Emerging Markets – Supply Chain Complexity

How quickly can you turn around products for the opportunity, from procurement to manufacturing to logistics – The answer lies in the agility quotient of the supply chain. From vendor management: how quickly can you avail a non-indented material, or, expedite deliveries of indented material

‘Emerging Markets’ – Terminology is the clear indicator of geographies which are, constantly emerging, under, various stages of emergence. The degree of perseverance required to play in these markets vary with the level of development in consumer buying behaviors and geopolitical nuances. Supply Chain complexity tends to be immense for these geographies, considering the nature of the business, and, the patience required by the servicing organization towards sustainable and predictable business growth.

Although the majority of these markets have, more than fair, bottom-lines associated, the presence of an organization to derive value may be dependent on critical factors, some being, servicing short term opportunity business – tenders, business continuity for small customers with low margin products, breaking entry barriers for disturbed geographies – war zones, country-specific trade restrictions, restricted cash flow markets, etc. Considering the involved nuances, there exist mammoth challenges for supply chains to extract the constrained organizational resources, towards servicing erratic demands from emerging markets.

Today, when the core focus of organizations is to maximize immediate term revenues, and in parallel, keep watering pipelines for big businesses, servicing emerging markets with shared resources, becomes a trail priority, creating a questionable impact in the minds of customers on supply predictability. Under such scenarios, managing customer expectations is the toughest part for supply chain counterparts across organizations servicing emerging markets.

The key challenges for emerging market supply chains stand out –

Resource prioritizations: (Input material, capacity – both in terms of manpower and machinery). For organizations servicing multiple geographies apart from emerging markets, resource sharing, and, prioritizations for markets needs to have a sustainable logic, commensurating with the vision of the organization. The resource prioritization logic, apart from focusing on top-line and bottom-line maximization, order aging, penalty implications, resource optimization (batching / changeover reductions), etc., must also consider the other impacts of delayed / not servicing the de-prioritized geographies. Other implications may include, loss of other products within the de-prioritized geography, loss of future tender opportunities for de-prioritized geographies, word of mouth from the de-prioritized customers, etc.

Whatever be the prioritization logic, life is not easy for supply chain, as, the voice of customers (both internal and external) cannot be completely relied upon for prioritization, as, there are chances of the same being ‘noise’. Also, many of the softer prioritization logic cannot be justified by numbers, leading to mis-apportioned approvals, plus, the major fact that immediate high revenue recognition is always healthier on balance sheets. All nuances included, organizations require a well thought of, and, signed off prioritization logic, with clear exceptional handling process discussions with management during S&OP’s.

Servicing spot opportunities (tenders, short lead time orders – wherein, the competitor may be out of stocks): Spot opportunities are major hurdles for emerging market supply chains, as, the short-term revenue pressure is huge, and, resources are rarely planned for such cases. The complexity of product portfolio for emerging markets is such that, advance inventory building does not tend to be a practical solution, and, at the finished product level, specificity of packs, prevents to carry inventory over periods, permissible shelf life too plays an important aspect for preventing safety stocks. Secondly, the major aspect of product selection for advance inventory build-up is a critical question, which supply chains need to answer effectively – Out of the mammoth product portfolio for such markets, determining the right safety stock for servicing spot opportunities tends to be a challenge. There exists no fullproof solution on inventory build-up for emerging markets, as the small volume tail is huge, and, the only feasible solution to these opportunities lies in supply chain agility.

How quickly can you turn around products for the opportunity, from procurement to manufacturing to logistics – The answer lies in the agility quotient of the supply chain. From vendor management: how quickly can you avail a non-indented material, or, expedite deliveries of indented material, to finished product conversion: what are the available break-in’s available on your running production lines, including, changeover efficiencies, to logistics execution: Vessel space, process of choosing mode of shipments, INCO terms and possibility of quick deviation to the agreed terms with customers / banks, etc.

Supply Chain Agility is the key solution to servicing such spot opportunities, and, S&OP process robustness tends to play a major catalyst, boosting the agility quotient considerably. Through robust S&OP’s, supply chains can influence stakeholder/management buy-in, by tapping right data points and avoid roadblocks at execution levels.

Servicing the ‘Tail’ – ‘The Tail’ tends to be an important nomenclature for an emerging markets supply chain. One cannot live without the ‘Tail’. Supply Chains cannot choose to service products of value, thereby, ignoring the tail.

Customers and Geographies tend to look towards imparting consolidated businesses to servicing organizations with wider portfolios, and the tail must be bucketed with runners for business continuity.

Under such scenario’s, servicing the tail product list with low volumes and values becomes a major challenge for the supply chain organization, in terms of, availing the required priorities from their vendors and own in-house resources. In today’s challenging manufacturing environment, there is a vast focus on efficiency optimization, by way of, reducing redundant capacities – equipment changeovers, pack specificity for low volumes, small batches, small vendor lots, etc. There will be drastic instances wherein constrained resources can derive manifold of revenues from runners, vs, servicing tail products, and, pulling resources to service the tail requires immense stakeholder understanding.

There can be certain methodologies to seamlessly service the tail products, but, at a cost, and, due cost-benefit analysis needs to be undertaken prior to adopting/choosing between these options. Some key options, which, the supply chain tends to look upon, are: ‘Make vs buy’, wherein, the in-house resources keep churning out the focused portfolio for the organization, and, tail products are outsourced – This option has a nuance of entry barriers for certain geographies, plus, the fact that, the low volumes from the outsourced agencies can be critically costlier. Another option is to de-mark certain in-house resources just for tail products, where, efficiencies do not hold ground. Under any chosen scenario, there exists a dire need for clear communication on what can be serviced, and, what cannot, which ensures that customer orders do not age beyond a decided timeframe.

Seamless serviceability to emerging markets is a daunting assignment for supply chains, and, there exists a need for concise communication on the ability to deliver on the case to case basis. Majority of the times, supply chains tend to chase around /expedite/push resources for serviceability, but, there is a considerable need to clearly strategize and evaluate the capabilities of resources for seamless business continuity.