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Building Flexible Supply Chains in Manufacturing: Lessons from the Covid19 Pandemic

Building Flexible Supply Chains in Manufacturing: Lessons from the Covid19 Pandemic

COVID-19, Procurement, Supply Chain0

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. 

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What is the Buzz Around Smart Packaging – Let’s Find Out

What is the Buzz Around Smart Packaging – Let’s Find Out

Smart Packaging, Supply Chain, Sustainability0

Conventional wisdom has it that packaging performs three functions: to preserve the value of a product during its shelf life, to promote the face of a product and finally to protect unit loads during transit in the supply chain journey. However, a new paradigm is emerging, wherein packaging shall perform a completely new function: it shall perform.

Smart packaging uses technology to optimize the packaging process. Grand View Research pegs the global smart packaging market at $26.7 billion by 2024, up from $10.8 billion back in 2015, with a compound annual growth rate (CAGR) of 10.6% from 2016 to 2024. 

The reasons for this phenomenal growth are evolving customer lifestyle, rapid urbanization, and unprecedented technological growth that makes it possible for manufacturers to leverage content to add value to customers and enables the track and trace of unit loads all along the F2C, i.e. factory to customer supply chain journey.

What Are the Benefits of Smart Packaging?

Manufacturers have leveraged traditional packaging solutions to good effect to date. Therefore the emergence of smart packaging mandates an objective assessment of the additional value that it creates for manufacturers across diverse industry verticals by leveraging technology.

• Map End-User Trends – With smart packaging manufacturers can leverage the products to establish a stronger connection with customers through technology. This improves customer trust, which builds stronger brands. For instance, a sensor inserted into the packaging of the product can allow manufacturers to map the flow of the product through different stages in the distribution channel before it ultimately reaches the end-user. It makes enormous good sense to suggest that such technology integration into packaging can enable manufacturers to collect and map valuable data on user trends. 

• A Better Degree of Sustainability – Smart packaging can allow users to support reusability and recycling initiatives in packaging. For instance, manufacturers that look to create a circular and closed-loop economy for reverse logistics of their packaging can track and trace the movement of used packaging materials, plan and optimize the logistics routes and identify waste collection points to create the paths for used packaging materials to return. This, in turn, can facilitate the reuse and recycling of packaging and thus reduce wastage; one of the single most important challenges facing manufacturers in the domain of industrial packaging. 

• Streamlining the Supply Chain – Smart packaging can ensure lower wastage of the products. Measures like temperature sensing and anti-tampering if embedded into smart packaging can boost efficiencies in supply chain management. For instance, think of an FMCG enterprise that may look to use temperature-sensitive packaging for its product line of edible items with a short shelf life like curds and yogurts with a color scale to indicate the freshness of the product for consumption. It can reasonably simplify warehousing and downstream distribution and sales of inventories of such perishable goods on a first-in-first-out (FIFO) basis. 

What Are the Types of Smart Packaging?

Depending on the two major dimensions of  the functional value it delivers, smart packaging may be broadly classified into two categories as follows:

  • Active Packaging: This type of smart packaging interacts with the contents of the package to help improve shelf life or its quality. An example is the sorbate-releasing LDPE (Low-Density Polyethylene) film that helps add anti-microbial activity to cheese packaging.
  • Intelligent Packaging: This kind of smart packaging monitors and diagnoses the health of the package contents and communicates timely information to users. An example is Diageo’s tamper detection NFC chips. If any counterfeiter tries to open the product before it reaches the customer, then the chip tears off, revealing tampering with the product.  

Such packaging innovation goes beyond merely protecting the product. It can detect and monitor various metrics like temperature and humidity and integrate moisture repellent properties to keep goods dry. It can allow heating or cooling a product by touch. Majorly intelligent packaging uses technologies like AR/VR and NFC codes to improve customer interaction and deliver a superior user experience. 

What are the Use Cases for Smart Packaging?

Given the new avenues of performance that smart packaging creates for manufacturers by integrating technology, innovators and early adopters in the food & beverage and healthcare verticals have begun leveraging it. Some of the most unique use cases of smart packaging in these verticals are as follows:

1. Connected Whisky Bottles

Diageo has leveraged smart technology to ensure that no counterfeiting or tampering occurs when the bottle moves from the production warehouse to the consumer’s home. 

