COVID-19 Aftershock: Why MSMEs should digitise their Supply Chain

In part 1 of this series, we saw why MSMEs should brace for the worsening global supply chain crisis that is currently wreaking havoc across international trade networks. In this blog, we will explore how MSMEs can build resilience against such unexpected upsets by digitalising their supply chain.

Though a once-in-a-century phenomenon, dealing with the fallout of COVID-19 is like injecting nuclear medicine - just as the contrast dye lights up the minute abnormalities in the body, the pandemic has revealed the weakest links in the global value chain - single-source dependency for raw materials, limited physical trade infrastructure (ports cannot be built in a day! Also, remember the ship stuck at Suez Canal?) and the emergence of previously unencountered non-tariff barriers like vaccine passports and calls for infection-controlled manufacturing environments.

The Upside - new opportunities for India 

There is a silver lining in the crisis, however. Indian MSME suppliers in particular have a distinctive advantage to drive the country’s export competitiveness. With China and other south-east Asian nerve centres of raw material suppliers gridlocked out of the global supply chain due to high infection rates, port jams and glaring container shortages, international trade supply routes can be redirected to India, as freight charges from India to the US or Europe is much lesser compared to those from China. Take the case of the Chinese import-dependent US for example - In 2020, 70 percent of US companies reported that their supply chains were impacted, and it’s only more intense now.

Another advantage born of the shipping crisis for low-value suppliers is that Asia itself is emerging as a new market for India, if only there were takers to meet the pandemic induced demand in these countries.

The downside - Obsolete tech

Now for the downside. At a time when time itself is of the essence, global shipping is further pained by obsolete systems. There are two sides to this issue - one, the heavy paper dependency in air and sea cargo. Imagine the debacle a lost, handwritten shipping manifest would cost at a time like this! The solution lies in deploying emerging tech like AI, Machine Learning and analytics that can easily handle everything from assessing the empty space on a container to facilitating faster loading and unloading. 

The second is the inflexibility of the players in the supply chain to devise alternative processes to handle demand changes. A combination of various technologies, such as Industrial IoT and low-cost automation can help speed up production. Procurement itself can become a game-changer when you are part of an interconnected network - there are more opportunities to locate alternative suppliers or substitute raw materials. Consider this - oil and gas major Shell has a ‘digital warehouse’ with its designs stored in 3D printable formats. In case of demand-supply mismatch, Shell sources a local supplier who can produce spare parts.

What MSMEs can do to digitise their supply chains

MSMEs are learning the hard way, what it means to be left out of this digital shift. 

Economic isolation cannot be alleviated by government intervention alone; loan forgiveness, subsidy support and the capital infusion can only do so much to stop the bleed. What’s needed is a conscious and sustained internal push toward shockproofing the business against external uncertainties - like investment in digital transformation.  Take the above example - an agile and digitally nimble MSME can easily step up to meet Shell’s requirements. Several such demand-supply reconfigurations are nothing but opportunities for MSMEs to plug the leaks in global trade. 

It is only reluctance and ignorance that is keeping MSMEs out of digitisation - tech companies are offering plenty of customisable low-cost supply management applications across industry spectrums. Not every MSME may need to employ robotics, blockchain or digital twin technologies for demand forecasting or supply chain diagnostics. However, all MSMEs can transition to electronic invoicing and inventory management - some of the biggest stumbling blocks to order fulfilment. 

Similarly, several logistics companies like FedEx are offering sensor-based package tracking technology to improve supply chain outcomes, particularly for businesses in time-sensitive fields. When combined with other digital solutions, like having a proprietary website or becoming part of the e-commerce boom, MSMEs can strategise their way out of crises. 

Finally, it’s never about the money. It’s about the intent. 

It is true that big companies have the money power to muscle through a crisis. It is also true that MSMEs are confined by shoestring working capital outlays that can keep the company afloat for less than a month. But it is the MSMEs that run 95% of the world’s businesses, and it is they who form the large majority of suppliers to production giants. If the pandemic-led prohibitive shipping costs are preventing them from capitalising on export opportunities, MSMEs can very well proactively offer digital-based supply solutions at home.