Add to cart: Digital Procurement for B2B is the New Normal
Add to cart: Digital Procurement for B2B is the New Normal
Digital procurement for B2B is on the cusp of a significant transformation. Supply chain disruptions through the pandemic are causing CPOs to look at B2B procurement in a new light. While the KRAs of quality, cost, and delivery continue to be relevant, there is an increasing demand for spend analysis, transparency, data, supplier reliability, and risk management. In the near future enterprises will get a more personalized customer experience similar to what individuals get from B2C e-commerce.
What is Digital Procurement for B2B?
Digital procurement for B2B migrates enterprises from ad-hoc and offline buying to a digitized source-to-pay platform. It replicates the customer experience of a B2C e-commerce marketplace.
Like a B2C e-commerce marketplace, a B2B online marketplace offers a catalog of line items spread across product categories. Users can browse through the catalog to compare suppliers, brands, and products. They can compare costs, volume discounts, expected time of arrival (ETA), and inventory availability to place orders.
However, B2B e-commerce offers several advantages, and therefore enterprises have been drawn to it for a long time now.
Reasons for Adopting Digital Procurement Before the Pandemic
The following reasons had been driving enterprises’ adoption of digital procurement before the pandemic:
- Faster Delivery: Agility is a significant challenge in enterprise procurement. B2B online marketplaces offer quicker and cheaper delivery than their offline counterparts and are an enabler of value.
- Cost Control and Compliance: Cost efficiency is a critical KPI for procurement teams. B2B e-commerce platforms enable inter-supplier comparisons and thus augment ease of spending control and compliance.
- Scale: In manufacturing, order sizes surpass the scope of a piece-meal approach and is critical to procurement officers. B2B marketplaces can fulfill large scale industrial purchase orders.
- Quality: The quality of industrial supplies determines the quality of industrial output. B2B marketplaces deploy internal quality control procedures that foster trust creation for enterprises.
Reasons for Upswing in Digital Procurement Through the Pandemic
While online shopping benefits in the B2B segment were visible long back, the pandemic has fastened the move towards digital procurement.
- Risk Management: Supply chain disruptions have been a significant challenge for enterprises. B2B marketplaces have responded with better data analytics, cloud computing, and the internet of things capabilities to augment supplier visibility.
- Reliability: B2B marketplaces with diverse and inclusive supplier ecosystems are less prone to supply chain disruptions than their offline counterparts.
- Safety: The pandemic has pushed the need for ensuring people’s health and safety. The online workflow supports collaboration across the supply chain and is safer than offline models of procurement.
Integrated Solutions: B2B procurement platforms allow enterprises to track, control, negotiate with suppliers, and report from a single platform. It will enable industrial buyers to get a B2C-like customer experience.
How Will Digital Procurement Make Life Easier for CPOs in the Future?
B2B marketplaces have seen a large scale adoption for some time now. Before the pandemic, the procurement officer’s responsibilities were those of negotiation and compliance. Beyond the pandemic, these responsibilities are likely to give way to supplier relationship building and risk management.
B2B procurement automation will soon upgrade to include artificial intelligence and machine learning capabilities. This will lead to a more personalized customer experience, share product recommendations, and set reminders to prevent inventory stock-out situations.
The PPE Shortage of 2020: 4 Insights for Your Supply Chain
The PPE Shortage of 2020: 4 Insights for Your Supply Chain
A recent press release published by the Department of Health and Social Care in the UK on 25 June suggested that about 2 billion PPE items were delivered to the frontline workers since the start of the pandemic. This outcome, the release said, was a collaborative effort of the government, NHS, industry bodies and the armed forces, to massively scale-up distribution networks. In the last two months, this news has come as a welcome relief to everyone, especially, frontline workers. What the government says it has achieved is no small feat.
However, some reports such as the British Medical Association suggest that about 1 in every 2 frontline UK doctors surveyed had to source their own PPE. Even Italy, which has one of the best public health systems in the world, was dependent on imports and donations of protective equipment and they didn’t have enough to fight the pandemic.
Could many of these have been prevented if they had access to effective and adequate PPE? The answer is a resounding yes. However, our unpreparedness to handle the PPE demand was largely due to the global nature of the crisis. In a scenario where a particular country or a continent were only affected, the rest of the world could have replenished the PPE demand. The global nature of this crisis has accentuated this shortage of PPE around the world. This does not mean that there are gaps in all global supply chains. Even before coronavirus struck, global trade volumes were falling for the first time since the 2008-2009 financial crisis.
In fact, what the pandemic has really done is reinforced the focus on the importance of medical supplies and products in the supply chain. According to a report by WTO, trade in medical products (personal protective products, hospital and laboratory supplies, medicines and medical technology) which have been described as critical and in severe shortage during the COVID-19 crisis totaled about USD 597 billion in 2019, accounting for 1.7% of total world merchandise trade.
Read: COVID19: The Three Phases of Recovery in Manufacturing
Today in the aftermath of the pandemic, it is now estimated that the global personal protective equipment (PPE) market, which was valued at USD 52.7 billion in 2019, is expected to reach USD 92.5 billion by 2025. A number of countries and companies, including us, have repurposed their supply chains to meet demands of masks, sanitizers and medical equipment locally and globally.
To ensure this demand continues to be met, organizations need to invest in increasing visibility and customise the operability of their supply chains if they intend to meet the complex demand patterns across countries and companies alike. These are a few lessons that we have learned from the disruption caused by the coronavirus. These practices will go a long way into exemplifying supply chains of the future.
Listen: How We are Enabling UK Businesses to Get Back to Work.
1) Adapt and learn
The modern supply chain is long and complex with multiple links. Therefore, it is important to establish accurate and timely communication between the suppliers and end-consumers. To ensure that it happens, and that the transfer of information doesn’t get lost in translation, there needs to be open communication between countries where the disruption of one supply chain can be overcome by another in the future. Localisation of supply chains is one thing, but tighter supply networks could also lend better enforcement of supplier standards and improve product quality. Take for instance, Since the 2011 disaster in Japan, global auto suppliers have changed the way they produce and source the auto parts required to assemble a single car, including raising stocks, diversifying production and creating alternative manufacturing capabilities.
2) Keep your customers close, keep your suppliers closer
Let’s consider the example of the NHS. The Category Tower Service Providers (CTSPs), which are responsible for approving the companies that appear on the Secretary of State for Health and Social Care (SCCL) catalogue, are not required to diversify the supplier base for the products in their “category tower”. This is done so, in part, to create an oligopoly or limit the competition. However, in the current circumstances like these, the NHS has the opportunity to expand the SCCL catalogue so that procurement of scarce goods in bulk can take place. This means that more suppliers will have the opportunity to enter the category tower and increase reliability of supply during disruptions.
3) Increase visibility across the supply chain
The modern supply chain is long and complex, but it doesn’t have to be opaque. Investing in increasing visibility across the supply chain will enable executives to make decisions in real-time, conducting an end-to-end risk assessment, identifying potential problem areas, and devising crisis management strategies. Visibility across the supply chain is also critical for making decisions around how to restart lines, prioritize products, and manage relationships with suppliers. A large networking solutions company provides data on changes in supply and demand to partners continuously so they can respond quickly with the help of an technology platform, to connect suppliers and the company. This allows all the firms to have the same demand and supply data at the same time, and keep track of changes in supply or demand immediately.
4) Invest in monitoring tools and analytics
The companies that have responded well to the crisis are ones that took a digital-first approach. They invested in monitoring tools and analytics to forecast the changing demand patterns using market, economic, and social media indicators at the beginning of the pandemic and adjusted their operations appropriately to avoid overstocks and stockouts.
The coronavirus pandemic has given us a lot of food for thought. If nothing else, it has proved that our supply chains need to be more resilient to such unplanned disruptions. Business leaders need to get together to discuss all the possible “what-if” scenarios and the plan of action for the same. The one thing that will aid them in making these decisions? Investing in making their supply chains more transparent and technology-driven.
