“Suppliers can be equal stakeholders in your success.” This was the most insightful phrase that truly set the tone of the recently held maiden e-conference & Awards ‘Procurement Today & Tomorrow’ by Celerity and Quantic Business Media. During the conference, Chief Procurement Officers (CPOs) decoded supplier management in the New Normal. The panelists were vocal about the stance that the suppliers and the users need to take to be in sync with each other, more so in current times when the small suppliers need lot of hand holding and financial muscle from their customers. As one of the panellists aptly said, “We owe them their success.” Covid has made everyone realize the value and the worth of the suppliers. It is about time large corporates came together to strengthen and support their suppliers to mutually harness the power of each other. This special report is the lowdown of the e-conference and the thought-provoking conversations that made this maiden webinar a yet another successful initiative for team Celerity…
How can we harness the power of supplier ecosystem?
Rahul Gupta, Vice President - Procurement, Planning & Contract Manufacturing, Amway India: With the heightened awareness about holistic health and well-being, consumers are becoming more conscious about health and immunity. Especially, in the wake of the current global health crisis, self-care has become the new essential. This change in consumer preference reflects in a surge in demand for our immunity, health and wellness product portfolio with a preference for herbal SKUs. In line with this, we are ramping up production for immunity supporting and hygiene products by four times in the coming months.
Considering the importance of getting the products to our consumers, the support of our suppliers was crucial. With the nationwide lockdown, real-time visibility into supply chains was critical to enable operational resilience. Normally, supply chains have been stress tested during disruptive times as they function in a linear, auto-pilot’ mode, which become more important during this major crisis. Traditionally,due to natural calamities and geopolitical disruptions, organizations had started looking beyond the few concentrated procurement and supply points. The current pandemic is a truly global phenomenon wherein companies across the board are experiencing change at an unprecedented pace. This calls for a transformation in critical operations such as supply chains to ensure business continuity and build a robust supply chain for the future.
Nikhil Puri, Global SCM Head – Cabling Solutions, Sterlite Technologies Ltd: The biggest problem for procurement function is to shift their short-term cost savings to a more holistic objective. We need to work with the suppliers to identify opportunities to deliver more innovative products & services. For Sterlite, our suppliers are our partners whose synergies we harness for mutual benefits. We need to work on five factors to transform the relationship between partners and the buyers – Responsibility, Appreciation, Transparency, Openness and Trust. These core values must be imbibed when you are interacting with the two parties. Industries have started gaining competitive advantage by just quickly changing the management of the partners. These partners account for 60-80% of the manufacturing cost varying from industry to industry. They technically influence new product development. We need to start looking at the values and not the cost. This pandemic is the real test for the supply chain management where everything was shut down. Many businesses today have realized the strategic importance that supply chain plays. These improvements have enabled us to slash the development time by 40% by closely collaborating with the partners.
Amandeep Singh Bhan, Senior Vice President, Moglix: Harnessing the supplier ecosystem is a compelling subject and a topic close to my heart. As I reflect upon the last 6-8 months, I realize that the Covid-19 pandemic has exposed vulnerabilities in the way we are managing suppliers both at the local level as well as global levels. Today, perhaps there is a brilliant opportunity for us to bring the power of the supply ecosystem into play through the process of digital transformation. Digitization is nothing but unlocking the digital, whereas digitalization is far more holistic as it's centered upon people's capabilities, operating models, business processes, etc. Digital transformation is more about overhauling the procurement function that needs to collaborate strategically with suppliers as well as differentiate and change the benchmarks that were traditionally being followed for a very long time. Leveraging the power of technology to collaborate better with suppliers ensures that the annual cost of managing suppliers keeps going down and, at the same time, quality, delivery schedules, and co-innovating with the suppliers keep going higher as a benchmark. Now is the opportune time to revisit the old processes and bring in the desired operational change to reap the benefit in the future.
At Moglix, we are at a unique juncture where we take care of the indirect expense of the manufacturing organization while managing 10,000+ suppliers. Hence, when we embarked upon this journey, we took a 'Digital First' approach. We brainstormed certain aspects such as what are the steps we can adopt to take procurement to the next level for our suppliers and hence bring radical technologies at play to ensure that not just transactional tasks are entirely automated but also how suppliers can be engaged in a much more strategic fashion to the extent that they have visibility into our inventory, they know when to replenish it, we know when to replenish it through our customers. The current situation gave us the brilliant opportunity actually to put it to test, and to our surprise, during this whole lockdown period, our supply chains kept operating. We were then wholly convinced to take the big plunge into the world of digital transformation.
