With the positive sentiments towards Indian economy growing slowly and the festive season round the corner, consumer electronics companies are going all out to make the most of the opportunities in disguise. Yes, the past six months were hardest times for one and all and mere thought of economic revival at a fast pace seemed like a distant dream, yet it appears that Indians’ inherent resilience has outnumbered the helluva associated with the Covid pandemic. Though the recovery isn’t sharp, the slow growth spike can’t be ignored. Buoyed by the growing consumer sentiments and the fervor towards ‘Make in India’ movement, consumer electronics companies are putting their best foot forward to lure customers on the back of innovative quality offerings rather than the deep discounting strategy. This special story tracks the supply chain strategies consumer electronics companies are adopting to sustain and grow in the NEXT NORMAL.
LET us get to the NEWSMAKERS first before… Tech giant Samsung expects its online business in India to grow 35% in 2020 over the last year, driven by strong overall demand and success of its M series of devices. According to the Samsung India Senior Vice President Asim Warsi, business, on the other side of lockdown, has been rapid and resurgent and that's an ode to the fact that mobile phones are a huge part of consumers' lives and there was a pent-up demand. He added that the company has had a slew of launches - eight smartphones straddling across different price points, tablets, and wearables in the post-lockdown period. Warsi said the company sees its online business in India to be more than double in the second half of 2020 versus the year-ago period.
As per the recent statement from the Ministry of Commerce and Industry, Apple has started manufacturing its highest-selling model iPhone 11 in India, which is a significant boost to the Make in India initiative. In a tweet, Piyush Goyal, Minister of Commerce & Industry, said, “Significant boost to Make in India! Apple has started manufacturing iPhone 11 in India, bringing a top-of-the-line model for the first time in the country.” Currently, iPhone XR and iPhone 11 are being assembled by Foxconn at its Chennai manufacturing plant while iPhone 7 is being assembled by Wistron in Bengaluru. Original iPhone SE and iPhone 6s were assembled by Wistron but those were discontinued in 2019. Apple is also reportedly planning to assemble its new iPhone SE in India. The iPhone maker has already asked one of its suppliers in China to start shipping components for the iPhone SE 2020 to its manufacturing partner Wistron in India.
Similarly, South Korean electronics major LG is planning to use the “window of opportunity” provided by the anti-China mood in India to stage a comeback in smartphones, targeting the sub-Rs 15,000 segment to claw back its way back in an industry now dominated by brands from across the Great Wall. The company is seeking to scale up local manufacturing by 15 times until Diwali and expand distribution. Diverging from its global portfolio, this year, LG is building an ‘India specific and India first’ product portfolio to cater to unique consumer demands here. The company is also targeting corporate sales and foraying into the tablet market by year end.
All these recent developments reflect the buoyant sentiments that consumer electronics majors have on the Indian economy, which are strongly aided by the upbeat consumer sentiments. The appliances and consumer electronics industry is expecting double-digit growth in sales in the upcoming festive season, which will be further supported by absence of domestic helps and people working from home, according to industry body Consumer Electronics and Appliances Manufacturers Association (CEAMA). The consumer electronics and appliances sector, which has already started on a positive note with Onam in August, saw sales growth in last couple of months owing to pent-up demand, but there is another element playing a role of a key driver, i.e. consumers are looking for a substitute for domestic help amid health safety concerns due to COVID-19. This has already led to a higher demand for appliances such as washing machine, microwave, dishwasher, refrigerators, etc. Makers such as Panasonic, LG, Samsung, Sony, Voltas and BSH Home Appliances are expecting a higher demand of new-age premium products such as large screen TV and big size refrigerators besides dishwasher, microwave ovens and washing machine, which have proved their worth during the lockdown. CEAMA said that the industry has overall witnessed a growth in sales of consumer electronics and appliances in August. In July, the growth was only in the consumer electronics.