Moglix has extensive experience in streamlining the supply chains of some of the biggest companies in the world. Our range of solutions including Optimize MRO, Digitize procurement, Simplify packaging, SaaS, and now PPE has helped us in supporting businesses to handle this unprecedented crisis.
How Can Sustainable Packaging Enable Cost Reduction During Covid19?
How Can Sustainable Packaging Enable Cost Reduction During Covid19?
The need for enterprises to be more efficient could have not been more relevant than it is today, thanks to the huge costs imposed by the COVID19 pandemic. One of the ways in which enterprises that manufacture consumer goods can reduce their costs is by reducing wastage in packaging. With intelligent innovation, it is possible for enterprises to combine economic efficiency with compliance with health and hygiene requirements in packaging to achieve the best of both the worlds. Packaging that entails the reduction of wastage and seeks to enable enterprises to do more with less creates new avenues for cost reduction while ensuring hygiene factors for contactless delivery. Some of the major ways in which packaging can enable such hygiene centric cost reduction are as follows:
Reimagine Packaging Design for E-Commerce and Contactless Deliveries
Give the need for social distancing in the wake of the COVID19 pandemic, a clear trend that is emerging in the consumer packaged goods industry is a shift of consumers away from supermarkets, malls, and grocery stores and towards e-commerce enterprises that offer contactless delivery of goods. As such, the paradigm on which packaging is designed has shifted from the locus standi of store shelves to that of e-commerce and online retail. This implies that manufacturers of consumer packaged goods need to pivot their packaging design for greater and clearer visibility on personal devices like smartphones and tablets rather than store shelves. Doing so can actually allow enterprises to reduce packaging costs by forgoing the packaging requirements of grocery stores and supermarkets.
Vendor Consolidation and Single-Window Approach to Procurement of Packaging
Given the evolving contours of quarantine and lockdown across diverse geographies and the decentralized regulatory environment governing these, it makes enormous good sense to suggest that enterprises shall do well to focus on a single-window approach for the procurement of packaging materials to reduce the risks and costs associated with disruptions and freezing of local logistics. An integrated platform for sourcing packaging materials from a single vendor with strong upstream partnerships with local MSMEs and logistics service providers can enabler manufacturers to reduce costs, TAT and respond swiftly to market demand in niche markets.
Digitization of Packaging Supply Chain to Enable Mapping of the Demand and Supply Gap
One of the major factors affecting the packaging supply chain is the manual workflow that impairs the optics of vendor KPIs for packaging. A switch to digital packaging supply chain platforms can enable enterprises to map supplier capacity, objectively assess the TTR (time to recover) from lockdowns, and consequently quantify the quality, cost, and delivery metrics. This shall further allow enterprises to make their packaging supply chains faster, safer and more de-risked during the COVID19 pandemic and beyond.
Differentiate the Necessary Costs from the Unnecessary Costs in Design
The best packaging designs that lead to cost reduction follow a 4D Methodology of ergonomics, cost, sustainability, and logistics. If you want to bring down costs without impacting performance, then you need to think about how you can curb costs on aesthetic aspects. You can do in-depth scrutiny of the below questions to enable the best possible cost optimization process within each carton:
- Can your printing cost be optimized to highlight essential information only?
- Do you need full-color printing? Are there any design tweaks that can give coverage to the blacks and whites?
- Does your product need an inner pack and an outside carton?
- Can your packaging material have more environment-friendly materials like jute, which can reduce your carbon footprint?
Use of Technology to Optimize Packaging Costs
Brands are increasingly using popular CAD systems like Solidworks, Siemens NX12, and ArtiosCAD to ensure the right size and strength needed to package a product. Such technologies will help your enterprise to figure out a lot of information like:
- Dimensions of the inner pack and outer cartons
- Use of right packaging design like blisters, clamshells, corrugated boxes, paper packaging, sacks, or boxboards
- Use of the right dunnage material and size for full protection of the product throughout its journey to the end customer
- How does the carton need to be stacked on a pallet to enable maximum cartons shipped per pallet and higher pallet density?
- Configuration for loading container that holds the pallets
With a focus on these factors in packaging, supply chain professionals can effectively protect the product during its shelf life and the integrity of the contents inside the package. As a result, enterprises gain from reduced cost benefits like no product re-work, lower returns and replacements, and higher savings due to lower occurrence of damaged goods or ‘written off stock’. Also, shipping costs reduce because enterprises can do away with dead weight and optimize volumetric weight and thus make their supply chain more efficient.
Ergonomic Pallet Redesign
Companies are also looking to reconfigure the labor aspect involved in the ‘per piece’ packaging with compact packaging. This technique of simplifying the packaging process needs less labor and brings down the amount of warehouse space needed for storage. Such innovation helps the brand redesign pallet configuration and ship more product volume per pallet. Take the case of an online home décor brand, Exclusive Lane. They used India Post for delivery services. But this service stipulated the wrapping and stitching of products in jute. This step not only took 2 to 3 hours but also an additional cost to execute. When they changed the delivery service, they were able to do away with this packaging cost overhead.
What is Good for Unit Economics Can Address Hygiene Factors Too
It is apparent that in the wake of the COVID19 pandemic enterprises across a wide spectrum of industry verticals will have to prioritize hygiene even as they continue to explore new ways to lessen the devastating impact of COVID19 on businesses. Even a 1-3% cost reduction assumes importance in this context and sustainable packaging has the potential to create new avenues of cost efficiency for enterprises. As enterprises stare at a new normal characterized by the need to be more efficient, safer, and faster in their supply chains, the shift will transform from a trend to a mainstream practice in the packaging domain. In doing so, they are also managing to bring down costs and improve toplines, as seen in the above examples.
COVID19: The Three Phases of Recovery in Manufacturing
COVID19: The Three Phases of Recovery in Manufacturing
How badly has the manufacturing sector been hit by the COVID19 pandemic? Is recovery from the current situation even possible? Given the huge costs imposed by the lockdown and the unpredictable contours of the spread of the contagion, what can manufacturers do to resume their business once the first signs of ‘Unlock 1.0’ are visible? If so, what trajectory will enterprises in manufacturing need to take to make up for the significant losses that have already occurred and the ones that are anticipated to emerge over a period of time?
The United Nations (UN) has projected that the global economy will shrink by 3-4% in the year 2020. As an outcome, manufacturing enterprises need to introspect on the steps that they need to take today, tomorrow, and over the course of time, leading into the future of a post-pandemic world. At Moglix, we believe that enterprises need to visualize the road to recovery by first rebuilding trust today, enabling businesses processes with technology for tomorrow, and building futuristic supply chains using advanced technology for the foreseeable future beyond COVID19.
What Manufacturers Need to Do Today?
Rebuilding Trust: The Great Lockdown in 2020 has lent a major shock to public healthcare systems and has created an enormous trust deficit at both individual and institutional levels. In the manufacturing sector, trust erosion has emancipated in many forms, including withdrawal of labor from participation in production processes, opaqueness in supplier collaboration, and a lack of visibility into insights on key performance indicators of cost, quality, and expected timelines of delivery. As such decisions to deploy resources and engage them into manufacturing during ‘Unlock 1.0’ must be pivoted on addressing the trust deficit secularly first within enterprises and then scaling up across all enterprises constituting the supply chain in the manufacturing sector.
- Ensuring Health Protection: At the enterprise level, this calls for ensuring the availability of quality rated personal protective equipment (PPE) kits, and medical kits for all employees and the creation of fool-proof systems for implementation of standard operating procedures for regular sanitization of the physical environment at the workplace. The second imperative is to ensure transparency in sharing information on the deployment of such social distancing and contact tracing measures on a “need to know basis” among all stakeholders in the supply chain while staying within the ambit of data privacy.
