In the recent past, we have seen disruptions based on geopolitical conflicts, and now to this list, viruses have been added. During the last couple of months, we have had a disruption in China due to Covid-19, and now the same has spilled across the globe. China plays a vital role in global trade as it exports about 2.4 trillion dollars and has an export share of about 12%. This shows the dependency of China in the world economy.
In today’s competitive world, every second and every penny counts on the bottom line of the organization, and in that process, Supply Chain plays a vital role. Supply chain involves the activities of procuring the material or services from the supplier, and after value addition, the same is transported to the end customer's place. In all activities related to the supply chain, if there are any disruptions, then the bottom line of the organization is impacted heavily. In today’s world of disruption by new age tech startups or impact due to geopolitical factors that are beyond human control has a significant effect on the procurement, movement of goods, value addition, and timely delivery.
Disruptions are part of the business, and unforeseen situations create a knee-jerk reaction in the market and prompt businesses to take impromptu decisions impacting customer satisfaction. To handle these disruptions more effectively we could follow the Five Golden Rules in organizations.
- Vulnerability Audit – The whole supply chain process should be audited by a third party for any vulnerabilities from sourcing, logistic planning, value addition process, and the distribution network. The audit should come out on the gaps in sourcing policies, if any key components are sourced from a single geographic location, single supplier, suggestions for alternative materials, how the communication channel works in case of disruptions, etc., The audit should be unbiased and show the truth of the existing practice and processes and how robust they are to tackle disruptions.
- Technology – It plays a vital role, especially in the case of multi-location and extensive distribution networks. Implementing proper SCM (Oracle SCM, Infor SCM, etc.) will give a holistic picture of the raw materials, but in the case of secondary sales, there is no visibility. Data captured through Distribution Management Software (Logo DMS, Field Assist, etc.) provides data like closing stock at various distributors. This data helps in monitoring and moving material in the hour of disruptions.
- Customer Satisfaction – retention of the customer is always challenging, especially during disruptions. There should be a clear communication channel established for communicating to customers transparently on challenges faced and steps taken to address them. Key management personnel should chip in and interact with major distributors and boost positive attitude by bringing them into confidence.
- Sourcing and Vendor Management – one of the key activities is sourcing, and in Supply Chain, the reliance is more on China. With the lockdown in China due to Covid-19 for many of the manufacturers, the raw materials are in shortage, and they may be able sustain due to the safety stock they are maintaining. If the situation does not improve and once the safety stock is consumed, it will be a bigger challenge. It is always worth a penny to have material suppliers from different vendors and different locations. In case of such disruptions, it always helps to have an alternative source of supplies and ensure that business is not impacted. In the case of critical materials, it is still worthwhile to have backward integration to avoid dependencies on external factors that are beyond the control of the business.
- Crisis Management Team – to handle the adverse situations, there could be a crisis management team in place, and if required, special teams can be set up to monitor and manage the situation. The employees should not have to run helter-skelter for information and instructions. They should look at the crisis management teams for any information to be passed to external stakeholders. This will ensure that there is no confusion and clear business strategy in place for unforeseen events like now.
Disruptions can be handled effectively if the above are considered in the business plans and implemented. In the hour of crisis, there is always a business opportunity, and it depends on the leadership team on how they leverage the opportunity and make the best use of the same. It is an opportunity for India to migrate from a services economy to a manufacturing economy as the whole world is impacted by it, and everyone is looking out for alternatives. India is well suited to take a stand in the frontline now with its skilled labor, vast reserves of natural resources, and leaders in technology. In our country, there is no shortage of talent or resources. This opportunity will boost Make in India and also provide huge employment opportunities apart from earning valuable foreign exchange.
( The article has been authored by CMA B Mallikarjun Gupta - Chief Taxologist, Logo Infosoft)