The Indispensable Shield

Have we ever imagined how the industry would function without the literal WHEELS of MOTION? Yes, we are talking about the INDISPENSABLE SHIELD of the value chain – the SUPPLY CHAIN. CxOs are looking for resilience in supply chains, which are able to withstand uncertainties. Gone are the days of cost cutting for the sake of financial gains. While the industry at large has done few things right, there’s still a long way to lead the growth and here’s where the logistics specialists – third party logistics service providers play the role of an enabler and together – the user & the LSPs – have to bring that much needed equilibrium to refuel the economic growth wheels. The question is ARE WE READY??

FINDING a way to make third party logistics companies stand apart from each other is like finding a needle in a haystack. Fortunately, third-party logistics providers (3PLs) can successfully add to their own value proposition by understanding the challenges in building a unique value proposition, how collaboration empowers 3PLs to stay proactive with customers to provide a better experience, and a few best practices to help 3PLs stand apart from competitors, states a recent blog on Turvo. As per the Grand View Research estimate, the global third-party logistics market size was valued at USD830.99 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 8.3% from 2020 to 2027. Having said that, the Coronavirus pandemic has impacted the supply chain operations globally. The crisis placed an unprecedented strain on transportation and logistics resources. The logistics service providers had been facing uncertainty in the movement of goods owing to the mandated lockdown in the countries. The logistics networks were disrupted due to the supply/demand imbalance and lack of capacity for the long-haul and last-mile fulfillment services. The limited staff and reduced working time have further impacted the logistics activities adversely. The outbreak of COVID-19 has had a domino effect on the domestic transportation services. There has been an imbalance between the incoming and outgoing freights in the infected areas, which is increasing the lead time. Service providers are facing numerous problems such as disruption of transportation due to the boundary closure and increased demand for warehouse facilities to store the existing goods that can no longer be sold due to lockdown. To tackle this situation, 3PL companies have started short term storage identification services.

Giving insights into pre & post Covid era, Dr R Arunachalam, Supply Chain domain expert, highlighted, “Generally business potential across verticals was flourishing and there was huge potential in the market. Large RFQs floated across all verticals. There were no restrictions in movement across state borders to serve the purpose of B2B and B2C that added government revenues and importantly, there was no supply and demand gap with respect to availability of laborers and space. Cut to March 2020, as we entered into the Covid era, we have had to adopt to the “New Normal ” with synergies like virtual meetings with stakeholders. Our business conversion is now based on differentiators and new business model rather than conservative method of solutions. In this era and going beyond, digitalization will definitely play a vital role.”

Mohandas Menon, CEO – Contract Logistics, Stellar Value Chain stressed, "Unfortunately, it is not post- COVID yet. We are still living in the Covid era. The business scenario has transformed across industry verticals during COVID-19 and this has placed unprecedented stress on supply chains."

According to R Shankar, CEO- India, TVS Supply Chain Solutions, “Country wide lockdown was announced all of a sudden in the last week of March even while we were contemplating the best way to go about ensuring things are safe at work. Initially there was some confusion with respect to the lockdown guidelines as well as the implementation process. The Centre provides the guidelines at the national level, the state government forms the rules, and the local authorities, comprising collectors, district magistrates, corporation commissioners and the police authorities work towards ensuring the set rules are adhered to. Though there was some ambiguity in interpreting the rules, our liaison with government authorities helped us in understanding the boundaries and constraints and we could accordingly manage the critical businesses /essential services of our customers. I am happy to say that we were even successful in connecting with prospective customers as we could mobilize trucks and manpower. We have, in fact, signed up close to a dozen deals during this period.” He added, “As the lockdown and unlock conditions kept evolving month on month in different states, we have learnt to adapt to the different sets of rules and regulations. With proper representation, we were able to impress upon the authorities that it is imperative to keep the supply chain alive and running for the public to avail essential services. While on the one hand, we focused on supporting our customers, on the other, we took proper care of our front line staff and drivers. We designed and developed the COVID Kavach, a protection gear for our staff. We instilled in them the need to undertake comprehensive safety precautions comprising masks, social distancing and personal hygiene like using soap or sanitizers to maintain clean and healthy hands.”

