The new normal will have significant focus back on supply chain. The earliest function in manufacturing industries to go through a technology-led transformation is ready to get top management attention, yet again.
After national governments announced lockdowns to prevent the spread of novel Coronavirus, it became increasingly challenging for organizations providing essential goods and services to continue their operations. Yet, they had to overcome those challenges to keep the business—and economy—running.
Two of the business processes had to be severely altered—one was to do with the movement of bits and the other to do with the movement of atoms, to use Negroponte’s terminology. The first involved changing the way people work, and second, the way goods are moved.
The first one, remote working or WFH (Work From Home) has now become common lingo. Along with social distancing, PPE and the like—it has come to be known as a defining characteristic of the times.
Ensuring that essential goods moved and reached the people who needed it, as effectively as possible, by significantly tweaking supply chain dynamics was the other big change organizations had to undertake quickly. Just that common people know little about those stellar efforts.
While few bothered to figure out what made them get their essential grocery, medicines and other essential goods, without much hiccups, despite everything seemingly closed, extraordinary performers did get noticed.
In normal times, it is difficult for a company to significantly alter business practice without the fear of disruption and/or cannibalization. But an external disruptor provides an opportunity for agile and forward-looking companies to seize the opportunities and establish new rules of competition.
TCS has already announced moving to a predominantly remote working model, which promises to be the next big milestone in the services outsourcing arena, which, after offshoring and automation, had not seen such a big disruptor.
In supply chain, Amazon impressed with living up to the challenge and has established new standards. In the other article of our cover story section, platform guru Sangeet Paul Choudary does a detailed teardown of Amazon logistics.
It is a no-brainer that any major change at this time will be technology-led. Supply Chain, which was one of the first areas to see significant business transformation in manufacturing, will be no exception.
But what exactly are the contours of the New Supply Chain? The story is an exploration of that question, starting with the genesis of the change, in the wake of the pandemic. It does not provide—does not even try to—all answers.
The Pandemic Shock
The COVID-19 pandemic came as a huge shock for supply chains across industries. However, the impact on different industries were different. Like Coronavirus itself, the impact on different industries had a strong positive correlation with the degree of globalization of the various industries.
Technology and electronics businesses were the first to panic. Even before there was any impact on the day-to-day life in their respective countries, these industries, which depend heavily on China for manufacturing and sourcing, saw the danger coming. When it had still not become a global pandemic, there were still concerns about the impact on global supply chains because of China.
But before the demand could significantly outstrip supply, the disease spread to other countries, forcing governments in many countries to impose lockdowns. India, for example, shut up all shops other than those selling essential items such as food and medicines. It also disallowed deliveries of anything other than essential items forcing the e-commerce sites also to stop taking orders. So, the demand for most such items did not rise to outstrip supply. Since it was not the typical festive season (October-November in India and December-January in many countries), there was no severe gap.
However, in anticipation of the imminent lockdown, there was spike in demand for food items including grocery, fruits and vegetables, for a few days. But that lasted for not more than 3-4 days, as people were assured about supplies. Apart from a little tweaking in the lockdown rules, localization of sourcing, and some intelligent on-the-ground insights, helped.
Food supply chains are more local, diversified and flexible. And since, in India, local Kirana stores still have the major share, there was no major disruption. In fact, for many, they saved the day. Even as large supermarkets and online retainers struggled to meet with the demands—some online retailers, after postponing delivery dates multiple times, cancelled—Kirana stores managed to meet the demand quite effectively.
Amazon was the first to get its acts ready. Realizing that last mile was the challenge, the company announced hiring of 50,000 temp staff in India. Since then, it has announced getting into food delivery business.
While large-scale discreet manufacturing companies like automotive, which has one of the most complex supply chain set-ups, saw a huge drop in demand because of overall economic conditions, the process manufacturing companies like steel and aluminum had to keep operating their plants, even though with much lower capacity. Many of these have a mix of supplies—from captive mines, national suppliers and international suppliers—and they had to optimize based on the ground reality in terms of logistics and availability. At the time of writing, many are still figuring it out.
