06th July 2020 | NOIDA | INDIA

Supply chain is the backbone of every industry and can bring laurels if managed well. The whole world is facing economic challenges during this pandemic mostly because supply chain has become standstill. Large scale industries are somehow managing it through their dedicated department or 3^rd party Procurement/Supply Chain Management companies but Small and Medium Enterprises (SMEs) are suffering  as they don’t have a proper in-house mechanism and engaging with a 3rd party service provider doesn’t make financial sense due to low volume of material involved.

SMEs’ commitment to job creation, growth and sustainable development has been significant. A sector which is contributing around 30% of India’s GDP if suffers, it would eventually reflect in our GDP. In the light of government’s conviction to increase the MSME’s contribution to 50% of GDP, it becomes more important to equip this sector with best backend management. SME’s are facing severe challenges like;

• Frequent change in market trends
• Insufficient Procurement Skills
• Poor Vendor & Schedule Management
• Improper Planning
• Non-compliance to the policies
• Corruption, Trust issues

which are curtailing their profit. There is an immense competition  and companies are bidding as low as possible to get L1 position. In such a cut-throat situation, SMEs are losing their margin due to aforesaid challenges. Growing competition is pushing companies to systematically evaluate the risks before bidding and therefore SMEs refrain themselves from participating in tenders because of less visibility on the regulations and the budgeting.

In spite of having huge opportunity for profitability, SMEs are still hesitant having a dedicated Procurement /Supply-Chain management team either in-house or outsourced because of following reasons;

1. Low turnover & high cost of setting a SCM team: Setting an inhouse dedicated SCM and procurement team is obviously an expensive decision. Given the fact that, SMEs have lower turnover and a relatively smaller volume of material to be handled, a separate dedicated team would be a financial burden, which is fair enough in my view.
2. Outsourcing challenge: Giving anyone authority to purchase brings multiple challenges in itself. It requires lot of efforts to build SOPs to bring transparency and understanding between both parties. This is commercially viable and accessible to only large-scale industries with a large procurement volume which is being audited and checked by specific experienced auditors and third-party agencies.
3. The Ego: Yes, you read it right. I have met many SMEs owners who believe that there can be no one better negotiator and planner than them. They believe that instead of outsourcing or setting a separate procurement team, they can utilize their existing team for vendor management and follow-ups backed by their “Unmatchable Negotiating Skill”. I call this an egoistic approach which is limiting SMEs to explore other ways to be benefited.