Skill At Will logo Enquiry
Business Dynamics for MSME & Post Covid19 Scenario
02-05-2020
0 Comments

Business Dynamics for MSME & Post Covid19 Scenario

The world is battling this unprecedented COVID Pandemic. This has come out of the blue and the so-called technological advancements in the world failed to understand it. The pandemic has resulted in total lockdowns which were unheard off in the present-day scenario and has resulted in the total stoppage of both demand and supply. 

 

The economy has seen a free fall in the last 3 months. As the year 2020 started with the slow-paced economy and with the onset of Covid-19 impact, Economists had to scramble on their proven theories and philosophies. It will be a daunting task for most of the companies to weather this storm. Their balance sheets will certainly push the Leadership’s capability and their effective decision-making process will be put to test. Post-Covid, it will create unprecedented opportunities to challenge the good old paradigms, accelerate new ways of working, and outmanoeuvre the competitors as whole industries have to be reshaped.

Indian Government has taken very calculative measures at the right time compared to other countries. As the lockdown continued, the Government took calibrated steps to address the ground reality. The lockdown is a critical step to flatten the curve of the pandemic and avert a health care crisis. At the same time, the government has to manage the state of the economy, address concerns of the stressed sections of the society —the daily wage earners, the agriculture sector, and uplift the micro, small and medium enterprises segments (MSMEs). The earlier the economy is restarted, the easier it will be to bring it to normalcy. It is also vital for the government and the RBI to create a sense of confidence, especially for small business enterprises, migrant workers and individual consumers.

The fundamental difference between the current economic crisis and earlier ones is in its lightning-fast impact, together with huge scientific uncertainty about its potential curability factor. The US economy went from a booming economy and full employment to an economic coma with skyrocketing unemployment in a matter of weeks. While no one knows when and how long it would take for the world to return to normalcy, or what the new normal would look like, the forces at play would certainly push the top leadership team to act carefully and execute a well-structured balancing act going forward. Companies cannot afford to underreact to the crisis (thereby risking financial ruin), nor overreact and diminish relative competitive positioning or lose investor confidence. 

 

Can this crisis be an opportunity for Indian MSME? This is the question ringing the bell across all levels and good fodder for all think tanks. I presume India, should be in a better position on many fronts and would resurrect and bounce back with much more vigour in the next 2 quarters. The Indian Pharma sector would create much more business than expected.  India has supported till date 49 countries with exports of anti-Malarial and Paracetamol drugs – a part of the export is on humanitarian grounds. This gesture is going to have a rippling effect on our economy and would pull back the majority of businesses to India from China market. The key aspect is the dependence of SAARC countries on India who has emerged as a big brother among this group. Thus, there could be a high potential of exports for MSMEs if the business pitch is in its right direction during Post Covid -19 era. 

 

A Comprehensive 12 Step strategy for MSME

MSMEs are the backbone of Indian Economy. As per a government report, the MSME sector contributes 31.8% of Gross Value Added (GVA), 48.10% of exports, and provided employment to 11.10 crore people as per 2019 data from over 29 million units across the country. They cater to a wide range of sectors and their survival is key in the current situation. Gone are the days where we used to hear “Survival of the Fittest’. Post Covid scenario, it will be ‘Survival of the Quickest’. 

 

All these years, MSMEs have generally adopted a particular system which used to be a sort of the norm for them. However, there needs to be a total change of mindset going forward. Following are the comprehensive 12 step strategy applicable to all sectors of MSME and could facilitate them to tide over the current economic downturn and the challenges in a positive way.

Step 1: Business Road Map

  • Formulate a 2 to 3-member Strategy Team consisting of unit head and a process specialist. 
  • The process specialists are to be from grass-root level who is capable of contributing to many operation improvement ideas and their implementation methodology.
  • The objective of the team is to translate the market and customer feedback to operations with innovating ideas and actions to optimize the operation cost.
  • The road map to be drawn across various time frames – this week actions, next two weeks actions, this month actions etc., aimed only at short term results.

