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
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.
What is the Buzz Around Smart Packaging – Let’s Find Out
What is the Buzz Around Smart Packaging – Let’s Find Out
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.
The Rise of Sustainable Packaging – The Reuse Revolution
The Rise of Sustainable Packaging – The Reuse Revolution
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 –
- Improving the sustainability of their packaging
- Redefining packaging systems and processes
Here are some interesting use cases that corroborate the statement
- 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.
- 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.
- 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.
- 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.
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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