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 1

It has been almost ten weeks since the lockdown was announced in India. While there are central government guidelines, state govts have further issued additional advisories depending on the specific challenges foreseen in their states. Work from home has become a new normal and all of us are using technologies to remain connected with team, office, plants, and customers. Challenges have been different to different parts of societies depending on socio-economic status and kind of jobs they are in.

Business have been running, but not as usual. Despite permission from Govt to keep running manufacturing and services of essential goods, lockdowns have posed numerous challenges for supply chains. This is the first time when supply and demand both have got impacted simultaneously. It seems while supply will get back to normal in some time, demand shock is going to stay longer due to loss of jobs, consumers purchasing only basis needs, and also due to additional spend required for personal hygiene products, hitting their monthly purchasing budgets for regular items.

While lockdowns are certainly helping slowing down the spread across & flatten the curve, they also constrained the movement of workers and transports and hence impacting supply chains’ functioning. The procurement function within the supply chain deals with internal customers i.e. plants on one hand, and external suppliers on the other hand. It has been challenging to effectively coordinate with various stakeholders while working from home. When I look back, the following were the main challenges which were faced during lockdown by procurement teams:

  • Coordinating with a large vendor base was a big issue especially while operating from homes. In some of cases, there were issues at the supplier’s supplier end and needed quick resolution. In some cases, while suppliers plants were running, transport was either not available or was interrupted at state borders, which delayed the supplies. And in few other cases, suppliers had major disruptions at their plants impacting the supplies for a long period as corrective actions couldn’t be taken due to lockdown.
  • Fact that unavailability of a small and E class items with least focus in normal situations, stopped the production of an essential or A class finished goods.
  •  Imports of raw materials coming from overseas suppliers got inordinately delayed during the transit in sea/ air as all the ports/airports were choked with the containers/consignments to be cleared only late by many weeks due to unavailability of staffs.
  • During normal operations, organizations have been pushing inventories up the value chain resulting in wafer-thin inventories across. With lockdown announced suddenly and then extended subsequently, supplies of inputs got disrupted which further depleted the inventories resulting into production line stoppages.

It will be appropriate to mention the supporting role of govt from time to time during the lockdown period to facilitate the smooth functioning of industries to the extent possible. It included free passage of transports through state borders, special parcel trains for essential goods, waiver of any late penalties at ports, e-passes for movement within states, etc. Organizations also took various actions and worked closely with business partners to sail through the situations.

  • Organizations worked with their partners with a spirit of collaboration never seen before. Requirement plans, as well as priorities, were shared with suppliers and the same were reworked basis mutual discussions. This was to ensure that suppliers are prioritizing and producing what is exactly required by their clients. This was critical considering the shortage of manpower across the country.
  • Both of them worked together to build on each other’s capabilities, which ideally meant sharing responsibilities to make things happen. In case transportation was an issue at supplier’s end, the client organization managed the transportation to pick up the materials for example.
  • Few suppliers especially the SMEs required financial support from anchor clients to manage their working capital in terms of supply chain financing or reduction in payment terms for specific period

While procurement function had to manage rapidly in short term with some of above initiatives to fulfill the demand, Covid-19 has severely disrupted supply chains on a global scale. There is a need for paradigm shift in Procurement function to become resilient and future ready.

  • True and long-term partnerships must be built with suppliers. This will include building business inter-dependencies which ensures growth for both. There has to be focus on building capabilities which complement each other. Ideally this will encompass having a shared vision for respective businesses.
  • Fewer & Bigger shall be the mantra for rationalizing the vendor base. This is to ensure that organizations have to deal with few suppliers so that minimal resources are required for co-ordination. At the same time economies of scale and package offerings will make the business size attractive for both sides. Backward integration at some of the critical suppliers might be one of the strategies here.
  • Business Continuity Plans for all the inputs going into A class FGs are to be developed. This includes alternate vendors sites and alternate BOMs readily available which are tested and proven. Cost impacts might be worked out to keep in mind the dilutions, if any, in margins to take quick business calls.
  • During this period, organizations have witnessed demand of some items going through the roof (sanitizers, masks, soaps and other hygiene products) and the some have shown a deep dip (mainly non-essential items like fashion garments, cosmetics etc).

scenario planning for different demand pattern is to be created and capabilities need to be built to deal with extreme situations. This requires building flexibility across supply chain i.e. manufacturing lines which can produce more than one product line with minimum change parts, agile distribution system where transport and warehouses could manage high velocity items to fulfill inordinately higher customer demand and also a supplier base which responds quickly to these changes. Multi-skilling of workforce will go a long way to take care of various critical operations in case of shortage of manpower. The scenario building also will deal with level of automation which an organization might require within their supply chain and at their suppliers’ end .

  • Today’s sophisticated global supply chains are increasingly vulnerable to a range of risks with more potential points of failure and less margin of error for absorbing delays & disruptions. There is a need to look at balance between global and local sourcing to maintain highest level of service to customers even during crisis times while keeping an eye to keep costs in checks. This necessarily means developing an alternate local supplier base for crisis situation while continue to take benefit of global vendor base in normal situations. Risk management is to be embedded in procurement decisions.
  • Last but not least, linear supply chains are now to be transformed in Digital Supply Networks with suppliers integrated into the systems to create end to end visibility. This will facilitate faster flow of information from one end to another enabling corrective actions being taken swiftly to mitigate the impacts.

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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