Digital Transformation Strategies for MSMEs in 2022
Published on : Tuesday 04-01-2022
MSME organisations can improve their competitiveness tremendously with the help of emerging technologies and ignite growth in 2022, says Darshana Thakkar.
The year 2020 started with the deadly coronavirus across the globe. By March 2020 the whole world was affected by the pandemic and the global supply chains had disrupted significantly. The larger enterprises across the world were having sufficient resources in terms of technology, availability of input materials and technically sound professionals, and alternative ways to continue the work-life balance with a hybrid working environment.
But the business of small enterprises has been adversely affected due to the pandemic and the sudden lockdown, and regulatory and safety requirements in the aftermath of Covid-19.
In India, the MSME sector comprising of manufacturing, packaging, infrastructure, food processing, chemicals and the IT sector and service industry, have developed as the most dynamic source of growth for the economy. The Indian MSME sector generates about 30% of the GDP, and contributes about 45% to the nation’s exports. About 6.3 crore MSMEs employ about 11.1 crore people.
Unfortunately, because of a few factors like capital crunch, high cost of digital technologies and knowledge and awareness about suitable digital technology, the MSME sector in India suffered a lot during and post-pandemic era. The impact on the business of MSME companies is highest in the past few decades, even more than the worldwide recession of 2008.
Managing the crisis
To support MSMEs during the pandemic crisis, the government of India come forward to provide soft loans with a longer term of repayment and increased credit limit. But MSMEs need to re-strategise their overall value proposition, by improving quality and reducing the cost of products. They also need to strategise various functions like Production, Marketing, Sales and Finance. There is a need to create a strong digital ecosystem to increase the outreach among buyers and suppliers in the market.
Now after a long struggle of restoring business during 2020 and 2021, MSME organisations need to transform their businesses by adopting the latest technologies. Despite having a higher initial cost of technology and initial resistance from the stakeholders about technology adoption, in the medium to long term it will be proved as a turning point of the business success for the MSMEs. MSME business operation improvement is very close to my heart and would love to share some key technology trends that could ignite the growth of your MSME organisation and rest assured, the suggested solutions are affordable and feasible for most micro and small enterprises.
Technology trends for 2022
There are several areas and opportunities where Automation and Digital Transformation are affordable and feasible for MSMEs to stay ahead of the curve
1. Production and Planning
For any manufacturing company, production is its core process. It is the largest cost centre for any manufacturing company. Many factors like poor quality, low productivity, high maintenance, inadequate safety, monotonous work, etc., are factors that consume lots of money and time.
There is a variety of opportunities from simple sensor solutions, partial automation to full automation for MSMEs. According to budget and technical capability, appropriate solutions can be selected. Different technologies like just sensors, CNC programmed machines, automated cutting and welding machines, and various robotics solutions are available in a large variety.
2. Design and development
Product design and development was never before such fast and smart. Many types of design software is available as a standard tool to ease the design process. Nowadays AI and ML-powered software are available to reduce the steps to mock up and specifications. They can anticipate a designer’s gaps of thinking and correct errors such as inconsistent alignment.
For the development of prototypes, 3D printing facilities have become easily available and cheaper. Even for mass production of certain items, 3D printers are becoming most popular. With its ability to synchronise with design software and to accommodate any awkward shape efficiently and effectively, 3D printing technology is an affordable solution.
Practically we have applied this technology with one engineering company into machine building. We have developed various casting patterns with a 3D printer and that resulted in a 15 to 20% cost reduction of the casting.
3. Plant maintenance
Although most manufacturing companies ignore the importance of plant maintenance and the maintenance cost doesn't contribute directly to product cost, it is significant. Most MSME companies follow only breakdown maintenance practices. That cost is comparatively high not only in terms of money but also has a significant impact on production delay, delayed delivery, poor quality, damage to machinery, and most important to human safety.
With the technology advancement, the maintenance activities are predictable well in advance and can be scheduled accordingly in order to prevent any kind of damage to machines and humans. For MSMEs, if full-fledged and costly predictive maintenance is not affordable, with the help of a few sensors attached to plant machinery and synchronising them, the cost of maintenance can be reduced significantly.
4. Inventory management & procurement
In any manufacturing company, material cost contributes to 40 to 80% of the total product cost. It is said that saving of Re 1 in material costing results in Rs 5/- increase in profitability.
In our country, the material function is the most ignored area across all the sectors. Only direct product cost is taken into consideration for product costing. But tremendous indirect costs due to loss and damage of materials and due to rush purchase of materials exist in most MSME companies. That is never noticed by most business leaders in this sector. Inappropriate inventory management is the most common factor.
