Download the latest issue of Business Today Magazine just for Rs.49
How Large Companies are Rewiring their Supply Chains

How Large Companies are Rewiring their Supply Chains

How large companies are putting together a robust supply chain to ensure business is not affected and also readying themselves for the future

Over time, the supply chain strategy has to be flexible for organisations depending on the environment and their learnings Over time, the supply chain strategy has to be flexible for organisations depending on the environment and their learnings

Less than a week after the government announced a nationwide lockdown in March 2020, Seshagiri Rao M.V.S. came to terms with a harsh reality. “We realised how fragile our supply chain was,” says the Joint MD and Group CFO of JSW Steel.

For as long as he can remember, the norm in the industry was to have inventory to last for three days. “There was never a need to have it for a week or anything more,” he explains. The nature of the problem now meant that while the product needed was available, it could not be supplied. For someone who had spent decades in the manufacturing industry, the need to strengthen his supply chain stared him in the face. A lot of good work had been done so far but the level of preparedness for a different business environment was a big challenge.

You just need to pick a sector at random and the disruption of the supply chain and putting together a new one is the dominant story. Be it FMCG, pharmaceuticals, paints, auto components, steel or anything for that matter, it plays out in the same manner. A serious transformation is necessary for sheer survival and if it involves an overhaul of the status quo, so be it. The rewiring of the supply chain will be the overarching theme for a long time as businesses attempt to keep themselves relevant in the present and robust in a volatile future.

As things are playing out, one is witness to how a shortage of semiconductor chips has had a crippling effect on the automobile sector. Companies are now forced to relook at their vendor base, a key component of the supply chain, and question their own strategy of having a limited base. The past had a structure of many vendors before making way for a limited number. Now, there is a very good chance that a mix of the two approaches will be the way forward.

Scouting Around

At the centre of the supply chain headline is China. Companies from across the globe work with the dragon nation for sourcing a host of products. In that scenario, Covid-19 was not just a bolt from the blue but a clear warning that businesses needed to look at this part of the story differently.

Quite clearly, the task on hand is to work towards reducing the level of dependence on China. For pharma major Cipla, it is putting in place an alternative vendor development (AVD) plan. This is for the company’s active pharmaceutical ingredients and intermediates, both of which now come from China. “Our AVD strategy ensures uninterrupted supply of raw materials. We have completed 58 AVD processes aimed at de-risking and serviceability during FY21, compared to 56 in FY20 and 28 the year before. We are also exploring the feasibility of developing in-house manufacturing as an alternate source for some APIs,” says Swapn Malpani, Cipla’s Joint President & Global Head (Supply Chain & Procurement).

For years now, there has been sound logic across industries to procure from China. “Very few players outside of China offer that kind of economies of scale,” says Rao. That does not take away the need to work on a Plan B as his company is doing. He takes the example of steel rolls, where Europe and Japan are emerging as good bases for sourcing the product. “Our experience so far has been good with no significant rise in overall costs.”

The pandemic threw up a host of learnings for companies and speaking of China, global manufacturing, directly or indirectly, was linked to it. “With India’s political problems with China and travel also being affected, it made sense to reduce the level of dependence,” elaborates Rao.

In many ways, it is going back to the basics. Vineet Sahni, Group CEO, Lumax, an auto components manufacturer, maintains that a deeper understanding of supply chain has taken place in a post-pandemic world. “It never took place before, barring the tsunami, but that was largely restricted to Japan. Now, we have been forced to do in-depth study on the subject.” For many like him, it has been worth the effort. Sahni takes the example of an intricate manufacturing process an auto component goes through, where a good part of it could be made in China and then assembled in Japan or Taiwan before finding its way into India. “All that was invisible to us earlier,” he adds.

On the specific issue of China, Sahni agrees that a combination of large scale and low costs have been factors that worked well for the country. “There is no doubt that a high level of dependence on one country is a bad idea but the whole process of validation or making that change also takes 2-3 years,” he points out. For his group, the proportion that comes from China is in the low single digits but these are for critical parts. “This includes the projectors [part of the headlight that go into the lamps] or just tooling, which is the heart of the process. Today, we are looking at localisation in a big way. Covid-19 has hastened the process of achieving self-reliance.”

Invest or Perish

From being a buzzword a few years ago, supply chain is now the oxygen for any organisation. The inherent complexity of businesses topped up with technology is a key differentiator. Abhijit Roy, MD & CEO, Berger Paints, opens up on his business quite succinctly. “We have many SKUs [stock keeping units] and a large dealer network. The challenge is to get the right SKU to the right dealer and that is not easy,” he says.

The good part for him was that work on an integrated business planning software for Berger Paints had started in late 2019. “It would have brought critical functions such as sales and marketing, logistics, raw materials and manufacturing, among others on one platform through ERP. It got operational in the nick of time and was a huge help post the lockdown,” points out Roy. The pandemic, he describes, was a hurdle at many levels. “It affected the supply of raw materials coupled with us having to face fluctuating demand. This is apart from the localised lockdowns depending on where one was.”

The decision to invest in strengthening the supply chain (most often, it is technology) does yield rich dividends. For Berger, a key part lies in ASRS (automated storage and retrieval system where products can be placed and retrieved), which is integrated with the warehouse management system. “In a multi-storied structure, it is most useful and impossible for manpower to perform that function,” elaborates Berger’s Roy.