 

Step 2: Evaluate Competitors Sustainability

  • Evaluate how well competitors are capable to sustain this impact.
  • Seek the possibility of this sustainable index to one’s opportunity.
  • Gauge the situation and look for quickly adaptable business models to win over current and new customers.
  • One should adopt a strategy of saying ‘YES’ to all needs and requirements of the customer. Seek options of outsourcing if indications reveal a surge in demand.

 

Step 3: Abreast with Government Schemes

  • Ensure the unit head is updated with all the various schemes being rolled out by both Central and State Governments and Banks to protect and safeguard MSME segments - Public sector banks have been advised to open at least one specialized branch in each district and categorize them exclusively to MSME general banking branches. These specialized MSME branches are to provide better services to this sector as a whole.

  • Work out the strategy to utilize all the benefits to the maximum extent – UNIDO cluster benefits.
  • Should have close contact with relevant industry forums and associations to address all possibilities.
  • Utilize the benefit of GOI’s program where an infusion of Rs 1-lakh crore dedicated fund which is being created to reimburse outstanding payments owed by Central and State Government undertakings to MSMEs.
  • A notification from GOI - Ministry of Electronics and Information Technology states that rentals for small IT units housed in STPI premises have been waived off for a four-month period - between March 1, 2020, and June 30, 2020, to facilitate cash flow and benefit the dependent workforce.

 

Step 4: Invest in an Effective IT Platform

  • COVID onset has resulted in a whole lot of contactless business norms and online platform is the most sought off solution.
  • The unit should have fairly a robust and stable IT set up with possibilities of video conferencing and online communication setups interfaced with a UPS.
  • The IT platform has to be secured for data privacy and should have protection over any data breach and malware attacks.
  • Ensure usage of appropriate software applications – Tally, CRM and ERP to ensure the process is quick and effective.
  • Consider an increase in the current network or leased line capability to secure higher bandwidth for faster communications.

 

Step 5: Cash Management

  • Cash Management must be focused on calculative transactions.
  • Take advantage of RBI’s moratorium on term loans, put off interest payment on working capital facilities and eased working capital financing schemes.
  • The quick fix is to kick start the momentum with a low margin to be competitive and to increase the possibility of increased cash flow – possible discounts for shorter payment terms, volume discounts etc.
  • Effective cash flow can be managed by having a higher payable credit term to vendors with lower receivable credit terms by customers. This enables to manage cash more economically, effectively and efficiently.
  • Rework the product costing to arrive at accurate COGS – Cost of Goods Sold to arrive at Selling Price as Margins will be under pressure.

 

 Step 6: Employee Mindset Management

  • Employees need to be counselled for the Post COVID scenario through preset awareness training programs.
  • Employees have to be cautious at every stage of their activity giving more importance to their health and tidiness.
  • The attitude of casualness in their work approach should change to more alertness and aptness.
  • MSME’s should invest in such employee awareness programs as World demands COVID conformance work culture going forward.
  • Adopt WFH (Work from Home) policy to the majority of the indirect workforce where it is feasible.

 

Step 7: Change in Work Ethics Management

  • Hand Sanitizers and Face Masks should become mandatory for Employees.
  • Hand washing at every stage must be made mandatory.
  • Employee tidiness and personal hygiene are key in Post COVID era.
  • Vendors and Customers demand such basic adherence to developing business partnerships.
  • We all are aware of 5 S systems: 1S – Sort, 2S-Set in Order, 3S-Shine, 4S-Standardize, 5S-Sustain. Post-COVID, we have to add the 6thS – Sanitize.

