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May - 2013 - issue > View Point

Can Collective purchase of Raw Materials change the face of the SME Manufacturing Sector in India?

R. Narayan
Founder & CEO -Power2sme
Tuesday, April 30, 2013
R. Narayan
Gurgoan based Power2sme is an online platform that enables SMEs to cut costs and build efficiencies in their business processes. The company has raised funds from Kalaari Capital and Inventus Capital Partners.

The MSME sector contributes 8-10 percent of India's GDP, at 41 million people the SME sector is the country's largest employer. It also makes up over 45 percent of the total industrial output. With numbers like these, it is more than obvious that the SME sector in India is not only the engine of India's growth story, but also with its deep integration with the manufacturing sector is driving industrial/manufacturing output in the country.

But this story may just end up scripting a very different ending if the challenge of improving production processed for SMEs' in the manufacturing sector is not effectively challenged and improved. According to the latest figures put together by the Input costs The HSBC Purchasing Managers' Index (PMI) –that polls purchasing managers across industry to get a feel of the state of the operating environment within manufacturing-inputs costs have been steadily rising for the last forty-sixth months. The industry flagged of fuel and rising raw material prices costs as a major factor for rising input costs for the manufacturing sector.

So how does one unlock this knot on the shop floor of high raw material costs? One of the biggest problems that the SMEs in the manufacturing sector face is that getting raw materials at a cost which allows them economies of scale is very difficult. Their very size and scattered geographical clusters makes it tough to take advantage of a bulk order book. This is where buying clubs with the power of collective buying and selling behind them comes into play. Once an SME registers, the online buying club creates a one stop shop for all their raw material needs. As the buying club itself takes charge of the purchase they are able to negotiate the best price. This not only helps to push away the effect of rising input costs, but also makes the production process leaner and more cost effective.

This concept can be further extended to create a fantastic network of collaboration that will help create the right environment for the SME units in manufacturing to really grow. Useful link ups by buying clubs with industry and trade bodies, tie ups with banks for procuring finances easily will also give a massive leg up to the SME sector.

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