MSME Linkages 2013 - Survey Results

CII Deloitte MSME Survey Results
Draft for Discussion
Deloitte Touche Tohmatsu India Pvt. Ltd.

August, 2013
2013 Deloitte Touche Tohmatsu India Private Limited
Background to the study
MSME being back bone of industrial development, Gujarat has always accorded high priority to this
sector. Before inception of MSMED Act 2006 there were 312752 SSI units registered generating
489216 employment in Gujarat. A total of 140587 MSME enterprises were acknowledged during
1/10/2006 to 31/12/2012. Thus the total MSME stood at 453339 on 31/12/2012 providing employment
to 2504856 people. The Vibrant Gujarat 2011 Summit saw over 54% MoUs being signed by SMEs. VG
2013 saw an over encouraging response of 72.72% of the MoUs signed by SMEs.
The overall growth rate of the manufacturing sector in India being much below its potential, the
government of India (GoI) has laid emphasis on the growth of manufacturing sector. The national
manufacturing policy 2011 aims at increasing the present share of manufacturing sector in GDP from
18% to 25% by 2025
Manufacturing sector in Gujarat contributes to 27.6% of GSDP in Gujarat with a CAGR of 23% in last
two years. There is a need for quantum jump by (a) Creating more employment (b) Development of
entire value chain of the sector (c) Focusing on value addition in product development/process (d)
Development of knowledge base in related sectors (e) Sustainable development. Therefore in the
budget speech of the year 2012-13, government announced its attention to attain the target of 32%
contribution by manufacturing sector in GSDP by 2017 by introducing specific interventions in the sub
sector of technical textiles, food and agro business park, auto and components, speciality and fine
chemicals, solar and wind equipments manufacturing and electronic system design and manufacturing
(ESDM).
(Source: Socio-Economic Review 2012-13, Gujarat State)

2
Supply chain being critical to sustainable improvement in manufacturing competitiveness and achieving
the target of 32% contribution by manufacturing sector in GSDP by year 2017, CII chapter of Gujarat
commissioned the study to assess the status of supply chain in Gujarat in the MSME sector
Main objective of study was to assess

1. Bottlenecks which MSMEs in Gujarat are experiencing in exploiting their full potentials. How can
larger enterprise help them removing these bottlenecks?
2. The strength of MSMEs which larger enterprise can leverage to add value to their supply chain.
3. Areas of improvements for MSMEs to be globally competitive.
Engineering, Chemical, Food Processing, Auto and logistics were identified as sectors for the outreach
based on the contribution to manufacturing GDP of Gujarat by CII
There were 75+ number of companies that were reached out, through email or personal contact, to
understand the challenges for MSME players operating in Gujarat out of which 25 companies, including
MSMEs, responded.
For understanding the challenges and getting feedbacks, Deloitte and CII representatives met the
concerned officials of the companies. Feedbacks were compiled in structured questionnaire format.
Questionnaire was structured to assess
1. Supply chain strategies and issues
2. Value chain issues
3. Infrastructure and logistic environment
4. Technology support
This study results envelops the outcome of the analysis based on the responses received from the
various participants.
Executive Summary MSME Survey Result
Respondent Profile
Significant respondents are from the Engineering sector and have annual turnover of > 100 Crs
Supply Chain Strategies and Issues - Driving revenue growth
The companies consider economic turnaround, entering new geographies, developing new market
channels and new product launches as key areas for revenue growth
Supply Chain Strategies and Issues - People for supply chain strategies
60% of MSME respondents saying, it is not applicable in their context.
Given the profile of companies amongst respondents cover entire range of sales turnover of 25Cr to
>100Cr, suggests that the importance supply chain in the context of organizations competitiveness
and growth is not seen
This reflects in form of commitment amongst the players in MSME sector in Gujarat having this function
represented marginally
Supply Chain Strategies and Issues - Priorities of supply chain strategies
The companies feel that the sourcing effectiveness, manufacturing productivity, product quality, cost
effectiveness, customer service as the key priorities of their supply chain strategies
Considering the priorities of the companies, it appears that most of them are into manufacturing maketo-print parts and seem to be struggling with the basics of Quality, Cost and Delivery in the context of
major supply chain issues
Value chain Issues - Geographic market

