As we prepared for our daughter’s dance programme, we had to buy some false jewellery and some tailored clothing.
We were in discussion with someone in Kancheepuram for the dresses and quickly realised that their digitisation ended with their website and few photographs sent on WhatsApp. The same situation prevailed with the jewellery. We needed to end up in Chennai to finally get what we wanted or we could go to some other store in Bengaluru. We chose not to go to Kancheepuram or Chennai. The lack of suitable automation systems ended up with these manufacturers in Kancheepuram not getting our orders. And, this must have been the case for them with others like us too.
An economy that is driven by creating capacity hoping that demand will turn up someday will have to manage productivity at some point in time. As more and more companies invest to create the front-end digital infrastructure and spreading their markets through internet and mobility, one issue that will hit us in India will be the lack of automation of the supply chain and fulfilment processes. This will hit the micro, small and medium enterprises (or MSMEs as they are known) the hardest. Two years ago, we saw most ecommerce companies get hit with supply chain issues that ended up in wrong deliveries happening, cash collected from customers either lost or stolen and, even as late as few weeks ago, delivery staff cheating customers as they rob money while counting cash on delivery.
MSMEs are slowly getting in to the Digital Bandwagon as Google tries to put over 20 million of them on the web. There are 36 million registered MSMEs employing 80 million people today in India. Even though they contribute 45% of manufacturing and 40% of exports, they are still only 8% of our GDP. Given this situation, they will look to improving productivity to use their capacity better — both in terms of capacity to manufacture or provide services and also the investment in to their digital strategy. This can happen only if they are able to automate their fulfilment processes and their supply chain back end systems for which they do not have enough funding or somehow feel that it is not necessary. The lack of such automation will actually slow down their growth and they will not be able to fulfil the needs of customers beyond the small territories that they cater to. Given this, they may not even go down the digital path.
As I walked through the Industrial Park on the outskirts of Bengaluru and another textile manufacturing centre in Tamil Nadu, and took a peek at the operations of some of the MSMEs, I realised how outdated their systems were, how so many manual ledgers and excel sheets were forming the link between their websites, their emails and their production lines. At the same time, I saw some very well automated factories but again with poor supply chain systems. These are because not many have invested in ERPs that go beyond dispatch and monitor deliveries. Also, as MSMEs do not want to pay taxes, they try and fly under the radar and fully automated systems will not give them the flexibility to fudge their records.
Without automation of dispatch and delivery, companies will not be able to scale up in the digital economy more so as their customers can be anywhere in the country or even the world. If the last few miles (not just the last mile) are manual, it will not lend itself to scale in manufacturing and also in productivity in deliveries. So, they will remain MSMEs, contribute to employing many lower skilled people but not be a large part of the economy in terms of GDP. This will impact growth and productivity of the country.
This is the exact problem that China is facing today. Their future growth is not going to come through more and more investment into infrastructure but how well the government and the private sector are going to sweat that infrastructure. A podcast by McKinsey titled ‘Meeting China’s Productivity Challenge’ spells this out very clearly.
India will face a similar challenge as more and more people migrate from villages to cities. That is the reason why the government is looking to set up 100 smart cities in this country so that the big ones like New Delhi, Mumbai, Kolkata, Chennai and Bengaluru do not get done in by influx of people (not that they are not already!!!). Further, there needs to be equitable growth to ensure that the nation’s wealth is distributed across the country and deep in to the rural economies.
The key issues that will crop up will include investment from private sector tapering off if returns are not commensurate, more and more unskilled or lower skilled jobs being created, bad loans or non-performing assets increasing in the banking system and increased disparity in income levels. Again, these issues are already cropping up in India but just imagine another 200-300 million people being lifted out of poverty but resulting in low productivity that means lower profitability and investments but higher inflation. This problem will be exacerbated by the rate of growth of the young population in India.
The key to this will lie in improving productivity and that will include various aspects like skilling, consumption driven investments, etc. But for the digital economy, it will be driven by the productivity of the supply chain of the organisations. MSMEs will be left behind if they do not invest in automation not only of their front end but also their factories and their fulfilment and supply chain systems. These will have to be integrated to their CRMs as well as their digitised front ends — so, a smooth flow from the mobile of the customer back to the mobile of the customer!!! And, the government can go laughing all the way to their bank as more and more tax payers suddenly show up.
By: V Ravichandran, He is Founder of Alive Consulting, Bengaluru.
Source: Deccan Herald
