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Responsible Supply Chains: Is COVID-19 a prescription for change?

Responsible Supply Chains
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The human tendency has always been to extract the most out of anything. Doing away with responsibility and dignity is part of the business. In these trying times, the world has quickly realized that an invisible yet invincible enemy in the form of SARS-CoV-2 can change the entire perspective of the community. Moody’s may have downgraded India’s GDP growth from 5.5% to 2.5% for 2020, but what is more important is that India has now understood the responsibility it carries. Lifting the ban on exports of hydroxychloroquine is just one example where India has led from the front in spite of the difficult situation in the country.

Economic revival will only be possible if all stakeholders undertake collaborative efforts to act responsibly. The most important link to this chain of revival lies in the hands of the logistics and supply chain sector. Supply chain, which was until now considered as a cost centre, is now being considered as the most important capability of a firm. Logistics, considered a small cog in the large wheel, is helping the businesses to stay afloat in these trying times. We will look into some of the challenges faced by the logistics and supply chain sector during the lockdown in India and understand how responsible supply chains are tackling these challenges.

Role of Responsible Supply Chains

At the demand side, most of the discretionary spending by consumers is down to zero. What is more important is that there is at least 50% of untapped demand in essentials. This is mainly because stocks dried up at retail outlets as a majority of people resorted to panic buying. Even though there is significant stock in factories, warehouse depots and distributors, hoarding of essentials beyond use has resulted in the stock depletion at the retail end. Companies are finding distribution, compliance and deadlines hard to manage as there is a working capital limit and the margins are shrinking.

Specifically, the lockdown has significantly affected MSMEs as their cash flows are drying and the economic activity is at a standstill. Also, blockage of a large number of exports has resulted in people losing contracts. Yet, in these trying times, responsible companies have tapped into the hyperlocal market online. Management of lastmile deliveries by small players and meeting the customer needs by providing the right product at the right time has played a big role in the management of demand. People have also become more empathetic to these service providers.

At the supply side, companies are short of inventories. The service level is less than 50% while the lead times have increased due to manpower and vehicle unavailability. Most of the companies in essential goods category are running at 25-40% of the capacity. There is still a lot of confusion among corporates and government alike on what items are essentials and what are not.

Packaged food items like ketchups, jams, tea etc. are lying in this grey area of uncertainty. The interpretation regarding packaged food items varies from district to district local administrations. Responsible supply chains have built a command centre where there is a constant flow of information and stakeholder feedback to understand and cater to the needs. Major FMCG companies like Hindustan Unilever Limited, Nestle and ITC have reduced the product line complexity by restricting production to few SKUs of essential goods and medical supplies. These companies are protecting their suppliers and providing emotional and psychological support. This ongoing relationship building through collaboration, information sharing and visibility will have a significant impact on the long term profitability of such firms.

As far as logistics is concerned, the important factor is that around 40% to 50% of the 36 lakh truck drivers are not available for driving the vehicles. The broker network is disrupted and personal mobility is restricted. Out of around 75 lakh trucks throughout India, around 20% are stuck on roads across the country. Similarly, interstate and local truck movements are severely restricted. This is where the responsible supply chains have started making a mark. These companies are helping each other through a collaboration of workforce, trucks, distribution network and warehouse space to ease out the delivery to end customer.

Logistics startups like Rivigo, Delhivery and LetsTransport are ensuring that food is arranged for the drivers at warehouses, as most of these warehouses are in off-city location. Continuity of services with a minimum number of people becomes imperative. Labor coming back at this time from their villages is going to be difficult since they have a lot of social and psychological pressure. This is where it becomes crucial for organizations to revitalize a sense of love and care for their employees. Companies have also started tying up with big workforce providers who catered to the retail economy or taxi services in India. Reskilling these individuals for the current task will help in maintaining the flow of goods and essential services.

The role of regulators is very crucial at this stage. While obtaining permissions and approvals through passes was a difficult task in the initial week of the lockdown, the situation improved immensely in the two weeks that followed. The central authority, state government and district authorities worked in collaboration to ease the approval process. The entire supply chain, which was linked to provide the essential services, was exempted and provided passes to operate. The speed at which the authorities like police and media personnel have responded is also worth appreciating in these tough times. Government of India has acted responsibly in these trying times by easing the process of approval. Yet, digitization of these passes can significantly streamline the process and improve the response speed. Information flow regarding the pass system needs to be made clear to the people who are on the ground, i.e., the constable and the delivery boy.

Nearly 25 million people around the world may lose jobs due to SARS-CoV-2 as per the International Labour Organization (ILO). A survey by Challenger, Gray and Christmas stated that 49% of the companies are likely to conduct layoffs in the next three months. Some companies have already started cutting down on expenditure through pay-cuts and reducing the workforce. This is where responsible supply chains will have to make a difference. Repurposing resources and workforce can quickly help in reducing the supply and labour shortage. Some of the companies like Kellogg’s are doing their bit by protecting the salaries of their employees together with extending early payouts and protecting bonuses. Responsible supply chains have not increased the prices of their products and have in fact focused on more CSR activities.

Safety and security is another aspect that these companies are focusing on. Companies are constantly reminding the truck drivers to use the masks and sanitizers. Truck body is cleaned regularly to prevent the spread of the disease through surfaces. There is a continuous behavioural adjustment as the companies have realized the criticality of their blue-collared workforce. Companies have started providing health insurance to the tune of 3 to 5 lakhs to their truck drivers. Situations like these help in promoting the dignity of labour.

Selfish and short-term gains have only resulted in long-term damage to the supply chains. Lean management and Toyota Production System may promote the reduction of wastages, yet principally, they have left organizations with the mammoth task of managing their businesses with hardly any resources to sustain. In the short term, it becomes imperative for supply chains of major corporations to know the locations of their suppliers, suppliers’ suppliers, distributors, and warehouses. Alternate sourcing and increased inventory of items sourced from vulnerable suppliers can help in reducing the response time. Cooperation and transparency can significantly reduce the uncertainty currently present in the international supply chain. For the long term, drafting and testing contingency plans for supplier outage and using dual sourcing for critical components can significantly help in monitoring supply chain risks.

This is the time when companies are adapting and responding to severe disruptions for good. Cash flow has become critical especially for small and medium enterprises. Companies have quickly realized that innovating and experimenting in the current scenario would put them in good stead for any future disruptions.

The article has been authored by Rohit Sindhwani, PhD Candidate, IIM Lucknow & Assistant Professor, UPES, Dehradun & Dr Venkataramanaiah Saddikuti, Associate Professor in Operations Management (Fullbright Scholar-USA, 2009), IIM Lucknow.    

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