The companies would like to expand significantly in the exports and domestic markets, however they
may find it difficult to expand given that these organizations are struggling at the basic level of supply
chain challenges
Value chain Issues - Collaboration with customers

Companies recognize significant gains through collaboration with customers in areas of quality
improvement and inventory management in line with the extent of collaboration
The companies do not perceive any gain in benefits in the form of collaboration with customer on the
marketing and planning
Benefits seem to have a high correlation to the extent of collaboration with customers. Either customers
have not focused in areas other than Quality & Delivery or the programs in other areas dont seem to be
effective
Value chain Issues - Geographic dispersion of suppliers
The western region has strong presence of suppliers with an average of 67% of the suppliers, however,
the average contribution by value is ~56% implying that value addition by suppliers based out of the
western region is lower than other regions
The next highest contribution is from imports, followed by suppliers based in the North region
Value chain Issues - Collaboration with key suppliers

The companies have not been able to gain the benefits from collaboration with suppliers on the
marketing, inventory and cost reduction
Companies seem to percolate similar quality of collaboration to their suppliers as they receive from their
customers
In the above context, customers role in developing the supply chain in Gujarat is of paramount
importance
Value chain Issues - Barriers to achieving supply chain flexibility
The companies find the forecast error, supplier quality, conflicting objectives between supplier and
company major barriers to supply chain flexibility
Infrastructure and Logistics environment - Warehouse details
Majority of the companies with warehouses have less than 4 warehouses with leasing being the most
common ownership model
Of all the warehouses ~50% are in the 500 1000 Sq. Ft range
Forklifts, Cranes and Racking systems are the most commonly used material handling system
Infrastructure and Logistics environment - People and training
Majority of the companies have less than 5 employees in the Supply chain
The average training time provided to employees is spread across the range from less than 10 hours to
more than 40 Hrs
7
Infrastructure and Logistics environment Logistics performance
Pilferage and transit losses are not a major source of loss being primarily less than 1%
The total inventory days is spread across <15 to > 60 days with logistics cost being less than 6% for
most of the companies.
Only 25% of the companies have total inventory less than 15days, while suppliers in west region are
responsible for (56%) and supplier based in ROI (23%) and about (20%) are overseas suppliers in
value terms and considering lead times of 7days, 10days North, 15 days South, 20 days east and 45
days for Imports, companies should be able to achieve Total inventory of 15~25 days.
Higher inventory days is reflective lower material flow velocity and higher cash conversion cycle which
could be essentially related to planning process and its maturity within MSME sector
Infrastructure and Logistics environment - Level of support

MSME sector seem to be satisfied with the logistics infrastructure available to them in Gujarat with most
of the respondents scoring 4 and 5
However, in tax-benefits about 50% companies seem to have got benefit while similar number feel
otherwise. It may be important to create awareness amongst MSMEs of the benefits available to them,
so that they can improve their overall competitiveness
There seems to be a major issue around efficiency factors like licensing and documentation support
and faster port processing time where process efficiencies and productivity pose a challenge
Further, warehousing cost are perceived to be high with around >50% of the respondents scoring 3 0r
less. In this area interventions from Government in terms of land costs could help promote overall
material movement velocity
8
Infrastructure and Logistics environment - Performance improvement

