s insufficient knowledge about the skills needed for employees are the factors that significantly influence voluntary labour turnover and might lead to the leakage of skilled employees from suppliers, causing a performance decline. Meanwhile, there is no significant difference between high and low-performing supplier groups in terms of managerial knowledge, while a limited contract duration does not undermine low-performance suppliers’ efforts to improve performance. Value. In this study, factors that might cause performance problems for supplier SMEs are analysed. In the existing literature, it has been found that voluntary labour turnover might negatively influence the performance of a company (McElroy and Morrow, 2001; Brown et al., 2009; Eady and Nicholls, 2011). This study attempted to assess factors causing voluntary labour turnover among other factors. The main contribution of this study is to the literature regarding voluntar labour turnover, supplementing the factors that might cause it. Keywords: suppliers’ performance, root cause, voluntary labour turnover, SMEs Paper category: research paper