- Fixing the Broken Fragments with Data: Reviewing supplier collaboration and manufacturing workflows today will play a huge role in creating an open and transparent dialog among OEMs, CMs, EPC enterprises, MSMEs, and suppliers across multiple tiers in the supply chain. A pilot project for mapping the supplier network can follow a template similar to the one used by bankers to conduct a stress test of debtors during the Great Meltdown of 2007 and focus on three Cs: character, capability, and credibility. One way to do this is by creating a similar stress test in manufacturing and encompassing the three Cs can be of paramount importance:
- What is the site location of the supplier including the city, region, and country? Do we have insights into the real-time status of COVID19 spread there?
- Is the supplier adhering to social distancing and contact tracing practices to steer clear of COVID19 risks?
- What are the parts procured from this site? What is the part number and description, part cost, annual volume for this part, rate of replenishment of inventory for this part, and the total spend (per year) from this site?
- What is the end product including the OEM’s end product(s) that uses this part? What is the profit margin for the end product(s)?
- What are the lead times from the supplier site to OEM sites in days?
- What is the Time to Recovery (TTR)? What time would it take for a site to be restored to full functionality if the supplier site is down, but the tooling is not damaged or if the tooling is lost?
- What is the cost of loss if expediting components from other locations is possible? If so, at what cost?
- Can additional resources (overtime, more shifts, alternate capacity) be organized to satisfy demand? If so, what is the cost?
- Does the supplier produce only from a single source? Could alternate vendors supply the part? Is the supplier financially stable? Is there variability in performance (lead time, fill rate, quality)?
- What are the mitigation strategies for this supplier-part combination? Who are the alternate suppliers? How to arrange excess inventory?
What Manufacturers Need to Do Tomorrow?
Enabling Business Processes with Technology: As enterprises in manufacturing and supply chain operations look to move beyond the immediate impact of the COVID19 pandemic over the next financial quarter, it shall make sense for them to scale up the best practices from the peak of the recessionary phase and integrate siloed data repositories for multiple functions into a compact source to pay (S2P) platform for a single-window approach to manage approvals and authorization for procurement decisions. This shall serve the purpose of augmenting enterprise-wide transparency and building greater efficiencies by facilitating multi-tenant models for collaboration spanning across the nerve center leadership, customer relationship, and supply chain teams to optimize costs. Small steps towards instituting a digital “cost control tower” to prioritize urgent and important payments and define clear reporting metrics for managers to track the liquidity status in real-time may over the period of the next financial quarter evolve into rolling forecasts to identify major areas of EBITDA risks and finally implement zero-based budgeting (ZBB) to achieve greater fiscal prudence for discretionary expenditures and indirect procurement. Authorization and access to such information systems may slowly be devolved amongst mid-level managers to move the enterprise forward along the lines of supply chain digitization and learning curve from a strategic to a tactical level
What Manufacturers Need to Do in the Future?
Build Futuristic Supply Chains using Advanced Tech: One of the major lessons coming out of the COVD19 pandemic for enterprises in manufacturing shall be gaining visibility into the next steps and future-proofing their supply chains. They will have learned the value of anticipating the next supply chain disruption in advance and adjusting their positions in the market while they still have time to do so.
Using Advanced technologies like contract management and predictive analytics that allow enterprises to stay informed on their supplier relationships, map the contributions of suppliers by value and volume, and assess their exposure to volatile business environments are likely to emerge as the enablers of de-risking supply chains. With AI, ML, and advanced analytics being able to capture deeper insights on the next steps in the supply chain right up to the end consumer, the direction of supply chain automation is likely to direct towards demand-driven planning and forecasting (DDPF).
While temptations to stay in denial of the challenges in a post COVID19 world and to retain the status quo may still be strong, enterprises shall do well not to risk a return to pre-COVID19 coordinates of workflow, collaboration, and distribution. Instances such as the Y2K, the subprime crisis of 2007, and climate change should serve an adequate warning to enterprises to steer clear of the lure of wishing away a rebound of challenges and then waking up to grave realities. A future that is driven by a high degree of technology enablement for information sharing, engaging in transparent dialogs to drive outcomes, and creating coordinated responses to a crisis may present us with a vertical upward shift in costs. Irrespective of how steep the shift in costs may be, it shall be prudent for enterprises to believe that they shall be able to pass on such incremental costs of technology enablement across the downstream of the supply chain right up to the end consumer.
Getting Indian Businesses Prepared for Restarting the Supply Chain During Lockdown 4.0
Getting Indian Businesses Prepared for Restarting the Supply Chain During Lockdown 4.0
The latest MHA guidelines for enterprises to resume commercial activities during the ensuing period of lockdown 4.0 reflect the solutions required to resolve the local challenges posed by the Covid19 pandemic to India following “mass customization”. The roadmap to be adopted by enterprises for “walking off the seatbelt” must address the twin challenges of scale and diversity that are representative of the economic and geographic environments of India. Given the diversity in the rates of morbidity, mortality, and recovery across regions in the country it is evident that the opening up of the economy while being staggered shall also be localized and follow different timelines across regions and industry verticals in the economy. It is in view of these emerging realities that enterprises need to decode the revised MHA guidelines for resuming activity during the nationwide lockdown.
National Directives for Covid19 Management and Standard Operating Procedures: MHA Guidelines
The latest order for lockdown 4.0 retains the status quo of preceding orders during the last 60 days of the lockdown while devolving regulatory functions of the business to local authorities to assess health risks and resilience of the apparatus for civil administration. It mandates that disinfectants be used for regularly sanitizing: entrance gate of building and office, cafeteria and canteens, meeting room, conference halls, open areas, verandah, the entrance gate of sites, bunkers, portacabins, buildings, equipment and lifts, washrooms, toilets, sinks, water points, walls, and other surfaces. Further, it deems the sanitization of all vehicles, machinery entering the premises, and thermal screening for everyone entering and exiting the workplace as mandatory. The National Directives for Covid19 management mandates compliance with the following workplace safety measures:
- It recommends that the practice of work from home be followed as much as possible.
- It requires enterprises to ensure on the best effort basis that employees install the Aarogya Setu app on their personal devices for safety in the workplace.
- It deems the wearing of masks as compulsory for people in public places and workplaces.
- It deems the making of adequate arrangements for temperature screening and hand sanitizers for people as compulsory.
- It deems as compulsory for organizations to sanitize workplaces between shifts.
- It deems as compulsory for organizations in manufacturing units to ensure frequent cleaning of common surfaces and makes handwashing mandatory.
Reimagining the Solutions for Lockdown 4.0 from a Local Perspective
One of the major highlights of the extended period of lockdown 4.0 from the standpoint of supply chains is the approach to localization of challenges and solutions thereof. The latest order from the MHA for lockdown 4.0 clearly suggests that the delineation of red, green, and orange zones will now be decided by the respective state and UT governments. It also devolves decision-making powers for demarcation of buffer and containment zones to district-level authorities, while requiring them to operate within the guidelines of MoHFW. Enterprises that are looking to resume economic activity in the ensuing period are now required to take cognizance of the decentralization of the business regulatory framework and must look to engage with local authorities, local suppliers, and local communities of people.
Implications for Supply Chains and Workplaces of Enterprises Due to the Localized Approach
The new approach enshrined in the MHA order for lockdown 4.0 brings into focus the aspects of localization of supply chain practices and engagement with business and civil regulatory institutions at the district, state, and UT levels.
Enterprises that are preparing to restart their supply chains thus need to be more aware of the evolving on-ground situation in states and UTs to understand the regulations on the mobility of people, materials, and multimodal logistics and thereafter map their availability for work across multiple locations in their supply chain.
For enterprises that are multi plant operators, this requires them to adopt a new decentralized and bottom-up approach to planning, implementing, and monitoring supply chain operations in different locations across states and UTs in India.
By implicit rationale, it also calls for enterprises in the manufacturing sector to take a fresh look at the upstream and downstream activities of their supply chain. Given the wide diversity in the rates of spread of the COVID19 pandemic across locations, it is prudent for enterprises to keep track of operations across every plant location separately.
The localized approach to lockdown 4.0 calls for a fresh mapping of suppliers against procurement requirements for each plant location. This shall, in turn, set the tone for mapping the available modes of hyperlocal transport, engaging with logistics service providers, planning the logistics routes and number of sorties required for each vehicle, and conducting a gap analysis of headcount of people for covering each touchpoint in the supply chain from the point of manufacturing to the points of distribution.