Realization & Response
COVID-19 was the first real shock-test after supply chains got large-scale automation in the late 90s to late 2000s. Did they pass the test?
It is difficult to answer that in a single word – Yes or No.
But some common observations are as follows:
- The more local the supply chain, the better they adjusted to the new needs. This is the reason why the normal consumer did not see much disruptions. If anything, the larger and more automated supply chains like those that organized retail depended, was not as agile as the more manual, diversified and gut-driven smaller supply chains relied upon by the local sellers.
- The global supply chains were more impacted. Global supply chains like technology, heavy industries, steel and aluminum were impacted.
- Many supply chains were not even tested. For some businesses, there was the bigger question of business downturn. Take automobile. The economic slowdown had already hit them. The pandemic almost brought the industry to standstill. It was a shutdown. So, beyond some basic adjustments, supply chains were not even tested.
Now, as businesses are waiting for the revival, there are key lessons.
First, like many other business excellence initiatives, supply chain is a journey. There is nothing called steady state. Many had significantly automated their supply chains. They still suffered.
A chain is as strong as its weakest link. Areas people had not even thought about – need for paper approvals for example – brought the entire supply chain to its knees in some cases.
Also, supply chains had not evolved in sync with other business changes. So, some manual processes that linked the two remained. So, the business situation changes and the corresponding responses did not automatically take care of supply chain adjustments.
As they get back to normalcy, there are some learnings.
First is the fear of what is called ‘bluewhip effect’—inaccurate forecasts when the business bounces back. That is especially true in such an uncertain situation like this. AI has been there for a while and many companies who have applied AI to decision-making in many areas have not yet applied it to supply chain. This should be a priority.
Second is the need to have a planned end-to-end resilience plan for supply chain. Now, this exists in silos for certain components. It does not help in an extraordinary situation like this.
While most are new realizing the importance of building resilience, smart supply chain managers and CIOs realize that today, technology should be able to help them in optimizing and building flexibility and resilience is not necessarily redundancy. Some short-term plans have already been initiated in response to the new situation. Some of them continue and get perfected as even now, there is no visibility about the future.
Some of them include:
- Turning paperless approvals to digital approvals
- Closing other tactical automation gaps that are easy to do
- Contactless operations as much as possible
- Do something about the cash flow and partner credit using IT
While there are many other responses, the above are some of the most common ones.
In the last two decades, most discreet manufacturing organizations had been driven by one narrative—that theirs was not just a ‘manufacturing’ business but a ‘consumer’ business as well. From car makers to FMCG companies, from white goods brands to tyre manufacturers, all competed with one another to better their customer experience. Since front end areas like sales, marketing and customer service were common functions across industries (including more technology savvy businesses like banking, insurance, and online businesses), technology evolution, application of emerging technologies like AI and big data, as well as vendor marketing decibel levels were much higher. So, most manufacturing top managers got influenced by the narrative. Four years back, the World Economic Forum started talking about manufacturing automation in a big way, coining the phrase Fourth Industrial Revolution or Industry 4.0, which were further amplified by makers of sensor technologies like IoT. That made some manufacturing companies turn their attention to manufacturing processes, but supply chain still remained where it was. In fact, it is the online retail companies like Amazon (and Flipkart in India too) that did most of the innovations on supply chain.
That is till COVID-19 happened.
The extraordinary disruption has made manufacturing organizations wake up from sleep and relook at their supply chain afresh. Supply chain was one of the first major automation projects in most manufacturing organizations and some sort of complacency had crept in, as the efficiency gains had been significant.
In the wake of the new reality, companies are looking at supply chain with some fundamental questions—now taking all technologies available into consideration. It will be an understatement to say that the new supply chain would be digital first.
At this point, organizations are still not sure about specific initiatives, though there are certain common threads. Before we get into some of those, it is probably apt to look at their drivers.
