Supply chain professional are faced with an unprecedented level of uncertainty in their operations. From a time when the biggest challenge was demand forecasting, the world has moved to disruption across the supply chain – from sourcing to distribution. From manpower to cash flows. Amidst this volatile situation, ISCM in association with SAP held a webinar “Navigating Supply Chain Challenges during and after the Lockdown.” This ISCM Paper focuses on four issues – Material, Manpower, Money and Resilience; and how supply chain professionals can move forward.
This paper is an outcome of the discussion at a webinar “Navigating Supply Chain Challenges during and after the Lockdown” conducted by ISCM in association with SAP on 13 April 2020.
Businesses are facing three major disruptions due to COVID -19 – supply disruption, demand disruption, and business disruption. Business disruption manifests itself in two ways – manpower disruption and cash flow disruption. We believe the lockdown will continue for some more time, and we will probably see a phased relaxation. We feel this is right time for us to revisit the large scale disruptions to our supply chains during the 21 day lockdown, and the long run reforms to our supply chains. We see that companies have resolved to meet the challenges of the supply chain during the lockdown. They are also creating resilience policies to cater to future disruptions return to normal how to reimagine supply chains.
This paper will lay out a case for aligning the four major issues – Man, Material, Money, and Resilience – in the supply chains
Across the board, supply chain managers cite crisis management or business continuity planning as one of their biggest challenges. The list of priorities include ensuring workers can get to their workplace, managing flexible working arrangements and employee Communications to ensure social distancing at workplace and safety of the employees. The biggest challenge facing manufacturers today is the lack of manpower. Supply chain manager have observed some previously unseen behavior among the workforce. For the first time, they are seeing families actively discouraging employees to report for work. In some cases, employees have taken a stance that the production that they are doing is not an essential commodity and hence they do not turn up for work. There was a time when labor was available in and around the factory site. Today, they travel longer distances, crossing district and state borders to reach the workplace. Due to the pandemic, the workers are facing roadblocks on their way to work. Some of them by the law and order authorities, and others by the local population enroute. In cities, lack of public transport is a major deterrent community safety help while in rural India, the challenges are community lockdowns enforced by the villagers. Firms need to plan alternate routes for employees, and be flexible with route planning. Firms have moved from irrational exuberance to irrational fear. Firms need to focus on keeping employee morale up.
A few technologies can help supply chain managers deal with employee relationship. The priorities are employee safety, scarce manpower, and reluctance of employees to go to the workplace. There is a need to manage the employees. Firms face a number of risks in the current scenario – there is a geographical risk that firms need to understand. Then there are occupational risks basis the place of work. And then there are individual risks, based on individual health and conditions. Technology will let the supply chain manager analyze all these risks and develop a risk matrix, and put a control mechanism in place. We have all heard about the incident in Mysore where few people tested positive and subsequently, around 1900 people in that building, quarantined. Today we have Technologies which will help us track a person’s movement, the geographical location of the person, and how long the person has spent in that area. With this technology, in case there is a fresh outbreak in a new area, managers will be able to track all people who could be compromised. With such technologies in place, it is easy to ensure the safety of employees. And these technologies are not very expensive.
The disruption to the supply chain started as an epidemic in China leading to some localized shutdown and lockdowns of supplies from China about three months back. Everyone thought this was similar to the situation last year when due to environmental regulations; China had to shut down a number of factories leading to supply disruption. Most companies thought China was capable of handling it. Unfortunately, the pandemic spread across the globe – with 186 countries affected by it, leading to an unprecedented demand shift – globally, demand started reducing having severe business impact. This demand shock disrupted the entire demand planning and forecasting, production planning, and inventory planning, functions in organizations.
The list of priorities include ensuring workers can get to their workplace, managing flexible working arrangements and employee Communications to ensure social distancing at workplace and safety of the employees
The lockdown has caused massive disruption to movement of goods – there were restrictions on movement of non-essential goods. To add to it, drivers are stuck at various places, with no means to support themselves. There are many shipments in transit, and at ports, where deliveries failed. In India, we have a massive congestion in our ports – the government has asked importers to clear their containers, but importers are not doing so. The pile up of containers at the ports is causing severe hardships. In addition, Delhi and Mumbai Airports have embargoes on them.
Firms need to do a few things to meet these challenges. First, firms that have invested in long term relationships and created strategic partnerships will reap immediate benefits. Firms that have the traditional low cost focus and operated in the spot markets will find that their vendors have very little to offer them. The differentiation comes in building long-term relationships and strategic partnerships in supply chain.
