How a National Supply Chain Network Can Enable India to be Self-Reliant: Looking Beyond COVID19
How a National Supply Chain Network Can Enable India to be Self-Reliant: Looking Beyond COVID19
The compelling need to go into lockdown and maintain social distancing to minimize the transmission of the COVID19 pandemic serves as a glaring case study for enterprises in India to analyze the challenges caused by global supply chain disruptions. Given the projected decline in the real GDP growth rate by at least 1% and a surge in unemployment to 23% due to the freezing of the economy into an abominable lull, it makes sense to: (1) critically examine manufacturing-led exports, (2) explore the scope of a national supply chain network to boost domestic manufacturing and investment, and (3) assess export promotion as a strategy to boost employment generation and economic growth through the multiplier effects thereof.
What Makes India a Strong Contender to Emerge as a Global Manufacturing Hub Beyond COVID19?
A new normal is set to emerge coming out of the COVID19 pandemic accompanied by a major restructuring of global supply chains. While the manufacturing sector has been affected by the global supply chain disruptions caused by the COVID19 pandemic, there is ample reason for enterprises in the manufacturing sector to be optimistic about the India growth story.
Diversification of Export Portfolio of Indian Manufacturing by Geography:
Prior to the COVID19 pandemic, the value of exports of manufactured goods from India, stood at USD 18 billion of which China accounted for USD 1.8 billion while, the United States, India’s top export market accounted for USD 4.2 billion. This is indicative of the highly diversified portfolio of manufacturing exports of India and in hindsight both an opportunity to grow as well as a major lever to de-risk the supply chain of the manufacturing sector in India.
The Resilience of Indian Manufacturing Exports to Sino-U.S Trade Wars:
India’s revenues from the export of manufactured goods had been registering consistent growth for some time before the outbreak of the COVID19 pandemic. In FY 2019 reached its highest ever at USD 330 billion, surpassing the previous peak performance of USD 314 billion in 2013-14. It was achieved despite the strong headwinds due to the reciprocal Sino-U.S imposition of tariff and non-tariff barriers that were projected to weaken growth in global trade by 1.70% for a number of Asian economies including China. The fact that India emerged as the only Asian economy to register 1.7% growth in the value of manufacturing exports proves its resilience to a weakened global economy.
Growth in Exports of Intermediate Goods and Technology Penetration in Manufacturing:
A significant progress in the performance of India’s exports of manufactured goods is the growth registered by various categories of intermediate goods in FY 2019. Major growth drivers in the category of intermediate goods include engineering goods (+6%, USD 83,704 million), petroleum products (+28%, USD 47, 954 million), chemicals (+22%, USD 22,573 million) and pharmaceuticals (+11%, USD 19, 188 million) respectively. Other verticals that registered growth include textiles, electronics, and plastics. The growth in the value of exports of such intermediate goods holds significance from the standpoint of how technology enablement in manufacturing can push Indian manufacturing enterprises up the global value chain in a post COVID19 world. The share of FVA in India’s exports stood at roughly 17% in 2018, with the share of IDA (domestic value-added) in its exports stood at 83%.
National Supply Chain Network Can Enable India to Grab a Greater Share of the Global Value Chain
A National Supply Chain Network can connect Indian manufacturers in the hinterlands to new opportunities in the global supply chain and enable them to earn a greater share of the GVC. This calls for exploring avenues to strengthen domestic manufacturing and attract foreign direct investment to make a greater proportion of the global manufacturing output, locally in India and embrace export promotion. It calls for an integration of initiatives to create fixed assets for infrastructure, improve logistics connectivity, and drive the technology enablement of supply chains through digital connectivity to de-risk global supply chains from the unprecedented shocks experienced during the COVID19 pandemic.
Improving Infrastructure is the Key to Building the National Supply Chain Network
The creation of world-class infrastructure is at the heart of the idea of a National Supply Chain Network and remains a strong impediment to India’s performance in manufacturing. Infrastructure in India has a strong investment-to-GDP multiplier effect of 2X. This means that a 1% increase in investment in infrastructure can create 1,360,000 jobs. The National Infrastructure Pipeline that has been envisaged at the cost of INR 100 lakh crore over the next five years can be leveraged to improve logistics connectivity. The creation of fixed assets like 9000 KM of the economic corridor, 2500 KM of controlled highways and 5000 KM of highways before 2024 in 12 bundles if designed from the ground up to provide greater connectivity beyond terminal gates ports and airports to the hinterland in rural areas can significantly raise the attractiveness quotient of foreign direct investments for global corporations in core industry verticals mentioned above to make in India. The recent announcement on the creation of a land bank to promote investments in the 3376 industrial parks and SEZs spanning across 5 lakh hectares is a step forward in the right direction in this regard. A single-window approach to clearance and approval of land acquisition drives based on the adoption of a scientific and weighted average indexing of economic, technical and environmental feasibility can expedite land acquisition while ensuring that questions on livelihoods of people and the sustainability of the planet are duly addressed. To make economic growth truly inclusive, the scope of land acquisition may be extended to include public healthcare, affordable housing, safe drinking water, irrigation, and warehousing.
