By Ashish Nanda & Nishit Bhatia
The severity of the COVID-19 pandemic has dealt a significant blow to an already-stressed Indian economy. However, this is only the latest in an increasing number of unplanned disruptions that have hit supply chains and impacting business. Looking beyond the immediate crisis, organizations will need to build resilience in their supply chains to deal with disruptive scenarios such as natural disasters, trade barriers, civil unrest, terrorism, cyber-attacks and epidemics.
Traditional supply chains focused on cost optimization through a lean and just-in-time inventory model, with high geographic and vendor concentration, and limited flexibility in manufacturing sites and routes to market. The COVID-19 disruption has exposed fault lines in last mile connectivity, centralized manufacturing & warehousing, access to migrant workforce, and dependence on channel partners and vendors in impacted geographies.
The new normal demands a better balance between risk mitigation and business continuity on one hand and cost optimization on the other. This doesn’t mean that companies need to start becoming cost uncompetitive by building in resilience. Instead, building capabilities and alternate strategies that help them become more agile and balance costs and profits is the need of the hour. This can be achieved by adopting emerging technologies to continuously drive efficiencies from the supply chain.A set of key imperatives, as listed below; can guide organizations through this transformation.
Access to markets and consumer
Routes to market must become digital, transparent and agile to enable organizations to control the last mile and fulfill consumer demand either by going direct-to-consumer or through a partner network. A few FMCG companies have turned the ongoing crisis into an opportunity by strengthening e-commerce, enabling a digital, contactless salesforce powered through deep-learning analytics, virtual order taking, and app-based order taking and delivery tracking.
As industries restart with constrained liquidity and cost pressures, leading organizations are driving initiatives to cut supply chain complexity. This often starts with narrowing the focus to fewer core products with strong consumer value proposition, while still retaining a bulk share of revenue. Existing transactional data can be leveraged to build analytical models that help in simplifying the product portfolio, identifying must sell SKUs by channel partners and market, and streamlining inventory norms and distribution flow paths for the retained portfolio.
Agile demand and supply planning
Organizations will need to establish scenario-based planning capability to synchronize supply fulfilment in a highly dynamic and evolving demand environment. Planning needs to occur on a daily and weekly cadence, instead of monthly, with tighter feedback loops between execution and planning cycles.
Organizations need to reassess the customer demand based on the outbreak-driven market adjustments (i.e. new demand driven by change in demand/supply constrictions), review supply constraints (i.e., suppliers, transport, warehousing active capacities), create a prioritisation framework based on business continuity rather than just profit optimization and prepare for a range of demand and supply possibilities.
Automated and distributed manufacturing
Even as plants and factories reopen, most sites are struggling to achieve their previous capacity due to labour shortages and material constraints. Manufacturing shop floor operations should be transformed through low cost automation systems to reduce manual operations and improve productivity. Organizations must segment workforce into critical/non-critical and design adaptive staffing plans to be able to run the plant with a skeleton staff if the need arises.
Where possible, organizations should explore localized production options with sites and contract manufactures situated closer to key markets.
Resilient supplier network
Disruptions can be mitigated through technology solutions that provide end-to-end visibility and collaboration across the value chain, linking critical first to third-tier suppliers with manufacturers, distributors and customers. As an example, a large automotive OEM has invested in a technology platform to enable advance visibility to potential constraints across production lines, supplier capacity and manpower, thus enabling rapid corrective action and communication to impacted stakeholders.
Organizations will benefit from designing a comprehensive resilience strategy and investing in areas such as visibility and monitoring capability (i.e. control tower), alternative supplier sourcing strategies, critical component substitutes, and ongoing financial health monitoring of suppliers.
The shift towards a more agile, responsive and resilient supply chain begins with keeping employees informed, motivated, committed and trained. Organizations must initiate or expand flexible and remote working arrangements, develop strong communications and employee support programs.
Dealing with labour shortages will require cross-training and upskilling of the workforce to improve flexibility. Organizational structure in conjunction with standard operating procedures (SOPs) and Delegation of Authority (DOA) should be reviewed to enable rapid response during disruptions.
In order to be better prepared for future disruptions, organizations need to create a crisis management ‘war room’ with end-to-end supply chain visibility from customers to suppliers, that can enable the organization to identify early warning signals and take proactive decisions.
The emergence of new technologies like artificial intelligence (AI), machine learning (ML), the Internet of Things (IoT), additive manufacturing (3-D printing) and advanced analytics, when applied to the various parts of the supply chain as mentioned above, enhances the organization’s ability to make more informed decisions. As we move from the ‘Now’ to the ‘Next’ and ‘Beyond’ phase of the COVID-19 pandemic, these initiatives will need to be fast-tracked to not only address the immediate aftermath but to make supply chains more resilient for the future.
( Ashish Nanda is Partner and India Leader and Nishit Bhatia, Partner, Supply Chain and Operations, EY)