Somnath Chatterjee, Head – Procurement & Logistics, Foods Business, ITC Ltd.: There’s an apt quote from Lenin, ‘There are decades when nothing happens and there are weeks when decades happen.’ I am sure all of us would agree that we are experiencing such turbulent times in our lifetime today. That is precisely what we are witnessing today. This black swan even not only took us and our supply chains by sudden surprise, but it also showed us where we stand in terms of preparation. As recently as March 20, we had no clue that we would be launching products like Savlon Disinfectant Spray and Veggie Wash. With the help of our R&D team and our suppliers, we were able to roll out these products in the market in record time. We were also able to quickly repurpose our deodorant spray plants in Baddi, Himanchal Pradesh. As far as long term is concerned, about three years back, we took a call that we would not make our Natural Juices from imported concentrates, which most of our competitors do. We wanted to ‘Aatma Nirbhar’ at that point in time. We reached out to our farmers through whom we have connect through our e-Choupal initiative. Over the last two years, we ensured that all our juices are freshly produced. Such partnership with vendors takes time and companies to work on strategy to meet the ends meet.
Gaurav Arora, Senior Director – Global Sourcing, Biocon Ltd.: There is a growing need of developing domestic vendor base for various industrial segments right now. The government has also been working at a fast pace in terms of introducing various policies in place to make it happen sooner. We agree that there is a lack of funding and technology inclusion for SMEs & MSMEs but a large scale buyer, we need to focus on scaling technological advancements to our small scale suppliers to help them produce the required raw materials or components. Secondly, the funding aspect where we do not have much support from the government, as buyers, we should help our suppliers to support of some kind of model on exclusivity. Certainly, this will not completely de-risk our business proposition as far as geopolitical boundaries are concerned, but it will at least ensure a steady supply of inbound materials to help the overall supply chain going. We need to take a balanced approach to align our operational strategies as per market dynamics.
What are the ways in which the expertise of suppliers can be realized to solve problems?
Nikhil Puri: We need to establish supplier relationship management (SRM) into the organization. It sounds easy that you choose suppliers that are cost efficient and are easy to work with, maximizing the value of the relationship. There are few points that you need to consider while establishing SRM. Your suppliers are just not vendors. You must make use of the technology to make SRM simple. Invest in supplier management software to keep track of information about your supplier in one place. You can go forward and purchase advanced purchase order management software, which you can use to track purchase order. Mature organizations still delegate but I am telling from a broader aspect. Some software like purchase control integrate this supplier management system into the same platform. Most important thing is that timely payments are very crucial if you don’t want to lose your suppliers This way you would get a reliable partner and in turn they would also be loyal to you.
Make sure to have timely and frequent communication with your suppliers. They need to be regularly informed and kept up to date about your strategies. Most of the suppliers don’t even know an associated company’s five years plans, so how is the relationship going to fructify in the long run. Price is what you pay, and value is what you get. If you have the financial muscle, make sure it reaps benefits for you and the suppliers. Detailed agreements must be there to make supplier relationships easier and seamless. Companies that are horizontally integrated are at a disadvantage with their outside suppliers, but they are subject matter experts. Vertical integration offers advantage to everyone and this is where suppliers who are subject matter experts should be given authority and in fact offered transparency to your business process so that they can add value in the product you aim to offer to your ultimate customer. This process increases the speed of the new product development. It builds stronger relationships between your partner and your company. Most importantly, it increases the competitive advantage at the time of Go-to-Market.
Amandeep Singh Bhan: Digital transformation is a lot about creativity also. It is not re-engineering. Number of times when companies have evolved over the decades, they were averse to changing policies and processes that have worked for them in the past. They find it very tough to do that, given the internal dynamics. That's where your supplier ecosystem, which is agile, smaller, and tech-savvy, can bring those skills to play. But if you have the opportunity to bring in those best practices using a supplier ecosystem aligned to the new way of working and trying to find these suppliers of tomorrow with whom you can work in the long run or who can help you improve will be a win-win formula.
Please share with us some of the case studies in harnessing synergistic relationship with vendors.
Somnath Chatterjee: I am happy to share the dais with Rahul Gupta from Amway today as during this crisis situation, he would vouch for the fact that in very small time, we were able to partner with our suppliers and bring out an immunity juice. In fact, Amway is marketing for us. We have tied up with Amway India with a focus on products in the health and nutrition space. This partnership has been kicked-off with the launch of ‘B Natural+’ fruit beverage range, which has been developed by ITC, and positioned in the immunity-boosting space. The range will be exclusively distributed by Amway through its direct selling network in the initial period. This collaboration reflects the synergies between the two companies and their teams will be working closely the area of health and wellness. With consumers increasingly looking at products that offer them nutrition and support immunity, we fast-tracked the launch of the B Natural+ fruit beverage range and launched it within two months. Other products in the health and wellness space are also in the pipeline, which will be launched under this partnership in the coming months. In another instance, as a part of ramping up production of our Mangaldeep brand of agarbattis (incense sticks), we are working with farmers on growing bamboo plantations in North- Eastern state of Tripura. The agarbatti sticks are made from a specific species of bamboo, unique to the North-East.
Lack of widespread availability of plant type, absence of machinery and low import duty saw local manufacturers and traders import round bamboo sticks. Around `300 crore worth of such sticks were imported last fiscal. We are targeting to stop imports of bamboo sticks for our entire requirement over the next 15-18 months. In a nutshell, we need to train our minds to think win-win and there’s surely a way to get there.
How can we make vendors future ready?
