When major unanticipated disruptions occur, numerous supply chains tend to break down and usually take a long time to recover. The massive outbreak of COVID-19 worldwide is one such unforeseen circumstance that has literally shaken global supply chains. And the worst hit amongst many are ‘Logistics’ and ‘Manufacturing’ sectors, as businesses shuttered to contain the spread of the COVID-19. A systems approach based on resilience is proposed to prepare socioeconomic systems for future shocks. Adopting such an approach means rethinking priorities, and especially the role of optimisation and efficiency.
Ritika Arora Bhola
The nationwide mandatory lockdown and a ban on transportation of cargo via various modes of transportation like air, sea, rail and road, had an overwhelming effect on the Indian logistics sector. Shipments were blocked from moving to the respective destinations, due to which Indian service providers had to incur humungous losses.
Also, millions of migrants, truck drivers, ground staff and operators who served the logistics industry became unemployed due to the lockdown and moved back to their native towns.
The Indian logistics industry which was already grappling with major challenges like inadequate infrastructure, high cost, inefficient supply chain, lack of skilled manpower, etc. was certainly not ready for a crisis like COVID-19.
Experts feel it is time for companies to rapidly assess, recover, and respond quickly through numerous obstacles and challenges that still stand in the way. Through the chaos of recovery, it will be very easy to overlook the root cause and gaps within a supply chain that may have paralysed businesses during this unpredictable major event in the first place. Building towards a resilient supply chain will be at the epicenter of future discussions for years to come.
End-to-end assessment and prioritising critical focus areas
Whether it is called (or is part of) supply chain resilience, supply chain disruption, supply chain mapping, or business continuity management, getting ready for future supply chain disruptions is high on the corporate strategy list. With increased economic volatility, having such a strategy will make a huge, possibly decisive, difference when it comes to weathering a major disruption or hoping to survive one.
Without a doubt, companies have an arduous task ahead of them to recover from this viral outbreak. However, there needs to be substantial discussion on how to prevent the next unpredictable tidal wave from having the same impact.
Venkateswaran Pathamadai Lakshmanan, Sub-regional Managing Director – South Asia, GEODIS lists down plans and strategies that have to be re-evaluated or identified for effectiveness against disruption such as a pandemic outbreak.
- Near-shoring: Globalisation, structured transport routings, and low international transport costing has fostered outsourcing and far-sourcing of manufacturing and built longer transport routes for replenishment of inventory. In the view of many global leaders, such events will lead to a significant increase of near-shoring of manufacturing and the reduction of long transport times. In several instances, the examples of production movements from China to South East Asia or Mexico were named.
- Supplier diversification: With regard to the question of near-shoring, the right supplier relationships across different scopes must be established. Digital scorecards and availability of options for change are crucial to work with the best fit partner.
- Regional distribution centres and satellite warehousing: Inventory availability either for manufacturing or point of sale, will become increasingly important to sustain and build growth. The further implementation, and assessment of regional and country distribution centres (managed in-house or outsourced) will be a major exercise for companies trying to gain an advantage in their market place.
- Multimodal solutions: Availability of the desired mode of transport for shippers to tailor their distribution needs based on the various transport options like sea-air, road-sea, and rail-road.
- Proximity: One-day to one-hour delivery windows will be the minimum expectations for replenishment of customer orders. In retail, stores might have two phases: a.) open for the consumer during the day to purchase goods or act as a showroom for future online orders, and b.) dark stores concepts at night, where the store will feature as a fulfilment centre, ensuring the order reach the customer’s doorstep early morning next day.
- E-commerce and multi-channel strategy: In line with the growing client expectations of instant usage of purchased goods, companies must also adopt multiple channels of sales, which lead to varied options of inventory placement and digitalisation in the supply chain.
- Make supply chain a C-level board position (i.e. Gartner quadrant): An item that has gained an abundance of expectance, calls for the Chief Supply Chain Officer (CSCO) at board level. Supply chain must be a central topic at any board level.
- Mix of global and innovative logistics providers: Companies will seek for global innovative logistics providers in the future. Today’s expanding markets and global operations demand the strong presence of service provider across territories. Operations carried out through digital cloud-based system alongside structured operational processes across networks will be at a maximum, to reduce operational time, feed data and process goods as seamlessly as possible.
- Digital footprint, real-time demand and supply management: The cloud will serve as a platform where digital communication, purchasing and document management and all other functions will be in sync. Demand and supply tools will be connected to suppliers, manufacturers and 3PL operations, to ensure the availability and correctness of the data in real-time.
- Data analytics: It will now become central to all operating models. All aspects that create disruptions will now lead to improved and resilient performance through data usage. Structured, simplified data will lead to quicker and improved decision making along the supply chain.
Mayur Toshniwal, Managing Director, Future Supply Chain elaborates, “At times when the entire supply chain is facing challenges, ‘Agility’ is the single biggest value that can transform a business. Supply chains should be prepared to deal with both the demand-side challenges and supply-side shocks especially when there is a constant churn between essential and non-essential goods. And being agile will allow taking quick action and meeting sudden changes in demand.”
