Last Sunday, we had a session about markets post the union budget. Mr.Chandrashekhar Tilak was the speaker. During the talk, he made an interesting point. He said that during the pandemic, the availability of many drugs became scarce. The reason for it wasn't the production capacity of these companies but rather the distribution constraints. Therefore, while the sale is of paramount importance, the capability to reach the material to the customer is equally critical.
Most often, MSMEs focus only on production and sales. The inward and outward flow of material and services are ignored as a critical factor. Despite these weaknesses, businesses perform when there are steady sales. The inherent buffer in the form of additional production capacity and excess inventory takes care of small blips. However, when there is a sudden spike in demand, these are not adequate to fulfill the customer orders. When one of the critical partners in the chain goes down, business comes to a standstill. It cannot meet even the usual demand. While a sudden spike in demand happens rarely, the latter case is frequent. Many businesses consider this as an externality and do not take conscious actions to mitigate this risk.
Some of the steps small businesses can take to manage the risks posed by the distribution channels are:
Using digital tools to integrate the supply chain: Many small businesses believe that digital tools are beyond their means. That may be partially true, but there are many solutions now available for small businesses. We need to carefully select the right suite that meets our requirements and fits our budget. For example, Acctivate Solutions offers a practical working solution for small businesses. With integrated digital solutions, companies get early signals to make quick decisions.
Simplify Processes: The pandemic has compelled us to relook at the way we produce stuff. It is time to simplify our processes. Advanced tools like Automation, IoT, and Robotics are no longer beyond the reach of small businesses. Ask Info Solutions is a small company in Mumbai which has developed many customized solutions for small businesses. Companies need to work on reducing their dependence on people.
Diversify Supply Chain: It is essential to build redundancy at all levels in the supply chain. We need to have multiple qualified suppliers and distribution partners. Gone are the days to depend on a single partner.
Metrics:
Relook at your sales forecast. Compare it with actual performance. I have seen even established companies having a variation of 25-30% in plan vs. actual.
Reassess your capacity to increase or switch production quickly.
Simplify processes and work on automating at least repetitive tasks.
Take baby steps but introduce some form of a digital solution in SCM.
Subodh
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