Supply Chains Are Out. Supply Networks Are In

“Supply chain is nothing but applying Common Sense to improve efficiency. While sales and marketing functions of organization drive top line, supply chain and operations drive bottom line of the balance sheet. More and more companies are realizing the importance of having an efficient and agile supply chain to increase profitability. Beyond this, having a reliable supply chain is becoming a key competitive advantage to increase market share. Customers and consumers are expecting faster and convenient ways of getting the products,” shares Sachin Gupta, Country Planning Manager, Shell.

Your valued comments on the YEAR 2020 and what did it spell for the supply chain domain?

2020 was a real litmus test for supply chains and supply chain professionals. COVID 19 has wrought unprecedented disruptions in supply chains, ranging from longer lead times, highly fluctuating demand, high raw material costs, lesser vessel space, etc. It showed how important it is to build a robust and agile supply chain to keep a tap on bottom line performance. I would like to summarize it as SOAR...

Shock – In March’20, COVID 19 evolved as a Black Swan, which no-one could predict. Suddenly entire world came to a halt and started having significant impact on earnings. It took us good 2-3 weeks to digest and understand what is happening around us.

Optimize – By April beginning, companies started realizing the impact of COVID. As companies estimated huge decline in sales. First and foremost, action was to reduce the cost and optimize the working capital to preserve the cash.

Assess – In this phase, companies started assessing actual demand from market and tried innovative ways to serve the customers keeping cost minimal.

Recover / Re-build – By Q4’20, most of the companies had started recovering the topline. Companies focused on rebuilding strong supply chains.

What are your views on demand planning & forecasting in the new normal?

In Post COVID era, many companies will have to re-adjust their forecasting models. COVID has driven changes in consumer behavior. This impact on supply chains and the lockdown, necessitated by COVID-19, is changing consumer priorities and purchase patterns at a rapid and unanticipated scale and speed. Concerns around health, basic needs, and loss of freedom are manifesting in different ways as consumers adopt new behaviors and lifestyles that might be here to stay beyond the short-term impact of the pandemic.

Digitization has taken the centerstage more so in times of Covid. What striking changes have you witnessed in the industry that are worth emulating and will transform the shape of things to come in supply chain?

With manufacturing moving towards Industry 4.0, supply chain is also evolving as SCM 4.0. The re-organization of supply chains using advanced technologies, such as the Internet of Things (IoT), big data analytics, and autonomous robotics, is transforming the model of supply chain management from a linear one, in which instructions flow from supplier to producer to distributor to consumer, and back, to a more integrated model in which information flows in an omnidirectional manner to the supply chain. Adaptation of these new age tools will highly be driven by product and demography, but any organization who hasn’t started investing in these is already late in the race.

What are the top 5 aspects that CSCOs should focus on in the year 2021?

Building an Omni-Channel Supply Chain – If 2020 taught us anything, it demonstrated that to succeed, maximize resilience, and ensure business continuity, companies need to maximize every available channel – ecommerce, direct-to-consumer, retail, distributors, and Amazon. That way, if one channel is disrupted, whether by natural or manmade causes, the show will go on.

Reaching out Direct to Customer – If you haven’t figured out how to maximize this channel for your business, you’re behind your peers. You’ll need to figure out “lot size 1” production and delivery, you’ll need last mile logistics, you’ll need a returns process, and e-commerce technology able to handle the proliferation of choice and SKUs that customers are demanding.

Investing in a next-gen Supply Chain Control Tower – Supply chain control towers are getting smarter. Visibility is more important than ever – but it’s not enough. What good is seeing a problem if you can’t resolve it, and do so in an optimal way? Solution providers are using AI and advanced algorithms to anticipate potential problems (predictive analytics) and provide resolutions (prescriptive analytics) in an automated, optimized fashion at regional and global scale. Some people call these “anticipate, sense, and respond” capabilities, and you’ll need them as you face the “next normal” in 2021.

Integrate your ERPs NOW – How many separate ERP instances does your company run – 5? 20? 100? More? In 2020, the massive inefficiencies of these self-imposed business barriers have come to light and firms have recognized that they need to be eliminated. These silos have artificially propped up costly inventory buffers, caused information delays, hurt service levels, and bring with them the enormous IT cost of interfaces, maintenance, and upgrades.