“Customer centricity is the second most important parameter is any business. Being close to customers demand identifying main points which may contribute substantially in winning the battle against any disruption,” says Toshniwal.
Based on the developments from this pandemic, coupled with learnings from past disruptive instances, below are some key pillars to help companies build operational resilience:
- Supply chain risk assessment: Quick response is required to meet sudden changes in demand. One should identify the critical gaps at every leg of the value chain. Scenario analysis can identify gaps and guide at the time of disruption and limit the impact. Analysing possible outcomes of different scenarios and then making an action plan to effectively leverage the additional resources like distribution and supplier network go a long way.
- Strong risk management process: A risk management team and methods to evaluate the risk for each supply chain node- warehouse, factory, channel, distributor, or transporter should be established.
- Digital and automation capabilities: To reduce the reliance on labour dependent processes and to add speed to operations, implementing automation and other smart technology solutions like IoT, AI, etc. offers visibility of the end-to-end supply chain can, making connections across infrastructure and services controllable and adaptable.
- Procurement strategies: Companies should assess procurement strategies that balance cost and risk arising from day-to-day operations. The use of digital technologies will help them benefit from supplier networks and strengthen their sourcing capabilities in a challenging period.
Aditya Shah, Executive Director at V Trans (India) says, “From a consumer angle, many companies suddenly do not have a clear demand signal as the outbreak has completely changed buying behaviours and patterns. In numerous sectors, demand has dropped substantially or moved to online channels. Organisations are assessing category strategies that balance costs and risks, starting from new product model/platform, planning day-to-day procurement operations and leveraging technology to support rapid response.”
Combating supply side concerns
The current outbreak provides significant lessons for Indian logistics companies. Lean supply chain strategies, while increasing short-term profits, contribute to supply chain vulnerability. According to experts, COVID-19 has taught corporate decision-makers that in formulating future supply chain designs, apart from cost, quality and delivery, they would need to stress-test the chains on new performance measures including resilience, responsiveness, and configurability.
Logistic firms must seek to diversify supply chains from a geographic perspective to reduce supply-side risk from one country. Multiple sources of key commodities or strategic components should be identified with protocols at place to activate alternative sources of supply in short notice.
Equally, this is an urgent wake-up call for India’s production industry to realise the need to develop its own local sourcing units and adopt alternative strategies for reducing dependency on China.
Basically, businesses should identify tier-one suppliers with differentiated supply chains, ensuring continuity of service, should a hazard negatively impact individual providers. Ideally, suppliers should be based in different regions, ensuring that a large-scale risk, such as a natural hazard, cannot directly impact multiple suppliers.
Given the complex nature of global supply chains, predictive and risk management analytics should be used for assessment. Using the data created from these analytics can help businesses predict potential disruption, and take actions to build resilience – either by identifying alternative suppliers who can operate at short notice, highlighting partners who are unlikely to be able to effectively operate after a disruptive event, or by identifying groups who could be at-risk from similar natural hazards and working with them to build resilience into their organisations.
Some companies are better prepared than others to mitigate the impact. These companies have developed and implemented supply chain risk management and business continuity strategies. They have also diversified their supply chains from a geographic perspective to reduce the supply-side risks from any one country or region. They have multi-sourced key commodities or strategic components to reduce their reliance on any one supplier, and they had considered inventory strategy to buffer against supply chain disruption.
For those companies that have multi-sourced key inputs, it is important to move quickly to activate secondary supplier relationships and secure additional critical inventory and capacity. There may be opportunities within the ecosystem including establishing shared resource pools for raw materials inventory, which is an approach that large companies in China have used in the past in times of crisis.
Ensuring a robust supply chain
To build a robust supply chain, businesses need to implement strategies that build resilience. Resilient supply networks provide continuity of service to customers or businesses upstream, either due to the availability of alternative suppliers, or because the primary providers are better placed to recover following a damaging event.
But what can organisations actually do to build robust supply chains in the most feasible manner?
Considering the same, Toshniwal highlights some of the key areas which call for immediate attention:
- The use of inappropriate risk metrics sometimes lead to the wrong measurement of known risks. If the risk management team is unable to communicate key information effectively to decision-makers, the firm’s risk strategy might breakdown.
- Gathering correct and appropriate information/data.
- Training of workforce to handle various automated systems and everyday risks/complexity associated with it.
- Increasing the acceptance of new practices. Resistance to change from traditional supply chain processes to a networked ecosystem can be a challenge.
“Cost-effective and time-efficient strategies are vital for robust supply chains, says Piyush Kumar Singh, Consultant & Industry Expert – Logistics & SCM (EXIM). “Firstly, these strategies will enable a supply chain to manage the inherent fluctuations efficiently regardless of the occurrence of major disruptions. Secondly, these strategies will make a supply chain become more resilient in the face of major disruptions.”
