A checklist for rebooting the MSME Supply Chain

Over the past few months, Covid-19 halted many a Supply Chains. At an, apparent, slow speed the MSME's are attempting to reboot & commence the business activities.  Supply Chains need to be put back on wheels. For MSMEs Supply Chain the question which needs immediate attention is - What would the enterprise need to ensure while rebooting its Supply Chain during these uncertain times. While operating the Supply Chain the objective is that it handles the period of uncertainty without being adversely impacted.

The first and foremost checklist item is a continuous review of "Cash flows". The demand side of Supply Chain being so uncertain, customers of MSME may have a delayed "Sales cycle", which naturally shall impact the MSME customers cash flow cycle. In turn, that can lead to delay in receiving Customer payments for the MSME. On the other hand, the Suppliers from whom the MSME may be procuring is likely to reduce the credit periods. This shall stretch "Cash flows" for the MSME. A research report indicates that during a downturn MSMEs Cash flows get stretched by 15-20%. Covid-19 is much more than a downturn in a normal business cycle. Cash flow needs can get out of the roof. Hence the first item on the check list is review of "Cash flow" at a higher frequency.

As a MSME, one would not like to carry inventory (as it blocks money) during these uncertain times. At the same time, one would not like to loose a customer order, as in a demand constrained market, any, demand which comes by is good. The balance between inventory & meeting the demand needs more "Visibility" of your customers sales. It may just be the most appropriate thing to do is to collaborate closely with the the customer for getting visibility of his sales. Its Win-Win for both as during the current times, none wants to be saddled with inventory.

During the current times, Disruptions to the enterprise will be the norm. I suggest list all the scenarios of disruption which may impact your Cost, Delivery reliability, Quality & your companies reputation. As an example, one small but important activity one may like to do is map all your human resources (operators, supervisors, managers) needed to run the Manufacturing operations to the locality they come from. Make a scenario analysis of the Manufacturing operations impact, if certain localities go under containment or are sealed to contain the spread, how much of manpower shall still be available. These are type of disruptions that a MSME needs to plan for. Being a MSME one already has limited resources and if part of those become non-operational, then the likely impact needs to be anticipated.

Asset rationalization shall be an important checklist item. Covid-19 is not a minor event from a business impact standpoint. The business effect may last longer (than the medical effect). As a MSME one should review the utilization of existing assets. The need to consolidate, eliminate or lease out should be scrutinized. Any excess shall have to be rationalized. Each rupee saved or earned from a non productive asset can be a very important part of the "survival kit".

The final item on my checklist is work on optimizing the "increased Cost to Serve". Unfortunately, in the short term inflation is going to increase. This may not get passed till normalcy returns. Lately, the experience with increased freights is a good indicator of inflation in Supply Chain costs. A report suggests that in India, over the the next few months, one may have a labour shortage to the tune of 50%. Displacement has created imbalance. In the short to medium term (& I hope not as a permanent phenomenon), labour costs may increase. A MSME hence shall have an "increased Cost to Serve". Increased cost may or may not get absorbed by the customer.

At this stage, it's not the Profits but the Cash flow which is so much more important to the MSME