Means to Survive and Thrive

According to McKinsey & Company, the trend for product value chains to become more regionalized is also likely to accelerate, as companies reassess the risks of globally integrated asset networks and supply chains. For example, to increase agility in the event of regional shutdowns, a leading fashion company has already started to develop new supply sources beyond its current network in Southeast Asia. Second, companies will likely reassess their make-versus-buy options. A leading consumer company has accelerated the outsourcing of manufacturing and logistics for some products to specialized players in different regions. This approach improves security of supply, thanks to increased local content, while also reducing costs and allowing the company to ramp volumes up or down more rapidly. Therefore, companies are actively looking for third-party services, provided those services align with the vision of more transparency, ease in collaboration, lower costs, and improved efficiencies. Of course, customers always want a demo and assurance that they have chosen the right option, so third-party logistics companies that can provide immediate access to shipment level information at any time will always win out in both collaboration and ability to flex to meet changes and disruptions within the supply chain.

Talking about the challenges faced during the lockdown, Mohandas Menon remarked, “Managing fixed costs during complete / partial lockdown in April 2020 and May 2020 respectively was the biggest challenge. Customers became paranoid facing zero revenue and started demanding cost reduction on all fronts. Our customer management skills were put to test during these months. Another challenge has been managing manpower when there was no work or far less work. One of our key strengths – ability to manage large work forces across multiple geographic locations – became very handy during these challenging times. We managed to hold continuous meetings with the customers and tried to balance / align their commercial expectations with our internal cost structure. This was the only way to ensure a ‘win-win’ situation for both the customer and Stellar. We were successful in achieving the objective with most of our customers. Though the business scenario has improved for many of our customers, we are still far from normalcy – or the ‘new normal’ as it is famously known now a days.”

TVS faced challenges of varying types at every phase of the lockdown. As R Shankar explained, “Topmost on our mind was the need to ensure our people are adequately protected and are working in the best possible healthy and safe environments. We then had to understand the states’ rules and implementation guidelines in the right perspective and strive to work with the authorities to obtain permits for people, vehicles and warehouses. The third challenge was arranging manpower and trucks for our operations. Our HR and Operations teams did a fabulous job of connecting with the 12000 staff and executives who were on our rolls. They effectively engaged with them as well as their respective families to allay their fears and return to work in an environment which was safe. Through our control tower and with digital tracking of our long-haul vehicles, we were able to source vehicles that were needed to meet our customers’ trucking requirements.”

Dr R Arunachalam enlisted pointers as to how companies fought their way out and tide through the tough times:

• Availability of workforce with respect to blue color jobs. (Managed by engaging multiple service provider to have the quantity/quality of resources as needed)
• Restrictions within city and outside for the movement of executive level staff movement to warehouse.(Generation of E-Pass supported, working with lean manpower, making them to stay nearby, etc., to serve the customer in critical times).
• Transport vehicles shortages even for critical items – plied dedicated vehicles at high cost and connected multiple newer operators.

Dramatic Shift in the Consumer Behavior

KPMG analysts rightly point out that the COVID-19 pandemic is challenging businesses to think in unique and different ways. The disruptions caused by the virus outbreak have left deep impacts on consumer behavior and preferences. Customers are now increasingly exercising caution on what, where, and how they buy. As demand surges for essential products, companies across the globe have been scrambling to streamline their supply chains to secure immediate operations. At the same time, there is pent-up demand waiting to be released for semi-essential and regular consumption categories that do not qualify for the ‘essential’ tag. According to Mohandas Menon, one of the features of the crisis have been the impact of erratic customer behavior on supply chains, causing an increase in volatility. This resulted in some products seeing good demand whilst there has been significant erosion in demand for many ‘non-essential’ items. “The business models of most of our customers have moved towards e-commerce. With the extended closure of malls and the fall in footfalls in stores after partial / full re-opening, customers are forced to move towards B2C model. Several retail outlets of customers also faced permanent closure. On a lighter note, many of our customers have started selling face masks!!”

