Supply Chains May Never Be the Same Again

Supply Chains May Never Be the Same Again
Authored By: Ravindra Singh, Director- Kaizen Hansei

Against the backdrop of COVID-19 triggered disruption in the Global Supply Chain. I find asking myself as to what if all companies in India, worked on a Just-in-Time philosophy; or worked with a few days of Finished Goods Inventories? Could we have afforded 1-2 months of nation-wide lock-down and still been able to feed the 1.3 bn population? Perhaps Not.

Ravindra Singh | Director, Kaizen Hansei

Over last two decades, many Subject Matter Experts have been advising companies to focus on streamlining their Supply Chains. In the race to be more competitive, many companies adopted Lean strategies; focusing on supply chain optimization (to minimize costs, reduce inventories, and improve asset utilization). Admittedly, while on one hand it resulted in reducing buffers, enhancing flexibility and thus yielding attractive business benefits. On the other hand it also increased the susceptibility of these supply chain to business and demand fluctuations.

Paradoxically, in the present downturn, higher inventories in the supply chain may have bailed us out. Indian companies have been able to respond to the present crisis successfully. By ensuring the availability of adequate food, medicines and other essentials. Despite production being put on a near-paused (or severely scaled down).

This brings up a new aspect-Should organization start building inventories in their distribution channels. And Is this going to be the way forward to deal with these unforeseen situations? Surely Not…because what we have just seen is one highly improbable exception…rather than something to expect any more frequently! (and Amen to that!)

Today, everyone is emphasizing on diversifying supplies from multiple geographies. Many companies had incorporated multi-sourcing philosophy as a part of their Supply Chain De-risking strategy. Infuture, as a fall out of COVID-19 effect, many more companies will revise their sourcing strategy and make it more broad-based, especially if it is import-dependent. It is an urgent wake-up call for Indian companies to realize the need to develop its local sourcing partners and adopt alternative strategies for reducing the dependence on imports from countries like China and building self-dependency.

Needless to say, this crisis has highlighted the need to have a closer look at the need to transform traditional supply chain models. This will happen and companies will evolve what suits them best on a case to case basis.

However, here is a list of critical performances measure that companies will incorporate and supply chains may never be the same as before;

  1. Responsiveness– The use of IoT and technology-driven processes would be the way forward.
    1. Without digital transformation, companies would be bound to traditional and linear supply chain processes. This will limit their capability to respond to fluctuating market demands.
      1. A truly responsive supply chain can help organizations to mitigate risks and also to discover newer ways of operating that weren't possible before.
  2. Reconfigurability– The supply chain must possess the flexibility of altering its configuration with relatively minor resource requirements, at short notice and quickly. On the other hand, it should respond to changing demands and operating environments without compromising its operational efficiency. The trade off has to be managed well.
  3. Resilience– The supply chain models must have quick-reaction capabilities to prepare for unexpected downturns, respond to disruptions, and recover from them. A Resilience Index for both- the company and the supply chain, would be essential.
  4. Reliability– This is the characteristic of the Supply chain to perform its functions as per terms of the agreement, i.e.: Ensuring that the customer gets what he wants, when he wants and how he wants. This index is driven by the weakest element that constitutes the supply chain.

The models adopted mustbe tested fromtime-to-time on these performance indicators and should have mitigation plans forfrequentbusiness risks.

When this unprecedented crisis gets over, organizations would revisit their global supply chain strategies (based on stability of demand and supply aspects in their supply chains), focus more on localization, agility and reliability. Building trust, transparency and collaborative relationships with critical Suppliers is going to be key in dealing with such unforeseen situations. It could also involve a togetherness that would help build this resilience and help the industry bounce back for good.

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