Almost every enterprise in the current business landscape leverages some form of digital technology to maximize efficiency and performance. In a study conducted by PTC, 40% of executives reported an improvement in operational efficiency as one of the top benefits of digital transformation. Yet, for the longest time, only large organizations have been able to reap the full breadth of the benefits from digital transformation due to their access to huge funds and funding avenues. As a result of digitization, such enterprises could seamlessly manage operations in a connected network with highly customized and systematized tools like ERPs.
ERPs have been traditionally designed and deployed for giant corporations with massive operations, mighty IT budgets, and large technology teams. Adoption of such scale and the cost of implementing such applications are inconceivable for SMEs that still operate manually or with physical documents, and in some instances, by using fragmented solutions for operations.
According to Statista, micro, small and medium enterprises across India accounted for nearly 30 per cent of India’s GDP in the financial year 2019. The sector holds immense potential to grow in the years to come, but its growth hinges on digitization efforts and the adoption of sophisticated technologies. Specifically, the SMEs in the Indian manufacturing sector are gravely underutilizing digital tools to accelerate growth. The lack of modern digital capabilities also hinders SMEs from establishing themselves as competent exporters in the global market.
Compared to other countries with SMEs, small-scale Indian manufacturers fare much lower in tech adoption. Some of the recognizable drivers of slow tech acceptance in SMEs can be narrowed down to the following:
Awareness of tech solutions
Large organizations are bold in driving tech initiatives, not because of the abundant resources at their disposal but because of the knowledge that technology can render business impact across end-to-end value chains. Most SMEs lack perspective on how technology investments can prepare them for the future, harmonize business processes, and help cut costs across processes. While most SMEs broadly understand the need for technology, they are often scared of large monolithic solutions & not aware of new-age tools that might solve specific challenges they face. The initial process alone can be daunting. With this comes the fear of exploitation, leading to a distrust of large-scale implementation.
Attracting & retaining talent
Building a technology architecture in any enterprise demands the availability of skilled, technical talent who are adept at engineering applications and possess relevant knowledge to operate, maintain and support systems. But the burning challenge for small manufacturing SMEs is acquiring and retaining skilled talent, especially in tier II and tier III cities. Maintaining & operating a complex system like ERP is especially challenging as the attrition rates are much higher in the SME segment.
Time & money involved in the implementation
Small organisations are typically overwhelmed at the thought of technology investments since they tend to soak up budgets and, in most cases, on a recurring basis. The cost to SMEs can be large and beyond the average available reserves. Moving to an ERP system comes with a wide range of benefits. But despite the best of intentions, these implementations might not yield the desired outcome. One of the major concerns could be constant skilling which is time-consuming and might not suit the talent. Therefore, SMEs often perceive themselves as unfit for digitization due to the unavailability of funds and the challenges of implementing ERPs to accommodate new technological solutions.
Software-as-a-Service: Breaking barriers for SMEs
Over the last few years, with the increasing popularity of Cloud technologies and the growth of Software-as-a-Service models, digitization for SMEs has become relatively simple and cost-effective, allowing them to compete even against big players in the market. A study by Deloitte suggests that SMEs with advanced use of digital tools are more likely to experience customer growth than their less-digitized peers. This process has been accelerated by the pandemic, SaaS models have disrupted many segments; EdTech, for example, has transformed the industry.
Manufacturing as a segment is starting to get disrupted by SaaS solutions. By delivering affordable and accessible digital solutions, SaaS has revolutionized the ERP market – so much so that large manufacturing corporations are now turning to Cloud-based SaaS applications to manage their business processes. Additionally, SaaS applications have made technology more democratic by creating a level playing field and enabling businesses to compete on core manufacturing capabilities.
Modern SaaS solutions are appealing to SMEs for many reasons, such as – simplified and friendly UI/UX, cost-effective OPEX model, more targeted and easier implementation, and reduced time to value – to name a few.
Specifically for manufacturing SMEs and exporters in India, many SaaS applications are designed to reduce implementation time and the time to value for customers. The applications factor in the parameters across the manufacturing industry and help digitize many critical enterprise functions.