The digitalization initiatives can be broken up into four categories based on their objective and origin. They are:
- Digitalization in anticipation of the new normal (the stated long-term rehaul)
- Digitalization already planned but not progressed due to lack of enough buy-in at the top, which has now changed
- Digitalization that would be possible with a little incremental effort after the first set of initiatives are undertaken
- Leverage of the new information generated to integrate it better with manufacturing (call it Supply Chain 4.0, a component of Industry 4.0)
Each of the specific possible changes that are being discussed by manufacturing companies can fall into one or more of the above areas.
#1 Seamless Integration
Supply chain sits between enterprise decision-making system and manufacturing. To achieve Industry 4.0 status, it is important that organizations—in addition to their enterprise IT and plant automation, modernize their supply chains too. While Industry 4.0, as an idea, was always considered a solution for the West, which does not have enough labor. But China’s use of automated manufacturing post recovery has shown its potential to manufacturing sector in India too, which now wants to take advantage of the geopolitical situation to pose a serious competition to China. Without better digitalization of supply chain, this is not possible.
#2 Risk Management of Supply Chain
Organizations in Europe have started focusing on supply chain risk management as a separate functional activity. Business continuity planning, data-driven risk forecasting using AI and effective response mechanism are part of this plan.
#3 Supply Chain as a Service
Outsourcing has been a time-tested risk management strategy. Many companies have outsourced their logistics. Many more, post COVID, are looking at outsourcing more. Third party logistics is likely to see major boom, not just in terms of efficiency but in terms of capability that they build it, including intelligent features. Beyond logistics, companies have outsourced in silos. There may be a tighter integration among all those components.
#4 Better Forecasting
If you take a look at the AI startup ecosystem, you will find companies in all spheres of business and economy—healthcare, marketing, education, sales, customer service, financial analytics, insurance processes…but very few in supply chain. That will change. We expect this to be the most common initiative across industries. Companies like Amazon, who have mastered the art, and have even gone for what is called predictive shipping—shipping even before an order is placed—are revolutionizing the supply chain. This may be the next battle front among organizations.
#5 Platformization of Supply Chain Components
This is a long shot. In short, it means Uber-like model of using crowdsourcing in supply chain stages, especially the last mile. The Amazon model of aggregating offline retail chains is the most basic step in that direction.
#6 Increasing Use of Human-less Operations
Be it using contactless sensor technologies or IoT-based tracking of consignments—or even drone delivery, organizations will automate more and more—and will be less dependent on human beings. While this has always been considered as it enhances efficiency, many logistics companies used it in the pandemic era to compensate for lesser human beings available and provide safe working to those who were working. Since this is a low-hanging fruit, we will see a lot of action on this front.
#7 Micro Segmentation or Mass Customization of Services
Micro segmentation in the distribution and delivery model is something that has been talked about for years. Situations like this have forced companies to have a relook at them.
#8 Digitalization of Partner Ecosystems
One area that finds mention from almost all the CIOs that we spoke to is the gaps remaining in the partner ecosystem. Better digitalization of partner ecosystem is something that the industry wants to do something about but does not know how to proceed. Maybe, the next frontier for collaboration.
While companies talk about API-based integration to blockchain, no one is sure what form it
will take on. The immediate priority will be, however, to close the bottlenecks, such as digital approvals, credit flow, and automated updates.
As cash flow will be a big issue for smaller suppliers, companies will have to do something about this urgently.
While these are some pointers based on discussions with manufacturing CIOs and secondary research, few know for sure what would be the exact contours of the change.
As one of the CIOs put cryptically, ‘while it is good to talk about supply chain revamp, a lot of these problems are essentially not supply chain problems and more importantly, many of the supply chain problems may not have supply chain solutions.”
In short, you can close certain gaps by tweaking the supply chain, but there is no alternative to a large-scale digital transformation with supply chain being an essential part of that transformation.
The extraordinary disruption has made manufacturing organizations wake up from sleep and relook at their supply chain
Add new comment