How To Make Supply Chains More Cost-Efficient
A rather well-known fact is that MSMEs form the spine of India's global trade industry. India's MSME sector, which comprises more than 6.3 crore businesses, contributes to about half of all the exports the country makes. A relatively lesser-known fact is that businesses in this sector also incur the highest supply chain costs. This is a historically relevant trend in India’s global trade landscape. Generally, the KPIs of expense minimization are at odds with those of revenue maximization, such as customer satisfaction, inventory optimization, delivery performance, and others, meaning that an improvement in one KPI tends to negatively affect another. Therefore, MSMEs need to find the right balance between cost minimization and profit optimization, an objective that digitization can help them meet. Additionally, using a data-driven and technology-heavy approach to supply chain management helps businesses minimize some of the growing complexity of modern supply chains through better transparency and analytics.
Before going through the solutions, MSMEs must identify the primary drivers of supply chain costs so that they can be plugged immediately.
What are the main contributors to MSMEs’ supply chain costs?
MSMEs may pump their finances into questionable investment avenues at the wrong times or fail to invest in good ones at the right times. Apart from poor investment decisions, there are other drivers of cost too. Supply chain management is a wide term that involves several phases, such as procurement, production, inventory, and others. In procurement, poor management of multiple vendors may dent productivity, therefore, raising costs. Lack of transparency into vendors’ operations and live order schedules act as bottlenecks that slow down the supply chain. Poor inventory management may lead to rushed inventory orders at the last minute from costly suppliers or wastage of stock. Both scenarios incur losses for businesses. Poor utilization of production machines and equipment, protracted machine setting-up times, ineffective workforce management, and rework caused due to manufacturing steps not being executed correctly result in unnecessary production expenses for MSMEs.
How can MSMEs keep their costs in check?
Automation and digitization are the two main cost-reducing solutions across the board for MSMEs. While MSMEs may believe that incorporating technology for smart sourcing, intelligent supply chain finance, and managing risks may increase their costs even further, they must think from a long-term perspective to see the true value of the exercise. The ROI of implementing digitized solutions normally tends to be far greater than the initial investment made for the same. Some of the digital solutions for MSMEs to keep supply chain costs at a minimal are:
Using tech-led reliable supply chain financing avenues
Using smart sourcing financial solutions provided by digitized service providers has several positives for MSMEs. Firstly, a reliable service provider helps MSMEs clear pending payments to vendors. This is helpful for both in two ways — with steady working capital, they can continue their manufacturing activity with minimal or zero downtime. With this steady production, the trade operations of MSME exporters carry on relentlessly too. This continuity builds a sense of trust between MSMEs and vendors, with each party contributing to the other’s growth.
As a result, vendors will provide better and new services and discounts for such MSMEs and create specific production strategies exclusively for them. The best part? Digitized supply chain financing enables businesses to manage all their vendors, each order, and prices from one digitized dashboard for convenience and speed in supply chain operations.
MSMEs often struggle to get credit finance from banks and NBFCs. Smart sourcing services evaluate creditworthiness more holistically taking into account both past as well as forecasted performance.
Technology-driven supply chain financing not only makes it easy for MSMEs to get finance for business operations and maintain a strong working capital, but also reduces various structural costs through cash discounts from suppliers.
Using tech tools for price discovery
Digitized procurement involves the use of e-auctions instead of dated RFP methods for vendor selection. In e-auctions, MSMEs can digitally view trade bids from suppliers and run a comparative analysis of each one using data-driven algorithms. Digital bidding is a much more cost-efficient option for businesses as compared to RFPs or other offline or manual price discovery processes as it does not involve paperwork and is also a quicker process on the whole.
Using tech-first digital vendor management platforms
Digital vendor management involves bringing all the vendors in one digital platform. Leveraging vendor management platforms, businesses can manage their orders directly with each vendor. This saves several man-hours that would normally be spent by businesses while trying to coordinate different vendors and service partners.
In this way, digitization improves MSME and vendor communication through a single digitized channel instead of businesses having to manually perform these tasks. Additionally, MSMEs can maintain digitized records of each vendor and purchases made. This saves a lot of time and money for MSMEs and lets them steer clear of complicated spreadsheets and product documents, price sheets, etc.
Using reverse bidding for lower procurement costs
Unlike the standard bidding mechanism, reverse bidding features sellers making bids worth progressively lower prices for their supplies to businesses. As a result, the essential mechanism of this digitized method of selecting suppliers supports the lowering of procurement spends for manufacturers and other businesses that are a part of the supply chain.
Using supply chain automation for lower lead and turnaround times
Lost time equals to lost money when it comes to supply chain management. Therefore, businesses constantly need to identify weak links that slow down their supply chain operations. Supply chain automation lets them do just that through data-driven material and product tracking across the supply chain. Using the tracking information, businesses can closely monitor the supply chain phases that take the most time and address issues if there are any. In this way, businesses can reduce their turnaround and lead times and optimize the consumer experience.
Besides tracking, supply chain automation also takes human error and fatigue out of the equation, thereby preventing avoidable delays and downtime that are caused by those factors.
Using digitized procurement services of reliable service providers is a sensible long-term choice for businesses to lower their supply chain costs and bring more assuredness, efficiency, and transparency to their sourcing-related operations.
If done right, a full digital transformation of your supply chain can reduce costs as much as 40%. This means that the cost difference between using digitization and sticking to traditional, manual methods is so vast that your overall revenues are practically dependent on the simple choice between the two options.
One thing is clear, though — digitization is no longer a luxury, but a necessity for your supply chain operations.
However, your business must choose the right digital partner to receive such services and reduce the costs of your supply chain operations. Bizongo can help you in this regard. Our ultra-reliable digital vendor management and tech-led financing services can transform your procurement practice and make it more efficient and error-free.
You can start the process here.