The companies do not perceive any improvement in the overall logistics environment in terms of
efficiency except to an extent in case of inventory optimization. However, there seems to be good
potential to further optimize inventory for around 50% of the base assessed
The focus of organizations and logistics companies has been around cost optimization, however,
degree of implementation efforts doesnt seem to align with perceived gains in terms of cost. There
appears a need to revisit the programs being implemented by organizations, starting from gaining
perspectives through Voice-of-Customers (VOC)
Infrastructure and Logistics environment - factors to logistics and warehouse efficiency
Most of the respondents do not know the major factors impacting the logistics and warehousing
efficiencies in Gujarat and while others seem to find all the factors as important
There is a need to do a more comprehensive diagnostics study involving major logistics companies,
customers and supplier participants in each of the sector specific value chains to identify key issues to
focus in immediate, medium and long-term basis and draw-up a roadmap
Technology Support
Most of the companies seem to have some sort of ERP, however advanced IT tools dont seem to be
popular amongst MSME sector. However, those companies that have implemented IT solutions seem to
have gained from them
Companies seem to also be positive on the IT systems and therefore, there are a few who are keen to
take it forward
There appears a need to promote awareness on the IT solutions for MSME and their potential benefits
to ensure a larger set of companies show inclination towards IT systems
10
Survey Respondent Overview
11
Respondent Profile
Industry Sector Profile
No of Employees
Company Size - Revenue
14
12
12
10
8
NA
12%
Chemica
l
4%
<100
32%
>1000
12%
5001000
8%
Engineer
ing
72%
No of Companyies
Food
Processi
ng
12%
Logistic
4%
Auto
8%
2
0
<25 Crs
100-500
36%
Sr, No.
Sectors
# of companies
Sales Turnover range

(INR Cr)
Employee range
Engineering
18
< 25 >100
<100 - >1000
Food Processing
51 - > 100
<100 1000
Auto
>100
>1000*
Logistics
< 25
<100
Chemical
51 75
<100
25 to 50 Crs 51 to 75 Crs >100 Crs
* - Employee data not available for 1 company in Auto sector
Significant respondents are from the Engineering sector and have annual turnover of > 100 Crs
12
Survey Findings
13
Supply Chain Strategies and Issues - Driving revenue growth
14
13
11
10
9
8
7
6
5
4
3
2
0 0
Industry market
growth rate
Economic
turnaround
NA
2 2
1
0
Entering new
geographic
markets
5
4
3
2 2
0 0
2
1
Developing new
market channels
New products &

Joint
Merger/acquisition
services launch ventures/strategic
alliances
Scale : 1 = not important, 5 = highly important N/A = not applicable
The companies consider economic turnaround, entering new geographies, developing new market channels and new
product launches as key areas for revenue growth
14
Supply Chain Strategies and Issues - People for supply chain strategies
Do you have a single executive who is

responsible for end-to-end supply chain strategy
in your organization?
Yes
40%
No
60%
Management level has responsibility for the

supply chain strategy?
Not Applicable - Dont know
15
Other leaders or manager of

the Business Unit
CxO or member of the senior

executive management team
of the Business Unit
CEO or executive leader of

the Business Unit
10
15
20
60% of MSME respondents saying, it is not applicable in their context.

Given the profile of companies amongst respondents cover entire range of sales turnover of 25Cr to >100Cr, suggests
that the importance supply chain in the context of organizations competitiveness and growth is not seen
This reflects in form of commitment amongst the players in MSME sector in Gujarat having this function represented
marginally
15
Supply Chain Strategies and Issues - Priorities of supply chain strategies

Scale : 1 = not important, 5 = highly important N/A = not applicable
20
18
18
15
16
15
13
14
12
11
12
10
9
8
10
8
7
7
6
10
10
15
3
2
3
2
2
1
2
1
NA
The companies feel that the sourcing effectiveness, manufacturing productivity, product quality, cost effectiveness,
customer service as the key priorities of their supply chain strategies
Considering the priorities of the companies, it appears that most of them are into manufacturing make-to-print parts and
seem to be struggling with the basics of Quality, Cost and Delivery in the context of major supply chain issues
16
Value chain Issues - Geographic market
Scale : 1 = no presence/no plan, 2 = enter market, 3 = maintain current presence, 4 = expand presence, 5 = significantly expand presence
16
15
14
12
10
9
8
7
6
4
4
2
2
4
3
2
1
0
North
East
South
1
West
4
Exports
The companies would like to expand significantly in the exports and domestic markets, however they may find it
difficult to expand given that these organizations are struggling at the basic level of supply chain challenges
17
Value chain Issues - Collaboration with customers