Since unlocking of markets, there has been an increased demand among consumers to equip their homes with the latest technology while they stay and work from home. According to a joint report by CEAMA and Frost & Sullivan, the appliance and consumer electronic industry had a total market size of Rs 76,400 crore in 2018-19. Around 95% of consumer electronics and appliances sold in India are produced locally, although dependence on China for components still ranges between 25-70%, which will be difficult to reduce overnight, according to industry body CEAMA. “We as an industry have done a lot of work (all brands) in creating capacity in the last two-three years by putting new plants to start manufacturing of finished products across categories. We are now in a very good position across all categories in the finished goods segment,” stated CEAMA President Kamal Nandi in a release. Let us hear what the industry leaders have to say on the shifting dynamics of the consumer electronics in the country and their preparedness to cater to the festive season ahead.
With the onset of festive season, how are you prepping up the supply chain specially at a time when Covid pandemic has completely dismantled the business ecosystem for far too long?
Deepak Sharma, Executive Vice President & Head – Supply Chain Management (Consumer Products), Bajaj Electricals:
The COVID-19 global pandemic followed by the subsequent nationwide lockdown has impacted industries and specifically disrupted the overall supply chain, affecting the availability of products across the country. We too are facing supply side issues owing to the lockdown. Most of our manufacturing units, Tier 1 & Tier 2 supply partners are currently in the containment zones facing severe labor shortage which has affected our production and might act as a challenge for us to fulfil the demand. However, with the subsequent phase-wise unlock, we are trying to get our supply in line with the expectations set internally. With the onset of the festive season, we have enhanced our sourcing capacity to cater to the uptake in the expected demand. Favorably, the industry has shown an excellent resilience w.r.t meeting the demand. Kitchen appliances such as Mixer Grinders, OTGs, Induction Cooktops, etc., have registered significant growth on a YoY basis, which is quite encouraging.
We, at Bajaj Electricals, follow the TOC (Theory of Constraints) model which compels us to stock our products with channel partners as per the buffer norms. Considering the current scenario, this came as an immediate relief to us. Visibility and availability of stocks at the distributors’ end ensured that we get the necessary head start in terms of aligning the supply. During the lockdown phase, we have worked towards capacity enhancement through structured initiatives. Collaboration with internal and external stakeholders has helped us with rapid flow of real-time information across the channels. At Bajaj Electricals, our topmost priority and commitment is to reach out to the maximum possible consumers and serve them with our entrenched distribution and bestin-class service. We are confident to navigate through these challenging times with our integrated supply chain.
Ravindra M, Associate Director – Logistics, Panasonic India :
We have successfully managed even during May to Sep’20 and ensured there is no disruption of supplies to the market. We are fully geared to fulfil the festive season and geared up line haul as well as the last mile delivery network. Panasonic is ensuring that all the touch points in the supply chain are following all safety and hygiene protocols. We had a successful Onam and are looking forward to fantastic festive season ahead.
Sourabh Raghuvanshi, Vice President & Head - Supply Chain, Lava International Ltd.:
Definitely Covid has disrupted business ecosystems immensely and there are a plethora of challenges even today but by and large supply chains in most organizations have adapted to deal with this new normal. In my view, success mantra is to have a de-risking strategy as well as a Plan B ready as these are uncertain times. In order to de-risk ourselves, we have decentralized our operations and increased our partner base so that we don’t put all eggs in the same basket. We are working with a micro market approach and identifying local players who know and serve a particular region quite well both in depth and width even in the prevailing logistical challenges around the country. Secondly, we have more than one partner on most of our critical routes to further de-risk ourselves. Thirdly, we have strengthened our multi modal capabilities to have flexibility to toggle modes between courier, surface, rail and air as the case may be. Having said these, we anticipate good surge in demand during the upcoming festival period and are gearing up to handle higher inventory levels as well as increasing manpower in our warehouses to meet the festive need.
What are the consumers’ immediate demands, and how are you planning to attend to them? How have consumer demands changed in the recent past?
