Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s industrial landscape. These enterprises, often started by individuals with specific skills and abilities, operate in highly competitive environments with limited financial resources. The sheer number of MSMEs in India, in comparison to the major listed companies, underscores their significance. While these enterprises are spread across the country, their vast potential remains largely untapped, particularly in sectors like Aerospace and Defence (A&D). The question arises: are we doing enough to integrate MSMEs into the supply chains of larger industries? The answer, unfortunately, is no.
The Supply-Demand Disconnect
On one hand, we have an overwhelming supply of MSMEs eager to contribute to the economy, and on the other, a demand from established Original Equipment Manufacturers (OEMs) and international players looking for reliable vendors. In today’s globalized supply chains, no OEM can afford to produce every component in-house—it’s simply too costly. They rely on trusted vendors for critical components, particularly in sectors like A&D where precision and quality are paramount. However, establishing this trust and connecting with MSMEs remains a significant challenge.
OEMs often delegate the task of vendor selection and quality control to inspection agencies or internal departments. This creates a barrier between the OEM and the MSME, making it difficult for smaller enterprises to break through. OEMs prioritize price competitiveness, and their vast global supply chains source components from the cheapest, most reliable sources. Inspection agencies, while vital for quality assurance, often add an extra layer of complexity that MSMEs must navigate. This stringent process, although well-intentioned, can be daunting for smaller enterprises.
The MSME Perspective: Challenges in Integration
From the perspective of MSMEs, the landscape looks very different. These enterprises are capable and competitive, with a deep understanding of their shop floors, machinery, and material sourcing. However, the process of getting recognized by an OEM can be overwhelming. While some global OEMs simplify the process by directly engaging with vendors and testing sample products, others rely heavily on third-party inspection agencies. This creates a significant burden on MSMEs, who must invest time, effort, and money to meet the stringent requirements of these agencies.
This approach creates a barrier to entry that is difficult for MSMEs to overcome. Despite inspection agencies’ efforts to be accommodating, the system remains complex and unfriendly for smaller enterprises. Unlike OEMs that directly engage with MSMEs, inspection agencies do not benefit from streamlining the process. This disconnect leads to a frustrating experience for MSMEs trying to break into the OEM supply chain.
A Potential Solution: Peer Review and Rating Systems
To address this challenge, a new approach is needed—one that simplifies the process and allows MSMEs to focus on what they do best: manufacturing quality components. One solution could be the implementation of a peer review system. This concept, widely accepted in e-commerce and service industries, could be adapted for MSMEs in sectors like A&D.
A peer review or rating system would allow MSMEs to be evaluated transparently based on their performance. This rating could then be accessed directly by OEMs, bypassing the need for extensive third-party inspections for non-critical components. For critical components, inspections can still be conducted, but this approach would create a more flexible and supportive environment for MSMEs.
India has already seen success with platforms like the Open Network for Digital Commerce (ONDC) and the Government e-Marketplace (GeM). These platforms have transformed procurement processes by embracing transparency and efficiency. A similar system for MSMEs in the A&D sector could unlock significant potential, allowing OEMs to tap into a vast network of capable vendors. This would not only benefit MSMEs but also align with the country’s vision of self-reliance and the “Make in India” initiative.
The Path Forward: Removing Barriers, Creating Pipelines
For this vision to become a reality, all stakeholders—policy-making organizations, inspection agencies, and OEMs—must examine their processes. Any policy or system that creates a barrier between MSMEs and OEMs needs to be re-evaluated. Instead of being a barrier, the system should act as a pipeline, facilitating a smooth flow of information and resources between the two parties.
The goal should be to reduce the workload on MSMEs, allowing them to concentrate on their core competencies while the OEM takes care of the rest. By creating a vendor base that provides competitive components, OEMs can produce complete equipment at a competitive price, benefiting from a larger, more diverse supplier network.
In conclusion, the future of MSMEs in India’s A&D sector is bright, but only if we take steps to simplify the process and remove unnecessary barriers. By adopting innovative approaches like peer review systems, we can unlock the full potential of these enterprises and position India as a global leader in manufacturing. The time to act is now, and with the right policies and support, the sky is truly the limit for India’s MSMEs.