Social distancing norms for as long as they apply shall compel enterprises to operate at sub-optimal production levels thereby drastically cutting down gross value addition at multiple levels in the supply chain and a search for new models of costs. Owing to the different timelines of the opening up of regions across the country, a restructuring of the supply chain is bound to happen. Enterprises located in regions that are first to open up shall have the first-mover advantage, albeit in the short term. The resumption of economic activities in the regions that lead the race to reopen shall create a local demand for industrial supplies and local suppliers located in proximity to these enterprises shall be the first in line to secure these orders for raw materials, intermediate goods and class C items like packaging and MRO. In the short term, as long as all the regions in the country do not open up for the economic activity to resume, local supply chain ecosystems resembling the raisin-pudding model envisaged by the scientist JJ Thomson shall emerge. As long as logistics across adjacent states shall remain cut off, such local supply chain ecosystems may also increasingly witness opportunities for arbitrage and speculation, thereby affecting new pricing and revenue enablement models in the newly reopened regions.
Building Supply Chain Capabilities for the Short Term and the Long Term
Given the new realities of supply chain restructuring that are about to emerge during lockdown 4.0 and beyond, enterprises need to start building capabilities now and look to scale best practices through a repetitive model to arrive at a new normal in the long term. Creating local supplier networks and investing in collaborative supplier relationships in local geographies shall be integral to restarting economic activity in the short term. Partnering with these new suppliers in the short term and moving towards strategic supplier relationships shall require new supply chain models driven by collation and analysis of data on key performance indicators of supplier performance. Agile collaboration with suppliers shall require switching to a digital workflow to fast track the PR-to-PO process. Most importantly it shall be necessary for enterprises to leverage cloud platforms to store such data and then apply sensing, processing, and learning capabilities of artificial intelligence to drill down their supplier networks to understand their supplier risk exposure better to stay insulated from supply shocks in future. A new normal shall eventually emerge from these altered ground realities.
The New Normal: Supply Chain Touchpoints Separated by Distance and Connected by Technology
The revised MHA guidelines for business enterprises while being effective for the ensuing period of the lockdown 4.0 are integral to the strategic evolution of the economic, geographical, and regulatory environments for business in India towards a more federal and localized supply chain design. There is a likelihood that enterprises may now have to work with a unique supply chain design composed of pools of resources, materials, and people within local jurisdictions and geographical footprints while being connected to each other in India and across the globe through high-end supply chain technology platforms and digital systems.
The takeaways from the localized approach to the lockdown shall in the long term lead towards a trajectory whereby all functions of business shall pivot on gaining visibility into the next steps in the local supply chain, making their supply chains more granular and agile to respond to opportunities and risks in the local environment, designing low-touch processes to stay operational from remote locations and building capabilities to align local resources towards the next opportunities in the shortest turnaround time. The Covid19 pandemic has caught business enterprises unawares amidst a massive supply chain disruptions. The supply chains of the future shall be much more localized and technology-enabled to enable enterprises to insulate themselves from the risks posed by opaque supplier relationships, failures of long-distance logistics, and look to move closer to the point of consumption.
Decoding Workplace Implications for Enterprises From the Guidelines for Lockdown 4.0
Decoding Workplace Implications for Enterprises From the Guidelines for Lockdown 4.0
In the wake of the lockdown 4.0, business enterprises are planning to invest efforts and time now to map their requirements of PPE kits afresh as they aim to restart and ramp-up commercial activity. In the wake of the evolving contours of the efforts to combat the COVID19 pandemic in India through an extension of the lockdown up to 31st May 2020, the Ministry of Home Affairs, Government of India has issued revised guidelines for gradually reopening chosen industry verticals and sectors in the economy while ensuring adherence to:
- Basic preventive measures
- Preventive measures for offices
- Measures to be taken on the occurrence of cases
- Disinfection procedures to be implemented in case of occurrence of suspect/confirmed cases
While business enterprises located in such buffer zones and containment zones are not yet allowed to resume commercial operations, the MHA guidelines for the resumption of economic activity during lockdown 4.0 apply to all enterprises located in green, orange and red zones and assume significance from the standpoint of people, operations, and supply chain.
What Do the Basic Preventive Measures Imply for Enterprises? Procure PPE Items In Bulk?
The basic preventive measures mandate physical distancing of at least one meter at all times, use of masks, regular washing of hands for at least 20 seconds with hand sanitizers, and adherence to respiratory etiquette. The basic preventive measures apply to all people and are agnostic of commercial activity. However, this assumes importance from the standpoint of enterprises that operate in densely populated physical environments and have high exposure to a traffic of people such as retail, public transport, MSME, food, and beverages, pharma retail, repair, and maintenance services, MRO, healthcare, etc. Enterprises in these verticals should ideally invest in the bulk procurement of PPE items like alcohol-based hand sanitizers, N95 masks, coveralls for their employees. For enterprises operating in the downstream of the supply chain, it is important that they train their staff adequately in practicing zero-contact delivery to ensure the safety of themselves, their customers, and the community at large.
What are the Implications of the Preventive Measures for Offices? Is Digital Workflow the New Normal?
The new set of preventive measures for offices during Lockdown 4.0 requires enterprises operating from offices to restrict the entry of visitors apart from the organizational staff, avoid physical meetings and restrict the use of hard copy documents and files for official correspondence as much as possible. Given the need for social distancing, it is also important that enterprises make the point of common use in their infrastructure low-touch. For instance, no-touch equipment like doors, cloud installed human resource information systems for attendance in lieu of biometric machines, and automated office equipment are recommended. Beyond these, the standard measures for social distancing like regular screening of body temperature of all people entering the premises of the office using IR thermometers, soap dispensers, and sanitizer dispensers for regular sanitization are advised.
For enterprises, this translates into the requirements of designating the workplace infrastructure management team to map seating arrangements at the workplace for adherence to social distancing, creating daily rosters for the staff to attend to work and thus accordingly map the supplies of PPE items. In fact, it is advisable that data be maintained to proactively map PPE line items, volumes of each line item for a financial quarter, local PPE suppliers with credible records, procure the items in advance and further, create a separate PPE store with due diligence for safe storage, replenishment of inventories and disposal of used items as per instructions recommended by the MoHFW. Further, it is also advised that enterprises gradually move up the levels of digital workplace maturity by resorting to the use of online platforms for collaboration, sharing data on a “need to know basis” and digital workflows to make business processes low-touch. This applies especially to processes with external dependencies for the enterprise such as purchases, invoicing and payments, inventory management, track and trace of cargo and procurement, direct contract management, and supplier collaboration.
What Do the Measures to be Taken on the Occurrences of Cases Imply? Can Contact Tracing Reduce Risks?
While the guidelines of the MHA recommend measures for self-isolation and quarantine for both suspect and confirmed cases of COVID19, it calls for enterprises to be more agile in ensuring compliance with preventive measures. It makes good sense to suggest the reorganization of the workplace from the ground up and deployment of screening measures to control the sporadic transmission of the pandemic at the workplace. The use of the Arogya Setu app that facilitates contact tracing as recommended by the government can be a prima facie precursor to detecting and mitigating health risks and its spillover to business. This can especially be the case in business processes that entail mobility such as logistics, warehousing, inventory management, and supply chain.
What are the Implications of the Disinfection Procedures for Enterprises?
In the event of detection of COVID19 positive cases, the new guidelines for lockdown 4.0 mandate measures for thorough disinfection of the entire building premises before resuming work and close monitoring of the health of office staff with a low-risk exposure for the next 14 days. This implies that before resuming commercial activity, enterprises need to be ready with adequate stocks of surface cleaning agents, surface cleaning sprays, floor disinfectants, Lysol disinfectants, and disinfectant sprays to cope with any eventuality. The guidelines handbook mandates that disinfectants be used for regularly sanitizing: entrance gate of building and office, cafeteria and canteens, meeting room, conference halls, open areas, verandah, the entrance gate of sites, bunkers, portacabins, buildings, equipment and lifts, washrooms, toilets, sinks, water points, walls, and other surfaces. Further, it deems the sanitization of all vehicles, machinery entering the premises, and thermal screening for everyone entering and exiting the workplace as mandatory.