Seconded R Shankar, “Given the Situation, there are indeed some dramatic, even drastic shifts that we perceive with regard to our customers. For them, the priority now is to reorganize their network and come up with innovative ideas to improve efficiency and effectiveness. We find our customers more open to outsourcing end to end and they have all evinced keen interest in receiving suggestions for implementing “lean “practices. The second significant shift is in digitalization. Our customers are more receptive to touch free, paperless operations and are seeking real-time integration of their IT systems with their 3PL partners’ IT systems.” Dr Arunachalam informed, “Customers are looking at maintaining safety stocks at all warehouses in order to avoid uncertainty. They are purchasing less and postponing new buying decisions. There is an increased requirement of adhoc space in the existing warehouse set up. We are witnessing cost reduction across the supply chain to withstand the race. There is an increased trend of digitalized mode for all transactions and lastly, work from home for as many as 10 to 50% for staff, reduction of office space.”

Technology - the savior

Technology plays a major role in these tough times by supporting B2C market especially for essential products and Pharmaceutical industry. According to Dr Arunachalam, “Frequent online meeting with customer boosts customer relationship as well as results in huge savings in physical travel cost, stay and time. Additionally, ePoD (electronic proof of delivery) is helping the industry to reduce the service to pay cycle. Agreed

Mohandas Menon, “Technology played a significant role in facilitating online meetings during these WFH days. We could conduct town hall meetings / cultural sessions, etc., with 200+ participants in one go. Meetings with customers and vendors are also on online platforms.”

For TVS as well, technology has always been an integral part of its business and has been a key differentiator. “All our planning and running of our operations has been aided by technology. Our value add to our customers is to provide them with visibility across the supply chain, and technology plays a critical role in this. We also leverage predictive and prescriptive analytics backed by data from our transactions for the benefit of our customers. We adopt technology to make our operations better, smoother, leaner and efficient and of course, faster. Data has helped us gain insights to deliver higher value to our customers. We do not believe in using technology in pockets and select areas of our business. Technology pervades our entire business and we depend on it for robust data, higher efficiency and quicker turnaround times,” highlighted R Shankar.

The risk mitigation measures in SCM can stretch to increased outsourcing of logistics activities, move from dedicated facilities to multi-user operations, taking a serious look at inventory holdings – optimum inventory with visibility (Technology), etc. Some of these measures will increase demand for modern warehousing and e-commerce will dominate over omni-channel distribution models. International supply chains will have to give way to national / local supply chains. The situation will also encourage warehouse operators to increase levels of automation within their operations. In short, COVID-19 era will challenge many of the key supply chain theories of the past several decades, according to Mohandas Menon.

Opportunities amid the gloomy days

For Dr Arunachalam, geopolitical reasons will give leverage to India with respect to Make in India as well as Digital India plans. Investments in Indian companies will lead to lot of business potential across all business. New companies will get formed and will do well with technology. Increase in safety stock leads to more space for storage and leads to increase in business volumes for 3PL. Mohandas Menon stressed, “There is a distinct possibility for customers to increase outsourcing of logistics activities to mitigate risks of employing large work force. There would also be an increased demand for quality modern warehousing facilities. Technology and automation will play a significant role in warehousing going forward. We are expecting a boost to 3PL industry due to all these factors.” TVS is constantly scanning the environment and the market for opportunities. “We seize any opportunity we may sight in the areas of end to end supply chain management. Our mission is to engage with the customer to be able to `resolve' their pain points and deploy appropriate technology solutions to make their operations more effective.

