Supply-chain headwinds that await SMEs in 2023

The government is at work to improve India’s infrastructure, including roads, which for long has been identified as the biggest hurdle in realising India’s economic potential.

As the transport infrastructure is still being developed, it can lead to supply-chain disruptions, especially in remote and rural areas. Poor roads, traffic congestion and inadequate ports and airports can also add to transportation costs and lead to delays.

Disruptions ahead 

Supply chains are often fragmented, with multiple intermediaries involved, leading to a lack of visibility and control for small and medium enterprises (SMEs). This can result in inefficiency and delay in delivery. India also has complex regulations, especially around product quality and safety. SMEs may find it challenging to navigate these regulations.

Given the limited access to finance, many SMEs find it tough to invest in technology and other tools that can improve supply-chain management. This can limit their ability to scale operations.

Inefficient inventory management is a problem hassle for most companies that still rely on manual systems, which can lead to stock-outs, excess inventory and higher costs.

Disruptions due to natural disasters and pandemics like coronavirus outbreak, too, can upend supply chains. Climate change is expected to bring extreme weather events such as floods, wildfires, and hurricanes, which can disrupt supply chains. SMEs that rely on single-source suppliers or have limited inventory will be more vulnerable to such disruptions.

As SMEs increasingly rely on digital systems, cyber-attacks are a real threat. A breach can disrupt the entire supply chain and compromise sensitive data, leading to losses as well as reputational damage.

Trade wars, labour worries 

Trade disputes and tariffs may be another hurdle this year, given the increasing hostility between India and neighbouring countries.

Ongoing disputes between countries can impact the availability of raw materials and increase the cost of imports, leading to supply chain disruptions and higher prices for SMEs. Tariffs can also lead to retaliatory measures, which can further complicate the potential for exports.

Labour shortages and workforce disruptions are potential challenges that could affect the supply chain. The COVID-19 pandemic has highlighted the potential for workforce disruptions due to illness, quarantine, and lockdowns.

SMEs may also face challenges in recruiting and retaining skilled workers, particularly in industries where there is a high demand for supply-chain experts.

The pandemic and the Ukraine war disrupted transportation and logistics, which will continue to impact the delivery of spare parts, raw materials and finished goods, and increase the costs for SMEs.

A shortage of truck drivers and rising fuel prices, too, need to be watched.

SMEs need to be aware of critical supply chain issues and take steps to mitigate the risks. These could include diversifying suppliers, investing in cybersecurity, building resilient inventory systems, and developing contingency plans for workforce and logistics disruptions.

Here are some strategies that SMEs can adapt to overcome these challenges:

Build a resilient supply chain: SMEs should focus on building a resilient supply chain that can quickly adapt to changes in market conditions. This involves identifying alternative sources of raw materials, building strategic partnerships with suppliers, and implementing a risk management plan that can mitigate supply chain disruptions. The use of risk heat maps will be a good idea.

Embrace technology: In today's digital age, technology can help SMEs to manage their supply chain efficiently. Adopting digital supply chain solutions like blockchain, cloud computing and real-time analytics can help SMEs optimise supply-chain processes and improve operational efficiency.

Enhance communication and collaboration: Communication and collaboration are key to an effective supply chain. SMEs should work closely with suppliers, customers, and logistics providers to ensure the timely delivery of goods and services. By leveraging technology, SMEs can improve communication and collaboration among stakeholders in the supply chain.

Focus on sustainability: The demand for sustainable and environmentally friendly products is increasing. SMEs can differentiate themselves by focusing on sustainable practices in their supply chain such as eco-friendly packaging, reducing waste and minimising their carbon footprint.

Ensure Financial Stability: SMEs need to have adequate resources to manage their supply chain. This may involve securing access to credit, reducing operating costs and managing cash flow to avoid disruptions.