PPE Kits, Automation Software, and Digital Workflow: The Future of Workplaces in India
On a concluding note, the latest guidelines for lockdown 4.0 require enterprises to adapt to a new normal for the long term by securing the lives of its people and communities that are dependent on them. This can be enabled through agile collaboration between PPE suppliers and manufacturers on one hand and business enterprises that need them on the other for seamless procurement and distribution of PPE medical kits. Further, the requirement for social distancing calls for a new work culture in India that is driven by higher automation of programmable functions and greater penetration of technology into business processes especially in the ones that require teamwork, collaboration, and exposure to external environments beyond the control of enterprises. Paperless workplaces and workflows are here to stay.
Enabling Indian Food and Beverage Supply Chains During COVID19 and Beyond
Enabling Indian Food and Beverage Supply Chains During COVID19 and Beyond
Food and beverages (F & B), the fourth largest sector in the Indian economy, has continuously endeavored to keep the supplies of essential goods up and running in the wake of the COVID19 pandemic. While the F & B sector had garnered annual revenues of USD 52. 75 bn in FY 2018-19, it had been experiencing growing headwinds over the last 12 months before the onset of the COVID19 pandemic. It was able to register a growth in value in January and February in FY 2019-20 to the tune of 8.6%. Still, the recovery was cut short by the outbreak of the COVID19 pandemic in March, with growth slipping to 6.2%, owing to disruptions to its supply chain emanating from a wide range of factors.
How Does the Geographical Footprint of Indian F & B Affect Its Supply Chain Ecosystem?
The Indian F & B industry finds the presence of several large enterprises with a geographical footprint spread over 40 Mega Food Parks across the country. These Mega Food Parks may be further classified into the categories of: in operation, in progress, and in principle. Five of the top enterprises in the F & B industry in the country run food processing and manufacturing facilities at 17 “in operation” Mega Food Parks, with four such Mega Food Parks each in the north, west, and south and two each in the east and the north-east respectively. These large enterprises also have food processing facilities across the 21 “in progress” Mega Food Parks, with eight of these being distributed across the north, five across the southern states, and four across the central-south zone. The industry is characterized by the presence of a well-established distribution network, and non-price competition between the organized and unorganized segments. Traditionally the industry has benefited from the easy availability of raw materials from farmgate players, low labor costs, and value addition by post-farmgate players and MSMEs.
What Are the Supply Chain Risks and Operational Challenges Facing Indian F & B Now?
From the standpoint of an analysis of the supply chain risks and operational challenges facing the Indian F& B industry, the following factors assume significance:
- the epidemiological dynamics across the geographical footprint of Indian F & B
- the regulatory guidelines for crop harvesting and threshing and social distancing measures to prevent the spread of COVID 19
- the dependence of Indian F & B enterprises on global suppliers and markets
- the dependence of Indian F & B enterprises on supplies for value-added services
- finally, the supply chain risks emanating from a breakdown of contractual obligations and compliance mechanisms in hotspots, red zones, and containment zones
How Does the Spread of the COVID19 Contagion Impact the Indian F & B Industry?
From the standpoint of large Indian F & B enterprises, it is essential to note that its geographical footprint across the Mega Food Parks and beyond farm gates has a direct bearing on the food supply chain and exposure to COVID19 led disruptions. 80% of the final products manufactured and processed by Indian F& B industry comprises of non-food grain items like poultry, dairy farm products, fruits and vegetables, sugars, permissible additives and preservatives, and edible oils and are driven perishable food supply chains (FSCs). These are low-shelf life products, with 60% of volumes being handled by non-farmgate players. Further, a whopping 85% of the FSC is handled by MSMEs that are dynamic and clustered near and in towns. The dynamics of the contagion thus far indicate that urban areas with a high density of population and congested physical environments are especially vulnerable to risks of transmission of the #COVID19 pandemic.
What to Make of the Regulatory Guidelines and Standard Operating Procedures to Combat COVID19?
An analysis of the Indian FSC on the lines of segregation of farmgate players, post-farmgate participants, and downstream MSMEs can enable F & B enterprises to act with prudence and proactively map contingency and recovery mechanisms to ensure compliance with regulatory measures.
Farmgate Players in Indian FSC
The Department of Agriculture, Cooperation, and Farmers’ Welfare, Government of India has issued guidelines for harvesting and threshing for farmgate participants in the FSC. While foodgrain items make for only 20% weight of the FSC in India, the dependence on several critical agro-based products hold relevance to the F & B enterprises.
Post-Farmgate Players in Indian FSC
Indian F & B enterprises face higher exposure to post-farmgate activities that account for 60% of the FSC. Data reported in the National Sample Survey 2011-12 suggests that post-farmgate activities are undertaken in semi-urban areas, towns, and tier-II cities in regions that are close to farm areas. Such physical proximity has traditionally served to reduce the TAT of cargo, reduce logistics costs, and added a measure of speed to the FSC that holds relevance for perishable goods. The low rates of morbidity and mortality reported thus far, coupled with easy access to healthcare services and regulated commercial real estate, make post-farm gate participants less likely to be disrupted by the COVID19 pandemic. Furthermore, the presence of organized labor makes it easier to implement social distancing measures stated by the Ministry of Home Affairs vide the National Directive on COVID 19 Management and Standard Operating Procedures.
MSMEs in Indian FSC
MSMEs form the third key stakeholder group in Indian FSCs. NSSO 2011-12 data suggests that MSMEs handle between 72% and 83% of the F & B products consumed in India for wholesaling, processing, logistics, distribution, and retailing, all of which are labor-intensive and operate with high densities of workers in small commercial real estate. Given the trajectory of the COVID19 metrics thus far, it makes sense to suggest that MSMEs that are engaged in the downstream supply chain are the most susceptible to COVID19 risks. With 80-90% of retailing and distribution being routed through MSMEs operating in densely populated urban areas, the downstream of the Indin F & B supply chain stands at risk of being disrupted.
How Does Dependence on Suppliers for Value Added Services Affect Indian F & B Enterprises?
Dependence of Indian F & B enterprises on domestic MSMEs for class C items like packaging and labeling adds to the supply chain risks. Given the economic environment of MSMEs as discussed above, the withdrawal of people from workforce participation, compromising with regulatory guidelines, and exposure to red zones and containment areas make them susceptible to supply chain disruptions. Further, the bundling of services like third-party logistics and warehousing makes MSMEs more vulnerable to the risks of COVID19, thus raising the risks of inflated costs of packaging, warehousing, and distribution and higher turnaround time of cargo thereby affecting market outreach of enterprises.
Recommendations for Making Indian F & B Supply Chains More Efficient Now.
The Indian F & B industry, while being a leading player in the resolution of the impasse, is required to make its supply chain more efficient to withstand the disproportionate impact created by the Covid19 pandemic. Following operational and supply chain measures are recommended for deployment in the short-run (next two financial quarters):
- Map Exposure to Local Supplier Network in Red Zones and Containment Areas
In the wake of the VUCA (volatility, uncertainty, complexity, and ambiguity) elements that have been accentuated owing to the dynamics of the contagion across India, it makes sense for Indian F & B enterprises to regularly assess the on-ground developments across red zones and containment areas. Given the challenges that are likely to emerge in the downstream distribution of food products, a switch to smart packaging to enable more excellent track and trace of SKUs during the supply chain journey can create customer delight in times of crisis.
- Periodic review of HVACR in Plants and Warehouses and PPE
Given the prerequisites of the operating environment that the F& B industry has, there is a necessity to periodically monitor and review the working condition of cold storages and cold chains to ensure the freshness of perishable products. The most important measures to ensure the safety of the lives of people and ensure minimum disruption to production routines are the optimal procurement of personal protective equipment and regularization of the MRO supply chain. Periodic quality control audits of HVACR (heating, ventilation, air conditioning, and refrigeration) can enable the easy downstream distribution of food products when these are still fresh and fit for human consumption.