Deepak Sharma: There has been a significant change in consumers’ buying behavior and expect it to remain the same for some time post-pandemic as well. With people spending maximum time at home managing household chores, there has been an accelerated demand for kitchen appliances and breakfast essentials. To address the growth in demand, we are strengthening our supply partners and are also amplifying their capacity through various initiatives. Considering the COVID-19 situation, we have witnessed a surge in orders being placed through e-commerce platforms. Apart from our traditional trade distribution model, we have focused on strengthening our e-commerce portal and omni-channel distribution, we expect this channel to contribute significantly to our revenue in the coming quarters. Our focus is to create digital applications that will facilitate contact-less sales operations and services.
Ravindra M: Consumers’ immediate demand is that the product should be delivered to them in the shortest possible timeframe. Consumers, during the ongoing pandemic, prefer to shop online more and expect stocks to reach them at the earliest.
We have heard that the consumer electronics industry is one of the bright sectors to bring back growth in such trying times. What’s your take on this?
Deepak Sharma: With the lockdown enforced, people are compelled to spend more time at home, resulting in increased usage of household products. Small appliances categorized as essential household items have witnessed significant growth. Lower affordability aspects have provided an impetus to demand w.r.t. this segment. We anticipate this trend to continue even during the upcoming festive season and are geared up to cater to the surge in demand.
Sourabh Raghuvanshi: Most people have been confined to their homes during lockdown and Work from Home is there to stay for quite some time for many sectors. Hence, it is quite natural that demand for consumer electronics goods has gone up. If I talk about mobile handsets industry, then there are 3 factors boosting up the demand – work from home, online schooling / booming Ed-Tech sector, increased digital media consumption. Apart from this, there is pent up demand from lockdown months when consumer couldn’t purchase and/or brands couldn’t supply. This spike in demand is likely to be there for at least a quarter more.
Ravindra M: Yes, consumer electronics industry has been able to regain the momentum during the ongoing pandemic. There is a huge demand for large size LEDs, considering the number of people working from home is considerably higher v/s office attendance. Demand for home appliances also has gone up with families wanting to upgrade their refrigerators and buying additional air conditioner for the spare / guest room also as work from home has become the new norm for majority of the work force.
How do you view the new normal for the consumer electronics segment?
Deepak Sharma: The new normal has transcended now into an adapted notion by most of the brands. We have been agile in adapting to fast evolving consumer demands and habits, especially in terms of quicker and safer doorstep deliveries. The supply chain has become a critical factor in ensuring normalcy of business and provide a seamless experience to the consumers. The consumer durables industry is expected to show a steep growth with the organized players regaining the market share owing to consumers relying on brands for trust and quality. ‘Atmanirbhar Bharat’ initiative will play a significant part in creating an ecosystem that will make the industry more self-reliant and self-sufficient.
Sourabh Raghuvanshi: Two evident changes: Daily dependence and quantum of usage of electronic gadgets and appliances have gone up. Hence, there is shift in demand towards high specification-high feature portfolio. So, a set of consumers are upgrading themselves to a better spec. On the other hand, there is a new set of consumers too for whom this pandemic has necessitated purchase of certain categories for first time. Such consumer segment is mostly adopting newer gadgets at the entry level segment, hence there is some degree of market size expansion happening here too. Also, a lot of local brands made fray due to supply shortages during lockdown. As bigger players have sorted out their supply issues more or less, next couple of months will see consumers moving back to their favorite brands.
Ravindra M: We have adapted very well to the New Normal considering there is a huge onus on us to maintain safety and social distancing within the office/ warehouse as well as at home. We have adopted various mediums to communicate and hold virtual meetings to overcome travel restrictions.
How are you aligning your supply chain vis-à-vis the market dynamics? What about an ideal mix of online & offline retail experience?