Firms focused on minimizing sourcing base as a means of reducing supply chain costs. Today, regular vendors cannot supply the quantities needed. There are times when the vendors 100% does not match the firms order requirements. Firms are trying to reduce the on boarding time for vendors, without sacrificing compliance requirements. The result is vendor development happening without quality teams visiting the vendor facilities is unheard-of.
Supply chain managers are trying to figure out what will the future supply chains look like –if there will be a bull whip effect, and if so, how to manage the high fluctuation in both demand and supply. Looking at the kind of supply disruptions firms are facing, long-term outlook will be evolution of partnerships, a balance between Global Sourcing and local Sourcing, – identifying a source or supplier who can step in and supply products to you at probably higher cost when there is a supply disruption. The second is to create an ecosystem of partners and vendors whom you can depend upon and rely on for continuous services. These will be the trends in the long-term for procurement.
On the demand side, consumers are moving down to the basic and functional needs. This is a big shift. In a normal scenario, consumers have a range of products available from basic needs right up to the esoteric requirements. But right now, the focus is only on the basic needs. This will continue for quiet sometime till the situation stabilizes. To understand this shift in demand, firms need real time demand sensing capabilities. Firms need to start understanding demand as close to the consumer as possible, and in real time. S&OP and IBP are very good for resource planning, capacity planning, and for demand shaping. But when it comes to actual day to day supply chain actions of moving stocks, manufacturing, and procurement, we need to be demand-driven. DDMRP will gain traction in the post COVID-19 scenario.
The major impact of all these volatilities is on the cash flow of Companies. Firms face an unexpected reduction in the cash flow. There was congestion in ports across China because of which cash flows we restuck. Due to this, companies had to restrict the cash outflow to manage their working capital. The message was sent out – delay payments and increase the credit period. This had a Domino effect across the entire supply chain, every entity sought modification of their payment terms. It also affected the financing options available to companies from banks.
The second is to create an ecosystem of partners and vendors whom you can depend upon and rely on for continuous services.
The second impact has been on inventory – suddenly raw material and finished goods inventory are piling up in the factories across India. The in transit inventory, and the inventories at ports, airports, and railways push up costs. This is because we went into a lockdown. Had the organization prepared itself at the time this pandemic started in China, the situation could have been different. The piling of inventory has led to the shortage of Storage Area for raw material as well as finished goods. The hardest hit due to reduction in cash flows are MSME firms. It is incumbent on the larger firms to ensure adequate liquidity to their supply chain ecosystem partners. For if the partners’ collapse, the firm’s ability to fulfill its promises too collapses. In short, firms need to identify the difficulties that the supplier ecosystem faces, and help them out.
The most encouraging aspect of the covid-19 pandemic is the speed with which firms have mobilized the supply chains to reduce descriptions. They have set up nerve centers to monitor the situation, delegated authority to the man on the spot, and ensure that the supply chains are functional. These are mostly short term measures, to deal with the unprecedented disruption. Firms have to think of medium and long term strategies to reduce the risk in their supply chains. In pursuit of efficiency and lower costs, firms have developed suppliers from across the globe. In hindsight, some of these could have been avoided.
As firms look at the medium and long term strategies, a few points are worth focusing on. The first step is to create visibility of supplies along the chain, tracing it back as far as possible and identifying alternate suppliers, some of which could be global and some local. This balance between global and local will be the future of supply chains. Supply chains will have transit inventory. Firms need to get real time data on this transit inventory, including its location and the time it will take to reach the consumer.
Once the current challenges are under control, supply chain managers need to turn their focus on building medium and long-term resilience in their supply chains.
Once the current challenges are under control, supply chain managers need to turn their focus on building medium and long-term resilience in their supply chains. In a number of firms, this may include setting up a risk management function, updating risk impact assessment and mitigation, and risk governance strategies. The processes developed for managing risk during this disruption should be documented, codified, and freely available to supply chain professionals. The network command center setup to manage the current crisis should become a permanent fixture and monitor risks in real time. A key aspect of resilience is the collaboration with the entire supply chain ecosystem. Introducing Technology and digitalization will be the route to improve the accuracy and timeliness of supply chain risk management.
