The Power of Long-Term Partnerships

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The Power of Long-Term Partnerships

“A true partnership flourishes and sets new benchmarks when all involved entities share a common purpose for business and a vision towards customers on an overall basis. This necessitates going beyond business objectives and developing shared goals to succeed together,” stresses Dr. Radha Mohan Gupta, Supply Chain Strategist & Advisor and Adjunct Professor at IMT Ghaziabad, during this exclusive interview… 

You have been a part of the FMCG transformation journey for a significant period. What have been some of the striking moments that shaped the course of growth?

Dr. Radha Mohan Gupta

When I started my professional journey in the supply chain, this function used to be a neglected category. Many organizations didn’t have an integrated supply chain function. All activities such as planning, distribution, or delivery were happening in silos without much coordination. Today, every organization has realized the importance of an integrated supply chain domain, and we are witnessing a greater thrust on supply chain from senior management. Even the board members have started laying immense importance on supply chain. From the back end, it has become a front-end function. Companies have understood the importance of the supply chain function fully and they have started realizing that by optimizing the supply chain, cost components can also be controlled.

Besides, the biggest transformation has occurred owing to the inception of technology in supply chain, for instance, tech-enabled Transportation Management System (TMS) for managing lead times, Warehouse Management System (WMS) for seamless delivery of goods from the warehouse to the store front or at the customers’ doorsteps. We have also witnessed dramatic transformations in the procurement space such as reverse auctions. We are witnessing a greater traction in outsourcing over a period of time. As companies are growing at a phenomenal pace, they are increasingly focusing on their core competencies and outsourcing the rest. We are also witnessing greater collaboration among stakeholders, which is a very positive sign. For example, FMCG companies have started treating logistics service providers as partners and are building a stronger supply chain network by leveraging their partners’ core strengths.

Another important change that has happened over my career span of three decades is a greater thrust on building and sustaining global supply chains. Earlier, the focus used to be on internal sourcing or the domestic market. Today, the entire world has become a big playing field for companies. They can source from anywhere as connectivity has enhanced significantly, be it via the adoption of new age technology or the development of sound infrastructure. This enhanced connectivity has enabled companies to boost their supply chains in terms of cost, quality, and speed. It has today become a highly competitive field.

Moreover, companies have started laying thrust on sustainability. They have started realizing the benefits of taking small yet significant measures such as emphasis on water & energy conservation, carbon footprint, etc. This ever-evolving journey has been really long yet enriching at the same time.

When I was a part of the National Logistics Policy draft committee, I was elated to see the long-overdue government-industry partnership. This is a remarkable step in the right direction. The current government is working very closely with industry, and together they are trying to make things happen faster. And lastly, I would say the kind of development pace we are witnessing in infrastructure, be it rail, road, ports, or airports, is simply phenomenal. Yes, we have a long way to go, but the pace has been quite significant.

What have been challenges faced in managing such a complex supply chain during this journey and how did you overcome them?

There have been multiple challenges throughout my journey and leadership role in supply chain but let me cite an example to make my point. At one of the organizations I joined, transportation losses were almost to the tune of 8 – 9%. With India’s vast geographical network where factories are located in the Southern part of the country and materials being delivered across the length & breadth of the country, transport costs are immense. Damages occurring during transportation were high and lead times were lengthy. There were not many good pan-India transporters on whom we could rely for safer and faster delivery. It was an interesting puzzle to solve. To start with, we found reputable and organized transporters having all India connectivity. Treating them as partners and establishing long-term contracts with them was the next step we undertook, assuring them of long-term commitment from our side. Instead of negotiating every quarter or every six months, we made three-year long-term contracts with them, making it a win-win situation for both.

We also provided training to selected transporters on how to manage the honeycomb structure while loading goods onto the trucks. On the cost front, we started with e-auctions, which were a fair and transparent method of bidding for all prospective transporters. Some other good practices we started developing were motivating and rewarding them based on their performance parameters. We analyzed and monitored their performance quarterly, developed vendor performance metrics, and shared them with the vendors to support them and improve their performance collaboratively. Within a year of this exercise, the results we received were remarkable. The damage percentage went down to almost 3 – 4%, lead times improved, and there was compliance towards the lead time. And of course, we saved a lot on our logistics costs through these transporters.

What has been one of the most challenging projects managed by you in your professional stint so far?

In my career span of over three decades, I have witnessed umpteen challenging scenarios. Let me share with you one of the instances… In one of my previous companies, one of the products was specifically catering to suburban and rural markets. While it was a very low-priced product, the manufacturing process was quite critical because the major raw material for this product was specialized wood powder. Suppliers of this wood powder were located at a specific geography because it was available only at a very specific geography of India. That was the first challenge. The second challenge was that the sector was highly unorganized, and the suppliers were very small. The third challenge was certainly in terms of the cost.

On the front-end side, as this was a seasonal product, its peak demand used to be only during the summer season, which further posed challenges in managing the demand. These unorganized suppliers were finding it difficult to supply wood powder in the desired quantity because their capacities were not aligned for this seasonal requirement.

