Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Supply Chain

Unpredictable events like Covid-19 now or the financial crisis earlier in 2008, create unprecedented challenges in various industries across the world. These unpredictable events could usually be referred to as Black Swan events and brings about profound impact in overall productivity and economic carnage in the short to medium term.

While the world recovered from the financial crisis about a decade back, the Covid-19 pandemic has wreaked havoc in the world economy both in terms of scale and speed. Supply chains have been disrupted due to shocks in consumer demand and unpredictability in supplier market conditions.

CEO & Managing Director
CriticaLog India Pvt. Ltd.

Global organizations have always stressed on the need to have supply chains which is cost-optimized, resulting in manufacturing being outsourced to lower production cost countries. Today’s supply chain network has been optimized to minimize lead times at the lowest possible price. However, with the rampant spread of Covid-19 across the world and vaccines still under clinical trials, organizations need to reconsider their supply chain strategy from a short to medium term perspective while preparing a long-term plan.

The change has already begun towards being more flexible and procuring from multiple sources. Over the next few years, there would be an overhaul of the supply chain infrastructure.

Globalization or Regionalization?

We can expect logistics hubs to re-emerge at the regional level. To minimize dependencies on single-source suppliers and to establish an adaptable supply chain, manufacturers will source, assemble, and deliver locally.

However, we have seen these changes being gradually seeping into the system, as the differential, in costs, has begun shrinking in Asian countries, due to rising labour costs. The supply hubs, though, continue to remain in the Asian countries.

Large electronic equipment manufacturers source about 50% of their spare parts from Asian countries led by China. Given the complexity of the supply chain with high number of spare parts required, opening and incentivising local manufacturers and suppliers may not produce benefits in the short term but would lay the foundation for medium to long term local sourcing.

Another example is that of the healthcare industry. Over 60% of pharmaceutical active components are being sourced from China. In a post-Covid-19 scenario, it is widely expected that imports into India would possibly be from other countries in the medium to long term. We could soon see a purposeful shift to regional sourcing.

Can supply chain be the new protagonist?

Since the financial crisis meltdown of 2008, financial institutions globally have been enforced to do a regular stress test of their balance sheets, to be ready for any black swan events. Similarly, a series of large-scale cyber-attacks in the past decade has forced technology companies to deeply scrutinize their cyber-security threats.

HEAD – Sales & Marketing
CriticaLog India Pvt. Ltd.

In a post-Covid-19 era, supply chain could be the main protagonist. Earlier, volume stability ensured supply chain to deliver higher service levels at lower costs. However, as volumes become increasingly variable, supply chains not only must become more resilient but also be more adaptive to withstand the brutal force of uncertainty and economic disruptions.

Organizations have started responding to these implications in a targeted manner. There is a direct impact of consumer behaviour, leading to a shift in channel preferences towards digital purchases. Organizations are exploring new go-to-to market models like direct to consumer, leveraging e-commerce platforms and strategic tie-ups with logistics service providers for contactless deliveries.

Building resilient supply chains

Global organizations are reworking their strategies of working to survive the crisis and are increasingly adapting to the new normal. Organizations can deliver by focussing on few fundamental areas by identifying and mitigating existing supply chain vulnerabilities, forming crisis management teams, diversifying partner relationships by building a new supplier base and digitize operational process. Organizations can leverage on these fundamental areas to develop a digitally connected supply chain ecosystem that is not only resilient but also sustainable to thwart the impact of potential uncertain events in the future.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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