Over time, the supply chain strategy has to be flexible for organisations depending on the environment and their own learnings. For Berger, it is a “China+1 approach” for sourcing raw materials as it is for JSW. In the case of Panasonic Life Solutions India, a company known for electrical equipment, there has been a desire to make as much as possible in the domestic market but that is not cast in stone. As much as 90 per cent of its lighting products are now manufactured in India but it has had to be flexible with the EV charging infrastructure. “This is a highly price-sensitive market and the products are sourced from China,” says the company’s Joint Managing Director Dinesh Aggarwal. Again, in the case of products such as bulbs and tube lights, where technology is not that critical, the vendor base has been broadened to avoid any disruptions. “We worked with two for a long time but that number has increased to 10 now,” he explains.

Anshuman Singh, CMD, Stellar Value Chain, one of the largest third-party supply chain companies, believes a relook at the existing vendor structure for companies is inevitable. “If they work with two now, it will increase to four or if work is done out of one country, we could see one more. There will not be a spike in the vendor base but tweaking,” he says.

To him, this marks the emergence of a dynamic supply chain. “Digital is at the core of this transformation. Today, e-commerce, food delivery, D2C or payment systems are resulting in new consumption patterns. With big-ticket investments flowing into the supply chain business at all levels, companies will need to reconfigure their strategy on a weekly basis rather than the long-term approach of the past,” explains Singh.

In the midst of all this, the unforeseen is not just a jolt but ensures even the most comprehensive business plans are pushed to the limit. The floods in Thailand around a decade ago was one such event for Aggarwal. Panasonic sourced a good part of its industrial plastics, a key raw material, from the country and straightaway, the company widened its vendor base from what was 1-2 to five today. “Nothing is predictable today and we have to constantly look for ways to increase efficiency,” he says. All one needs to do is to tweak a little bit here and there to reap the benefit. According to him, the efficiency part kicks in quickly. “We have seen it with our turnaround time. If an order is placed before noon, we can deliver it on the same day, else it will reach the following day.”

The investment is always sizeable and takes off sharply with scale. JSW Steel’s Project Sampark, a complete automation and digitisation of the logistics process, will give real-time visibility to the plant management. Rao declines to share numbers at this point. Push him on the payback and he is clear that it is more of a necessity. “A company that does not invest in its supply chain will have to ready itself for [having] no future,” he says.

The expectation is that a lot of infrastructure will get created and not without reason. Stellar Value’s Singh says India’s story here will mirror those of Hong Kong or Singapore in terms of large warehousing facilities. “Land prices are only going up and India will have to go vertical. Size can easily increase by 3-4x by doing that.” To his mind, there is a good chance that manufacturing out of China for the rest of the world will also reduce over time. “They have a very large consuming class and at some point, a good part of what is produced will be enough for the local market. India can easily benefit with the PLI scheme and the focus on self-reliance. Over time, every geography could become a large manufacturing cluster.”

A Fresh Approach

Just how much has the thinking changed? To Sahni, it is nothing short of a transformation and he opens up on how conversations progress now. “A customer in the past was comfortable taking the safer route when we pushed him to look at something new and preferred to look at it later. Likewise, we would perhaps not have something they wanted. Now, we work more in tandem and take decisions collectively and quickly.”

No conversation on the topic is ever complete without digital and how smartly it is used. For FMCG major Marico, moving the needle on supply chain means getting it spot on with digital. According to Jitendra Mahajan, the company’s COO (Supply Chain, IT & MENA Business), it helps in improving consumer engagement, drive sales through e-commerce and also build capabilities in data analytics. “We will continue to focus on building analytics and AI capabilities to enable data-driven prioritisation, resource allocation and decision support. These brands are available through the online marketplace apart from direct-to- consumer websites and apps.” Being a part of “essentials” did help Marico and during the pandemic, it partnered with companies such as Delhivery, Shadowfax and Lalamove “to streamline our supply chain and ensure that our products are delivered to distributors”.

Of course, being in the logistics business had to be among the toughest jobs. To R.S. Subramanian, Senior VP & MD, DHL Express India, it hindered the flow of raw materials and finished goods and in the process, interrupted industry and trade. “There were delays in customs clearance apart from changes in government policies like GST, E-way bills, e-invoices, digitalised exports, and imports,” he says. That’s not all. Social distancing meant there were challenges when it came to picking up and delivering goods. “It was clear businesses had to re-calibrate their operations and adopt a digital-first strategy,” he says. Subramanian’s expectation is that by 2024, half the organisations in the supply chain business will invest in applications that support artificial intelligence and advanced analytics capabilities. “The pandemic has amplified the need for these organisations to seek tools with the objective of making better and more informed decisions faster,” he points out.

In the post-pandemic world, the choice left to organisations is simple and yet telling. They have to be quick and make the right moves. Rewiring the supply chain is very much the story. Cipla’s Malpani thinks it delves into embracing the latest digitalisation of supply chain, modelling and simulation techniques. “Now, organisations can forecast true capacity, identify and eliminate bottlenecks, and develop optimal solutions for their supply chains with greater accuracy,” he sums up. That is what will make companies win in the market in the future.


Published on: Feb 15, 2022, 9:17 PM IST
Posted by: Vivek Dubey, Feb 07, 2022, 11:41 AM IST