Owing to such eventualities, we used to face the challenge of the production line stopping multiple times because of non-availability of raw materials. At times, there used to be quality issues, because of which the material was getting rejected. Some suppliers were just not ready to invest in the desired capacities to meet the seasonal demand because the rest of the year they will not be able to use that capacity.

As a result, we were unable to meet the sales forecast, and we started receiving complaints from the sales team as they were unable to meet the market demand. Moreover, the competition was immense with the existence of many foreign players.

To eliminate this challenge of supply chain mismatch permanently, I and my team camped with suppliers into that geography for a couple of weeks to understand their requirements. We visited their factories to evaluate their capabilities and took cognizance of their concerns. Firstly, we offered them the technical partnership and provided them with the latest technology for producing the right quantity of product to meet the seasonal demand. We extended financial support to them as we realized that they didn’t have the requisite financial resources to cater to the seasonal peak demand. The next big agenda was planning the demand and establishing a long-term contract with them to assure them of business continuity from our side.

Next, we worked with them to ensure quality control at every level. We set out the parameters, set up quality labs and imparted them training. We helped them with the transport contracting as well. We highlighted that the road might not be the only mode of transportation and that they should explore multimodal transportation as well because it was a voluminous product.

The result of the entire exercise was an enriching part of my professional stint as there were no production lines stoppages due to unavailability of raw materials. Because of the long-term contract and collaborative planning with the suppliers, costs drastically came down. There was a great improvement in the quality of the product as well. It was a win-win situation for both parties. The crux of the matter is that developing vendors and creating partnerships is also a critical component of supply chain management.

How can companies work towards transforming the procurement function?

Along with a continued focus on cost and quality, many other aspects like vendor development, supplier relationship management, networking capital management & supply chain finance are the areas to be explored to support business and making procurement a key partner in growing the business. Another gap which I see is the talent in the procurement function. We need to develop skills to utilize the technologies which are available and can be smartly deployed to ensure optimal usage of resources. At the end, it’s the shared responsibility that we work together and bring in the focus of sustainability.

Demand forecasting in uncertain times is a challenge that FMCG companies have to deal with frequently. Is there any tried & tested method that companies can adopt and implement?

Demand forecasting has been a challenge since yesteryears. The biggest reason is that markets are changing at such a rapid pace that it has become very difficult to forecast. In the earlier days when markets were not so volatile, we didn’t have technology to demand forecast. There were limited tools available at the time and there was a lot of manual intervention. The dynamics today are exactly opposite where we have new age tech tools available to help us forecast better, but markets are changing so rapidly that it only adds to complexities. It’s the agility and the speed with which you capture this data. Analyze it, then forecast it and throw out the noise out of this available data because data has become so huge, now the challenge is how to use it to your advantage.

A time-tested method is to find out ways and means to capture consumer behaviour. Extract the data from them as fast as you can and integrate it into your backward planning. There is a two-pronged strategy. One is to do whatever best you can with the available technology to capture the market & consumer behaviour and integrate it into the planning – that’s the first front-end action. Second, on the back end, it should be making your processes flexible & agile so that they can respond to the changes, which are being fed by this front-end engine. If you just capture these things well, but you don’t have the processes right to respond to them, you are still not successful. The entire function, from the front to the back end, must be flexible, agile, and transparent. Another important aspect is that you need to ensure your internal processes as well as external partners are aligned to this because we can’t control the market. Forecast inaccuracy in our lives and in the supply chain will continue to persist. Do your best to improve it and then take some action at the back end so that you can respond quickly.

What’s your take on the new age supply chain professionals charting their journey in this highly dynamic field? What’s missing, according to you, and how can they prep themselves for further growth expanse?

There is a growing interest among young professionals to be a part of this ever evolving and highly dynamic industry. That’s one big positive indication as they are increasingly understanding the crucial importance of the supply chain and the value they can bring to the table. I personally feel that supply chain professionals have an end-to-end perspective of the business because supply chain cuts across each and every business vertical. If people understand the dynamics of the market, they are better positioned to empathize and sympathize with the sales team and then try to go that extra mile to ensure customer satisfaction. They need to understand ‘service at what cost’ because that’s the fine balance they need to strike.

Having said that, there is a need for enhanced collaboration among each other rather than working in silos. They must understand the needs of internal customers i.e. – sales & marketing teams. They must spend good time in the market and understand their external customers’ requirements. Changes are happening at such a rapid pace that they need to be the leader in innovation. This could be innovation in any function, be it factory or procurement or logistics or warehouse. The bottom line lies in ensuring continuous improvement.

Where do we see supply chain shaping up from here on in the next five years with a slew of policy measures being taken?

To put it simply, more than the product flow, supply chains are now all about the information flow. I would rather say the future supply chains will be based on information sharing ably facilitated by digital transformation. As a result, these will become supply networks. I think there will be an increased focus on end-to-end supply chain visibility and increased responsiveness. This will include leveraging IoT sensors, RFID tech, blockchain technology, and many other advanced tools. The landscape of talent will see a dramatic shift as AI will take over repetitive jobs and we would need competitive talent to work on continuous innovation. Risk management and resilience will become an integral part of the supply chain. 

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