Extent of collaboration
14
12
10
8
6
4
2
0
13
10
8
7 7
5
4
1
4 4
0
Strategic
planning
1
14
12
10
8
6
4
2
0
11
10
4 4
7 7
4
Production
planning
7
5
4 4
1 1
Forecasting and Marketing and

demand
promotion
planning
planning
7
1
7
5
2
0
Inventory
Transportation Cost reduction
management &
planning
replenishment
Quality
improvement
Scale : 1 = Nil , 5 = High N/A = not applicable

Benefits gained
NA
12
11
8
6
0 0
Strategic
planning
5
3
6
4

demand
promotion
planning
planning
NA
5 5
3
0
Production
planning
9
6
3
1
5
3
6 6 6
4
2
Inventory
Transportation Cost reduction
management &
planning
replenishment
4
1
2
0
Quality
improvement
Scale : 1 = not gained, 5 = Significant gain N/A = not applicable
Companies recognize significant gains through collaboration with customers in areas of quality improvement and
inventory management inline with the extent of collaboration
The companies do not perceive any gain in benefits in the form of collaboration with customer on the marketing and
planning
Benefits seem to have a high correlation to the extent of collaboration with customers. Either customers have not
focused in areas other than Quality & Delivery or the programs in other areas dont seem to be effective
18
Value chain Issues - Geographic dispersion of suppliers

Mean of geographic dispersion of suppliers - # of suppliers
Mean of geographic dispersion of suppliers - % share of value

North,
15%
Imports,
19%
East, 2%
Imports,
14%
West,
67%
South, 8%
North,
11%
West,
56%
East, 1%
South,
7%
North
East
South
West
Imports
North
East
South
West
Imports
The western region has strong presence of suppliers with an average of 67% of the suppliers, however, the average
contribution by value is ~56% implying that value addition by suppliers based out of the western region is lower than
other regions
The next highest contribution is from imports, followed by suppliers based in the North region
19
Value chain Issues - Collaboration with key suppliers

Extent of collaboration
15
12
11
10
12
10
7 7
7 7
5
4
2 2
3
1 1
4
1
6
4
4 4
2
0
4 4
2 2 2
0
Strategic
planning
1

demand
promotion
planning
planning
5 NA
Production
planning
Inventory
Transportation
management &
planning
replenishment
Cost reduction
Quality
improvement

Benefits gained
15
12
11
10
7 7
5
7
5
5
3
8
5
7
5
6
3
7
5
3 3
0
Strategic
planning
1

demand
promotion
planning
planning
5
NA
Production
planning
Inventory
management &
replenishment
Transportation
planning
Cost reduction
Quality
improvement
The companies have not been able to gain the benefits from collaboration with suppliers on the marketing, inventory and
cost reduction
Companies seem to percolate similar quality of collaboration to their suppliers as they receive from their customers
In the above context, customers role in developing the supply chain in Gujarat is of paramount importance
20
Value chain Issues - Barriers to achieving supply chain flexibility

12
10
10
10
88
8
7
6
5 5
44
4
4
4
66
5
44
3
1
66
5
444
3
2
5
33 3
22
55
3
2
4
3
2
1
5 5
3
2
3 3
2
NA
Scale : 1 = not a barrier, 5 = major barrier, N/A = not applicable/don't know
The companies find the forecast error, supplier quality, conflicting objectives between supplier and company major
barriers to supply chain flexibility
21
Infrastructure and Logistics environment - Warehouse details
No of warehouses
Warehouses ownership model
NA
CFA's
21%
>25
Owned
36%
16 to 25
Leased
43%
4 to 8
0-4
0
10
Warehouses Area of warehouse (Sq. Ft)

16%
Owned
12
Leased
CFA's
Material Handling Systems Utilized

Gravity feeders
Automated racking systems
19%
5%
Forklifts
11%
18
Cranes
49%
14
Racking systems
0-500
500-1000
1001-5000
5001-10000
>10000
13
0
10
15
20
Majority of the companies with warehouses have less than 4 warehouses with leasing being the most common
ownership model
Of all the warehouses ~50% are in the 500 1000 Sq. Ft range
Forklifts, Cranes and Racking systems are the most commonly used material handling system
22
Infrastructure and Logistics environment - People and training
No of people in supply chain
Avg training time
> 50
>40
31 to 50
31 to 40 Hrs
16 to 30
21 to 30 Hrs
6 to 15
11 to 20 Hrs
0 to 5
0 to 10 Hrs
0
10
15
Majority of the companies have less than 5 employees in the Supply chain
The average training time provided to employees is spread across the range from less than 10 hours to more than 40 Hrs
23
Infrastructure and Logistics environment Logistics performance

