Why Is Timely Financing for MSMEs Supply Chain Important

Micro, small and medium enterprises are the backbone of a country’s economy. In fact, according to a recent study, over 30% of the country’s GDP comes from MSMEs thus making it crucial to promote the growth of these enterprises by providing financial aid in areas where they face challenges like logistics and supply chain management. 

Let’s delve into the details of logistics and supply chain industry challenges and strategies to overcome them.  

What is Logistics?

Now when it comes to running a business, it is important to have a well-structured planning and organisation flow for the transfer of goods and services from the point of origin and point of consumption. Logistical planning includes taking care of the inventory, transportation etc. The process of handling the logistics is called supply chain management. As a business owner, you must already understand the role of logistics in supply chain management. 

Importance of Logistics and Supply Chain Management

Logistics and supply chain management are considered integral parts of every business. These two factors ensure that products and services developed by the business are reaching the right audience base and on time. Here’s a list of key components that every business owner must understand to ensure smooth logistics and supply chain management:

• Complexity

The first aspect of logistics and supply chain management is that they are parts of a complex industry featuring both small and large players. There are many challenges faced by these two industries like transportation, automation, inventory maintenance etc. 

• Cost

The cost associated with logistics and supply chain management amounts to a substantial part of financial planning for every business owner. If not done right, it can become a burden for the business. 

• Global Economy and Geopolitics

It goes without saying that the global economy and geopolitics has significant impacts on every business. When it comes to logistics and supply chain management, these two factors can create uncertainty that is detrimental for the business.

• Uncertainty and Risk

In absence of a smartly developed contingency plan in place, logistics and supply chain management becomes prone to getting impacted by cyberattacks, political instability, natural disasters etc.  

The Challenges of Logistics and Supply Chain Management

The importance of logistics and supply chain management has been long observed but there are many challenges that MSMEs face including:

• Technology Adoption

One of the biggest challenges faced by MSMEs is technological adoption. This is primarily because technology is evolving each day and it becomes a challenge for businesses with limited resources to stay at the top of these innovations.

• The Rise of E-commerce

There has been a rapid growth in e-commerce in the last decade that again puts small, medium and micro enterprises to match the demand. Faster shipping, shorter lead times and quality of products and services become hard to maintain with a lack of appropriate financing.

• The Growth of Omnichannel Retailing

In today’s time and age, shopping is not limited to one channel/store or website. Customers are interested in omnichannel retailing which requires businesses to create a structured flow through different channels.

• The Increasing Use of Automation

Automation has become an integral part of products and services in the market. Robots or artificial intelligence have smoothened the flow but businesses with limited financing find it difficult to build an automated flow. 

Strategies to Overcome Challenges

To create a smooth flow in logistics and supply chain management, MSMEs need to overcome certain challenges, especially given the advancements in technology. Let’s take a look at the strategies that 

MSMEs can adopt to overcome these challenges:

• Investing in Technology

In today’s world, a business can not expect growth at a desirable speed with a lack of investment in the adoption of technology. Whether it comes to inventory management or automation in order placements, investing in technology is a smart move.

• Building Strong Customer Relationships

The market today is filled with competition. Every other business has products and services that can overshadow others. In a situation like this, businesses need to develop strong customer relationships. Businesses can invest in strong marketing to create a face and trust for their business.

• Partnering with Logistics Providers

Running a business independently might sound fascinating but handling logistics and supply chain management becomes a challenge. This is where partnering with third-party logistics providers comes into the picture by reducing the burden on MSMEs and ensuring that they are focused on expanding the business.

• Tracking Inventory Levels

Tracking inventory levels might appear simple but can become a challenge in the lack of resources. It is important for MSMEs to adopt modern methods of tracking inventory levels like using a barcode scanner or RFID system. This ensures that businesses never have to deal with overstocking or stockouts. 

• Standardising Processes

A key strategy in reducing logistics and supply chain hurdles is to standardise the process by relying on standard operating producers (SOPs). SOPs help reduce errors and maintain efficiency across platforms.

• Optimising Routes

Transportation is an integral part of logistics and supply chain management that can be both time and money-consuming if not done right. MSMEs can optimise routes by adapting to modern route planning software, consolidating shipments, partnering with shipment parties etc.

• Investing in Training

Skill development for employees is an area of investment that MSMEs must consider. The more efficient a company’s employees are, the better the overall operation of the business. Training programs, workshops and webinars can help in the long run. 

Infrastructure and Policy Development

While financing for MSMEs is essential in ensuring smooth logistics and supply chain management, the government and concerned authorities also play a crucial role by taking initiatives and implementing rules and regulations. Let’s take a look at the areas that the government focuses on: 

• Infrastructure Development

The government’s initiatives to develop better connectivity through roads, waterways and airways development have helped reduce the logistics costs. The importance of transportation in supply chain management has paved the way for projects like Bharatmala project and Dedicated Freight Corridors are some examples that have helped MSMEs.

• GST Implementation

The introduction of goods and services tax is possibly one of the most helpful steps taken by the government for MSMEs. It has streamlined the tax assessment and collection process thus eliminating hurdles like multiple checkpoints, middlemen and paperwork.

• Make in India Campaign

Make in India campaign has taken an impressive turn in the last few decades. Government introducing financing schemes like Mudra loans etc has helped businesses in the country develop their products and services to meet high standards and enter the consumer market easily.

• National Logistics Policy

National logistics policy has helped MSMEs significantly. Developing multimodal logistics parks, reducing logistics costs and promoting third-party logistics partnership are some key benefits of the policy.

• E-commerce and Start-up Support

In the last decade, the Indian government has introduced several schemes to help MSMEs develop and expand. Schemes like Startup India, Pradhan Mantri Mudra Yojana, Last-Mile Delivery services etc have promoted the growth of e-commerce and startups in India.

• Skill Development

Introducing courses and skill development programs has been a focus for the government in recent years. These programs primarily focus on industry-specific training, bridging the skill gap etc. There have been special programs to encourage entrepreneurship in the country.

• Foreign Trade Policy

The government has worked on its foreign trade policy to place Indian goods and services on the world map. Measures to streamline export and import processes, simplify customs clearance and build a hassle-free cross-border trade system have encouraged MSMEs. 

Conclusion

MSMEs in India play a major role in boosting the country’s GDP and placing India’s map on the global market. This makes it important for the government to introduce schemes and projects for the promotion and support of MSMEs. While there are technological challenges that MSMEs are facing with timely financing these challenges can be reduced. 

FAQs

1. What are the key components and stakeholders involved in supply chain finance?

The supply chain is an important part of finance study and it involves multiple components. First, know that that supply chain in finance means a financing solution that enables the smooth movement of goods between buyers and sellers by providing capital without a repayment schedule. Now, the key players are: Buyers: Companies that purchase raw materials or finished products from suppliers, Sellers: Companies that provide raw materials or finished products to buyers and Financial Institutions: Banks, NBFCs, and other financial institutions that facilitate the supply chain finance transaction.

2. What are the challenges of logistics and supply chain management?

One of the biggest challenges faced of logistics and supply chain management is the lack of technology penetration in MSMEs. This creates a hurdle in ensuring a smooth e-commerce or omnichannel retailing for MSMEs.  

3. What are the key strategies to overcome challenges in logistics and supply chain management? 

To overcome challenges in logistics and supply chain management, steps can be taken to update technology, promote logistic partnerships, building strong customer relationships, adapting to modern methods of checking inventory etc