Somnath Chatterjee: When the sudden lockdown announcement came, the entire industry was shell shocked, and our supply chain was paralyzed. However, our loyal consumers were counting on us for their daily staples such as Aashirvaad Atta and Sunfeast biscuits, Yippee noodles, etc. Food is an essential commodity. The Government was extremely sensitive to this and ensured that we and our vendors received all kind of passes to operate during the lockdown. However, the challenge was in infusing confidence in our vendors and their larger teams. We reached out to them and said that look if we can operate our food factories with all protocols of safety and hygiene in place, why can't you emulate us? We appealed to them that the people of our country are dependent on the food that we produce. We realized that most of our vendors just needed a little encouragement and within days, over 90% of our back end supply chain was up and running. Going forward, we have shared with our vendors that the key is to be ‘Aatma Nirbhar’. Not only because that is the Prime Minister's clarion call but also to insulate themselves from global supply chain disruptions account such pandemics or even adverse geopolitics. Hence each ingredient that they use should also be made in India, to the last degree possible. To this end, we partner with our vendors by sharing details of domestic alternatives. We sometimes even become "Vendors to our Vendors" by guiding them to the right sources of raw and packing material and at the right price. Ultimately, we win if the vendor wins!
How can we strengthen opportunities of domestic vendors post the pandemic and help the government in ‘Aatma Nirbhar’ mission?
Gaurav Arora: It is the perfect time for every company to do its bit in the government’s mission of ‘Aatma Nirbhar Bharat’ by strengthening the capabilities of their respective suppliers. The government has been proactively coming up with policies to enhance the capabilities of small-scale industries of every sector. Indian Central Government has recently published the road map for “India – Towards a Global Pharma Hub” to de-risk the import dependency of 53 Bulk Drugs / APIs and medical devices. This will certainly help domestic manufacturer, specially the new start-ups to build the infrastructure and get ensured business. While these policies are at very nascent stages, but better late than never. Department of Promotion of Industry and Trade (DPIT) has started decoupling exercise. We need to extend the reliance on domestic suppliers of goods & services. Second there are horizontal linkages to strengthen the collaboration between the domestic institutions such as universities and other technical platforms where they can receive the desired education about the new technology and third most aspect would be the movement of the skilled workforce out of foreign firms so that Indian domestic small scale suppliers can take advantage of. We need to be committed towards the upliftment of these small players.
How do you motivate your suppliers?
Gaurav Arora: In the beginning of Lockdown period, the first need was to keep all the suppliers operational. Being pharmaceutical (essential goods) manufacturer, we have provided the support by issuing the declarations to our suppliers to continue the supply since they are also the essential raw / packing material supplier to manufacture the pharmaceutical products. However, in general scenario, we keep regular and effective communications includes healthy dose of face-to-face discussion with our suppliers. A shared understanding helps avoid confusion and disagreement. We share the company growth journey along with them and the upcoming objectives and their expected contribution into it. This also provides visibility and accountability to them within their organization to recognize the progress they are making or if needed, apply necessary fluctuations when they are behind.
What are the best practices in supplier management?
Amandeep Singh Bhan: It is vital for an organization to understand the value of each supplier. Well managed suppliers can create a competitive advantage for your business. Once suppliers are onboarded, communicate business objectives, and goals accurately, incorporate supplier information management system for better visibility and control, create KPIs to measure supplier performance and evaluate risks (financial, operational, data security and regulatory), and collaborate from time to time with suppliers for effective relationship management.
How can we leverage procurement as a function in risk mitigation?
Rahul Gupta: The distress in supply that started in China earlier this year and the resulting distress in demand as the global economy almost shutdown exposed vulnerabilities in the procurement and supply strategies across economies. Closed borders, temporary trade restrictions coupled with limitations on people’s movement dealt a blow to global logistics. These developments, along with the USChina trade war, have paved the way for economic nationalism in the world today.
Consequently, organizations are trying to increase domestic production ability, looking at reducing or even eliminating dependence on distant resources that might be perceived as risky to create an agile value network. From the supply chain perspective, derisking is finding immense importance today because the world is becoming more and more self-reliant. In other words, becoming ‘Aatma Nirbhar’ to strengthen the indigenous supply base, has now become a global norm. Today, companies need to shift from the traditional ‘at an arms-length’ to ‘arms-around’ approach when it comes to supplier relationships. This can only happen when we move from a purely transactional relationship to a value and outcome-based partnership through increased transparency and support. Both the companies and the supply partners will reap maximum benefits when they are committed to each other’s success. Furthermore, this is the era of bringing the specialists on board to run the show. We, at Amway India, are significantly promoting supplier-led innovations in our KPIs to boost their morale, which ultimately aids in our business performance. Commercializing innovations has been one of the biggest success stories with our suppliers and we will continue to build on more ideas for mutual benefits. Amway passionately believes in the power of collaboration to transform operations. Owing to such strong support, we were able to develop and launch a hand sanitizer in a record 30 days during this pandemic. We are also working on other product innovations, which will be co-developed and co-created with some of our key business partners in the days to come.