In a day and age when everything can be bought online — from a packet of chips to a dress to even cars and houses — the procurement and supply of raw materials have also moved online. The option of buying raw material online has, in large part, reduced the hassle of running a business as entrepreneurs can now order materials as and when they need and have visibility into when they will be delivered. Besides, it also ensures quality control and fair prices.
There is a huge scope for startups in this space. The overall B2B market size is expected to grow to around $700 Bn by 2020, according to an April 2016 report by the Confederation of Indian Industry and Deloitte.
Simply put, as a bootstrapped startup Tradohub is an online distributor of sorts which is making procurement of raw materials easy, efficient, and economical for Indian SMEs. It does this by aggregating demand, removing middleman, partnering with global suppliers, and integrating technology to make procurement a hassle-free, single-click experience.
It supplies all kinds of raw materials to food and agro, polymer, pharmaceutical, and chemical companies.
The Need For Online Raw Material Suppliers
Talking to Inc42, Domadiya said that prior to starting Tradohub, he and Patel worked with other SMEs for three years, providing them an end-to-end solution — plant and machinery, plant set-up, raw materials supplies, marketing support, hiring, financing etc.
“However, while doing so, we found that supply of raw materials is a very unorganised, highly inefficient business with no technology, no economies of scale, and no organised players. We also found that it’s a recurring/repetitive business as SMEs have to buy raw materials periodically from suppliers,” said Patel. Domadiya is the chairman of Tradohub and Patel is the company’s managing director.
He added that the duo also noted that the cost of raw materials comprises 60%-70% of the expenses for SMEs. They figured that if they’re able to offer even slightly better pricing — by aggregating raw materials and putting in place an efficient supply chain — say even 2% lower, it would enable SMEs to bring down their costs by up to 24% (if they are buying raw materials once a month). This, they realised, was a brilliant business proposition as the price advantage would help them attract a large number of customers.
Thus Tradohub — an online aggregator and end-to-end raw materials procurement platform was — was born.
How Is Tradohub Is Bringing SMEs, Traders Online
Essentially, Tradohub aggregates demands of SMEs for industrial raw materials and procures these materials from large global manufacturers at rock-bottom prices. It then supplies them to SMEs at competitive prices on a user-friendly online platform.
During the first year of its existence, the Tradohub team simply worked on gathering nationwide macro-level data of its potential customers across the sectors it wanted to focus on — chemicals, polymers, food and agro, pharma, and others.
And then started its real journey. Based on insights garnered from the data, Tradohub started acquiring its first customers. In the initial days, it would proactively approach SMEs and offer them ease of ordering raw materials at cheaper prices, according to their needs. The company also ran digital marketing campaigns by SMS, email, in-app offers and leveraged WhatsApp to reach out to SMEs (it still does this).
Soon enough, the team’s efforts bore fruit. By March 2018, Tradohub had more than 10k registered SMEs and over 2,500 suppliers in more than 125 countries globally. The company has transacted with over 550 SMEs in three years. It has increased its revenue to $29.26 Mn (INR 200 Cr) in FY17.
It now aims to increase this to $74.18 Mn (INR 500 Cr) by the end of this year from $4.45 Mn (INR 30 Cr) per month at present.
Tradohub continues to report positive EBITDA and PAT (Profit After Tax). The startup caters to a diverse range of customers from Gujarat, Madhya Pradesh, Maharashtra, Rajasthan, Punjab, Delhi and Haryana, about 65% of whom are regular customers.
With an average order size of $7,418 (INR 5 Lakh) in 2014 to $37,089 (INR 25 Lakh) in 2017, Tradohub has come a long way.
The team comprises 30 members, which the company plans to increase to 60 people by the end of the year. With plans to raise $10 Mn funding, Tradohub is also planning to expand its market in central and south India.
The Challenges In Ensuring Supply Of Materials To SMEs
Talking to Inc42, Akash Domadiya shared that some of the biggest challenges for the company are maintaining a robust, reliable, and scalable technology, building and nurturing supplier relationships, and ensuring quality and timely delivery.
The company is also trying to address issues such as hiring, retaining, and managing experienced teams. Another challenge is offering extended payment terms to its customers, and also understanding the possibilities of ensuring just-in-time (JIT) delivery across India.
To address this, Tradohub is looking at partnerships with banks/NBFCs so as to be able to offer extended payment terms to SMEs without asking for too many documents. It also plans to insure the receivables by Coface to avoid any bad debts. Coface is an international company that credits insurance against the failure of customers to pay trade credit debts.
Further, Tradohub plans to launch its own NBFC platform in future.
The company is also trying to build a global B2B brand. For its global operations, the Tradohub team is also trying to understand international regulations and the global procurement scenario.
To address these challenges, Tradohub is working to create a dedicated Supplier Relationship Division, which will ensure continuous communication between the team and all its global suppliers.
Also, to ensure the quality of all Tradohub shipments, the company plans to partner with global inspection agencies like SGS (formerly Société Générale de Surveillance — French for General Society of Surveillance), Intertek etc, which provide inspection, verification, testing and certification services.
Further, the company is also looking to establish a dedicated team of Category Wise Desk Managers to have a real-time update on International pricing, regulations, supply chain scenario, market dynamics. With this, the company plans to keep advising the SMEs on informed and reliable decision making.
Raw Materials Supply: An Addressable Market With Few Players
As mentioned above, the B2B market is booming and is supposed a whopping $700 Bn by 2020. According to a report by the ministry of micro, small and medium enterprises, MSMEs account for 45% of the country’s industrial output and 40% of its exports. There are about 48.8 Mn MSMEs in India, which employ 111 Mn people.
In such a huge addressable market, Tradohub competes against players including Power2SME, Udaan etc.
Founded in 2012, Power2SME aggregates raw materials and product demands from small and medium businesses and places bulk orders with suppliers and manufacturers, also offering competitive prices.
Launched in 2016, Udaan runs a web platform connecting SMEs, manufacturers, wholesalers, traders, and retailers. It currently functions in two categories: mobile accessories and fashion products.
However, Akash Domadiya believes that Tradohub has an edge over such competitors because of its global procurement network against the local procurement done by such companies.
Further, Domadiya adds that Tradohub has grown 300% while being bootstrapped, while players like Power2SME have grown 250% despite receiving funding.
With an aim to achieve billion-dollar sales in the next three years, Tradohub seems all set for the next level of growth of the company.