SMEs can make their key differentiator

By M H Ahssan

The rapid growth of the small and medium enterprises has led to an increase in the demand for IT solutions

The small and medium enterprises (SMEs) have become a key focus area for a majority of IT service providers who want to tap the growth potential of this market. A report by AMI Partners early this year has revealed that the SMEs in the country are likely to spend $9.7 billion on IT this year, an increase of 22% over the previous year. The vibrant and dynamic growth of the SME segment has also made a significant contribution to the GDP, industrial production and exports.

If we closely analyse, SMEs have complex business scenarios irrespective of their size. One of the most challenging tasks of the SMEs is to lower the total cost of operations and keep pace with market issues and developments. For most of the SMEs, monitoring global issues and dealing with complexities such as multiple currencies, changing demands and the continuous customer pressure on achieving scalable cost reductions.

Key Trends
Studies reveal that SMEs which outsource their IT infrastructure are utilising the technology resources that bring in additional top-line revenues while improving bottom-line results. SMEs are most likely to use cutting-edge technologies and approaches such as Software as a Service (SaaS). Analysts are of the opinion that the increase in use of hosted infrastructure models is enabling smaller companies to compete on an equal IT footing with bigger enterprises which have already made substantial investments.

SMEs are choosing a hosted infrastructure model as it provides organisations with state-of-the-art software solutions that can be implemented, while avoiding the large infrastructure costs and eliminating the recurring administrative resources as in traditional on-premise applications. The other area where the SMEs are focusing on is the regulatory compliances. Success for most of the small and midsized businesses depends a lot on the IT. Small companies cannot afford to make inappropriate investments in IT as a failure may also endanger both the profitability and the regulatory compliance.

Following are the key SME segments, their business requirements and the crucial role played by IT in their balance sheets.

Discrete Manufacturing (Engineering)
Discrete manufacturing companies make countable products that go directly to businesses and consumers, or components that are used by other manufacturers. The industry is often characterised by individual or separate units of production. Significant requirements in this segment are bills of material estimation, MRP runs, inventory management and order-wise profitability reports.

Some of the key challenges in the discrete manufacturing industry include customer order fulfilment, controlling and monitoring Work-In-Progress (WIP) of several work-orders simultaneously, periodic assessment and visibility of workorder profitability, getting real time information on WIP status and ensuring targeted delivery time.

The above challenges could be immediately answered by an implementation of an enterprise resource planning (ERP) solution. The ERP solution shall be able to effectively model the organisation structure, the flow of material and documents across functions. The ERP solution would enable the customer to have clear visibility of the different forms of the stock and the amount of working capital locked into different stages of production, along with the availability of the finished goods across warehouses and stocking points.

Thus the centralised data warehousing would lead to better monitoring and control of the data as well as easy retrieval of the same. The user friendly software modules would help in report generation and business analytics support different kinds of reports and give the management single window access to financial, manufacturing, logistics, supply chain and sales in a consolidated manner.

Textile Industry
The textile industry is one of the earliest to come into existence in India, and accounts for 14% of the total industrial production. Its contribution to the nation's exports is nearly 30% and it is the second largest employment generator after agriculture.

However, the industry has to address the challenges arising from fluctuations of consumer demands, high setup cost with respect to capital cost, the seasonal variation of natural raw materials for production, sourcing of the synthetic raw material pegged to the prices of petro products, multiple production stages and improper management of quality.

The critical problems of supply chain and integrated view of multiple functions could be handled by ERP implementation as it supports customer and supplier portals. The functional features of multiple warehousing facility and ability of the system to capture the lot and serial number of the inventory, allows the customer to track the flow of the inventory across multiple production stages. The solution helps to streamline the manufacturing process with the modules which have inbuilt features like planning and scheduling, shop floor execution, work order management.

Manufacturing module also supports businesses that have diverse planning policies like made to order, made to stock, and forecast to order. The purchase module, which has got features like supplier management, request for orders, purchase operations, subcontracting and vendor rating manages the full spectrum of sourcing activities, achieves efficient supplier management resulting in enhanced supply chain planning, thus leading to better management of operations.

The software also offers functionalities like business analytics and reports which helps manufacturers in analysing data and getting the overall view of respective functions. It also gives the management access to financial, manufacturing, logistics, supply chain and sales information in a consolidated manner, and thus equips them to make quick and informed business decisions.

Trading and Services
In the trading and services segment SMEs should have proper planning and maintenance of stock at different stocking points and manage the business with multiple billing and collections points across multiple customers.

Consolidated order planning and execution, with support for both centralised and de-centralised location management of either procurement or sales of the goods, tracking of materials intransit, proper warehouse management, stock valuation (actual cost) and managing sample sales are some of the critical requirements of this industry. The system also effectively helps the credit and aging management of the customers who are spread across locations. In short, the geographical spread is dramatically reduced through a virtualisation by the system while modelling the different locations. Hence, there is increased effective control on the overall operations, while individual locations have being provided adequate freedom to exercise within their delegated power.

Here, too, ERP can play an important role in streamlining the functionality of trading business. For example, ERP application helps in handling the pending receipts report based on the order date and in-transit report which would enable proper order, execution and planning in multiple locations. This enables faster deployment and quick and improved decision. It helps to streamline the business operations and facilitates multi location billing. The warehouses can be managed in a much more efficient manner. The warehouses can be divided into zones and bins that enable proper management of inventory. This would help in centralisation of the data that are available.

The application helps in maintaining an account of the materials that are in transit as well as of the materials that are lost in transit. It helps the business by providing visibility of the available stocks in different warehouses. It offers inbuilt functionalities like business analytics and reports which helps the trading houses in analysing data and getting the overall view of various functions. As the contemporary software packages are web architected they are useful for companies which are located at multiple locations. It also gives the management access to financial, manufacturing, logistics, supply chain and sales information in a consolidated manner, and thus equips them to make quick and informed business decisions.

Most of the challenges faced by the various SME industries are common in nature–lack of accessibility of real time information, inefficiency of supply chain management and expensive IT solutions. In the current scenario, for an SME to sustain in the market and remain successful, it has to work meticulously towards streamlining its business processes. And as discussed above the business process needs to be innovative and efficient enough to adapt to the market and business requirements. These integrated processes need not only include departments but also partners, suppliers and customers. And it can only be attained by using information technology which can support and drive business objectives. Consequently, this also enables to innovate and respond faster and adapt to the globally changing business conditions – a must for SMEs.

To conclude, the growth and evolution of the SME sector has led to an increase in demand for IT solutions. Many smaller companies are not satisfied with their existing disparate solutions and legacy systems and are showing a keen interest in IT solutions which provide maximum business benefits. Many of the CIOs in the SME sector are of the opinion that hosted IT services and Software as a Service (SaaS) would facilitate them to work more, spend less and gain remarkable benefits by concentrating on their businesses, rather than on managing IT. Last but not the least, this model will facilitate management of businesses to handle scale complexities better, and thus endow them with the foundation for innovation.