Disruption of conventional systems can be leveraged to accelerate the adoption of smart supply chain management, powered by cutting-edge technologies. The current pandemic is an opportunity for transforming SCM practices. A forward-thinking organisation must reinvent their SCM practices to build a future-ready organisation.
Even as the COVID-19 pandemic has hit global trade and investment at an unprecedented speed and scale, the coronavirus crisis has also revealed the fragility of the modern supply chain. The domino effect of plant closures and supply shortages across the extended supply network quickly lead to significant supply chain disruptions across geographies and sectors. Over the past few months, as the virus has spread across continents, it has had a devastating impact on economies, businesses, and supply chains across the world. While the trade and transaction volumes dropped by 50% in the US, Europe as well as China at the peak of the pandemic, the supply chains are yet to recover from the shock and the after-effects will be felt for months to come.
The effect has been particularly debilitating for the manufacturing sector, causing severe supply chain obstructions, difficulty in recovering production due to dislocation of men and materials, lack of personnel mobility, and traffic restrictions. The magnitude of these disruptions increases as the time to recovery lengthens, causing serious ramifications through the global supply chains, from raw materials to finished products. Closer home in India, even as the lockdown is being lifted in phases and industries are returning to regular operations, the unavailability of labour and irregular supply of material is causing major bottlenecks across sectors. It will be months before the lakhs of labourers who migrated to their home states will return to the shop-floor and the supply chain will be restored to its full normalcy, leaving stakeholders battling with unprecedented challenges and losses till such time.
The COVID Crisis
While today’s supply chains have become highly sophisticated and vital to the competitiveness of many companies, being interlinked and global makes them increasingly vulnerable to a range of risks, with more potential points of failure and less margin of error for absorbing delays and disruptions. The decades-long focus on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization has removed buffers and flexibility to absorb delays and disruptions. The COVID-19 crisis has demonstrated how companies are vulnerable to global shocks through their supply chain relationships.
With supply chains impacting not just operational efficiency but also bottom-line of an Organisation, companies that are overly reliant on single geography or a single supplier for key products have borne the brunt of the COVID-19 pandemic. Hitherto, undetected factors like lack of visibility across the extended supply network and inventory status, absence of tools to project stock-outs of direct materials, customer allocation, and unavailability of flexible logistics networks for an effective flow of goods have been exposed during this global crisis.
The Smart SCM Model
Organisations that had invested in building smart supply chains and management systems have shown significant resilience during the pandemic and are better prepared to mitigate risks. These companies have developed and implemented supply chain risk management and business continuity strategies over the years. While they have diversified their supply chains from a geographic perspective to reduce the supply-side risks from any one country or region, they also have multi-sourced strategic components to reduce their reliance on any one supplier and having an inventory strategy in place to buffer against supply chain disruption.
Some companies have shown that they were better prepared than others to respond to the COVID crisis, having built strong relationships with key suppliers and having put systems in place to provide visibility across the extended supply network. While maintaining agility within their production and distribution networks to quickly reconfigure and maintain supply, these companies invested in supply chain planning and control tower solutions to better sense and respond, and even predict supply chain issues.
While COVID-19 may be the reason for companies to revisit their supply chain strategies and accelerate the adoption of digital capabilities, short-term actions need to be made to respond to the immediate challenge. The need of the hour is a more diverse and smarter SCM model, which comprises unification of processes, codification, auctions (reverse & forward), commodity expertise, and lifecycle costing vis-à-vis total cost of acquisition. The disruption in the aftermath of COVID-19 presents an opportunity to adopt a future-ready supply chain built on the platform of new and smart technologies such as AI, machine learning and automation that enables operational efficiency and effective decision making. Technologies such as IoT, cloud computing, 5G, 3D printing, and robotics will all be critical to enabling the digital supply network of the future.
The way forward is to build a smart supply chain system offers digitalization to fortify high-value contracts, contract management, strategic tie-ups and collaborations which will aid in identifying and developing long-term sourcing contracts, better vendor management, while adopting efficient payment cycles. While the details and customizations will vary from sector to sector and even from company to company, a good supply chain expert can ensure that the digital supply network is not only aligned with business strategy but is also integral to its formulation – and build a resilient supply chain that not only reduces risks but also is prepared to quickly adjust and recover from any unanticipated supply chain disruptions that may occur in the future.
This article has been authored by Rajendra Khandalkar, Group Head of Procurement and Supply Chain Management at Sterling and Wilson Pvt Ltd (SWPL), a part of Shapoorji Pallonji Group.