Leverage Technology Integration in Manufacturing to Create a Transparent National Supply Chain Network
The lack of visibility into data and limited information sharing has great repercussions for OEMs, CMs, suppliers, and end customers in the manufacturing supply chain because it operates on a foundation built by land, natural resources, and fixed assets all of which have a high gestation period, entail high fixed costs and involve making decisions for the long run. One of the major takeaways for Indian enterprises from the COVID19 pandemic has been the massive trust erosion in supplier relationships and collaborations with major OEMs based out of the epicenter of the supply shock invoking force majeure to seek effective insulation from the loss offsets mandated for dishonoring supplier contracts. Technology integration can significantly improve technical and economic efficiency, reduce project overrun costs, and provide visibility into outlay on direct procurement and enable compliance with contractual obligations and transactional behavior. A focused approach to improving transparency into the mapping of multi-tiered supplier networks is essential to the vision for a National Supply Chain Network. Advance information on possible digression from supplier contracts, supply chain automation to explore repetitive patterns in supplier behavior through tracking of key performance indicators of cost, quality, and on-time delivery can enable Indian enterprises to work with a better sense of anticipation and likelihood into the next steps in the supply chain journey and thus adjust their positions in the market to hedge against supply chain disruptions.
Make in India and the National Supply Chain Network Critical to Job Creation and Growth
Amidst the emerging realities of the COVID19 pandemic and the negative economic shocks, a dialog on making India self-reliant needs to focus on integrating policy narratives and corporate initiatives to boost employment generation and get a greater share of the gross value addition to manufactured goods done locally in India. The manufacturing sector that currently contributes 16-17% of the GDP, 12% of employment generation in India, and 57% of India’s exports, assumes critical importance in this regard. The MSME sector, on the other hand, has been the enabler of the last resort in these challenging times of COVID19 to diverse communities of people in the country. Stand-alone shops, grocery stores, food marts and markets, and ancillary units have demonstrated their capabilities to provide hyperlocal services, deep market penetration, low-cost innovation, and last-mile delivery of goods and services. With a strategic integration of the National Supply Chain Network with the mission to make in India, the share of manufacturing in India’s real GDP may rise to 25%, create new business opportunities for the MSME sector and create the 100 million jobs targeted under the aegis of the “Make in India” campaign. Data suggests an indirect multiplier effect between manufacturing and services in India with one manufacturing job creating three jobs in the service sector. For a labor surplus economy like India, the ability to generate employment and affect a rebound in real GDP growth rates to pre-COVID19 levels should suffice to conclude a dialog on the importance of the National Supply Chain Network and the “Make in India” label.
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.
Podcast E2: Now and Next in the Indian Food and Beverages Industry
Podcast E2: Now and Next in the Indian Food and Beverages Industry
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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.
Opportunities for India’s Pharma Supply Chain post COVID19 | 21st May 2020
Opportunities for India’s Pharma Supply Chain post COVID19 | 21st May 2020
The COVID-19 pandemic has highlighted vulnerabilities in the Pharma manufacturing supply chain and India’s over-reliance on China as a global ingredient producer of APIs. As we adjust our supply chains to the new normal, we need to ensure that we can create alternative supply arrangements without compromising on quality, reduce potential disruption, and boost our technology infrastructure to prepare for the future.
Through this webinar, get to explore the following areas:
- Challenges & opportunities post COVID-19
- India’s role in the pharma supply chain
- Implementing the “China-plus-one” policy
- Adapting Pharma’s supply chain to the new normal
Speakers
Amandeep Singh Bhan
SVP – Enterprise Business
Abheet Dwivedi
Director – Strategic PartnershipsMaking 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.
How Ratan Tata-backed Moglix is transforming the supply chain of India’s manufacturing sector
How Ratan Tata-backed Moglix is transforming the supply chain of India’s manufacturing sector
Read this YourStory article to learn how Moglix Founder and CEO, Rahul Garg, an IIT Kanpur, and ISB alumnus, decided to take an entrepreneurial plunge in 2015 to launch Moglix, a B2B commerce and supply chain company .
Moglix’s journey to transform B2B commerce commenced with the launch of the Moglix Marketplace, which was focussed on serving the SME customers, working in procurement, and digitizing the supply chain. During the pandemic, Moglix has contributed towards India’s fight against coronavirus by working with suppliers to reduce the supply gap for PPEs in more than 20 countries across the globe, making them available to more than five million people.
Read MorePodcast E1: Understanding The Structural Impact On Supply Chains Due To COVID19
Podcast E1: Understanding The Structural Impact On Supply Chains Due To COVID19
Moglix Talks is a series of podcasts that explore insights and analysis of the latest developments and best practices in the transformation of B2B supply chain and commerce with technology. In the first episode, we discuss the immediate impact of the Covid19 pandemic, the transmission of supply chain disruptions across verticals in India, how certain enterprises resolved the challenges they faced and what can others do to be better prepared for such shocks.
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COVID-19: Managing Supply Chain Disruptions | 23rd April 2020
COVID-19: Managing Supply Chain Disruptions | 23rd April 2020
Watch this webinar to explore strategies to manage supply chain disruptions in response to the COVID-19 crisis and learn from our supply chain expert how enterprises are re-tooling their production systems in the short-term to meet the evolving customer needs. You can watch the webinar recording on this page.
Through the webinar, our speaker will cover the following areas:
- Impact on global supply chain
- Impact on different sectors of the Indian economy
- How companies including Moglix are fighting back
- Strategies for managing supply chain disruptions
Speaker
Partha Dash
Senior Vice PresidentMoglix Business
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