- Gradually Evolve to Sustainable Packaging to Protect Edible Contents to Address Health Risks
The immediate supply chain risks posed by the COVID19 pandemic to the downstream activities of wholesaling, retailing, and distribution of F & B products call for enterprises to take greater cognizance of the trust deficit among customers by the need for social distancing. Enterprises can do well to invest in partnering with suppliers that have the necessary capabilities of new product development and industrial-scale to provide tamper-proof packaging solutions that insulate the contents of edible items from the risks of contamination by pathogens during the supply chain journey. With the likelihood of a new normal of contactless delivery and models of low touch distribution, Indian F & B enterprises may like to drive pilot projects of innovation in sustainable packaging for edible items and scale-up deployment across product categories to reduce costs.
- Advance Booking of Logistics and Warehousing Capacity to Counter Surge in Domestic Demand
With an eventual reopening of the economy over the next financial quarter, a surge in domestic demand can hit logistics costs and, by implicit economic rationale, may invite a need for optimization of inventory holdings. Booking of logistics and warehousing capacity can reduce demand-pull inflationary pressures. Vendor managed inventory services for holding inventories can enable Indian F & B enterprises to unlock cash and rationalize working capital usage over the short term.
Beyond COVID 19: What is Next for the Indian F & B Supply Chain?
The COVID 19 pandemic, while having disrupted the downstream supply chains of Indian F & B enterprises offer a vast spectrum of takeaways that are likely to lead to the evolution of a new normal. Currently, the F & B retail market is dominated by food grocery stores and food services, both of which are growing at a CAGR of 25%. The overarching reliance on MSMEs for retailing and distribution routed through the manual workflow may witness a paradigm shift. It should enable Indian F & B enterprises to invest in temperature-controlled supply chain capabilities in urban areas, thereby allowing them greater control over the supply chain, volumes, and value. Given the non-price competition in the packaged F & B industry, a new technology-driven approach to the procurement of packaging and labeling can: reduce TAT of perishable goods, bring visibility into the supply chain journey of every unit of product, strengthen brand equity and reduce spoilage of food products.
Making Indian Pharmaceutical Supply Chains Agile During the COVID19 Pandemic and Beyond
Making Indian Pharmaceutical Supply Chains Agile During the COVID19 Pandemic and Beyond
The onset of FY 2020-21 has not gone as planned for the Indian pharmaceuticals industry, thanks to the supply chain disruptions caused by the COVID 19 pandemic. Accounting for 10% of the global volume and 1.5% of the value of global pharmaceutical production, the Indian pharmaceutical industry was projected to maintain the status quo on annual CAGR ranging between 10-13% and was all set to be the home to the third-largest market in the world the before the onslaught of the COVID 19 pandemic. However, prima facie reports from the top pharma industry associations including the downgrading of the Indian domestic pharma sector by rating agency ICRA from stable to negative suggest that the industry is likely to face transient supply chain challenges during the lockdown and beyond.
How Does the Geographical Footprint of Indian Pharma Affect Its Supply Chain Ecosystem ?
An analysis of the supply chain ecosystem of the Indian pharmaceutical industry can enable the industry to plan recovery measures to overcome the challenges that it faces in the short run. The Indian pharmaceutical industry is home to 3,000 companies and over 10,500 manufacturing facilities that include: captive R & D units, contract R & D units, established bulk drug clusters, established formulation clusters, emerging bulk drug clusters, and emerging formulation clusters. A substantial majority of the top 25 pharma producers in the country operate facilities in emerging formulation clusters in Sikkim, Baddi, Pantnagar, and Haridwar, established formulation clusters in Hyderabad-Medak and Aurangabad, and both established and emerging bulk drug clusters in Tarapur and Vishakapatnam.
What Are the Supply Chain Risks and Operational Challenges Facing Indian Pharma Now?
In the backdrop of the COVID 19 pandemic, the following factors assume significance in understanding the immediate supply chain risks and operational challenges facing the Indian pharmaceutical industry:
- the epidemiological dynamics across the geographical footprint of Indian pharmaceutical clusters
- the evolving contours of the framework of regulatory guidelines on COVID 19
- the dependence of Indian pharmaceutical companies on global supplier networks
- the reset to trade agreements and formulation of trade policies based on reciprocity and
- finally, the supply chain risks emanating from a breakdown of contractual obligations and compliance mechanisms in geographical regions that host the epicenter of the COVID19 pandemic.
How Do the Epidemiological Dynamics Impact the Indian Pharmaceutical Industry?
Insulation from and exposure to supply chain risks for Indian pharma manufacturers shall be anchored to the dynamics of morbidity, mortality, and recovery in the aforementioned regions. The effects are likely to reflect in a shortage of multimodal logistics, third-party logistics, and value-added services of palletizing, kitting, and labeling along with disruptions to low-value but critical to mission items like packaging and MRO items.
What to Make of the Regulatory Guidelines and Standard Operating Procedures to Combat COVID 19?
Focusing on the now and the next quarter in the financial year, it is a statement of the obvious that the measures on regulating workforce participation as stated by the Ministry of Home Affairs vide the National Directive on COVID 19 Management and Standard Operating Procedures are likely to prevail. This is likely to reflect in a downward revision of capacity utilization rates, production volumes, and economic efficiency. While standing capacity utilization of Indian pharma manufacturers both large and small was 60-70% higher than in most other industries in the pre-Covid19 scenario, it is likely to drop at varied rates across regions in India.
How Do the Dependence on Imports and Force Majeure Events Affect the Indian Pharma Supply Chain?
While the Indian pharma industry is the largest producer of generic medicines in the world catering to 20% of the global supply by volume while also accounting for 50% of global demand for vaccines, it imports 65-70% of its API (Active Pharmaceutical Ingredient) and KSM (Key Starting Material) requirements, with China accounting for 60% of the imports by volume. While Indian pharma companies were reported to have inventories stocked to last till April 2020, it is important to take cognizance of the supply chain risks emanating from the thaw in production and exercise of force majeure clauses in cross-border contractual agreements by major global suppliers located in quarantined regions of China between January to mid-April and any further downtime in the next quarter. It leaves open the possibility of worst-case scenarios of Indian pharma companies facing a shortage of materials to complete the BOM (bill of materials) and batch size processing requirements.
How Do Trade Policy Interventions Impact Procurement and Downstream Supply Chain?
The supply chain risks emanating from exposure to imports of API and KSM from Chinese drug manufacturers and biopharma suppliers coupled with protectionist trade measures to safeguard domestic requirements is likely to accentuate the volatility quotient of Indian pharma producers in the next quarter. The ban on exports of 26 APIs and finished products, masks and ventilators are likely to limit the market outreach and export opportunities of Indian pharma companies that otherwise supplies 30% of the generic APIs used in the United States.
How Do the Cost of Production and Pricing Ceiling; DPCO 2013 Affect Revenues and Margins?
The cost of production of the Indian pharma industry was 33% lower than that in the United States in the pre-Covid19 scenario. However, the cumulative effect of the factors mentioned above is likely to alter the unit economics of the pharma industry in India in at least the next financial quarter by conservative estimates. The adverse impacts on unit economics assume significance in the wake of the price ceiling brought into action in the wake of the Covid19 pandemic vide the DPCO Act (Drugs Prices Control Order 2013) that prohibits a rise in prices beyond 10% of the MRP (maximum retail price) during the preceding 12 months, thereby exerting pressure on revenues and margins of pharma players.