Transit damages
Pilferage losses
> 6%
> 6%
4% to 6%
4% to 6%
2% to 4%
2% to 4%
1% to 2%
1% to 2%
11
0 to 1%
0 to 1%
12
0
10
15
Total inventory days
15
20
25
Logistics cost as a % of sales
>60
> 10%
46 to 60
6% to 10%
31 to 45
5% to 6%
16 to 30
3% to 4%
0 to 15
0% to 2%
0
10
10
10
Pilferage and transit losses are not a major source of loss being primarily less than 1%
The total inventory days is spread across <15 to > 60 days with logistics cost being less than 6% for most of the
companies.
Only 25% of the companies have total inventory less than 15days, while suppliers in west region are responsible for
(56%) and supplier based in ROI (23%) and about (20%) are overseas suppliers in value terms and considering lead
times of 7days, 10days North, 15 days South, 20 days east and 45 days for Imports, companies should be able to
achieve Total inventory of 15~25 days.
Higher inventory days is reflective lower material flow velocity and higher cash conversion cycle which could be
essentially related to planning process and its maturity within MSME sector
24
Infrastructure and Logistics environment - Level of support
16
14
12
10
8
6
4
2
0
15
12
10
9
6
3
1
NA
8
5
3
8
5
3
5
1
6
3
6
4 4
1
Scale : 1 = none, 5 = high N/A = not applicable
MSME sector seem to be satisfied with the logistics infrastructure available to them in Gujarat with most of the
respondents scoring 4 and 5
However, in tax-benefits about 50% companies seem to have got benefit while similar number feel otherwise. It may
be important to create awareness amongst MSMEs of the benefits available to them, so that they can improve their
overall competitiveness
There seems to be a major issue around efficiency factors like licensing and documentation support and faster port
processing time where process efficiencies and productivity pose a challenge
Further, warehousing cost are perceived to be high with around >50% of the respondents scoring 3 0r less. In this
area interventions from Government in terms of land costs could help promote overall material movement velocity
25
Infrastructure and Logistics environment - Performance improvement

Degree of implementation
11
12
10
10
8
6
4
2
0
Warehouse network optimization
Logistics cost optimization
Inventory optimization
Vehicle turn-around time

reduction
Scale : = no implementation, 3 = some implementation, 5 = major implementation
NA
Benefits gained
15
13
13
10
10
5
5
2
0
Warehouse network optimization
1
NA
Logistics cost optimization
Inventory optimization
Vehicle turn-around time

reduction
Scale : = no implementation, 3 = some implementation, 5 = major implementation
The companies do not perceive any improvement in the overall logistics environment in terms of efficiency except to
an extent in case of inventory optimization. However, there seems to be good potential to further optimize inventory for
around 50% of the base assessed
The focus of organizations and logistics companies has been around cost optimization, however, degree of
implementation efforts doesnt seem to align with perceived gains in terms of cost. There appears a need to revisit the
programs being implemented by organizations, starting from gaining perspectives through Voice-of-Customers (VOC)
26
Infrastructure and Logistics environment - factors to logistics and warehouse efficiency
18
16
14
12
10
8
6
4
2
0
High loading High picking
and unloading and packing
time
time
1
NA
On-time
vehicle
availability
Lack of
warehouse
automation
High
warehouse
automation
cost
Transit
damages
Pilferages in
warehouse
Pilferage in High inventory

transit
levels
Scale : 1 = not a barrier, 5 = major barrier, N/A = not applicable/don't know
Most of the respondents do not know the major factors impacting the logistics and warehousing efficiencies in Gujarat
and while others seem to find all the factors as important
There is a need to do a more comprehensive diagnostics study involving major logistics companies, customers and
supplier participants in each of the sector specific value chains to identify key issues to focus in immediate, medium
and long-term basis and draw-up a roadmap
27
Technology Support
Degree of implementation
15
12
13
10
3
14
10
0
14
1
12
2
4
1
0
Enterprise resource
planning system
(ERP)
1
Forecasting/demand Advanced planning &

