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Supply Chain Management: Covid And Beyond
The supply chain strategy needs to be assessed thoroughly as there may be other events that could cause disruptions on a scale seen during Covid
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By Sameer Bhatnagar
The pre-Covid-19 era saw organisations focusing on globalising their supply chains to optimise the costs targeting production and supplies from countries with low input costs to gain competitive advantage. China emerged to be the world’s factory along with other smaller countries in the Asia-Pacific such as Vietnam, Indonesia, Taiwan and Bangladesh.
However, the Covid-19 pandemic uncovered the vulnerabilities and weaknesses of these supply chains as lockdowns were imposed restricting supply and transportation of goods and supplies between countries.
The first lockdown was imposed in India from the midnight of 25 March 2020. Various state governments enforced border controls as well. This meant curtailment of most economic activities, except those deemed essential like food and medicine thereby leading to demand as well as supply chain disruptions. This posed a challenge to the stability and reliability of even more inter-connected and often global supply chains in case of unforeseen events.
Organisations faced lot of challenges during this phase which needed resolution on a war-footing basis to manage the supply chains. Experimenting with different solutions took the centre stage as the pandemic unfolded.
One of the primary challenges was first to ensure people safety. Simple solutions like roster mechanism with new safety procedures and protocols worked well to ensure people’s safety thereby ensuring continuity of business operations.
Simultaneously, organisations had to assess the demand side disruption, manage supply side risks and solve the logistics and transportation bottlenecks. This saw accelerated adoption of digital solutions to de-risk the revenue streams from demand perspective. Examples include higher adoption of online channels for driving sales through ecommerce platforms, direct-to-consumer approach, use of chatbots for customer service etc.
While many organisations have been able to provide immediate solutions to the rapid change in the environment, a more fundamental assessment of the supply chain strategy is required with a presumption that Covid-19 may not be a rare one-off disruptive event and we could see other events of political, environmental, technological nature, among others.
A customer-centric resilient supply chain strategy leveraging digital-first approach is expected to be the key to unlocking value in the face of disruptions. In the post-Covid-19 era, supply chain leaders and managers would be required to build resilience into their supply chains on both demand side (customer preferences) and supply side factors (disruptions). These will require scenario planning, supplier risk management and micro supply chains are envisaged to be key focus areas to de-risk adverse impacts from disruptions for achieving the objectives of future supply chains.
The digita-first approach will act as a key enabler towards end to end supply chain management. We discuss these in the subsequent paragraphs.
Customer centricity is imperative to reassess and adjust to the future customer behaviour with respect to buying behaviour, product preferences, and preferred buying channels. Examples include shift towards savings rather than impulse or need driven purchase, preference for health and well-being-oriented products and services, faster adoption channels enabling buy-from-home (“BFH”) compared to traditional retail outlet channel.
These changes need to be factored to drive future offerings for revenue growth. Organisations that will be able to leverage technology to proactively address shifting customer preferences on the delivery channel and interface experience (such as seamless buy-from-home experience through online platforms, professional last mile delivery at home experience, real-time virtual tracking of orders, responsive online customer service etc.) could gain much better access to customers inspiring customer delight and loyalty while also gaining sharper visibility of their aspirations.
Resilience will need to be at the heart of an efficient, predictable, and agile supply chain to meet the disruptions or shifts in customer aspirations. According to KPMG’s Beyond This Challenge series on supply chain management, this will require technology driven scenario planning, supplier risk management, end to end supply chain management, and micro supply chains.
Scenario planning will enable organisations to simulate potential future disruptions and take pre-emptive action in view of such eventuality. It will enable organisations to see a bigger picture and make effective trade-off decisions on issues related to effective inventory control versus cost of lost sales.
Artificial intelligence and automation empowered decision making could help in not just predicting but prescribing “sweet spots” between apparently conflicting objectives, based on real-time capacity, inventory, customer demand, and supplier data.
Supplier risk management using real-time supplier data such as system performance category alerts can help manage performance and issue resolution. Supplier risk management systems will have to manage the supply and demand either by reaching out to all the suppliers outside affected regions or working with internal stakeholders as well as critical suppliers to contractually agree on logistic-based costs and necessary buffer stock, in order to manage price volatility.
This will also require answering strategic questions around outsourcing v/s insourcing, off-shoring v/s near-shoring or reshoring, single supplier v/s multi-supplier base. In such cases a collaborative relation built with trust and transparency, overtime with critical suppliers, can go a long way in developing supply chain resilience.
Organisations might need to evolve their operating model and shift towards micro supply chains, creating value as close to customers or in the customer interface as possible. Micro supply chains are finite, agile “mini operating models” with flexible contracts and manufacturing closer to the point of purchase. As per KPMG Insights on The Future of Supply Chain, these micro supply chains could be prudent in tackling vulnerabilities not only during pandemics but also other macro phenomena like volatile interest and exchange rates, tax regime change, trade tariffs and quotas, wage inflation and crop failure.
A digital-first approach leveraging leading technologies such as Industry 4.0, IoT, AI/ML, RPA for more predictive, intelligent and agile end-to-end supply chain management for demand prediction, production planning, inventory management, network planning, distribution management, etc. will be the key to managing disruptions.
Some or all of these approaches might get reinforced as the current pandemic impacts continue. However, it will be exciting to see how organisations innovate and optimise the costs to remain competitive without compromising on factors that drive customer delight.
The author is Partner - Transport & Logistics, KPMG in India