“While there are costs for implementing these strategies, they provide additional selling points for acquiring and retaining apprehensive customers before and after a major disruption. Essentially, an established robust supply chain strategy would enable a firm to deploy the associated contingency plans efficiently and effectively when facing a disruption. Therefore, having a robust supply chain strategy could make a firm become more resilient,” Singh says.
Incidentally, the pandemic has also emphasised on the key role of logistics and the importance of supporting people in this critical function. While cost being one of the major challenge, Shah lists other factors that are equally critical:
- Skill set of people and readiness to align with new system with practically no time gap – logistics and more so transport has always been an industry with issue of quality manpower, when it is about implementing digital transformation, this becomes a key factor and impacts the roll out time and efficiency targets.
- Dissemination of right information is a key for the smooth working of the supply chain – so correct communication clubbed with desired trainings till the last person is vital.
- Despite existing for so long, the traditional transport industry still has many lacuna and inefficiencies. Although now many startups are challenging the status quo but due to on ground complications and intricacies the success rate has been lower. Hence, when you take risk of implementing something untested so far you become bit more careful.
- In the current scenario, the demand has become completely unpredictable which has impacted the balance in terms of industry mix and geographical load. So another challenge becomes to work on how the equation will be going forward.
Responding to the immediate cash-flow challenge
Given the importance of cash flow in times like this, companies should immediately develop a treasury plan for cash management as part of their overall business risk and continuity plans. In doing so, it is essential to take a full ecosystem and end-to-end supply chain perspective, as the approaches you take to manage cash will have implications for not only your business but also for your customers.
Most importantly, cash flow management needs to be an integral element of a company’s overall COVID-19 risk assessment and action planning in the near term. Even for companies that have not yet been adversely affected, management teams with concerns about COVID-19 should actively evaluate their cash flow requirements, develop appropriate actions under various scenarios, and assess potential risks in and to their customer base and supplier network.
In the current abnormal business conditions, smart companies are shifting their focus from the income statement to the balance sheet. Of the three elements of supply chain working capital–payables, receivables, and inventory–, supply chain executives have a tendency to focus on inventory. But, in order to minimise working capital requirements during challenging times, it’s important to apply a coordinated approach that addresses all three areas.
“Depending on the side a company is, finding the right mix of cash flow generation to invest cash back into operations is essential,” says Venkateswaran. “Days Sales Outstanding (DSO) management and converting invoice into cash immediately needs to be a priority for each CFO during these times. Apart from that factoring of e-invoices and cloud-based payment operations are the options to yield a better cash flow.”
However, to maximise working capital, a company can’t only focus on its own operations and inventory levels: it has to think about the ecosystem it operates within. Squeezing inventory out of operations may not do much good– and could in fact introduce significant risk–if it just shifts the burden to a supplier or customer. The same is true for payables and receivables. It’s important to carefully consider the upstream and downstream impact of any action. High-level financial risk assessments should be conducted on any critical, sole-source suppliers to identify issues before they become problems.
Future-proofing supply chains with data-driven decision making
Supply chain proximity has become a focal point for businesses looking to minimise risk when it comes to international suppliers. Many are realising that handing over certain components to specialists in local areas can create efficiencies. However, it’s important that multiple factors are considered in the decision-making process. Acceptance in the sharing of data and collaboration with technology partners are both critical when it comes to evaluating alternative partners and suppliers.
A resilient supply chain is a collaborative one; it requires a network of trading partners and seamless connectivity to them. This helps partners locate resources needed on demand, providing capacity where and when businesses need it most.
Aligning plans with customer demand will continue to make sense, but to stay nimble in the face of rapid change; companies will need to update forecasts and strategies almost continuously. This will call for a deeper level of insight and collaboration among trading partners and suppliers – as well as among company planners themselves.
“Creating smart and nimble supply chains is the key to building a global trade and investment network that’s capable of weathering future storm,” says Shah.
In the short term, he says, responsiveness and speed are everything. Companies should proactively engage supply chain ecosystem partners, such as suppliers and logistics service providers (LSP), to conduct a risk health check by following:
- Identify– Changing demand and inventory levels to locate critical gaps in supply, production capacity, warehousing and transportation.
- Define– Common goals and an actionable short-term and outcome-driven resilience strategy with breakdown activities among the supply chain ecosystem, aiming to effectively and efficiently leverage additional networks among various suppliers’ pool, production and transhipment networks.
- Deploy– Leading companies build action plans based on scenario analyses to limit the impact of disasters. A fact-based dashboard, including aligned key KPIs help to create enterprise-wide and ecosystem visibility. This can help a company dynamically re-prioritise its plans as needed.
According to Shah, the art-of-possible today in technologies that can bring more agility and collaboration within the enterprise as well as across business partners are endless. “IoT devices for demand sensing and goods movement tracking, advance forecasting solutions, and social medial demand behaviour monitoring are heavily impacting how companies understand demand signals and how quickly they can react to them. These capabilities are extremely important for business performance even in normal business conditions and they increase the supply chain resilience in pandemic events like the coronavirus outbreak.”