With the Covid-19 infections crossing a million marks last week and the virus spreading to new regions and likely community spreads in most of the states, India’s pandemic challenge is bound to become more difficult. Unless daily cases start coming down, business and consumer sentiment is unlikely to recover in near horizon. With a sizable portion of the global economy still in lockdown, optimism about a so-called ‘V’ shaped recovery is beginning to fade away in near term.
At a global level, the pandemic has hit the global trade & GDPs of each and every affected nation at an unprecedented speed and scale. Multinational companies faced an initial supply shock due to their global supplier base affected by the pandemic and primarily due to LCCS sourcing strategy (Low Cost Country Sourcing), followed by demand shock as more and more countries followed complete Lockdown, ordered people to stay at home. Businesses and individual consumers suddenly struggled to procure basic essentials, basic products and services, and were forced to confront the fragility of the modern supply chain.
China’s dominant role as the “world’s factory” means that any major disruption puts global supply chains at risk. The initial impact of China’s lockdown and its dominance in key areas of manufacturing have further highlighted the problem with modern supply chains. More than 200 of the Fortune Global 500 firms have a presence in Wuhan, the highly industrialized province where the outbreak originated, and which has been hardest hit. When Chinese factories closed, manufacturers struggled to pivot due to a lack of flexibility in their supplier base. One likely consequence is that global firms will diversify their supply chains sooner or later, instead of relying only on China. Manufacturing hubs such as Vietnam, Mexico, and India are likely to benefit from that shift. This is validated by a recent survey from analyst firm Gartner Inc. According to the survey, 33% of companies with global supply chains have moved their sourcing and manufacturing activities out of China or plan to do so in the next two to three years, and while the Covid-19 pandemic is certainly one of the top reasons for the trend, other powerful factors are the UK’s economic withdrawal from the European Union (Brexit) and USA’s ongoing trade war with China. Many companies have begun sourcing from alternative locations such as Vietnam, India, and Mexico, Gartner said.
The new “normal” — disruption — has no expiration date. To survive and thrive in an ever-volatile business environment, organizations need to ensure that agility and responsiveness are embedded in their DNA. The urgent need to design smarter, stronger and more diverse supply chains has been one of the main lessons of this crisis.
Before the Covid-19 hit, Businesses and Entrepreneurs were busy in assessing the impact of 4th Industrial Revolution, the so-called Industry 4.0 and preparing suitable Use cases for the technology paradigm shift to AI (Artificial Intelligence), IOT (Internet of Things), ML (Machine Learning), RPA (Robotic Process Automation), Cognitive Computing, Big Data Analytics, Blockchain which were the new buzz words in every nook and corner. It was hitting every business, every process, bringing disruption in a big way, the way business is being conducted.
Disruption in supply chain management is not new and is happening all the time. The only difference today is the severity and impact. What is also different today, compared to earlier times, is the accelerated pace of these disruptions taking place. This renewed momentum of urgency may well attract more focused attention, not widely seen before. I suppose the disruptions and risks we have all seen in our supply chains have convinced many of the need and an urgency to seriously address this transformation. Efforts need to be made to transform the 5 critical processes of the modern supply chain ( Plan, Source, Build, Deliver, Return) through various digital enablers to make the Digital-First Economy, creating a smart and nimble supply chain that’s capable of weathering future storms. Supply Chain has to move from a mere “support function” to a Driver seat to lead the transformation. So Supply Chain is the new Protagonist of these testing times!
Transformation of the supply chain in the Covid world
Of late, some interesting trends have been emerged in supply chain and forced every supply chain leader to ponder over need for transformation and future course correction:
- The post COVID-19 era will fundamentally change workplace and workforce behavior:
More employers will enact policies to encourage remote work practices/WFM (Work From Home) in the future. Some suppliers will experience supply chain disruptions, more lay-offs, job security, employee engagement, empty office space/floating space requirement, resource scarcity in work locations (ex. warehouse operation), workforce safety and social distancing norms, packaging and logistic handling, manual last-mile delivery, etc. will be some of the great challenges one has to be forced to accept the reality.