Recommendations for Making Indian Pharmaceutical Supply Chains More Efficient Now
The Indian pharma industry while being a leading player in the resolution of the crisis is required to make its supply chain and operations more efficient to be able to withstand the disproportionate balance sheet impact emanating from the Covid19 pandemic. Following operational and supply chain measures are recommended for deployment in the short-run (next two financial quarters):
- Periodic review of HVACR in Plants and Warehouses and PPE
Given the prerequisites of the operating environment that the industry has, there is a necessity to periodically monitor and review the working condition of temperature controlled points in the supply chain, especially across manufacturing plants and warehouses. The single-most important measures to ensure the safety of the lives of people working therein and ensure minimum disruption to production routines are the optimal procurement of personal protective equipment and regularization of the MRO supply chain for periodic quality control audits of HVACR (heating, ventilation, air conditioning, and refrigeration) to minimize the risks of spoilage and wastage of raw materials and finished products.
- Map Exposure to Local Supplier Network in Red Zones and Containment Areas
In the wake of the VUCA (volatility, uncertainty, complexity, and ambiguity) elements that have been accentuated owing to the dynamics of the contagion across India it makes sense for Indian pharma companies to stay on guard to regularly assess the on-ground developments across red zones and containment areas. Given the challenges that are likely to emerge in the downstream distribution of drugs and finished products, a switch to smart packaging to enable greater track and trace of SKUs during the supply chain journey can create customer delight in times of crisis.
- Volume Based Procurement of Materials to Complete BOMs
Given the supply chain disruptions in the present, risks of structural changes in the unit economics of production, operations, value-added services, warehousing, and logistics should be anticipated. It makes sense to switch to volume-based procurement (VBP) of materials to complete BOMs and procurement from external suppliers. This may include APIs, KSM, and class C items like MRO and packaging to realize economic and technical efficiencies accruing from economies of scale and flow due to larger batch processing sizes.
- Annual Rate Contracts for Greater Insulation from Inflation and Force Majeure Clauses
In the aftermath of the supply chain disruptions caused by the Covid19 pandemic, the risks of cost-push inflation affecting costs of APIs, KSM and tail-end spend items are anticipated. It is suggested that annual rate contracts can effectively shield the pre-Covid19 cost leadership enjoyed by Indian pharma companies and mitigate the balance sheet impacts of such inflationary pressures. Advance bookings of cross border procurements of materials at forward rates can also help them hedge risks from an untoward disequilibrium in the balance of payments and further depreciation of the Indian Rupee vis-a-vis the US dollar, having already depreciated by 7% since January 2020.
- Advance Booking of Logistics and Warehousing Capacity to Counter Surge in Domestic Demand
With crude oil prices falling to a historic low in the current financial quarter there is elbow room for Indian pharma companies owing to the 33.6% weightage of WTI (West Texas Intermediate).
However, with an eventual reopening of the economy over the next financial quarter, a surge in domestic demand can hit logistics costs and by implicit economic rationale may invite a need for optimization of inventory holdings. Advance booking logistics capacity may thus be recommended to steer clear of eventualities. Vendor managed inventory services for holding inventories of goods on the account books of suppliers can enable Indian pharma companies to unlock cash and rationalize working capital usage over the short term.
Beyond COVID 19: What is Next for the Indian Pharma Supply Chain?
The COVID 19 pandemic while having disrupted supply chains of Indian pharmaceutical companies offer a vast spectrum of takeaways that are likely to lead to the emergence of a new normal as the industry traverses along the learning curve. These lessons if regularized into programmable functions shall enable the Indian pharma supply chain to be more agile, and resilient to future supply chain disruptions. Given the first-hand experience of having to deal with the exercise of force majeure clauses and digression from the status quo on contractual obligations and compliance by global pharma suppliers and manufacturers, supply chain digitization and automation should signal the heralding of a new chapter. Emerging technology breakthroughs in the domains of artificial intelligence, machine learning, and deep learning can allow Indian pharma manufacturers to do due diligence for supply chain risk compliance and management that is long overdue.
Building Flexible Supply Chains in Manufacturing: Lessons from the Covid19 Pandemic
Building Flexible Supply Chains in Manufacturing: Lessons from the Covid19 Pandemic
As countries continue to be affected by the disruptions caused by the transmission of the Coronavirus pandemic, enterprises in the manufacturing sector are becoming increasingly wary of what the future of their procurement should look like. While the transient setbacks to a large number of suppliers are nudging supply chain leaders in the manufacturing sector towards exploring local sourcing options, fact remains that global procurement offers the best supply chain risk mitigation outcomes and is therefore likely to not only stay but grow once the manufacturing sector looks to recover and rebuild.
The Costs of Supply Chain Disruption on the Community and Businesses –
As governments across countries issue orders for lockdowns and look to freeze the mobility of multimodal logistics, supply chains across the globe are coming to a grinding halt. For many industry verticals like FMCG, pharmaceuticals, chemicals and life sciences that manufacture essential goods and are thus still in operation, the capability of enterprises to withstand the disruptive supply-side shocks also determines the potential risks of entitlement failures what with communities of people being dependent on uninterrupted supplies of PPE, masks, sanitizers, soaps, medicines, shelf-stock food items, groceries, and other edible items. The Coronavirus pandemic presents them with multifold challenges of procuring:
- MRO items to keep their operations up and running
- effective packaging to roll-out products into the market
- warehousing to maintain sufficient inventory
- logistics to ensure fast last mile delivery
The Contemporary Scope of Local Sourcing and the Promise of Global Procurement –
The supply chain challenges facing enterprises in the manufacturing sector may nudge them towards searching for new suppliers with local footprint and in proximity to the points of manufacturing, new logistics service providers and even new sub-contractors with industrial-scale capabilities for agile manufacturing to meet the demand gap. However global procurement offers enterprises unparalleled advantages of supply chain de-risking that are beyond the scope of local sourcing.
Success Stories of Enterprises Using Global Procurement to Overcome Supply Chain Disruptions –
As arguments for greater localization of supply chains and procurement networks begin to gain traction, here are a few lessons from success stories of enterprises that have leveraged global procurement to navigate supply chain disruptions.
Intelligent Product Design Can Lend Greater Flexibility to the Supply Chain
Back in the first decade of the new millennium, Nokia was a leader in mobile handset manufacturing with the demand for its products at its peak. The Finnish mobile company had manufacturing facilities across countries in the world. In the year 2000, a mishap destroyed an important chip manufacturing facility located in Albuquerque that supplied Nokia. Despite the mishap, the impact on the manufacturing capabilities of Nokia was by and far limited. Nokia had designed the chips from the ground up such that it was possible for the enterprise to swiftly move its production to the Netherlands and Singapore.
Lesson #1: If products are designed intelligently from the ground up with an eye on scaling up manufacturing across multiple locations it offers an enterprise greater insulation from disruptive shocks to their manufacturing and operations and consequently to their downstream supply chain and distribution channels.
Contingency Logistics Planning Can Help Enterprises with Downstream Distribution
The cotton shirt manufacturer, Esquel is a vendor for major international labels like Hugo Boss and Nike. The enterprise has manufacturing facilities in Vietnam and routinely uses logistics routes from China to procure fabrics for its manufacturing units in its home country, Vietnam. However,the enterprise had invested heavily in forging partnerships with logistics service providers with a diverse portfolio of supply chain capabilities that could, if required, divert from the regular trade route through Hong Kong and on to Vietnam. This contingency planning for alternative logistics proved critical when eventually Esquel did face the challenge.
Lesson #2: Agile companies that are proactive and prepared for the turbulences downstream face a relatively lesser risk. It may take longer and cost more to ship supplies through a second-best route, but given the stakes of imminent disruption, even a sub-optimal choice is better than having no choice at all.
Access to Multiple Avenues of Connectivity Can Create Market Opportunities
Take the case of Ethiopia. Until a few years ago Ethiopia was a landlocked country with very limited options for first and last-mile connectivity to long-distance logistics infrastructure for the mid-mile leg of the supply chain. This had the effect of inhibiting the growth of the textile industry. Over the years there have been massive investments in new highways and a railway project that provides connectivity to the nearest major port and a multitude of industrial parks located in its neighbor Djibouti. Today Ethiopia is the home to several global manufacturers in the clothing and textile industry that have set shop in the country and operate production units.