SMEs also enjoy a wider net of business scope, enabling them to integrate into global markets easily, and strengthen trade relations, thanks to the analytical capabilities built into the solution. With granular data on their operations, manufacturing SMEs are empowered to innovate and drive better enterprise performance. Automation is a huge upside of SaaS applications. As can be seen in E-commerce businesses, smooth transactions through online modes have been made possible due to intelligently automated digital payment tools.
Despite the evidence that SaaS is an effective solution for streamlining manufacturing operations, SMEs are still lost on the ideal approach to embracing digitization. So, how should manufacturing SMEs begin their adoption of digital technologies? Here are some practical methods for SMEs eyeing the digitization milestone.
With SaaS solutions, SMEs can start with digitizing business-critical functions
Unlike large enterprises, smaller manufacturing firms could find initiating digitization across the board quite challenging. A full-scale transition might feel like an overwhelming step up for organizations that still rely on Word Docs and Excel sheets to draft proposals and create quotes. A piecemeal approach to integrating digital tools into the system might be a smarter bet for ensuring successful implementation. As is, SMEs do not require advanced technical tools and sophisticated enterprise-level functions. SMEs can go digital by integrating only business-critical applications such as pre-sales & marketing tools that streamline customer interactions and tools that cater to administrative functions.
For manufacturing SMEs, certain SaaS tools streamline buyer-facing processes like catalogue creation, quote development, and collaborative tasks that rely on communication among multiple parties, inputs on quotes, and approvals from entities – all within the bounds of one application. Additionally, vertical SaaS solutions do not tend to enforce new modules of operations, rather, they streamline the current workflow to gain better results. This minimizes the friction to adoption & users see value within a short time.
It would be ideal for SMEs to consider a low-cost, Cloud-based application that supports easy deployment without any up-front costs. SaaS solutions are particularly helpful to SMEs since they are scalable and run on a subscription-based model. The Cloud infrastructure is shared by multiple SaaS customers, making it extremely affordable to manage small-scale operations. Manufacturers are free to unsubscribe whenever the solution fails to meet the desired value. However, switching between multiple SaaS applications would not be wise as it could hamper business efficiency in the long run.
Over time, once the enterprise has found a rhythm with operating critical applications, collaborative tools that unify functions like production, marketing, sales, finance, and other essential touch points could be integrated to extract the best performance.
SMEs & Rise of B2B Marketplaces
Another trend sweeping the manufacturing space is that of B2B marketplaces. There are inefficiencies in the trade channels – SMEs often struggle to reach potential buyers despite good products. On the other hand, buyers have limited choices of vendors/products who they can trust. Similar to vendor/buyer discovery, there are problems in the distribution/supply chain, starting with high logistics costs for small shipments. Similarly, there are inefficiencies in the distributionB2B marketplaces are solving these problems – both for the domestic & cross-border markets.
As India strives to become the world’s manufacturing hub, tech-enabled cross border B2B marketplaces aim to take Indian manufacturers to the global markets. Drawing a parallel from China, B2B marketplaces – Alibaba.com being the major one – made the Chinese manufacturers global suppliers. Indian manufacturers with digitally enabled operations stand to gain from the rise of Indian B2B Marketplaces. Indian SMEs can compete with large manufacturers across the world & access the global market with the adoption of technology.
In closing
Given all the visible improvements digitization brings to operations in SMEs, an uptrend in the adoption of tools is not very distant. SaaS startups have been instrumental in this needle-moving shift to digitize enterprise management. Apart from being Cloud-based, the affordability of SaaS makes it particularly attractive for smaller enterprises just foraying into the digital business world. For small enterprises in manufacturing, using intelligent SaaS applications could speed up response time to customers, critical issues in manufacturing, and more, potentially mitigating complex situations.
SMEs are an integral part of the Indian economy. As India aims to become the world’s manufacturing hub, digital empowerment of SMEs is critical. SaaS adoption across SMEs combined with rise of cross border B2B marketplaces will be a key factor in making Indian manufacturing world class & Indian exports competitive.