Face to face meetings, conferences and office workspaces will not disappear. However, the pandemic will accelerate trends in remote/distributed work, virtual meetings and electronic collaboration. In essence, electronic collaboration will substitute for some of the spendings historically in travel and hospitality. As a result, the shift toward widely available broadband, the shift of enterprise workloads to cloud and SaaS and the importance of broadband wireless (5G) will gain extra importance.
- Talent and Data are more critical than ever:
Traditionally companies focused on Technology, they own and have exclusive Right to Use (Intellectual Property Right) as a critical driver of competitive advantage. However, increasingly cutting edge technology is developed as a shared resource where the core technology is freely available to anyone who wants to use it and is being frequently released as open-source software. Therefore the new paradigm shift is instead of technology itself, companies are considering their user data and their technology resources as their primary driver of competitive advantage. Data security in a remote working WFM environment, ensuring security on conferencing/all hand calls to disseminate critical information are some of the new challenges. Attracting talents, engaging and retaining talents is not the same as before.
- Supply Chain Channels become fungible/mutually interchangeable:
The lockdown compelled companies to adopt supply chain networks that are mutually interchangeable, ex. online food delivery Apps, Cab riding Apps, Pizza delivery outlets came to the rescue of FMCG to ensure uninterrupted supply amid bulk buying by consumers. Similarly, pharmacy became an additional supply channel for FMCG. These are the new out of box ideas!
- Investment in Digital Supply Chain accelerated:
Fungibility is directly proportional to the level of digitization of a platform. In India, the digitization of the supply chain was initially forced triggered by the roll-out of GST (Goods and Service Tax) in 2017 which was further expedited by the virus outbreak. Agriculture moved to digitized supply chain during the lockdown and made the “Farm to Table” concept possible.
- Emerging Technologies are changing the business strategy:
Emerging technologies involving AI, Data Analytics, IoT and Blockchain are changing the way business leaders are thinking about strategy.
Today, Algorithms are changing the S&OP process, changing the pricing game. Predictive forecasting based on algorithms and mathematical models. Firms are increasingly using pricing algorithms to set prices, especially in online markets.
Today, companies can test everything, simulate actual market conditions – Firms can now rapidly and cheaply experiment with crucial competitive decisions like pricing, product positioning and which market to serve. Historically these decisions relied on master plan and involved time horizons measured in decades. Now online platforms, algorithms and ubiquitous data allow firms to test these decisions quickly.
Today, “Everything on Cloud” strategy is lowering the barriers to entry. Competition is intensifying in many digitally-enabled industries as the cloud makes it even easier for competitor to enter a market, which we have seen with Disney & HBO streaming to compete with Netflix. The major cloud providers will themselves inevitably compete with and threaten their own customers and partners as they expand their offerings.
Adaptation to 5G is around the corner, Telecom operators globally preparing themselves to test use cases involving IoT, VR (Virtual Reality), AR(Augmented Reality), Driverless vehicle/Connected vehicles, Tele-medicine, Education and lot more. With virtual reality, you can swim with sharks. And with augmented reality, you can watch a shark pop out of your business card. (AR adds digital elements to a live view often by using the camera on a smartphone, VR implies a complete immersion experience that shuts out the physical world).
Based on a report from Gartner, at least 100 million users were expected to utilize AR-enabled shopping technologies by 2020-21, which is one of the hottest retail trends of recent times. The boom in mobile devices that employ AR means the sector is now occupied by robust and mature technologies. Developers, retailers and customers are now comfortably using them as part of their daily experience.
Several companies felt consumer demand for AR shopping. American Apparel, Uniqlo and Lacoste have deployed showrooms and fitting rooms that provide try-before-you-buy options in augmented reality spaces. Smart mirror technologies that scan RFID tags also offer the ability to bring recommendations to the brick-and-mortar shopping experience. IKEA customers have access to an app that permits them to point their phones at spaces and see what different products would look like in their own homes.
Makeup, fashion and lifestyle brands all stand to gain significant appeal with customers by using technologies that handle facial recognition, adapt to local lighting conditions and provide personalized advice. Virtual assistants will also significantly change the shopping experience.
