The Covid-19 pandemic has caught the entire world unawares so much so that the impact of this can’t be gauged in short term and the recovery would heavily depend on how countries prepare themselves for the post-Covid era. Talking about India, the immediate impact of this pandemic on supply chain can range from shortages to spike in prices as the demand increases due to a prolonged lockdown period. Procurement is likely to be adversely affected due to inability of the vendors to carry out physical deliveries involving movement of goods, although the processes like online tendering activity can continue as hitherto fore. The issue of work force safety may result in non-availability of manpower for loading, drivers for transportation and several key personnel who are crucial to the functioning of the supply chain. With passage of time, impact on the supply chain is likely to multiply in the present-day economic environment where global sourcing of components and assemblies is a norm to make products competitive in pricing. Despite availability of E tendering platforms, the vendors may not participate in tendering activity due to uncertainty in availability and transportation of goods to be supplied. Unlike the military which works on the ‘Just in Case’ model of logistics and supply chain to effect high assurance levels, the industry works on ‘Just in Time’ model to give higher priority to economy over assurance.
It is interesting to learn that the supply chain in the armed forces has inbuilt resilience by advanced planning as also having clauses in the procurement manuals, which permit placing of repeat orders. Keeping in mind their constraints, the industry can adopt some of the measures followed by the armed forces, writes Lt Gen Balbir Singh Sandhu.
While the armed forces implement assurance by holding reserves at times at more levels than one, the aim in the industry is to minimize inventory to avoid blocked finances. It also needs to be understood that holding reserves or unused inventory adds cost to the supply chain, which may not be acceptable in a competitive business environment where profit margins are ever shrinking. Therefore, a balance needs to be struck between diversification of procurement sources by onboarding more vendors located in different regions and holding reserves.
In the short term, first and foremost issue to be tackled is safety of the work force, which needs to be ensured in the best interest of the industry and the employees. As regards the supplies, there is a need to identify alternate suppliers for which the data should already have been prepared. In absence of such a prepared data, this information can be obtained from the existing suppliers. Alternatively, this information must be searched from the data available on various online platforms. Alternate sources amongst tier Two/Three sources need to be explored to source the goods so that there is minimum or no disruption in the supply chain.
There is a need to have an assessment of realistic demand at the consumer end which is often inaccurate/exaggerated from the traditional sources. The industry must possess reserve finances to ensure resilience in the system to sustain at least the initial disruption period till alternate arrangements are made. It is interesting to learn that the supply chain in the armed forces has inbuilt resilience by advanced planning as also having clauses in the procurement manuals which permit placing of repeat orders. Keeping in mind their constraints, the industry can adopt some of these measures followed by the armed forces. It is no secret that the function of Supply Chain Management and logistics originated from the armed forces when invading armies had to plan their sustenance for the period of the campaign, which was later adopted and refined by the industry. May be, a time has come for the industry to revisit its old relationship with the armed forces. To overcome the issue of spike in prices, sourcing through Group Purchase Organization can be an effective method to economize and prevent exploitation because this organization can leverage ‘economies of scale’ due to large quantities they would be negotiating for. Army Purchase Organization centrally concludes contracts for nationwide delivery for which there is decentralized quality control and acceptance which ensures economy due to economy of scales and standardization.
To tackle such disruptions in the long term, industry needs to have a well thought out strategy with inbuilt protection against unforeseen pandemics and disasters. Maintaining some reserves as a policy will be effective both in the long and short run. They will give reaction time to the management to explore alternatives, but reserves are always at a cost to the industry. Here comes the importance of contingency planning or scenario building. There is a need to visualize and wargame the actions to be taken in the form of ‘Risk Mitigation Functions’ which can ensure long term preparation against such disruptions. Future supply chain must be ‘resilient and agile’ which can be achieved through highest levels of ‘Digitization’. Technology can ensure inbuilt resilience in the system to make it reliable even when disruptions interfere with human ability to operate due to lockdown or social distancing or quarantine. Digitization improves accuracy, speed and builds flexibility.
It is a pity that digitization of Indian supply chain industry needs a lot more to be done to call it fully automated and technology driven. Industry also needs to build in financial resilience to sustain disruptions to the supply chain for some time. A well thought out proactive strategy based on forethought and planning will minimize panic and losses at the time of unforeseen disruption. Global industry had put too many eggs in one basket by relying on China as the sole supply chain hub for large number of products.
After the 2011 tsunami in Japan, Cisco and Boeing revisited their supply chain to mitigate risk of depending on source of supply located in one region. There is a need for diversification of sources of supply and build provisions to ramp up capacity of alternate sources when the main one gets disrupted. The current crisis has also highlighted the need for near sourcing and indigenization because businesses dependent on global sourcing are likely to be impacted more during such global crises, frequency of which is now on the increase. There is a need to have systems in place which help in forecast and providing early warning of such pandemics to minimize loss of lives and businesses. World Health Organization (WHO) and countries from which such a pandemic originates must have a responsibility to warn others of the likely spread at the earliest. It is easier to cope with an odd over reaction than a delayed reaction.
As we grapple with this historic crisis, a lot is expected to change in all spheres and supply chain needs to transform the most in a globalized and inter dependent economic environment. Digitization and innovative use of technology will lead the change. Manufacturers may become less materialistic and go for multiple procurement sources even if that is not the most economical choice. Resilient, lean and agile supply chain systems backed by technology will be a matter of necessity and not choice in case businesses must survive future shocks and disruptions.
Note: This is the excerpt of the article ‘Challenges of Supply Chain Management In Covid-19 Environment’ by Lt Gen Balbir Singh Sandhu, which was originally published in The United Service Institution of India Journal.
About the author
During about four decades of military service, Lt Gen Balbir Singh Sandhu has operated extensively in operational and insurgency affected areas. As the 'Director General of Supplies & Transport', he was responsible for planning & execution of supply chain functions for troops deployed pan-India. He has extensive experience in procurement, contract negotiation, QC, distribution, budget management, arbitration and training.