Opinion | Reset your supply chains
- A six-point agenda for consumer product companies to shock-proof their operations and align them with needs of the future
Covid-19 has brought global and domestic supply chains to a halt. While all organisations are, rightfully, focused on getting back on track and preparing for the post lockdown bounce back, this is also a good opportunity to re-imagine supply chains on a clean slate.
The current supply chains across industries have evolved over time and are not necessarily the best suited for the current and future scale of operation. Let’s take, for example, consumer product supply chains—fast moving goods, pharma, and durables—today. Typically, organisations have multiple layers between manufacturing and the end consumer, with many days of inventory in the chain. The reasons why such a structure evolved include poor infrastructure, a distributed geographic demand footprint and low volumes in earlier days. This was compounded by a fragmented channel structure with multiple small distributors intermediating between manufacturers and customers (modern trade and e-commerce have not made a substantial impact yet). Even as India has improved its infrastructure, adopted the goods and services tax (GST) and enhanced its IT connectivity, for organisations it has been hard to move away from thatstructure, due to the extent of change that would be needed.
The covid-19 lockdown, however, has either emptied supply chains of inventory or reduced the same substantially, presenting organisations an unforeseen opportunity to completely redesign their supply chains along six dimensions. To make the best of the opportunity, this is what companies should do:
One, rethink distribution and embrace direct-to- consumer systems: Organisations can use this opportunity to consolidate their distribution network, moving away from weak distributors, and to fewer bigger and more capable ones. Another necessary change would be to move the inventory of finished goods higher up the distribution chain—either to warehouses close to or within a factory, or to their own distribution centres—instead of keeping stocks with distributors, which should be shifted to a flow-through model.
The lockdown has pushed consumers to adopt home delivery. Long wait times to get a BigBasket or Amazon Pantry delivery slot are reflective of that shift. The lockdown is also getting consumers used to paying delivery charges. Post-lockdown too, consumers might hesitate to get back to regular shopping, because of social distancing norms, and will continue to avoid crowded places. Delivery models will have a cascading impact on the organization’s upstream supply chain, and a big shift will be needed to re-configure it to handle smaller packs (versus the cartons that most supply chains are designed for).
Two, accelerate mechanisation: Given the low labour costs in India, mechanization of the supply chain is usually hard to justify. However, social distancing norms at factories and warehouses will spur the need for it to reduce people density across the supply chain. This will call for end-of-line packaging automation, palletization, movement mechanization (conveyor belts, fork lifts, etec), the increased adoption of robotics on the manufacturing floor, adoption of AGVs, etc.
Three, prioritize risk mitigation instead of cost optimization: India is a low-rice-point, large-volume market. This has made cost optimization a key objective in all supply chain design exercises. However, the current disruption requires companies to back up various nodes of their supply chains. Organizations will have to avoid single points of potential failure, be it a supplier, manufacturing site, or distribution centres. Industries like pharmaceuticals or technical textiles (used for personal protection equipment, for example), and medical equipment, which are dependent on imports for critical inputs (such as bulk ingredient drugs in pharma and fabrics in technical textiles), will need to explore raising their local capacity and/or backward integration.
Four, adopt scenario planning and war gaming: The planning processes of most organizations just have a single view of the future, and take into account only the next couple of months or quarter’s sales forecast for their delivery plans to address. There is very little war gaming or simulations adopted today. Covid-19 has highlighted the importance of reviewing alternate scenarios periodically and simulating response strategies for dramatic eventualities. This would avoid having togo into firefighting mode. Also, organizations have been forced to do daily planning during this lockdown, given the deep disruption of supply chains.
Five, redesign the organization: For much of the last several weeks, organizations have operated—albeit at a lower throughput levels—with their employees working from home and managing most activities via phone and video calls. There is no reason why, after this lockdown, organisations need to revert to their traditional models of managing their supply chains, which place emphasis on locating managers close to various points of action. For example, all members of a planning team need not be located at the head office, and logistics managers need not be located in specific zones and regions to carry out their tasks. Releasing management of geographical constraints will allow for a re-imagination of work spans and aid the development of a new organization model altogether.
Six, digitise extensively: All information and cash flows in the supply chain will get digitised. Digitisation enables smooth functioning of this chain even during covid-like disruptions. For example, some of the recent truck stoppages were due to lack of cash available with truck drivers. So payment wallets will gain currency among truckers. Companies also need to push channel partners and suppliers who operate on cash or by cheque to embrace digital payments. Equally, the increasing need for traceability of products and assets in the supply chain will encourage organizations to evaluate and adopt technologies like blockchain.
As Winston Churchill said, never let a good crisis go waste. Organizations should use this opportunity to set in motion a new supply chain for the future.
Kaushika Madhavan is India managing partner and country head, Kearney.
The views expressed in this column are author's own.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:24 Apr 2020, 05:59 PM IST
- Top Gainers
- Top Losers
- 52 Week High