With all these emerging technologies around the corner, it is bringing disruption in the way supply chain functions in these spheres.
- Resilient and Agile Supply chain becomes an asset to be monetized:
1. Supply chain agility can be defined as an organization’s ability to profitably manufacture and deliver a broad range of high-quality products and services with short lead times and varying volumes while providing enhanced value to customers.
2. Supply chain resilience is the supply chain’s ability to be prepared for unexpected risk events, responding and recovering quickly to potential disruptions to return to its original situation or grow by moving to a new, more desirable state in order to increase customer service, market share and financial performance.
3. The main difference between the two approaches is a specific purpose. The agile supply chain management approach pursues faster response to changes in markets and customer requirements, while the resilient approach is designed to cope with disturbances in order to sustain supply chain competitiveness.
4. The nationwide lockdown during this covid times tested organizations on agility and resilience in doing business.
5. The resilience and safety aspects of the supply chain network have defeated all other features like efficiency, cost-effectiveness and consistency. For example, Immediately after the lockdown restriction relaxed, Domino’s India quickly adapt itself to new demand, started offering Zero-contact delivery, a quick response to avoid contacts, have introduced a delivery charge of Rs 30/- per invoice on all orders placed thru its platform. This is the apt case of how agile and resilient your supply chain has to be so that it immediately adapts itself to new market changes.
- From globalization to regionalization:
Logistics hubs will re-emerge at the regional level. To eliminate single-source dependencies, and to establish a flexible and adaptable supply chain, product integrators, sub-system suppliers and component suppliers (vendors/sub-vendors), Tiered Suppliers will source, assemble and deliver from their own backyards.
Border tensions with China emerged as a looming threat for Indian manufacturers sourcing cheap raw material, but businesses now have a strong reason to scout for local sourcing. For example, Hero cycles canceling its sourcing from China and focussing on being self-reliant. This however can’t achieve overnight and is slated to increase product costs. This is also true in case of an export-oriented pharmaceutical sector whose dependency on China for Active Pharmaceutical Ingredients (API) can’t be substituted with local sourcing in future.
- Sell Global even produce Global:
Indian companies with operations across the world have also been pushed to increase overseas production. For example, Piramal Enterprises last month acquired a drug manufacturing facility in the USA to enhance its onshore presence for its custom manufacturing business there.
- Decentralization of manufacturing capacity:
We will also see a decentralization of manufacturing capacity, with companies looking to bring production home.
- Sourcing strategy will shift from LCCS to Onshoring or Nearshoring supply base with deep focus on partner development:
Sourcing strategies will focus on risk-free, Onshoring/Nearshoring supply base with long term partnership with TCO-competitive suppliers, who value sustainability.
Low-cost country sourcing (LCCS) is a procurement strategy in which a company sources materials from countries with lower labor and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called global sourcing. The countries that are considered ideal for low-cost sourcing opportunities are China, South East Asia (especially Vietnam and Thailand), Eastern Europe, India, Mexico and Turkey. With political stability, thriving economy, educated population and more, the low-cost economies in the world have become a hub for the best cost procurement.
With Offshoring, the operating activities are relocated to another country, and the geographical location is irrelevant. Offshoring can be divided into two subdivisions, namely nearshoring (neighboring countries with or without a shared border) and far shoring (distant countries). Onshoring is the exact opposite of Offshoring, it refers to the relocation of business processes to a lower-cost location inside the national borders.
- Inventory moving from JIT to cover for volatility and risk:
Most of the organizations have taken Lean and Agile approach so far for manufacturing Excellence and have little or no capacity to survive a lockdown. The demand and supply-side shocks forced organizations to build and smoothen their inventory policy. So Just in Time will have buffer built-in it.
- Single sourcing to alternate sourcing:
The pandemic has forced us to reconsider our single-sourcing strategy for critical components/products/services with dependency on single partner to alternatives onshore.