It uses an ultrathin film of electronic sensors that reveals if the bottle has been opened before and its location in the entire supply chain. The NFC chips convey meaningful information to support the company’s anti-counterfeiting efforts of its range of liquor bottles.

2. AR Packaging

Cadbury Quacksmack ensures that users can play a smartphone game when enjoying a bar of chocolate. It uses Blippar image-recognition technology. A mobile scans the packaging which launches a game.

This use case is the first known instance of a chocolate brand using a blend of interactivity and augmented reality in this innovative and fun way.  

3. Verifying Freshness of Food

The intelligent ink used on the package by Freshcode gradually changes color. This color indicates the freshness level of the packaged poultry products. If the indicator changes to black, it means that the product is no longer safe for consumption 

Such innovation in packaging ensures that users can track product freshness from processing until its final consumption. Distribution chains can enhance their credibility by dealing in the freshest poultry produce and facilitate food safety controls easily. 

4. Patient Care Made More Effective 

E Ink’s PhutureMed helps a patient to improve adherence to drug therapy efficacy. The solution can sense when the pack is opened. It also monitors when the patient has taken a pill from the blister pack. It helps patients to take the medication on time and trigger an alert in case the patient misses out on the prescribed medicine on time. 

5. Verifying Product Shelf-Life

Mondi’s Sanocoat packaging prevents microbial growth on food items. It prevents accelerated product contamination with its anti-microbial packaging solution

As a result, it prevents germ growth and inhibition of mold. By removing bacterial infestation like e.coli, the hygiene of the product can be maintained. As a result, the products’ shelf life is enhanced substantially. 

Looking Forward: Ushering a bold new future in packaging

While smart packaging is still in a nascent stage and constrained majorly to the verticals of food & beverage, healthcare and pharmaceuticals, the rapid proliferation of technologies like NFC and IoT is enabling more and more enterprises to take cognizance of the immense potential it holds. As more enterprises look forward to adopting smart packaging eventually in the long term, those that shall do it now are guaranteed to harvest the returns of a first mover’s advantage by creating a key brand differentiator.

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The Rise of Sustainable Packaging – The Reuse Revolution

The Rise of Sustainable Packaging – The Reuse Revolution

eco-friendly, Sustainable Packaging0

Enterprises across a large number of nations, including those in the EU, China, and India, are increasingly adopting concepts of: “reduce”, “reuse”, and “recycle” in packaging. The reason behind this shift towards sustainable packaging is not hard to fathom. Statistics show disturbing trends around the usage of plastic and its negative impact on the ecological balance of the world. The United States Environmental Protection Agency states that every year nearly 1.5 million tons of waste comes from paper packaging alone, not to mention more than 13 million tons of plastic packaging. This calls for a broader proliferation of sustainable packaging. 

What is Sustainable Packaging?

Sustainable packaging seeks to reduce its carbon footprint over a period of time. Such reduction can happen in one of the following ways:

  • Use of eco-friendly raw materials that are 100% recycled or reusable 
  •  Reduce the production and supply chain process
  • Encourage a circular economy which extends the shelf life as well as usability of the packaging 

Challenges to Sustainable Packaging

Be it a self-motivated initiative or in response to government and regulatory agencies, the fact remains that the packaging industry is increasingly looking for means to make its offerings more sustainable. This requires enterprises across industry verticals to counter the following challenges 

  • Lack of Consensus: There is presently a lack of industry consensus on what should come under the purview of sustainable packaging.  The definition needs to ensure that the waste to landfill rate has come down due to the practical implementation of the ‘reduce-reuse-recycle’ philosophy
  • Rising Regulatory Pressure: Government authorities across countries are all set to increasingly focus on sustainable packaging, thus nudging corporations to meet evolving regulatory standards and guidelines around environmental conservation. For instance, China’s packaging masterplan will severely limit the use of specific processes or materials in the packaging supply chain. Such laws will also put pressure on the industry to adapt or perish.
  • Labeling and Coding Challenges: While many organic materials are considered as viable alternatives to plastic but these do not offer the operational convenience that plastic does. For instance, plant-based materials such as starch may be difficult to code and label to the same standards as plastic. This can influence the way coding and labeling and in the process compromise on the way in which operations are carried out for adding graphic content like batch numbers, expiry dates, and barcodes. 
  • Obstacles to Waste Recovery: One way to make sustainable packaging economically feasible is to ensure closed-loop recycling of packaging materials. However, an absence of well defined standard operating procedures, lack of economic incentives for people engaged in the logistics of waste collection and ambiguities in regulatory guidelines create a disconnect in the loop and thus pose significant challenges in waste recovery and recycling to business enterprises. 