In addition, we are increasing our focus on the fast-moving consumer goods and healthcare sector and are evolving newer business and operating models in partnership with our current and prospective customers for them to, in turn serve their customers effectively and quickly,” added R Shankar.

On the transformational phase

A paradigm shift in supply chain management going forward is already evident in line with the changes in consumer behavior, according to Mohandas Menon. “The risk mitigation measures in SCM can stretch to increased outsourcing of logistics activities, move from dedicated facilities to multi-user operations, taking a serious look at inventory holdings – optimum inventory with visibility (Technology), etc. Some of these measures will increase demand for modern warehousing and e-commerce will dominate over omni-channel distribution models. International supply chains will have to give way to national / local supply chains. The situation will also encourage warehouse operators to increase levels of automation within their operations. In short, COVID-19 era will challenge many of the key supply chain theories of the past several decades,” he added. “Since the time the world of business became global supply chain transformation has become sharper with more vigor on seamless and smooth operations. Supply chain is set to become the key component of all industry sectors. As the bedrock of the industrial sectors across, supply chain will use advanced technologies and digitization to become more agile, error free and highly efficient,” believed R Shankar. He added, supply chain management will undergo a major transformation:

• Key components of the network will get re-designed to suit the latest in technology and the changes in the business environment
• De-layering of the supply chain will make for better management of SCM and more `direct to consumer' models will emerge
• Digitization and technology deployment will make business operations seamless and real time integration will become predominant
• Significant investments in newer technologies will be made that will equip supply chain with speed and efficiency
• Data scientists will delve into the wealth of available data and will be use patterns and insights to manage the operations better and also to predict future changes in business.
• AI, ML, Blockchain and IoT will get used extensively and from being experimental pilot projects will get scaled up substantially to the real time environment. This will lead to a total transformation of the SCM processes and the organization's ability to differentiate and add value will significantly depend on appropriate use of technologies.

Dr Arunachalam offered five supply chain transformations that the industry will witness:

1. Diverse sourcing and digitalization will be the key to building stronger and smarter supply chains.
2. Creation of Duopoly situation in order to have multiple source of supply
3. Online demand platforms will emerge stronger linking supply and demand
4. 3PL companies’ consolidations may happen
5. Next 5 years are going to be a good period for SC transformation

Reset & Renew

As the Accenture study says, the COVID-19 emergency will pass. Leaders know that the speed of the economic recovery depends on the ability of companies and industries to bounce back from the crisis. That means making decisions and taking actions now that will generate revenue, protect jobs and support the return to growth. This is also an opportunity to look at the future of logistics. Companies should be considering how to RENEW their logistics operating models to increase resilience, responsibility, effectiveness and efficiency.

The most significant change agent for supply chain renaissance of the country would be the need for conversion of international supply chains to national / local supply chains, remarked Mohandas Menon. “We are expecting introduction of much broader industrial strategies (protectionism), which would promote development of national supply chains. The Aatmnirbhar Bharat Abhiyan policy announced by the PM to help the economy recover, strengthen supply chains across industries and promote domestic production is in these lines.”

For R Shankar, “These are exciting times for all in the industry. The pandemic has disrupted businesses and lives. Instead of reeling under the pressure of downtimes, it helps to use this time to think through and bring about swift changes that will make us realize Covid 19 has given an opportunity to re-imagine our business and make significant changes for enabling a new but thriving normal in the post pandemic world.” Savills Research sums it up perfectly, “VUCA” (Volatile, Uncertain, Complex and Ambiguous) is upon us. Each passing week adds more smoke to the screen, the latest addition being the fall of the global crude. Through the VUCA smokescreen, and despite the build-up of COVID tempest, the one sector in India which promises hope, is Industrial and Warehousing. Indeed, it appears to be poised to gain more in the aftermath than it loses during the wager. To that end, it will certainly undergo resets and makeovers, but it never had a better opportunity.