Warehouse
Transportation
Customer relationship
planning software
scheduling (APS)
management system management system management (CRM)
(WMS)
(TMS)
NA
Benefits achieved
20
17
8 7
10
18
14
17
17
3
0
Enterprise resource
planning system
(ERP)
1
Forecasting/demand Advanced planning &

Warehouse
Transportation
planning software
scheduling (APS) management system management system management (CRM)
(WMS)
(TMS)

Plan to implement
NA
20
11
10
14
8
3
12
5
14
8
13
8
13
8
8
3
0
Enterprise resource Forecasting/demand
planning system (ERP) planning software
Yes No NA May be
Advanced planning &

Warehouse
scheduling (APS)
management system
(WMS)
Transportation
management system management (CRM)
(TMS)
Most of the companies seem to have some sort of ERP, however advanced IT tools dont seem to be popular amongst
MSME sector. However, those companies that have implemented IT solutions seem to have gained from them
Companies seem to also be positive on the IT systems and therefore, there are a few who are keen to take it forward
There appears a need to promote awareness on the IT solutions for MSME and their potential benefits to ensure a
larger set of companies show inclination towards IT systems
28

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CII Deloitte MSME Survey Results

Draft for Discussion

Deloitte Touche Tohmatsu India Pvt. Ltd.

2013 Deloitte Touche Tohmatsu India Private Limited

Background to the study

(Source: Socio-Economic Review 2012-13, Gujarat State)

2013 Deloitte Touche Tohmatsu India Private Limited

Background to the study

Main objective of study was to assess

2013 Deloitte Touche Tohmatsu India Private Limited

Background to the study

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

Value chain Issues - Geographic market

Value chain Issues - Collaboration with customers

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

Value chain Issues - Collaboration with key suppliers

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

Infrastructure and Logistics environment Logistics performance

Infrastructure and Logistics environment - Level of support

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

Infrastructure and Logistics environment - Performance improvement

2013 Deloitte Touche Tohmatsu India Private Limited

Executive Summary MSME Survey Result

2013 Deloitte Touche Tohmatsu India Private Limited

Survey Respondent Overview

2013 Deloitte Touche Tohmatsu India Private Limited

Company Size - Revenue

Sales Turnover range

25 to 50 Crs 51 to 75 Crs >100 Crs

* - Employee data not available for 1 company in Auto sector

2013 Deloitte Touche Tohmatsu India Private Limited

2013 Deloitte Touche Tohmatsu India Private Limited

Supply Chain Strategies and Issues - Driving revenue growth

New products &

Scale : 1 = not important, 5 = highly important N/A = not applicable

2013 Deloitte Touche Tohmatsu India Private Limited

Do you have a single executive who is

Management level has responsibility for the

Not Applicable - Dont know

Other leaders or manager of

CxO or member of the senior

CEO or executive leader of

60% of MSME respondents saying, it is not applicable in their context.

2013 Deloitte Touche Tohmatsu India Private Limited

Supply Chain Strategies and Issues - Priorities of supply chain strategies

2013 Deloitte Touche Tohmatsu India Private Limited

Value chain Issues - Geographic market

2013 Deloitte Touche Tohmatsu India Private Limited

Value chain Issues - Collaboration with customers

Forecasting and Marketing and

Scale : 1 = Nil , 5 = High N/A = not applicable

Forecasting and Marketing and

Scale : 1 = not gained, 5 = Significant gain N/A = not applicable

2013 Deloitte Touche Tohmatsu India Private Limited

Value chain Issues - Geographic dispersion of suppliers

Mean of geographic dispersion of suppliers - % share of value

2013 Deloitte Touche Tohmatsu India Private Limited