Global Supply Chain Transformation during the Pandemic

Global supply chains across the industries are never going to look the same when we come out of the pandemic. We have seen it all in the last one and half years, starting with demand shock to supply shock to unimaginably skyrocketing prices along with demand planning going haywire and unprecedented logistics challenges. The positive side of all this is, it has divulged the defencelessness in the supply chain and educated us a lot to manage extremely adverse situations. The disruption has also created new trends and business opportunities like:

Network modelling, modification, and global realignment

The supply and demand shocks are not new to the supply chain network, couple of years back there was a supply shock due to environmental restrictions in China, then next year there was disruption due to US-China trade war, then the pandemic. Continuous shocks did not stir the supply chain across the industries as much as is done by the pandemic. The magnitude of the sock is pretty high during this period which, has forced many industries to redo their network modelling and make it a continuous process rather than a one-time activity. There are regions/countries that were net sellers (export volume more than import) of a particular set of products have become the net buyer of the same products due to shutting down or significant reduction of the operating rate of many manufacturing facilities. Similarly, some net buyers turned into net sellers.

So, redesigning the network became a necessity for the source of procurement to storage locations, to manufacturing setups. Mitigating geographical risks through diversification of global sourcing became a focus area which, was not at all on the radar in the past. Also, if at all the situation becomes normal – the same as what was during the pre-pandemic period, then what happens to the modified network? Network modelling exercise needs to be done again in that case, to optimize the network with new variables, may be incorporating more number of variables. Thus, the necessity of modifying the frequency of doing this exercise itself changed – an important evolution in the supply chain

Working Capital Management – Inventory and Cash Flow

During the beginning of the pandemic around April 2020, many organizations suddenly realized that they have a huge inventory of raw materials and finished goods. Their customers were in a similar situation. This triggered payment defaults across the chain from customers to their vendors, in turn to their vendors, accompanied by a series of requests for extending credit terms. Then the scenario turned around upside down in a span of 6 months, wherein the demand went up and same customers needed more stock from the same vendors – long-term business relationship management surfaced as a spotlight like never before.

Different ways to manage credit periods and working capital had to be thought through. Bill discounting from countries having very low interest rates (less than 1% per year) was seriously looked into and started becoming part of the long-term vendor-customer contracts. Safety stock, inventory management, incoterms all started getting restructured. Unusual focus on inventory management started appearing in the business processes which, was more of bringing discipline wherever it was not there.

Outsourcing – Partnering with the right service providers

The unprecedented and unending logistics challenges one after the other during the pandemic, not only caused severe disruption globally but also highlighted the need to partner with the right service providers with a right mix of regional as well as global experts. The need for 3P and 4P logistics and warehouse service providers was felt strongly. Optimal usage of all modes of transport – rail, road, water, and the air became a necessity to ensure delivery. Tremendous business opportunities emerged to provide end-to-end services.

Roles of supply chain partners started evolving. Supply Chain teams had suddenly so much on their plate due to disruption occurring in each node of the value chain, that they started feeling the need to offload some of the operations to third-party service providers. In a global network, wherein delivery from a factory in India to a factory in Europe required about 3-4 agencies from road transporters to customs handling agents to shipping lines to freight forwarders, now getting simplified to a single service provider having network across the geographies and being able to provide all these services at optimal cost.

[box type=”success” align=”” class=”” width=””]Things change all the time, and they’ll probably never be the same again. Evolution is all about looking forward. And there are no shortcuts in evolution. The disruption caused by the pandemic has brought discipline in many areas where it was missing. The only way to survive and thrive for the organizations is to continuously transform.[/box]

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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