Lesson #3: Suppliers with access to global connectivity are better positioned to hit the ground running in times of disruptive shocks to the supply chain to feed supplies to large scale enterprises that operate a truly global and multi-plant manufacturing network.
Looking Ahead: Global Procurement Shall Be Inclusive, Collaborative and Digital
While the temptations of the localized supply chain and sourcing strategy are palpable, there are enterprises that have been leveraging collaborative supplier ecosystems to good effect prior to the onset of the Covid-19 pandemic. For instance, an American multi brand retail heavyweight operates a procurement ecosystem consisting of 100 suppliers through a dedicated project that aims to improve the operational environment at their manufacturing units and bring greater visibility into its supplier collaboration. The internal consulting team at the enterprise is entrusted with responsibility to meticulously map the capacities and capabilities of each supplier. Thereafter the team recommends a customized supplier collaboration program that aligns with the concerned supplier’s business model. Interestingly the enterprise extends its supplier collaboration beyond the timelines of the project. Through greater repetitiveness and economies of flow, the supplier ecosystem when managed through a single window, improves over time and develops a greater immunity to supply side shocks.
In the face of the takeaways evidenced by the above mentioned business cases there are some lessons for enterprises in the manufacturing sector to draw inspiration from. Global procurement networks offer a reliable risk mitigation strategy. It makes enormous good sense to assert the same by premising one’s conclusions on the following paradigm:
- First, it is apparent by now that the Coronavirus pandemic leverages a time interval to spread from the epicenter to the rest of the world. As manufacturing units of suppliers and large scale multi-plant enterprises in the epicenter crawl back to normalcy, they are now in a position to provide supplies to enterprises in the rest of the world.
- Second, this time lag in the spread of the pandemic and the consequent economic lockdowns across countries creates opportunities for: arbitrage (procurement from vendors across geographies) and speculation (distribution and sales across time horizons through brand partnerships).
- Third, diversified supplier ecosystems provide greater flexibility of choice to large scale enterprises for procurement by providing diverse options for logistics, warehousing and procurement of relevant products that comply with specifications, quality parameters and costs.
With global procurement, enterprises in the manufacturing sector can actually have minimum exposure to the risks associated with supply chain disruptions like the ones caused by the Covid19 pandemic.
Reducing Coronavirus Led Supply Chain Disruptions Now and Building Resilience for the Future
Reducing Coronavirus Led Supply Chain Disruptions Now and Building Resilience for the Future
Credit ratings agency Fitch that had earlier pegged India’s real GDP growth rate for FY 2020-21 at 5.6% has now projected that the disruption caused by the contagion of the Novel Coronavirus throughout an integrated global economy could slow India’s real GDP growth rate by 0.5-1%. This projection notwithstanding, visibility into the impact on the global economy has been hard to come by. Josef Oehmen, associate professor at the Technical University of Denmark (DTU), Engineering Systems Design Group asserts that the Covid19 pandemic has no precedence that businesses can point to, no personal experience that corporate leaders can count on, no historical data for consultants to call on and therefore: there is no risk-adjusted value for businesses to act upon.
In fact, not since the end of the Second World War have countries and corporations experienced a supply chain disruption of such global scale and magnitude coupled with loss of lives of such tragic proportions.Prof. Patrick Hanohan from Trinity College Dublin asserts that even if the death rate is as low as in the case of flu deaths due to effective containment, there shall be repercussions: supply chain challenges in the short term and weakening of demand and spending cuts in the intermediate-term.
Wading Through Troubled Waters Now: Mitigating the Supply Chain Disruptions Due to Covid19
Given the spread of the pandemic across the globe, several industry verticals in the manufacturing sector are faced with immediate supply chain challenges.
First, is the dependence of some of the world’s largest companies or their suppliers that either has supply chain and procurement exposure to quarantined areas across three major economies: China, Italy, and South Korea. A study published in the Harvard Business Review asserts that 1000 such companies or their suppliers own more than 12000 facilities in such quarantined areas. Industry verticals with the highest supply chain and procurement exposure to quarantined areas in China, Italy, and South Korea include automotive, industrial engineering and heavy machinery (2,730), high tech and consumer electronics (3,238), healthcare (1,562) and consumer goods(1,139).
Second, in the context of the lockdowns announced by several regimes across the globe to suppress the spread of the contagion, enterprises in industry verticals like life sciences, healthcare, pharmaceuticals, and medical devices that need to produce “essential goods” urgently have been affected adversely. Major categories of supplies of these enterprises procured from quarantined areas include packaging, personal protection, medical dispensers, sterilized dressing pads, cables, and active ingredients.
What Needs to Be Done Immediately to Minimize Supply Chain Risks?
Given the supply chain disruptions facing enterprises in the manufacturing sector, the following contingency measures may be deployed on a war footing to save the lives of people and ensure the availability of goods:
First, enterprises need to create a contingency organizational structure to respond to the situation with a central leadership team at the corporate level showing the way. The central leadership team may be supported by a customer response team and most importantly a supply chain planning and operations team.
Second, the central leadership team shall have to ensure visibility into layered supply chains. They can do so by creating a database of components that are “critical to the mission”, trace the origin and flow of procurement and explore substitute suppliers.
Third, the customer response team may be entrusted to objectively assess the available inventory, calculate quantities of spare parts and after-sales-stock to keep manufacturing up and running and ensure downstream supply chain mobility and distribution to customers.
Fourth, the supply chain planning and operations team may be tasked with ensuring the first ring of personal safety for people by providing personal protective equipment (PPE) and collaborating with people on the production floor shop, warehouses, and nodal points in the supply chain to regularly monitor infection-risk levels. Further, the supply chain planning and operations team can do well to engage in logistics planning, identify points of risk, ensure the safety of goods during transit through effective sanitization and packaging and push for faster delivery of goods.
Recovering from the Economic Impacts on Covid 19 in the Intermediate-Term
Coming out of the Coronavirus crisis, business engagements will likely to be transformed forever.
First, enterprises that sail through the crisis shall like to adopt some of the major elements of their contingency measures to create a supply-chain risk function team. Such supply chain risk teams may be entrusted with the responsibility to map supply chain risks continuously and provide objective assessments to aid decision making in the domain of supply chain management and oversee risk governance.
Second, moving forward it shall be imperative for enterprises to strengthen supplier collaboration and work with entire supplier ecosystems that can provide a de-risked, geographically spread out and diverse model for global procurement.
Third, in the aftermath of the Coronavirus crisis, as enterprises shall stagger back to a new normal, they should ideally invest in the digitization of their supply chains to augment efforts of the supply chain risk team to anticipate the road ahead. Given the impact that the pandemic has had on supplier collaborations and contract compliance and obligation management of the manufacturing sector, it shall make enormous good sense for enterprises to invest in early warning systems, forecasting tools and comprehensive contract automation software suites that leverage artificial intelligence and machine learning capabilities. Returns from such investments in supply chain digitization assets shall manifest in the form of predictability of supplier capacity, turnaround times and rational expectations of risk factors and thus enable them to adjust their position in the market with time at hand.
Parting Comments and Epilogue: A Window into Supply Chains Post Coronavirus
Even as enterprises across the global economy continue to grapple with the challenges of the Coronavirus pandemic it is still unclear what the supply chain of the future would look like. However, amidst all uncertainties, one thing is clear: business won’t be business as usual and those that survive shall have to look at the supply chain function through a completely different lens that shall resemble the challenges and solutions of the future.
As Prof. Hua Lee, from the Department of Information and Technology at Stanford Graduate School of Business has observed, it shall not be enough to know what’s happening in your supply chain. Enterprises would need visibility outside their supply chain, know the capacity of other suppliers and modes to deploy them immediately when needed. Operational hedging shall be a necessity in the supply chains of the future with global suppliers being managed by inclusive procurement ecosystems driven by vendor consolidation. Parallely there shall be a greater need to increase logistical flexibility, design alternate transit routes and expand the geographical spread of warehousing facilities.
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