What MSMEs Can Learn From Amazon About Digital Procurement
Amazon’s meteoric growth and ubiquity over the last two decades are the results of all the intelligent choices it has made during that time. One of the choices is leveraging digitization and automation to transform their logistics and supply chain. The company’s data-driven approach to procurement is a shining example of how businesses can implement technology to maximize their supply chain’s efficiency. Although replicating Amazon’s large-scale strategies and investment models may be impractical for MSMEs across India, they can still emulate the organization’s core philosophy of employing technology to accelerate various logistical processes, especially ones related to sourcing.
MSMEs contribute to a third of India’s manufacturing output and almost half of India’s overall exports. And yet, automation usage across MSMEs in India remains at a lowly 12-15%. There are several reasons for this reluctance towards automation usage — the upfront investment needed, a lack of expertise and tech-savviness within the ranks of such businesses, and fears of failure.
The resolution to such issues is straightforward. MSMEs need to use a step-by-step approach that involves planning cash flows cautiously in the initial stages of technological incorporation, upskilling employees, and then scaling their sourcing once the infrastructure and personnel are ready for the same. Apart from consolidating profit margins, this methodical approach assists MSMEs with managing risks efficiently and supply chain finance-related functions too.
Automation, digitization, and innovative supplier management form the crux of Amazon’s procurement success. Taking a leaf out of the company’s book, MSMEs can use the following technologies and strategies to implement smart sourcing.
Using digitized supplier selection
Every business finds it challenging to select vendors for its supply chain operations as it is a critical choice to make due to the vitality of procurement in overall business operations. There are several options for vendor selection, with two of the more prominent ones being e-auctions and RFPs. E-auctions are a vastly superior alternative to RFPs and other manual supplier selection methods for this purpose. Unlike RFPs, e-auctions allow MSMEs to make data-driven decisions regarding supplier selection as they are conducted online, involve lesser paperwork, and do not require MSMEs to wait for long periods of time to get a response from suppliers (as is the case with RFPs).
This point underlines the necessity of preferring technology over archaic methods for smart sourcing in a similar vein to most of Amazon’s business philosophies.
Outsourcing functions and components
Innovative strategies are just as significant for procurement efficiency as automation and digitization. One of Amazon's most successful strategies is enabling third-party vendors to use the retail giant's online platform to sell their products. In a slightly different way, outsourcing can be an ideal solution for MSMEs. For example, in manufacturing, MSMEs can outsource components of products from vendors before assembling products by themselves. It has been found that outsourcing saves up to 15% of manufacturing costs, making it a winning procurement strategy for businesses that can be directly emulated from Amazon’s smart sourcing strategies.
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Digitizing vendor management
MSMEs can often find it challenging to constantly coordinate and communicate with different suppliers and vendors on a daily basis. Automation technology helps businesses overcome such problems by providing a single digitized channel of communication with all their vendors. So, for example, MSMEs will get a unified dashboard of information that displays messages or emails from different vendors in one place for them.
Amazon employs an automated ordering system that constantly tracks delivery history, lead time, current inventory levels, lead time of each vendor, and prices before making orders or selecting suppliers for specific production operations. A centralized tool to manage suppliers and communicate with them is an essential most MSMEs do not know that they need. Such systems also enable businesses to manage contract negotiations with several vendors and select the ideal options without hassles.
Automating supply chain management
In 2017, nearly 3 out of every 4 shoppers used Amazon to discover new products online. Amazon's unrivaled speed of delivery and its responsive and resolute customer service are two of the prime reasons for its wild popularity among the masses. Amazon's delivery immediacy is fuelled by its 200,000-strong army of robots present in the company's warehouses (as of 2020). Robotics and AI usage enable Amazon to drastically cut down its turnaround and lead times. Now, while MSMEs cannot deploy those many robots, employing tools that can automate the flow and management of their supply chain is a far more accessible solution for them.
Automated stock replenishment is one of the most transformational functionalities of supply chain automation. Automation increases the visibility factor, preventing understocking and overstocking for MSMEs. This lets MSMEs use all spaces within their warehouses optimally and streamline production planning based on the inventory level available, demand, and other factors. Internal stakeholders, such as packers, truckers, and production workers, will get timely notifications based on their role and business requirements.
Amazon’s entire foundation of success is built on being able to make ‘lightning-fast deliveries’ and boost its customer satisfaction. As you can see, this is made possible through similarly quick and efficient automation-driven supply chain management. Automation is the key here, which means that MSMEs can target and achieve success at their own level with a fraction of the budget and resources used by Amazon.
Conclusion
While it is true that implementing tools and applications that can automate procurement, vendor management, and other supply chain operations will be expensive to implement, the tangible returns gained from their implementation will be worth the expenditure in the end. However, your business needs to find the right partners and technology providers who can implement your infrastructure in the right way to achieve the digital transformation you’re looking for.
If you’re looking for solutions that help you meet your business objectives, look no further than Bizongo. Our solutions include building an infrastructure for your business to automate your supply chain operations. Kindly contact us to know more about our supply chain financing and smart sourcing solutions.