With the help of appropriate ERP software, the inventory can be managed very well. The important factor here is the selection of appropriate software suitable to your industry and organisation culture from the available options in the market. In my practical experience, we have noticed cost savings from 10 to 30% by implementing appropriate ERP solutions to many of our associates.
5. Marketing and promotion
Despite having a very good product in terms of price and quality, the reach to the target customer is challenging. Many small organisations with whom I am closely connected believed that for business growth word of mouth and customer loyalty is the key tool until they realised the importance of branding in the competitive market. In this global marketplace, traditional ways of marketing aren’t effective. An organisation needs to create brand loyalty by appropriate Marketing and Branding strategies. With changing market dynamics and market competition, every organisation needs to make a strong brand position in their respective market. In the current digital era, without appropriate use of digital technologies and social media strategies, it is difficult to sustain and grow.
6. Pre-sale and post-sales activities
Pre-sales activities like quote preparation, sending, follow up and sales order planning should be in time and systematically. These involves repetitive tasks and is prone to human error during operation.
Similarly, other post-sales activities regarding submitting Test reports, guarantee documents, and other communications are also very important for future business.
Technologies such as artificial intelligence can take care of those time-consuming, repetitive and mundane administrative tasks so that businesses can focus on more crucial, strategic work.
7. Account and finance
These functions also include many repetitive tasks and are prone to human error due to multi-tasking and can result in delay due to overloaded accounting professionals. Many software is available exclusively to manage Account and Finance. A variety of standard and customised software can be developed to synchronise other functions like sales and production to accounts to increase the overall efficiency. These result in tremendous cost savings.
8. HR and payroll management
Human resource is the most important asset among all for any business, to motivate the employees to provide double the productivity. Recruitment, induction, training and payroll management are the most ignored functions for the MSME industry. Due to the absence of an autonomous HR management system in the MSME sector, the indirect cost of manpower is too high. That includes hiring costs, loss of productivity due to insufficient and inappropriate training.
Many automated HR and payroll management software solutions are available at a reasonable cost and easy to operate by moderate computer proficient staff. This will help to reduce the workload on HR and Admin staff and also provide transparency to the employee about fair management of their receivables and other facilities.
9. Customer support
No business can survive without satisfied customers. A satisfied customer is the strongest marketing tool for repeat business and can spread word of mouth about the company and products. For MSME companies this very important function is managed in an organised way and manually. For capital and high-value products while the number of a customers is less, proper customer support can be managed manually. But in case of the company, wherever large number of customers exists, it is difficult to retain and regain customers without timely response and action to customer queries and complaints. It is of utmost importance that customers can find it very easy to connect with the seller for any of the queries and complaints.
A variety of AI-based solutions is available for the customer support functions. Depending upon the customer base, the MSME company can select the appropriate digital solutions. Some popular tools to support this function include:
a. Omnichannel communication support
b. Unified agent desktop
c. Live chat support.
d. Self-service portal.
e. Customer sentiment analysis, and
f. Up-to-date knowledge base.
Top technology upgradation solutions for MSMEs
1. Automation in production with CNC Technologies
2. Sensors for plant and machinery
3. 3D printing
4. IIoT (industrial internet of things)
5. AR (augmented reality)
6. VR (virtual reality)
7. AI (artificial intelligence)
8. Cloud computing, and
9. Big data analytics.
With the help of the above emerging technologies in the various functions across the business, MSME organisations can improve their competitiveness tremendously. With the hyper-competitive global market, before one notices the decay in profitability, the competitor may steal the market stack. To be updated with emerging market trends is a high need for MSME companies than ever before. In short, MSME needs to focus on the following 4 key segments for quick results.
1. Online presence
2. Cloud solution
3. Social media, and
4. Data analysis.
Darshana Thakkar is MSME Transformation Specialist and Founder, Transformation – The Strategy Hub. An Electrical Engineer followed by MBA – Operations with rich industry experience, Darshana is an expert in transformation, cost reduction, and utilisation of resources. She has invested 25 years in transforming Micro and Small Enterprises. Her rich experience in resolving pain areas and real-life problems of SMEs helps organisations achieve quick results. Her expertise in managing business operations with limited resources helps clients transform their business practices from person driven to system driven with existing resources.
Darshana has helped many organisations to increase profitability and achieve sustainable growth. She is passionate to support the start-up ecosystem of our country. She is associated with CED, Government of Gujarat as a Business Function Expert in the Entrepreneurship Development program, as faculty for industrial subjects in the Second Generation Program (SGP), and as a start-up mentor and member of the start-up selection committee in the CED incubation centre. She is a certified corporate director registered with IICA and the Ministry of Corporate Affairs, Government of India. Apart from this, she is an author and publishing her blog, article, and case study related to the MSME industry. Email: [email protected]