 

Step 8: Optimize Operation Cost Management

  • One should follow the saying ‘Do Business like a conservative businessman’.
  • Streamline the process to eliminate duplicity of work and cut costs wherever possible.
  • Reduce scrap and waste.
  • Adopt 3 R concept – Reuse, Rework and Recycle.
  • Use the expertise of process specialist to optimize every production cost.
  • Evaluate Energy and Overhead costs to draw a plan to optimize them.

 

Step 9: Eliminate Non-Value-Added Activities

  • Evaluate all the process and cut down the product cycle time where ever applicable.
  • The complete manufacturing process should be classified to different sub-processes and reduce overall cycle time at each stage.
  • Apply Lean concepts to eliminate all 8 types of non-value added (NVA) activities – Waiting, Overproduction, Unwanted Inventory, Transportation, unutilized people talents, unwanted movements (both product and people), Scrap & Rework. All such NVA activities add cost to the process.

 

Step 10: Rationalize Work Force

  • Identify all highly talented workforce and retain them.
  • Look at the possibility of making them multi-skill.
  • Optimize the people to make it a lean operation.
  • Keep a few skilled workforces as stand by to respond to demand uncertainties.
  • Social distancing being the norm, scatter the workforce to run 24x7 to optimize the labour cost over output.
  • Introduce staggered breaks for employees to reduce overcrowding in small areas.

 

Step 11: COVID Working SOP's

  • Redraw the workflow SOP’s to conform to COVID conformance.
  • Periodic Sanitizing the workplace, available of hand Sanitizers at key operation areas, PPE usage, mandatory hand gloves and face mask usage at all times, soaps and detergents availability in washrooms, hygiene and cleanliness of washrooms, production area, canteen/pantry area and office blocks should be a regular norm.
  • COVID SOP’s should be monitored periodically by the unit head.
  • Market this concept with your vendors and customers stating that ‘We Are COVID Compliance MSME" – A probable competitive edge.

 

Step 12: Streamline Supply Chain

  • Stock hold minimum inventory levels and apply Just in Time inventory supply where ever possible – manages cash flow.
  • Negotiate volume discounts with Vendors with scattered delivery schedules.
  • Standardize materials facilitating better buying options.
  • Negotiate transportation cost with long term contracts.
  • Build a model similar to e-commerce – take order online and supply to customer doorstep. A sort of MSME-commerce concept.
  • Build-in differential pricing for different credit terms with customers.

 

Post-COVID business dynamics for MSME’s is going to be a challenge and a focused approach surely would provide a much-needed intravenous impetus to this sector. Not all MSME sectors would be facing a challenge as there will be tremendous scope for certain sectors. 

 

Auto sector MSME’s will be under pressure as this segment is reeling with huge inventory pile up at their end. The strain on people’s buying power would rub salt to the wound at this stage. Such MSMEs should start innovating supply potential to Electric and Hybrid components which will be the order of the day. They should change their mindset – not ‘out of the box thinking’ but it should be ‘out of another box thinking concept.

Pharma MSMEs will have a tremendous opportunity as the Health care sector is going to rule the world for the next 2 to 3 years.  Engineering MSMEs should innovate their capabilities to cater to high potential FMCG sector which has the potential to turn the tide by Q3’20.

INNOVATE the thinking, INNOVATE the business strategy, INNOVATE the process as INNOVATION is the only Mantra for MSME in this crisis situation. India is a high potential nation and with the tide turning against China Manufacturers, it is certainly a matter of time for a favourable turnover for all MSME.

Written By



Purushotham Gururaj

Mr Purushotham Gururaj – Chief Business Strategist at P2P – Business Solution Providers, is a renowned certified Lean Six Sigma Master Black Belt with over 35 years of Industrial experience at various Senior Management Levels. He was instrumental in introducing several innovative management concepts with an aim to impart effective conceptual changes across organizations both in India and at the global level. He is a regular guest speaker at various Manufacturing Excellence forums and a leading consultant to both Engineering and FMCG organizations.

Shares

No Comments

Write Your Comments

Submit

Related Blogs

Related Courses