Who can afford that anymore? You likely inherited this problem, rather than caused it and now it’s up to you to fix it. The best solution is to move supply chain workflows onto a collaborative business network platform. This can be done in a way that matches each company’s unique priorities and generates value at each step along the way. It’s the only option for large enterprises saddled with stitched-together legacy systems, and in 2021 more and more global enterprises will see network solutions as the only viable way out of this costly situation. Plus, it’s the fastest path forward.

Build a Robust Supply Chain Network – SUPPLY CHAINS ARE OUT. SUPPLY NETWORKS ARE IN. The importance of collaboration with suppliers, co-manufacturers, customers, carriers, and distributors has never been more apparent, so companies will focus in 2021 on strengthening their business networks. In 2020, companies discovered that their legacy enterprise-centric systems no longer work “good enough”, so in 2021, they’ll need platforms to support tight collaborative workflows around plans, forecasts, orders, shipments, ETAs, and inventories in real time. As collaboration and improved information flows eliminate errors and inefficiencies, all sides can drive out costs and improve their competitiveness with business network strategies. And you’ll be able to on-board and off-board suppliers more quickly, as needed.

What would be your advice to professionals who want to build their career in supply chain?

Supply chain is nothing but applying Common Sense to improve efficiency. While sales and marketing functions of organization drive top line, supply chain and operations drive bottom line of the balance sheet. More and more companies are realizing the importance of having an efficient and agile supply chain to increase profitability. Beyond this, having a reliable supply chain is becoming a key competitive advantage to increase market share. Customers and consumers are expecting faster and convenient ways of getting the products. Supply chain professionals must focus on developing new age skills. Concepts like AI, ML, IOT and Big Data are becoming foundational to grow in a modern age supply chain. Other than this, SCM professionals must acquire Project management, Financial Management and Accounting knowledge skillsets.

What are the skillsets they need to possess to survive & sustain in the new normal?

Supply chain professionals need to understand modern ways of forecasting and planning. Data analytics is going to play a major role there. Concept of descriptive analytics is now moving towards prescriptive analytics. If these are merged with supply chain fundamentals, it can be a super-combo to have. 

As a supply chain planning professional, what has been the most challenging project you have worked on in the past?

In my decade long experience, I have led and managed several transformations and managed large scale changes. One of the most challenging one was Building an S&OP framework from scratch to take it to the maturity level. From convincing leadership colleagues about the need of a robust S&OP process to motivate teams to deal with this Change Management, it all came with a lot of experience and learning for myself.

What are the inventory management best practices that companies should imbibe?

Below are few practices, which are basic and easy to adopt – 

Inventory Classification – Not every SKU in a catalogue deserves same planning logics. There are many popular methods of classifying inventory and accordingly applying planning and forecasting logics. One of the widely used is ABC analysis (Based upon Valuation). While A class inventory should have frequent replenishments, C class SKUs should be produced / replenished once in a month / quarter.

Pick SMART KPIs – Choose SCM KPIs wisely. These should be SMART (Simple, Measurable, Achievable, Relevant and Time-Bound). For inventory planning, KPIs which are relevant are – Inventory Turns, Inventory DOS, Write-off, Inventory Carrying Cost, Slow and Obsolete Stock as % of total inventory, etc.

Moving from MRP to DDMRP – DDMRP, as a methodology, focusses on placing strategic buffers to enable lead time compression and by leveraging daily planning to react to daily sales orders. MRP has been commercialized since 1970 and has had minimal improvements since. DDMRP has its roots in lean thinking and moves away from forecasting and having safety stocks to utilizing buffers to absorb variability. This results in increased material availability as well as a reduction in working capital. This methodology has delivered phenomenal results in both service benefits and inventory reduction. Companies who have adopted DDMRP found that they are able to increase their service levels and sales with the same amount of inventory. All that they are doing differently is leveraging strategically placed buffers to decouple the supply chain to react to only real demand orders.

Count your stocks effectively – It’s important to have an effective Cycle Stock process in place and also to adjust books as soon as possible with any known shortcomings. This will help in avoiding last minute shocks and would also drive correct and real time COGS adjustments.

Choose and Adopt one ERP system – Many organizations struggle with an in-effective ERP implementation, ERP should also be closely integrated with other products / tools. If ERP is not giving you desired results, it must be fixed. Also, any new implementation of ERP comes with aa huge change management, which has to be managed carefully.