Once we come out of the crisis, companies should take a close look at their supply-chain risks and the disruptions they could face. In some cases, such analysis can reveal major opportunities — for example, analysis of logistics nodes, routes, and transportation may reveal weakness even when individual components, are resilient.
Long Term Strategy
The organizations who have managed to make a difference have done a few things differently. Starting with collaboration. These companies have gone out of their way to collaborate with their entire supply chain. In addition, they share updated plans with the supply chain partners – including prioritizing and scheduling deliveries, and ensuring the priorities match with what is available at the suppliers end. For most firms, supply chain visibility ends at the adjacent node. But the bottleneck could be in any of the nodes of the upstream supply chain. Firms have reached out to the backend supply chain of their supplier’s suppliers to help them streamline delivery. Collaboration has helped organizations to do better.
Most of them will variabilize cost, instead of keeping it fixed, and choose the best operating model. Firms will see a fundamental shift in the way competitors will behave.
The second is to build capabilities – of the firm and its extended supply chain. This is a time to build on everybody’s capabilities – like helping them obtain the required permissions, providing them with the right set of documentation- ensuring that suppliers get the benefit of the firm’s capabilities. Transportation is a prime example. A few suppliers might be able to produce, but do not have transport capacity to deliver. This is where the firms can step in and leverage their transport networks to help solve the suppliers transport problems.
One of the things that Supply Chain Managers need to do -after the day to day battles – is to start looking at data. There is a lot of data out there and that is where technology will come in. Data and technology together will help you in your thinking process.
When most companies are looking at how they will kick start their operations once the lockdown ends, it will be difficult to get vendors to deliver to promise. New operating models and service providers will emerge in the market in the next few months. Their longevity will depend on how they are able to keep the delivery promise and the quality promise. Most of them will variabilize cost, instead of keeping it fixed, and choose the best operating model. Firms will see a fundamental shift in the way competitors will behave. The only way to understand these changes and its impact on supply chains, is scenario analysis. Therefore, one of the things that supply chain managers should think of is scenario analysis. Scenario is not a mere sensitivity plot, Scenario is where you think the ecosystem and how model how the operating model is going to change. Today, there are more innovations happening -there are design innovations happening and there are new distribution entities and manufacturing entities in the play. Which means firms might end up with a new ecosystem in their business.
Today we have Technologies which will help us track a person’s movement, the geographical location of the person, and how long the person has spent in that area.
While firms’ firefight today, they have enough pieces of data to see where the industry is going and where the micro markets and hyper local markets are going. As they start doing that today, they also start looking at what could be the reaction on the frontlines – there is enough latent demand and firms have not estimated the latent demand. There will be enough latent demand at least for short period. And this can help companies who are having alternate models to conserve cash. For example, one of critical aspects for any organization is not only the physical flow of material and information, but also cash will flow and reduced working capital. Digital payments will be the route for all future payments, because it cuts down the working capital cycle. The role of technology in looking at some of these factors will become very relevant. And operating models will see some amount of realignment.
There are three stages to the pandemic – one is what firms are trying to navigate through now, the second is immediately after the lockdown, and the third one is a business situation which will be the driving scenario for a supply chains. Think about these factors as we go about your business for the next few days.
Credits: The views and opinions were collected from the following speakers during the Webinar on “Navigating Supply Chain Challenges during and after the lockdown.”
Anand R (Chief – Supply Chain at Future Consumer Limited)
Deepak Vazirani (Executive Director – Supply Chain (India & South Asia) at Diversey India Hygiene Pvt. Ltd.)
Easwaran Subramanian (Partner (Strategy & Operations Consulting) at Deloitte)
Girikanth Avadhanula (Director – Supply Chain Solutions at SAP)
Mahesh Khetan (Global Supply Chain Head at Grasim Industries Ltd.)
Radha Mohan Gupta (Regional Procurement Director South Asia at Reckitt Benckiser)
Dr. Rakesh Sinha (Founder & CEO at Reflexive Supply Chain Solutions)
Dr. Ravi Prakash Mathur (Senior Director Supply Chain – Head Of Logistics, Central Planning And Corporate Sourcing at Dr. Reddy’s Laboratories)
Satish Lakkaraju (COO at Agility Logistics Private Limited)
Saurabh Lal (Director Supply Chain, India & South Asia at Kellogg Company)
Somnath Das (Director Supply Chain at Beiersdorf – Nivea)
Moderated By: Dr. Rakesh Singh (Chairman at ISCM)