Deepak Sharma: We are currently working on capacity enhancement and strengthening the ecosystem across mediums possible, which will allow us to cut down the operational costs as well as the lead time to serve the consumers. To gratify the surge and demand variations, we have in place the TOC model with a buffer management system and replenishment module. In the FMEG industry, we are one of the leading players who are placed perfectly with the best mix in terms of offline and online retail channel placements. A healthy ratio of 70:30 (offline to online) provides us with the right balance between pan-India coverage and emerging channels. Offline retail has always been a substantial market segment for us over the years. However, during the lockdown, we have observed a spike in orders through online platforms, and it will continue to grow owing to the current scenario.
Sourabh Raghuvanshi: There is lot of dynamism today and a number of variables are acting in parallel. For example, labor migration from metros has led to change in demand patterns, which were unlikely before. As a result, market size for regions such as Bihar and part of Uttar Pradesh is higher now than it was pre-Covid specially for entry level products. Secondly, on retail mix, while there has been a transition towards online shopping, offline retail is regaining traction and retail markets are likely to see higher footfalls as we approach festive season.
Ravindra M: We are fully equipped to overcome the market dynamics and ensure network optimization to fulfil customer/ consumer orders in the shortest possible time. We operate in both spaces online as well as offline. The consumer buying online has increased during this Pandemic and we have been successful in fulfilling the consumer orders.
What importance does a healthy partnership between you and your supply chain partner hold to harness a stronger value chain?
Deepak Sharma: At Bajaj Electricals, we have embodied the philosophy of “Coming together is a beginning, keeping together is progress and working together is success” with our supply chain partners. Most of our partners have been associated with us for decades and in some cases over generations. Transparency w.r.t our core beliefs and strategic choices have further bolstered their confidence in this prolonged partnership. All this has been possible because of the cordial relationships nurtured with external partners over the years. We have pioneered the concept of ‘Availability’ in FMEG space with our presence in more than 25 categories range. A larger portfolio poses a unique challenge in maintaining an adequate supply of products. However, the company has been able to conquer these twin challenges and come out with flying colors over the past few years with the help of our supply chain partners. Their constant trust and commitment towards our goals have helped us grow ahead of the industry on a sustainable basis.
Sourabh Raghuvanshi: Such challenging times actually are testimony of true character of a brand and how a trustworthy relationship with partners unfold in these times matters in the long run. We try to ensure complete transparency with our partners over demand fluctuations so that they can plan properly. We have ensured that vendor payments are done even in the most chronic scenarios so that working capital woes of our partners don’t aggravate. Thirdly, we try to replicate our best practices and capabilities in our partners’ ecosystems so that gradually yet continuously we keep on strengthening our entire value chain.
Ravindra M: There is certainly a huge importance of a healthy partnership between the principal and the supply chain partner as the supply chain partner plays a major role in fulfilling customer orders in the committed timeframe.
How is the ‘Make in India’ initiative slated to boost the growth of your company, and how are you prepping your supply chain to cater to the growing demands?
Deepak Sharma: Currently, around 85% of our products are made in India. With the Central Government’s thrust on ‘Atmanirbhar Bharat’ initiative, we look forward to aligning our manufacturing capabilities to support the movement and encouraging to produce high quality products within the country. At Bajaj Electricals, we are already geared up to meet the anticipated upsurge through capacity enhancement and superior production efficiency.
Ravindra M: We already have a factory establishment in India and fulfilling the domestic as well as export sales from the local factory in India. Our supply chain is fully equipped to cater to the growing demands of the consumer.
What are the supply chain innovations we will see in the near future to serve to changing consumer demands?
Deepak Sharma: The evolving ecosystem of the industry clubbed with the changing buying behavior of consumer has called for innovations in the supply chain, which can contribute to make the consumers’ purchase experience hassle-free and on time. Precision in the supply chain is crucial to prevent errors that can have a negative impact, especially during this new normal. The three most peculiar innovations that would be seen soon are: Seamless integration to the origin (Tier Nth); Quick adaptation of digital mediums; and Real-time information gathering and having a quick response to it.
Sourabh Raghuvanshi: Basics of supply chain remain same whatever be the scenario. Effective supply chain systems are quick to react, are efficient and have visibility across the value chain. Current challenges have accelerated the journey of supply chains in most companies towards digital transformation and related innovations, which will help them become more effective on these seemingly simple yet complex basics.