How to navigate your organization through this current crisis
With the sudden spread of the pandemic worldwide, Businesses caught unaware of the impact on their continuity, the modern supply chain struggled to maintain BCP (Business continuity plan) in the New Normal. A BCP is usually a speedy recovery of “Back to Normal” in the New Normal.
Here are some suggested quick measures companies can take to protect their supply chain operations:
- Focus on your workforce/resource planning, their safety;
- Restrict non-essential travel and promote flexible working arrangements/WFM;
- Align IT systems and support to evolving work requirements, maintain data security protocol and access control for remote working, connecting teams, on-line meetings, video conferencing, on-line sharing of data;
- Prepare for increased absenteeism and prepare a succession plan for key executive positions;
- Assess the Supply-side risks (both Tier-1 and Tier-2 vendors) and evaluate capacities, activate alternate sources as required:
- Based on the changes in your supplier market and impacted products and services, quickly assess the product/raw material specifications and identify alternate sources. If alternate sources for the same specification are not immediately available, review the change specification request if that provides immediate BCP. In Parallel, work with the alternate supplier to develop the product as per your specification.
- Focus on vendor development and a culture of co-creation – Jointly discuss with the vendor and their sub-vendors, assess their supply risk as well and plan jointly to mitigate all risks.
- Improve the supplier relationship and work for a long term partnership.
- Review your category management strategy: For LCCS items, it is not easy to immediately shift sourcing to onshore or near shore, because that would definitely come with a price increase of somewhere 25 to 30%. Is the organization ready to take this call? For example, China has developed itself as “World’s Factory’’ and nearly most of Fortune 500 companies depend on sourcing from China because of its vast manufacturing capacity, easy availability of skilled workforce and cost-efficiency. They have built the infrastructure over last decade to bring manufacturing efficiency and it is really a challenge for everyone to relocate the supply base out of China and get the same cost advantage. May be companies need to work on the same over a time horizon to get those economies of scale.
- Prepare visibility dashboards across the supply chain processes, focus on inbound supply;
- Develop a Dashboard culture to monitor progress & improvements;
- Review the inventory policy and revisit the norm based on supplier risk profiling;
- Strengthen the S&OP process, review the demand side and align with the production plan;
- Logistics both outbound and Inbound – evaluate alternate options, capacities: Multimodal solutions to combat freight cost and limited capacity. Also map sector-wise, freight corridor wise modes available, capacity available and accordingly plan;
- Conduct global scenario planning. Develop a Risk assessment culture & business continuity planning methodology;
- Focus on cash flow, contain costs and curtail unnecessary expenses;
- Collaborate and build your supply chain network – build your network within the supply chain fraternity, supplier fraternity, competitors to assess the global scenarios, find out information on your constraints, information on alternate sources, alternate service providers, alternate materials, etc.;
- Drive towards supply chain excellence.
Tomorrow’s supply chain – how to drive innovation in supply chain operation
Picking up the learning from the COVID crisis, how our transformation journey would be in the New Normal. We wish tomorrow’s supply chain would be lean, nimble, agile, resilient, foster innovation, end to end connected, automated, synchronized, and smart enough to address the needs of all stakeholders of the ecosystem.
1. Supply Chain Visibility – it should be end to end connected and visible, real-time.
To maneuver choppy waters, navigators need visibility. Supply chain leaders need to know the flow of material at every stage right from sub-vendor, vendor, and contract-manufacturer to production and shipment, transportation carriers, third-party logistic providers.
In certain industries, such as electronic component manufacturers, microprocessors have already produced comprehensive dashboards that layout the full status of production and shipment, down to the last detail. The dashboards refresh every 20 minutes to provide a real-time overview of the entire supply chain.
Implementation of Supply Chain Management Control Tower, a digital command center should be more apt where supply chain leaders are able to see and manage how their entire supply chain is functioning from one digital command cutting across supply chain partners across geographies, including suppliers, contract manufacturers, transportation carriers, third-party logistics.
Until recently, supply chain control towers have been all about providing centralized dashboards. But with the development of multi-party, consumer-driven networks, advanced control towers now provide real-time visibility, collaboration and powerful AI capabilities to move beyond decision-support to decision-making and autonomous control.