What About the Real Incidence of Added Costs of Sustainable Packaging?

The challenges around sustainable packaging aren’t insurmountable. Enterprises need a nudge and collective focus to ensure a successful rollout. What should motivate enterprises to adopt sustainable packaging is that there is support from consumers. An Accenture survey says that more than 50% of consumers would pay more for sustainable products designed to be reused or recycled. This provides more impetus for brands to pursue sustainable packaging. 

How Can Enterprises Transition to Sustainable Packaging?

Here are some other reasons that should motivate brands to make sustainable packaging a part of their corporate DNA – 

1. Be Proactive for Compliance in Packaging

Many countries are preparing to shift to the use of reusable packaging materials that don’t contribute to landfills. For instance, in January 2018, the European Commission rolled out a comprehensive plan to ensure 100% reusable and recyclable plastic packaging by 2030. For enterprises to comply with evolving regulatory announcements on packaging in short notice they need to be agile and proactive

2. Focus on 2nd and 3rd Use Cases in Packaging

Many industry associations across the globe are coercing enterprises to adopt the concepts of “reduce”, “reuse”, and “recycle” to their packaging and thus to contribute to the planet with minimal or negligible impact on their bottom-lines. Industry associations like The Ellen MacArthur Foundation have got 11 biggest companies to commit to using packaging in a circular manner, thus encouraging 2nd and 3rd use. This shall require them to switch to 100% reusable, recyclable or compostable packaging by 2025 and thereby cut down on six million tons of waste per year.

3.Explore Ways to Reduce the Carbon Footprint 

Downgauging the weight of the packaging material with respect to the weight of the product can reduce the number of shipments and thus help contain carbon dioxide emissions. An example of this is reusable packs like KFC side containers that substantiate how packaging can be redefined to reduce the carbon footprint.

Some Enterprises That Are Leading by Example in Sustainable Packaging

Many enterprises across the FMCG domain are making impactful commitments to ensure outcomes at two levels – 

  1. Improving the sustainability of their packaging
  2. Redefining packaging systems and processes

Here are some interesting use cases that corroborate the statement

  1. Edible Coffee Cups – Air New Zealand serves over 8 million coffee cups a year. It launched a pilot in December 2019 to start edible coffee cups that are compostable and aim to cut down on dumping on landfills.  
  2. Reusable and Recyclable Bottles – Unilever has pledged to reduce virgin plastic use by 50% and use at least 25% recycled plastic for packaging, by 2025.
  3. Zero Single-Use Pilot – Blue Bottle Coffee has rolled out a zero single-use plastic pilot with an aim to transform all their US cafes to zero waste (i.e. 90% of the waste is diverted from landfill) by the end of 2020.
  4. World Without Waste – Coca Cola is working to create packaging that shall contain at least 50% recycled material by the end of 2030 under the auspices of its new project titled “World Without Waste”. 

Concluding Comments and the Way Forward to Sustainable Packaging

Sustainable packaging is fast becoming the de-facto approach for enterprises that want to keep their carbon footprints low and make existing supply chain processes efficient.  The challenges notwithstanding, there are success stories of enterprises that have implemented sustainable packaging to create a favorable effect on the environment and overhauled user experience for their customers. With support from the end consumer, enterprises can only look to make further headway.  Data analysis at Moglix suggests that 60% of enterprises in the industry verticals of FMCG, automobile and oil & gas are interested in switching over to sustainable packaging. This should provide more impetus for enterprises to strike a balance among the metrics for the profits, planet and people trifecta.

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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

COVID-19, Procurement strategies for Automobile Industry, Supply chain risk0

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.