COVID19 – The Algorithm of Supply Chain

Disruption in Supply Chain during Covid-19 has unveiled the breakages in the network we have. This period is teaching us multiple lessons and giving us real experiences vis-à-vis reel, we gained from Supply Chain books in Business Schools. 

The experience of Dynamic Pricing, conflict of Stock Retention & Stock Liquidation, conflict of availability vs compromising on Quality and most importantly we have learnt the value of Brand in Procurement & Supply chain. 

I consider this time precious with respect to Supply Chain learnings. We have numerous real-time examples to relate to the theoretical knowledge we possess. The disruptions in supply chain across nation and in world is definitely going to add few more chapters in our books with respect to risk assessment in Supply Chain. 

Since I am working for a company which is into procurement aggregation, we are supplying to almost all types of industries and sectors, and obviously, we are supplying all Covid-19 related items to our clients from the beginning of the crisis. 

Therefore, I have a very fair idea of how the market panicked at the beginning of the Covid-19 crisis, and an idea of how market evolved itself to leverage the opportunities hidden in the Covid-19 Supply Chain disruptions. 

Basis the four dynamics of market, let’s discuss one by one with examples and I am sure, people who are active in Supply Chain during Covid-19 crisis will be able to relate to me.

Dynamic Pricing

Dynamic Pricing is the function of multiple factors. We have seen Ola and Uber working on the dynamic pricing model where prices offered for a ride to each customer could be different and is a function of basic price based on distance +availability of cab+ time at which the cab is booked. There is an algorithm behind the final price and the final value is a function of mentioned factors. We have seen price dynamics in 3M N95 Masks and Venus V4400 N95, where due to non-availability, prices went up by 7-8 times of its actual Price. 

Also, prices of 3 Ply Mask went upto Rs 25/Mask at the beginning when corporates were working and wanted to export the same to their related parties in other countries, prices of same entity fell to Rs 6-7/Pc after exports were banned & price capping was imposed by Government. In 3 Ply, Capping of Price could work because it doesn’t require any specific certification and can be manufactured by local bodies.

Following factors were somewhat deciding the price of Venus N-95 and 3M N95 mask on everyday basis.

Effect on Supply Chain: Due to Price Dynamics, even if you had vendors mapped with you for the products, frequent revision in committed prices are leading to cancellation of orders. 

Conflict of Stock Retention & Stock Liquidation

This market was for the entities that held stock with them. Customers wanted to purchase 5-6 Lakhs pieces of masks at whatever cost. Entities who held stock were emerged as Kings of the Market and sold the stock at extremely high prices. 

In addition, related intermediaries were claiming for the stocks they did not pay for.

Actual stockiest getting multiple different rates for the kept stock was like a forward auction process. Obviously, stocks sold to the highest payer and the one who was ready to take the biggest quantity.

This triggered the Minimum Ordered Quantity theory and small clinics and NGOs suffered due to non-availability of stocks who could not get the stocks in hands for the quantities they were asking.

Effect on Supply Chain: Even if you were able to map the actual source or stockiest, there was high chance that someone else may buy the same stock by offering better price.

Disruptions due to Brokers and Intermediators

During the lockdown when industries were shutting down, everyone was worried about the negative revenues that they will have to make in following months. After the first few days of lockdown, traders started emerging in the markets. Traders had the market mapped with them. Due to multiple intermediaries in the market, every order placed through a broker was at stake as you were not sure whether the actual stock is still there or sold by another broker.

This reminded me of network of real estate agents working to sell a good property.

There was a network of ‘N Brokers, claiming them as the owner of the stocks were working for a single stock keeper. Some of the middlemen also put their reputation with their regular business buyers at stake.

Effect on Supply Chain: Multiple demand points created by different brokers increasing the prices exponentially in time value.

Availability Vs Quality

At the beginning of Covid-19, conflict of availability vs quality emerged in PPE kits supply chain. Buyers were very well aware of the quality of PPE kits people were seeking. At the beginning of the crisis, government laid down no standards for PPE kits, where sellers sold kits at high prices putting end user’s life at stake. NGOs who wanted to donate PPE kit to doctors or health workers were buying specifically asking for a lower price and hence, compromising on quality.

However, PPE kit supply chain evolved fastest and strengthened itself with time. PPE kits sold today are much better in quality.

Effect on Supply Chain: Supply Chains evolve itself with respect to minimum standards of Products, not vice versa.

Value of Brand in Supply Chain

Being market flooded with cheaper option of N-95 masks either sourced from china or procured locally, value of branded products (3M and Venus) rose exponentially. Subsequently, buyers ready to pay double the quoted price provided stocks are actually available.

Learning for Supply Chain: There exists a power of brand which no crisis can take over.