2. Linear supply chain model transforming to Digital Supply Networks (DSNs)
The traditional linear supply chain model is transforming into digital supply networks (DSNs), where functional silos are broken down and organizations become connected to their complete supply network to enable end-to-end visibility, collaboration, agility and optimization. New value is being created by digitizing and connecting the traditional nodes – Digital Product Development (optimize PLM), Synchronized Planning (provide significant efficiency through synchronization), Intelligent Supply (reduces costs through new advanced technologies, models and capabilities), Smart Factory (unlock new efficiency by a more connected, agile and a proactive factory), Dynamic fulfillment (Boost customer service through new levels of speed and agility), Connected customer and aftermarket (create seamless customer engagement from inspiration to service).
3. Supply Chain Automation
- Future supply chains should be end to end automated, connected and synchronized.
- As a low hanging fruit for automation to start with will be your automation of repetitive processes like PR creation, converting PR to PO, Invoice creation, Invoice processing, etc. by developing BOTs.
- Other areas will be to move from physical to paperless – automation of all dashboards, reports, KPIs, creation of partner portal, customer portal to collaborate and disseminate information, Online partner onboarding, online price discovery (floating RFI/RFQ online), Online bidding platform (Reverse auction/forward auction), seamless internal workflows from requirement capturing, price approvals, ordering, receipt confirmation, invoice booking, payment to partners, etc. (Purchase Requisition to Payment Reconciliation).
4. Supply Chain Planning
It should be automated demand sensing, collaborative forecasting, integrated S&OP as well as IBP processes, should provide what-if scenarios.
- Future supply chain should use advanced technologies like AI and Machined Learning and Analytics to develop forecasting algorithms to arrive at accurate forecasting.
- Autonomous planning – Supports machine-derived analysis and decision making in replenishment planning.
- Autonomous logistic planning.
5. Sourcing strategy
It should be cost-effective, sustainable and reliable.
- Focus on vendor development and a culture of co-creation/Design-in – work closely with the vendor and their sub-vendors on design and development of the product, value engineering of the product to optimize cost.
- Improve the supplier relationship and work for a long term partnership.
- Develop a culture of partner grooming – create a platform for smooth onboarding, create a transparent system for price discovery, price negotiation, ordering, payments and other transactions, create system for periodic performance evaluation and regular grooming/ pruning of your partner base.
- Review your category management strategy: For LCCS items, it is not easy to immediately shift sourcing to onshore or near shore, because that would come with a price increase of somewhere 25 to 30%. Is the organization ready to take this call? For example, China has developed itself as “World’s Factory’’ and nearly most of Fortune 500 companies depend on sourcing from China because of its vast manufacturing capacity, easy availability of skilled workforce and cost-efficiency. They have built the infrastructure over last decade to bring manufacturing efficiency and it is really a challenge for everyone to relocate the supply base out of China and get the same cost advantage. Learning the lessons from the recent crisis, one has to work towards developing an alternate source to China and needs to maintain a dual option to offset the cost. So diversify the supplier base to mitigate the risk.
- Diversify supplier base – Tomorrow’s supply chain leaders will not depend on a single supplier at the category level and will diversify their supplier base from a single source to multi-source, no dependency on single region.
Build a smart supply chain supporting a smart factory, with extensive use of emerging technologies.
- Digitalization is no longer optional – Increasing the scope and scale of uncertainty, and disruptions in business ecosystems, has revealed the vulnerabilities of supply chains, pinpointing the need for more agility and flexibility to build resilience. This is a powerful catalyst for revisiting current supply chain practices and strategies, and to reassess the need for digital infrastructures as the key pillar to support supply chains in the new norm. Industry 4.0 technology-based platform is crucial for supply chains.
