How MSMEs can fix their supply chain challenges and accelerate recovery

Logistics for MSMEs: The cascading effect of the pandemic on the supply chain and logistics industry globally has been turbulent for small businesses. The supply shock that began with Covid in February 2020 and the demand shock that followed due to the global economy shut down brought to the fore vulnerabilities in businesses’ production strategies and supply chains. As MSMEs gradually re-establish contemporary ways to meet their supply chain goals, digitisation of the supply chain is among the most critical areas to address the vulnerabilities, according to experts at the MSME Business Conclave organised by Financial Express Online last week. 

“Only around 5 per cent of supply chain digitisation is estimated currently which is very low for India,” said Neeraj Bansal, Co-Head and COO, India Global, KPMG who moderated a panel discussion on Bridging Supply Chain Gaps for MSMEs.

The challenges to poor digitisation of supply chain by small businesses have been multiple and they largely have to do with the size and capacity of an enterprise. Digitisation and technology adoption requires scale but most small businesses don’t have the scale to justify investments in technology, according to Amar Sapra, Professor, Production & Operations Management, IIM Bangalore. 

Another challenge for small businesses has been around selecting the right technology tools, right vendors, and right talent available at the right salary levels to lead digitisation in business. In traditional industries salaries paid are not that high, said Sapra. There is also a challenge of disenchantment with technology among small businesses as the latter still don’t see the real value of digitisation. “You can’t do things the same way as you did before. If you do so, the return is not as high as technology vendors promise.”

To help MSMEs work around the digitisation aspect of the supply chain, their large customers can play a significant role. “Many MSMEs have large customers such as in automotive, MSMEs supply to car brands such as Maruti etc. If large businesses could provide a roadmap, technology know-how about what MSMEs should be doing to digitise supply chain, it could be a win-win situation for both,” said Sapra.

While it would help MSMEs’ processes to improve and cost to decline, large customers’ supply chain ecosystem will also become better with greater adoption of technology. So the whole supply chain will improve and help in enhancing digitisation from 5 per cent, he added.

Moreover, to have effective digitisation, for Mumbai-based Makrand Appalwar, a first-generation entrepreneur who founded woven polymer processing company Emmbi Industries with a presence in 56 countries now, inadequate infrastructure is a key challenge to be addressed.

“Basic infrastructure is not there. For instance, there are villages without pin codes in India. How a new generation software will operate at such locations? If you have to deliver a packet in a small village where the address is, let’s say, in a lane behind a temple, how would you input that in a computerised system? So, logistics friendly country’s mapping needs to be done along with hub and spoke arrangement for MSMEs to adopt digitisation,” said Appalwar.

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Here, the government can help with some kind of centralised database so that every company doesn’t have to discover that temple on its own when delivering to such locations, suggested Sapra. He also pointed towards the What3Words technology — a proprietary geocode system that divides the world into 3-metre squares and gives each square a unique combination of three words. The system encodes coordinates of a location into random three dictionary words. For example, India Gate is mapped as tilting.raven.entitle.

“While for some reason the government has not taken any step towards this technology, e-commerce companies have been demanding it for several years,” said Sapra.  

This indicates the larger opportunity for technology providers to help MSMEs and other companies in digitising their supply chains. “There is an opportunity for software companies to develop tools that help MSMEs,” said Kalyan Korimerla, Managing Director, E-Trio Automobiles. The company is India’s first EV firm to retrofit light commercial vehicles (LCVs) for intra-city logistics. It serves companies such as IKEA, Flipkart, Amazon, and others.

Korimerla also spoke of collaborations happening in near future between small and large players in the EV segment where “we integrate into the supply chains of our suppliers as well and customers as well. For those who offer products to B2B customers, there will be a lot of technology integrations that need to happen.” 

Coming to the awareness and decision-making part of the digitisation of supply chain, Appalwar called for orientation programmes for MSME promoters. “How many large b-schools offer courses for entrepreneurs to explain that modern digitised supply chains can change the face of their organisations? We will have to create awareness about the technologies to be adopted. Also, while MSMEs are extremely modern when it comes to product manufacturing or service orientation, their entire backwardness lies in choosing their supply partner or service partner. They are not aware and also not financially well off to do so.”

Hurting MSME supply chains, particularly post Covid, have been other factors as well including high freight rates and lack of containers at ports. While global freight rates have dropped over the past weeks and container availability has improved, there is hardly anything MSMEs can do anything about it, said Sapra.

“China became an exports powerhouse because of the low cost of goods manufactured there. One of the factors in cost is the scale the government is trying to bring through its schemes like Production-Linked Incentive (PLI). There is also National Logistics Policy, which is yet to be announced by the government, that would help the industry understand what needs to be done to improve logistics,” he added.

Another challenge is the shortage of 22 lakh drivers in India as the new generation doesn’t feel excited about being on the road for several days, according to Sapra. “Hence, fewer drivers mean higher costs. If this problem is sorted, then it would help everyone including SMEs.” Last year, road transport minister Nitin Gadkari had announced the setting up of 80 training centres to mitigate this shortage.