India, an enticing manufacturing hub in the emerging econo-mies, is among the top destinations of foreign investment. The FDI-funded original equipment manufacturers are supported by numerous SME manufacturers. However, the country?s recent GDP growth rate doesn?t augur well for these SMEs. India?s manufacturing sector needs a lot more impetus to realise the spectacular, sustained growth expectation as prophesied by analysts a few years back.
India?s wage advantage is progressively shrinking; and its energy shortage, connectivity and infrastructure issues continue to be an impediment to growth and investment. Finance is another issue, given that there are not always sufficient funds in terms of working capital or capital for long-term investments. Working capital, in large amount, is locked up in safety stock, simply because of the not-so-good track record of the suppliers? in on-time delivery. This, in turn, leads to inventory obsolescence and write-offs, especially when they are ill-equipped to forecast demand.
In emerging economies, these typically non-managed functional areas negatively impact SMEs? sales, growth, gross margin, profitability, service levels, and market share, leading to endless vicious cycles of inefficiencies and higher supply chain costs.
SMEs still lack the knowledge and exposure to supply chain management (SCM) alignment and practices, let alone best practices; and this is characteristic of the various stakeholders in the complete value chain?and this clearly points to the lack of skilled people in the domain of supply chain. Work continues in silos, with the staff oblivious of the inter-departmental and cross-enterprise synergies that can be leveraged.
The Indian SME manufacturing sector is highly fragmented and manufacturers are unorganised; and in the context of collaboration with partners, there are communication and IT challenges that continue to plague them. Sophisticated IT platforms for internal and external collaboration remain an enigma for a lot of players; and need a lot of hand-holding for efficient and effective deployment.
A huge majority of SME manufacturers are family-run businesses; and depending on their exposure to wider domestic and global markets, some of them are more responsive to adapt to newer strategies and technologies. Here are some factors for the Indian SME manufacturers to consider.
Optimisation priorities: The demand volatility and slowdown in growth percolates through the supply chain, affecting suppliers, manufacturers and distributors. Given the predicament of numerous conflicting priorities, it is important to have the right software to identify and achieve optimisation in high priority areas?be it to increase sales, customer service level, gain market share, improve profitability, expand and grow operations, etc.
SME manufacturers should start with an IT-enabled process to identify their most vital, high-bottom-line-impact function. This could vary with each company?it could be in areas like production planning, order management, demand planning, inventory optimisation, supply chain planning, manufacturing execution, sequencing and scheduling of operations, etc.
For instance, demand planning is a challenging area for most SME manufacturers in emerging economies. Effectively addressing this problem will lessen risks and help them better plan their operations and capitalise on market opportunities. In the successive stages, as complexity increases, they would have become more tech-savvy, and open to explore vertical integration options to connect their upstream and downstream value chain links?as in the case of service parts planning, supplier relationship management, replenishment, logistics and routing, supply chain design and networking, etc.
Vendor selection: Deploying supply chain solutions is not just a single solution; but is a journey of gradually progressing to connect all the various dots of the supply chain related functions, both internally and externally. In the current Cloud scenario, the main draw is to sidestep setting up an expensive IT department. Instead, SME manufacturers can opt for cloud solutions, which offer low total cost of ownership, round-the-clock support, and many such advantages.
Better supply chain talent acquisition and management can help SMEs evolve to higher maturity supply chain processes, with all its attendant benefits.
Rajeev Chadha
The author is country manager, JDA India
