Value chain

Integrating MSMEs into the Global Value Chain-Sanjay Bhatia

MSMEs face multiple challenges including skyrocketing shipping costs, capacity constraints, technological disruptions in their supply chains and, most importantly, poor cargo visibility leading to logistical blind spots.

Around the world, micro, small and medium-sized enterprises (MSMEs) have been accepted as essential to the financial sustainability of global value chains (GVCs) promoting equitable growth and development. They play a vital role in the global economy, with maximum income growth and job creation, especially in emerging economies. MSMEs have also proven to be critical to India’s growth, owing to a CAGR of 10% and a job creation capacity of 11.10 million jobs across verticals. The sector contributes almost a third of the country’s GDP and half of the total value of exports, forming the backbone of the economy.

Post-Covid-19, as India prepares to embark on an accelerated growth trajectory, towards transforming itself into a $5 trillion economy, MSMEs are poised to play an important role. Faced with emerging challenges and the need to prepare for global reach, it has become imperative to technologically empower MSMEs. It will boost the competitiveness of the sector and provide a strategic advantage along the global value chain.

Despite making a substantial contribution to the Indian economy, the sector currently suffers from a plethora of problems such as technological obsolescence, insufficient infrastructure, high cost of credit, shortage of skills, among others, which often disadvantage MSMEs. Meanwhile, global value chains are reshaping the global economy, presenting new challenges and opportunities for developed countries as well as developing and least developed countries. In a globalized economy, MSMEs have to face increasing competition from other nations while plugging into the new market opportunities offered by these nations.

As they attempt to integrate into global value chains, MSMEs face multiple challenges including skyrocketing shipping costs, capacity constraints, technological disruptions in their supply chains and, more importantly, poor freight visibility resulting in logistical blind spots.

Lower costs have always been the driving force for MSME exporters, especially to US and European markets. Over the past two years, ocean gateways have become the clogs of global supply chains. Labor shortages, primarily due to COVID-19 and stringent government regulations, coupled with pandemic-induced shifts in shopping behavior, have resulted in capacity constraints and, as a result, increased lead times. sea ​​transit. Shipping costs have skyrocketed, limiting the ability of MSMEs to grow, generate profits and reinvest in expanding their businesses.

Lack of containers further affected their ability to fulfill orders, resulting in delayed payment, thus increasing the financial burden on MSMEs, who were already struggling with cash flow problems and capital shortage.

It is generally observed that large companies, due to their deep pockets, easily overcome technological disruptions in their supply chain, while MSMEs find it difficult to adapt due to scarcity of capital. According to one estimate, the closures imposed by COVID-19 have pushed at least 1 in 5 SMEs into bankruptcy. In the face of such unprecedented disruption, the speed of supply chain response is key to slowing down and minimizing the negative impact.

Limited supply chain visibility:

In addition to demand surges and supply shortages, the industry as a whole has had to deal with a third challenge: the unpredictability of shipping times. In addition to port congestion interrupting global trade, maritime supply chains have also faced unreliable carrier schedules, contributing to longer than expected delays. Managing delays in a context of port capacity constraints and unreliable sailing schedules has become a risky proposition.

Additionally, the increase in blank starts in which previously scheduled shipping movements are canceled or port visits skipped on routes has fomented more problems for global supply chains. In such scenarios, containers destined to be offloaded at the canceled port of call have to wait to be picked up until the next ship arrives with the same cargo destinations. This led to a further increase in delivery times for door-to-door movements, interrupting production schedules and causing project stalls.

As discussed earlier, the responsiveness and agility of supply chains are key determinants of a company’s health in such unforeseen situations. The current economic upheaval has reinforced the need for MSMEs and giants to re-examine their operational strategies and implement robust business continuity plans. One of the core strategies that could be fundamental to creating a resilient supply chain is advanced freight visibility technology powered by intelligence and analytics capabilities.

To navigate these maritime disruptions, MSMEs need to take advantage of a smart transportation visibility platform that delivers real-time visibility, automated shipment notifications, business intelligence and advanced analytics. The platform is expected to equip supply chain managers with predictive arrival time estimation, continuous alerts, and port and carrier performance analytics. Armed with intelligence, they can reduce lead time variability, reroute shipments to less congested ports, and better control their overall supply chain.

The lack of a clear view of container arrivals and departures leaves exporters and importers without tools to prepare for disputed delays and proactively take corrective action. Calculations of predicted ETAs should take into account vessel speed, transit distance, road traffic, historical performance trends and other port signals such as adverse weather conditions or strikes. Predictive updates help businesses anticipate delays and share updates with their teams, partners, and customers, improving transparency. Reviewing intermodal connections and making other arrangements may result in reduced demurrage and detention (D&D) charges. An accurate picture of in-transit shipments can also facilitate efficient inventory management and locating alternate suppliers in extreme circumstances.

Performance analytics is another essential feature that the platform should provide for informed and data-driven decision making. Choosing a carrier or freight forwarder with a proven track record of schedule reliability is the need of the hour to manage schedule variability. Historical measures of past carrier performance help determine whether the line can meet its stated commitments. Competitive benchmarking helps companies select based on their needs and preferences. Ocean shippers can also use analytics to manage their free port time: the time allotted for container pickup before demurrage charges kick in, further saving D&D costs.

In these challenging times for MSMEs in the logistics sector, continued government support in line with its grand vision of “Atmanirbhar Bharat” as well as adoption of technology solutions such as real-time visibility and directed order tracking by AI, advanced robotics, blockchain, advanced analytics, automation, etc. will allow MSMEs a quick recovery. Moreover, these solutions will enable MSMEs to remain relevant within rapidly evolving global supply chains while contributing to the operational efficiency of global value chains.