‘Value and bottom-line savings offered by e-wholesale procurement will enable MSMEs to reinvest profits’

By Akash Hegde

Ease of Doing Business for MSMEs: Micro, small and medium enterprises (MSMEs) are the backbone of the Indian economy, contributing nearly 30 per cent to the Gross Domestic Product (GDP) of the country. As per the recent changes to the MSME definition made as part of the Atmanirbhar Bharat Abhiyaan relief package, MSMEs are now defined as businesses having an investment of Rs 1 crore to Rs 50 crore and/or a turnover of Rs 5 crore to Rs 250 crore. Over the last five years or so, these MSMEs have had to contend with a lot of changes in their business environment – the severe cash crunch caused by the demonetisation drive of 2016, the sudden compliance burden caused by the nationwide GST roll-out the following year, and then more recently, the demand and supply shock caused by the Covid-19 pandemic.

These external complications have affected their business health and made their life rather difficult. No doubt, the government has been proactive in attempting to address the woes of MSMEs by implementing measures such as offering loan moratoriums and extending Covid loans, but there is still plenty of work to be done for MSMEs to completely recover from this pandemic.

In conducting their business, MSMEs face plenty of challenges such as shortage of working capital, lack of formal credit, changes in the regulatory environment, compliance overheads, limited credibility and marketing firepower required for increasing sales, and poor negotiating power required for controlling purchase costs. Very often these businesses have smaller teams with employees wearing multiple hats and filling up different roles. As a result, they often do not have the bandwidth to do justice to all roles – sales, purchase, customer support, accounts, etc. Ideally speaking, they should be spending time on revenue generation and improving margins, or in other words, increasing sales and reducing the cost of raw material (that is direct procurement).

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Doing this will help them increase their revenues and profits and thus grow their business. However, invariably indirect procurement consumes a lot of their time and effort, resulting in less bandwidth available for more important functions of the business. For the uninitiated, indirect spend is defined as any good or service that isn’t used as raw material for making the final product but is still required for the smooth functioning of the facility (factory, warehouse, office, etc.). It comprises a long tail of small value items which when taken as a basket contributes roughly 5-15 per cent of the organisation’s spend. Some of these items are critical in nature and can cause a manufacturing facility to temporarily cease operations if they run out of stock. In those cases, service level adherence (SLAs) and delivery timelines for indirect procurement become equally important. MSMEs are not equipped to optimize for this indirect spend. They neither have the purchase volume and negotiating power to bring down prices, nor can afford to spend too much time and effort in sourcing and procuring these items.

The covid-19 pandemic has served as a catalyst, providing strong tailwinds for businesses to move to online procurement. Much like the education and healthcare sectors, the procurement function has also been a big beneficiary of the pandemic-induced accelerated digitisation drive. Businesses of all sizes, MSMEs and large enterprises alike, have realised that procurement is a strategic function and needs to be dealt with accordingly. Having key strategic resources in-house while outsourcing the rest of the procurement functions can help organisations bring down fixed manpower costs.

At the same time, consolidating the indirect spending through an online procurement platform can provide dollar savings and also latent cost savings by reducing the number of purchase orders issued and invoices reconciled. While consumers were familiar with B2C online buying, B2B online buying has been a relatively recent development. However, there is a growing consensus among industry leaders that B2B procurement will largely move online in the future. The value and bottom-line savings offered by these online procurement platforms will enable MSMEs to reinvest their profits in endeavours that will grow their business, thereby contributing to the economy in terms of both GDP growth and job creation.

Akash Hegde is the Co-founder & Managing Director of ShakeDeal. Views expressed are the author’s own.