- Now the great dilemma supply chain leaders face is where to start. This is true for the majority of small & medium enterprises, corporates where IT adaptability is at low or moderate. Many companies may not afford a big bang transformation to “All Digital” supply chain. Companies need to evolve their journey from adaptation of small automation projects to creation of suitable use cases for use of the emerging technologies in each of their business nodes. Prepare a transformation road map to leverage advanced technologies such as the Internet of Things, Artificial Intelligence, Machine Learning, Deep Learning, Statistical Learning, Robotics (Humanoid), Big Data Analytics, Cognitive Computing, Blockchain, Cloud computing, AR, VR, DSNs, etc.
The first baby step would be to identify a pain point in your value chain to resolve and apply to this a small scope to start with a transformation project. Once you learn your lessons, scale-up extending into a broader scope. Some ready reckoner to start…
- Blockchain’s immutable ledger makes it well suited to tasks such as real-time tracking of goods as they move and change hands throughout the supply chain. Asset management, smart contracting, payment system, etc.
- IoT and RFID devices to monitor and track shipments in real-time and accurately predict delivery to customers.
- AI to track fulfillment and Inventory.
- Supply chain analytics can help a business better predict future demand (predictive forecasting).
- Intelligent spend analysis to derive insights for category strategy, negotiation, supplier performance, awarding contract.
- BOTs – all your repetitive manual transactions such as PR to PO conversion, etc. replace with BOTs.
7. Smart Warehouse and 3PL/ 4PL
Data analytic tool, Control Tower, robots in warehouses, AI to track fulfillment and inventory, use of drones and driverless delivery vehicles and more are prime examples of how the supply chain landscape is changing.
8. Smart Distribution Network
Simplified, Shorter, Responsive, Connected and sustainable network.
9. People management
Soft skill-focused leadership at all levels, organizational networks.
- The pandemic will accelerate trends in remote/distributed work, virtual meetings and electronic collaboration. So, organizations to provision for assets for electronic collaboration, the bandwidth requirement, virtual employee engagement, build social chat rooms for informal collaboration, migration to on-line workflows for every process.
10. Risk Management
Risk assessment will be part of the DNA to build an agile and resilient supply chain.
- Periodic engagement with all partners in the eco-system right from sub-vendors, vendors, contract manufacturers to your logistic providers, 3PL to assess the risks in the entire value chain and adopt mitigation plans.
- Have a BCP in place to avert business standstill during any future eventuality.
- If all the nodes in the value chain are integrated and seamlessly connected, then it is always easy to respond quickly in the event of a severe crisis or operational threat.
11. Green Supply Chain
Tomorrow’s supply chain will have a greater CSR responsibility, contributing to the circular economy model/sustainability.
- The circular economy model is all about three Rs – Reduce, Reuse and Recycle – all help to cut down on the amount of waste we throw away.
- Disposable packaging is rapidly being replaced by durable, reusable containers. Eg. Packaging of bottled water in corrugated boxes is being replaced by shrink wrap.
- Recycling and refilling printer cartridges.
12. Supply Chain as a service (SCaaS)
- Supply Chain as a Service (SCaaS) refers to the outsourcing of supply chain management functions to a service provider. The services provided thus include warehouse management, logistics management, order management, and other functions including supplier and vendor management.
- Astonishing growth of Supply Chain as a Service (SCaaS) Market 2020-2027 by Top Key Players – Accenture, CEVA Logistics, DHL International GmbH, FedEx Corporation, GEODIS, Kuehne+Nagel, TATA Consultancy Services Limited – a market research report.
- This will enable companies to be highly flexible and asset-light leveraging the very best capabilities of subject matter experts all around the world.
A decade-long focus on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization has removed buffers and flexibility to absorb disruptions and the recent pandemic illustrates that many companies are not fully aware of the vulnerability of their supply chain relationships to global shocks.
Fortunately, new supply chain technologies are emerging that dramatically improve visibility across the end-to-end supply chain, and support companies’ ability to resist such shocks. The traditional linear supply chain model is transforming into digital supply networks (DSNs), where functional silos are broken down and organizations become connected to their complete supply network to enable end-to-end visibility, collaboration, agility, and optimization.
Organizations that embrace Digital supply chain leveraging advanced technologies such as the IoT, AI, RPA, ML, Blockchain, DSNs, etc. will be ready to deal with the unexpected.