How is supply chain slated to take the role of an enabler in these times? What emphasis has been laid on developing an efficient supply chain?
Deepak Sharma: To elevate the role of supply chain as a strategic enabler in the business operations, it is imperative to amalgamate the latest technology in the supply chain. These technological enablers will allow access to real-time information digitally with optimum accuracy to establish improved supply chain designs in place, for efficient planning and operations. This will minimize the costs & errors and enhance the overall supply chain value. The two major factors that influence the entire supply chain performance and costs are product quality and cross functional drivers. Across the supply chain, the major focus is on creating an ecosystem that allows a constant flow of information and makes the complete chain more efficient. Hence, the key enablers will be a collaborative approach, people-centric strategy and technological advances.
Sourabh Raghuvanshi: Demand is fluctuating these days due to various issues ranging from local lockdowns, containment zones and related factors. Similar variability exists on supply side too with factory shutdowns, manpower shortage, raw material availability, etc. Key role of supply chain today is to be more agile and adaptive than ever before in balancing supply and demand. It would require daily monitoring and shifting of decision making to ground level.
Ravindra M: Companies have to take decisions in real time and take action to mitigate impact on supply chain. Conduct an analysis on warehouse and front-end operations, foresee and understand any material flow disruption situation beforehand. Emphasis on developing an efficient supply chain is more relevant as the new practices adopted during this pandemic can be the norm in the future.
Supply Chain Shifting Gears?
As per the recent Cognizant research, when it comes to the impact on supply chains, organizations must consider operational continuity from two perspectives:
Demand side: Consumers are reacting emotionally. Grocery and other consumer goods retailers are seeing increases in demand of upwards of 25% as many people self-isolate or stockpile goods to hunker down for the immediate to long term. Many retailers are experiencing a surge in demand unlike anything before experienced, even during the Christmas holiday season. Retailers typically begin demand planning three or more quarters in advance. With COVID-19, they have had minimal time to plan and execute.
Supply side: Fulfillment is an equally important issue. China was not only at the epicenter of the crisis, but it is also the largest supplier of components and goods to the global supply chain. This has created significant supply chain instability.
Achieving Supply Chain Resilience
Given the increasing global interdependence, today’s supply chains are increasingly volatile, uncertain, complex, and ambiguous (VUCA). In fact, Cognizant analysts’ discussions with supply chain leaders reveal that roughly one-third of the goods sold by businesses to consumers cross at least one international border. In its multiple supply chain engagements globally, analysts find that VUCA is increasingly becoming more relevant. For example, in a food and grocery supply chain, fresh produce is the most complex, with a long production cycle and short shelf life. However, supply chain visibility is rarely holistic and lacks systems thinking. Effective systems thinking allows the supply chain to be viewed as a whole rather than as the different components that underlie it. Systems thinking considers challenges within the entirety of the system and not just the section of the system where the challenge resides. By zooming out on the supply chain, an increasingly holistic view emerges. In contrast to traditional approaches where separate parts of a supply chain are understood and individually managed, systems thinking delivers a view of supply chain behavior over time and as part of a wider set of networks.
This approach means organizations must gather data over a time series and use these inputs to predict supply chain movements — for example, looking at safety stock versus wastage figures as a time series over many months rather than for a particular period. This model can be used to rethink the enterprise-wide supply chain key performance indicators (KPIs) that measure performance over time and accept disruption as reality rather than a mere risk at the register. An inability to manage the supply chain results in siloed processes and a “command and control” culture.
Today’s digitally integrated supply chain allows organizations to create shared KPIs across different nodes (i.e., organizations) of the supply chain over a time series, which will help protect the supply chain from vulnerabilities caused by political, social and environmental factors. For example, “customer satisfaction” can be measured at every node of the supply chain over a time series to understand the value each node creates rather than merely measuring throughput at a given point in time.