Bengaluru based Vishwanathan Ramakrishnan, along with his childhood friend Karthik Lakshaman, wanted to make learning experience for children fun by creating unique products in the education technology space. That is how start-up Magic Crate was conceived but building a suite of creative products for children with limited funds meant several amenities had to be procured at an economical cost. This is where ecommerce as an e-procurement platform stepped in, helping them realise their dreams by offering an optimal blend of opportunity, quality and cost and streamlining the complete procurement process for them. The story of Magic Crate is just one of many MSMEs that have a huge growth potential in India.
Backbone of India’s economy - MSMEs: In focus now
Contributing over 29% of India's GDP, over 90 lakhs-plus registered MSMEs employ nearly 11 crore people in the country(1|2). Since these enterprises contribute to 48% of the country’s exports, there is a renewed focus on them to limit imports and dependence on other countries. The Government has taken several strategic measures in this direction including the Atmanirbhar Bharat campaign. The theme got further support in the Union Budget 2021 that emphasizes upon nurturing the entrepreneurial ecosystem by offering greater incentives for existing and upcoming start-ups, simplifying compliance norms for businesses, and increasing public capital expenditure across sectors. These measures can unlock the true potential of MSMEs and make them the crusader of India’s economic recovery.
Adapting in unprecedented times
Reports show that in FY 2020, there has been more than 18 percent growth in MSME establishments.
On one hand, the pandemic has brought back focus on smaller businesses but on the other hand, it has also created major disruptions in traditional modes of running a business. Some of the challenges that MSMEs are faced with today are working capital crunch, supply chain bottlenecks, technological glitches, elaborate GST compliance framework, limited customer appetite for spending and many more. The answer to some of these challenges lies in MSMEs embracing digital solutions for managing various aspects of their business. As businesses evolve and adapt to newer ways of operating, procurement is one such function that can go full digital resulting in increased efficiency and reduced costs. India being a mobile first economy, this switch to e-procurement can help MSMEs, even the ones operating out of Tier II & III markets, access products from suppliers of different regions in a more convenient manner.
E-procurement is the way forward
Business to business (B2B) e-procurement refers to an electronic method of procuring goods and services. It streamlines and automates the purchase process for any enterprise. For any business to thrive during uncertain times, it is imperative to adopt cost-cutting measures, especially when it comes to indirect spends like office supplies, admin expenses and other ad hoc spends. This is where e-procurement can help in a big way. It empowers enterprises of all sizes and helps them in procuring all kinds of raw materials without resorting to middlemen or paying a huge price.
Additionally, it also helps address the long tail challenges of time spent on indirect purchases due to multiple vendors and negotiations, low bargaining power and lack of data management leading to issues in identifying areas of cost savings in the procurement process. A CPO survey report showed that around 84% of business executives surveyed said they were in the midst of sourcing solutions like e-procurement while 50% have considered their digital transformation either nearly or totally complete. This is because most are becoming aware of the benefits of e-procurement.
Procurement can be divided into two parts- Direct spends and Indirect spends. While direct spends include categories core to the business operation (e.g procuring fabric for a garment manufacturer), are bought through established procurement processes and are bought through contractual vendors. Indirect spends are unplanned spends on everything required to maintain a working setup- laptops, stationery etc. required for workforce and administrative spends which are bought through non-contractual processes.
While indirect spends constitute 20% of the total spends, they take 80% of the time and bandwidth of the procurement managers. This is due to the three hidden costs- Time Costs, Purchase Costs and Process costs. E procurement helps tackle all three cost components.
- Saves time, ensures greater productivity: B2B ecommerce has a tremendous potential to ensure variety of procurement products are available under one single platform. This saves a lot of time and ensures convenience where, unlike before, a start-up owner might not have to meet different suppliers to verify products before procuring them. For smaller enterprises, with limited staff, this has helped save time and enhance productivity on other business needs that demand greater attention.
- Compliance & Transaparency: Since there are no middlemen, there are no hidden costs in procuring goods. For any enterprise, this could contribute to the profit margin and ensure that everything is procured within a limited budget. The transparency of the entire process ensures that overall cost related to logistics, administration and sales is saved. Since technology is involved in automating the entire system, there are no expenses related to staff spending on man-hours. In the process of manual procurement, calculating GST for different suppliers can be a huge challenge. E-procurement completely automates the process and ensures the process is simple and helps customers bring down the overall cost of procurement by claiming GST input tax credit.
- Adds value to a company: Adopting e-procurement adds tremendous value to a company when it comes to making the entire internal system more organised. With a reduction of paperwork, greater procurement laws’ compliance and less error, the entire process becomes more standardised and seamless.
- Advanced technology for better insights: Since data analytics is becoming an integral part of e-procurement, AI can accurately predict about different vendors’ products and whether they will suit a buyer’s needs. The faster and more agile process enhances the equation with vendors and helps them to gauge a company’s demands more intuitively. Innovation such as user reviews and ratings is helping build customer engagement, trust, and brings more small businesses online. Additionally, customers can build insights and leverage analytics to understand business spends and plan better for future supplies.
The road ahead
While the government has highlighted its positive intent for MSME growth, the pandemic made it clear that digitization is the way forward for economic growth. This is a huge opportunity for MSMEs to accelerate and tackle their indirect expenses to better streamline their business and build efficiency through these platforms. When efficiency is added to their innovation, start-ups and MSMEs can gain much more, unlocking their maximum potential and increasing productivity with smarter investments. There is no limitation in the digital space. The sooner MSMEs realise this, the more they can make the most of the digital transformation. After all, thriving in business means agility and with the current situation, adapting to digital technology is the greatest key to success.
(This article first appeared in the Economic Times on Feb 25, 2020)