Focus on TCO – Businesses gain a competitive advantage through total cost of ownership (TCO) because it allows them to better analyze the cost of their workforce. TCO considers direct and indirect costs to measure true cost. This is important in analyzing a workforce because HR now represents the largest variable costs for most organizations. TCO is a concept that’s traditionally been applied to IT but has moved into almost every aspect of business operation.

What do you have to say on the phased infrastructural development in the country and how it slated to give a fillip to the supply chain domain?

India is investing in building Next-gen supply chain infrastructure like never before, be it Expressways, Highways, Ports or Dedicated Freight Corridor.

Road Transport – Expressways are becoming backbone of long-distance transport in India. Government is planning to build 23 new expressways (With combined length of 7,800 km) in next 4 years spanning across length and breadth of the country. This massive development of new expressways is a much-needed departure from conventional mode of widening the existing highways. Currently Cargo vehicles in India cover about 400 Km a day (Post GST introduction), which is less than 50% of global standard. This is expected to increase to 650 Km a day by 2025.

Railways – Current railway network of India has become massively congested with continuous rise in passenger and freight trains over period of last 3-4 decades. Freight trains usually suffer from unpredictable running times and low speeds of around 25 km per hour. With the development of Dedicated Freight Corridors, 70% of freight trains will shift to new network. This will not only increase avg. speed of freight trains to 60 kmph but will also open up tracks for faster passenger trains.

Ports – More than 90% of India's trade by volume is conducted via the country’s maritime route. India has 12 major ports and approximately 200 non-major ports. Current cargo handling capacity of Indian ports is only 1500 MMTPA. Under Sagarmala Program, government plans to expand it to 3300+ MMTPA by 2025 to cater to the growing traffic. This includes port operational efficiency improvement, capacity expansion of existing ports and new port development.

What’s that one area that needs utmost attention from companies and the government as far as supply chain is concerned?

One important concern looming around companies in India as well as with Government of India, is our detreating relationship with China. Over last 3 decades, manufacturing supply chain in India has developed huge dependency over China and is growing YoY. India's imports from China rose from 13.7% in 2018-19 to 14.1% in 2019-20. India’s major imports from the neighbor include engineering goods, electronics, pharmaceuticals and automobile components. At a total value of over $18 billion, electronic imports formed a quarter of the total imports in a month.

Nuclear reactors, machinery and parts comprised another major chunk of the imports at $12 billion. As tensions simmer at the border between India and China, what is more concerning is the economic fall-out of the souring relationship between the two countries. This is because the economic interdependence of the two neighbors is too deep to be ignored. China and the US are the largest two trading partners of India. While Indian exports to the US outnumber the imports from the country, the same is not true when it comes to China. And hence, to become friends-turned-foes with India would have business repercussions in China, too.

As per a Brookings India report, the total amount of current and planned Chinese investment in India has crossed $26 billion (around Rs 1,98,000 crore). China-based companies are also stepping up their investments in Indian companies, including startups, the report said. The numbers clearly show India's heavily reliance on Chinese imports and any disruption of trade ties between the two countries will substantially hurt Indian businesses.

Meanwhile, India changed its FDI policy in April soon after the People's Bank of China decided to up its stake in India's HDFC bank to over 1%. As per the tweak, neighboring nations can invest in Indian firms only after getting the Centre's approval for the same. China retaliated saying India's new policy violated WTO's principle of non-discrimination and are against the general trend of free trade.

How can supply chain inefficiencies be addressed at company and industry level?

One of the important ways to identify and review inefficiency is to have an open and robust S&OP culture. S&OP is a process which is quite comprehensive to cover end-to-end supply chain processes and gives periodic opportunity not only to look back and reflect but also to plan your future accordingly. Organizations should also focus on setting up a strong feedback loop from customers / consumers. This is the easiest way to identify the inefficiencies.

Where do you see Indian supply chain transform from here on?

India is poised to take a center stage in the 21st Century. India’s GDP is expected to reach US$ 5 trillion by FY25 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. India is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30%, and have plans to increase its renewable energy capacity from to 175 gigawatt (GW) by 2022.

India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by PricewaterhouseCoopers. These all estimates are worked out basis a strong supply chain foundation being built in India.