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Indian MSMEs Aiming To Embrace Industry 4.0: Fears And Recommendations In the post COVID-19 period, digitally enabled MSMEs have a huge opportunity for sustainable growth

By Dr. Ravindra Ojha

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Micro, small and medium enterprises (MSMEs) play a pivotal role in the growth of manufacturing sector in a nation's economy. In the current post-pandemic period, it is difficult for any nation to envisage significant industrial growth without implementing radical transformation in their MSMEs. The 60 million MSMEs in India, have a significant role in driving its socioeconomic development. They form 95 per cent of the industries in the country, contribute to 45 per cent of the total industrial production, 40 per cent of the country's total export, 7.9 per cent of GDP in manufacturing, 37.5 per cent of total to GDP and 30.5 per cent in services. MSMEs are seen to be the extended arms to Original Equipment Manufacturers (OEMs) who rely heavily on their MSME suppliers across the value spectrum to keep their supply chains running smoothly. Furthermore, the 'Make in India' initiative is heavily dependent on MSMEs, especially the strategic sectors that have critical implications on our national priorities. In the current competitive environment, the MSMEs will have to keep pace with the changes in support systems, manufacturing processes, people skills, customer service needs and technology for their sustainability. As a matter of concern the MSMEs have, so far, shown a lukewarm affinity to the fast approaching digital operation, more commonly known as Industry 4.0 (I4.0).

Technology intervention has gained huge momentum after the incredible disruptions by COVID-19 and is pushing manufacturing to a new level of operation. This need is driving the merger of the physical and digital worlds in the form of I4.0. Under the umbrella of I4.0, along with the explosion of large production volumes/scales, operational digitization, interacting machines, robots, automation, data analytics and swift data-driven intelligent decisions continues to be a critical integrating pillar to transform manufacturing operations to become more efficient, productive and profitable. The continuously increasing global competition is compelling companies to expand and connect internal manufacturing processes with the external supplier processes and customer expectations. I4.0 is ready to leverage the data intelligence to eliminate system wastes only to add more value to the end-customer. Enterprise at the front of the Industry 4.0 pack in Europe and the US are capturing benefits across the entire manufacturing value chain—increasing production capacity and reducing material losses, improving customer service and reducing delivery lead times, achieving higher employee satisfaction and reducing their environmental impact. The related literature has highlighted the following value potential in I4.0: 15-20 per cent inventory holding cost reduction, 15-30 per cent labour productivity improvement, 30-50 per cent machine downtime reduction, 15-30 per cent throughput increase, 85 per cent forecasting accuracy improvement and 10-20 per cent reduction in cost to quality, which is encouraging.

Despite the high potential, most MSMEs are confronted with a plethora of barriers in embracing I4.0 practices in India. Most of them continue to operate in their comfort zone of I3.0, ignorant of the adverse impact of not adopting I4.0 in the highly competitive business journey ahead.

The discussions with MSME owners, OEM sourcing managers, business consultants and policy planners have indicated that there are many challenges/fears/barriers that MSMEs are facing to embrace I4.0. The five dominant ones are:

  • Lack of a constructive push or nudge by enterprise owners or top management or parent company for this futuristic transformational leap,
  • Fear of the likely resource pressures- finance, technology, human-talent, infrastructure and new operational skill,
  • Fear of exorbitant cost of transitioning from the existing state to the new I4.0 state of operation,
  • Potential concerns in Information technology related capabilities in terms of investment, operation, interoperability, cyber security and many more,
  • Fear of embracing this radical I4.0 approach which is still to provide tangible and visible deliverables and has a risky return on investment.

Identifying the fears is the first step but these have to be overcome. Therefore, the five recommendations for MSMEs to implement I4.0 are following;

  • Cultural orientation: Continuous technology enabled improvement in People, Process and Technology related systems cultivates the right culture for sustainable growth.
  • Digitization: Start utilizing IT enabled technologies (including Artificial Intelligence-AI and Machine language-ML) from the product design stage to effective customer service.
  • Process automation: Automate processes to reduce lead times, ensure consistent quality, improve asset OEE.
  • Knowhow enhancement: Gain knowledge and skill related to I4.0 implementation by the right exposure, periodic relevant training and expert interactions.
  • Implementation fabric: Small digital improvements with a targeted theme, evolving a strategic plan with smart factory in the core, linkage of strategic goals to the annual appraisal system, periodic review of the progress will facilitate the implementation process.

In summary, in the post COVID-19 period, when the Indian manufacturing sector is scaling up to meet the new challenges, the Indian government is facilitating the industry fraternity for 'Make in India' and Atma-nirbhar Bharat, the world is experiencing a geopolitical manthan and a large pull is being experienced for exporting products, digitally enabled MSMEs have a huge opportunity for a sustainable growth. This is the right time for them to embrace I4.0 in terms of streamlining processes digitally, bring in automation (including AI & ML), digitize the supporting systems, use big-data for asset maintenance and serve customers with technology. The implementation to be gradual aby steady for ensuring sustainability.

Dr. Ravindra Ojha

Professor in Operations at Great Lakes Institute of Management, Gurgaon

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