Our Covid-19 vaccine shot is no less a supply-chain miracle than it is a medical one — moving billions of vials around the world, in the right ambient conditions, with complete track-and-trace, and the ability to match the ‘arm to the vial-code’.
The other facets are even more pervasive. From home delivery of food and medicines to how industries operate, supply chains are everywhere. Omni-channel and direct-to-consumer (D2C) are not just channel diversification strategies, but make-or-break choices to work around constraints imposed by lockdowns upon lockdowns and mitigate ever-increasing geopolitical and environmental risks.
The next generation of supply-chain is thus a two-part formulation. The first is to create a resilient supply chain as part of a national agenda, and it needs to be tackled as such on various levels from infrastructure to policy to de-risking. The second part is creating an agile supply-chain innovation stack that enables velocity, and this comes from digital-, financial-, and information-based supply-chains.
The first part, thus, is the foundation, which is a government agenda. And though, as a nation, we are terribly delayed on this front, the good news is that there are global benchmarks we can adopt without many variations. The second part not only has fewer parallels but is something the whole world is also learning anew. This is where India has an incredible opportunity. We can define digital supply-chain standards not only for ourselves but for a world order where ‘just-in-case’ is more critical than ‘just-in-time.’ If we get this right, we will create an economy that has a resilient and dynamic supply chain. This is the next generation of supply chains and will be fueled by three objectives: visibility, variabilisation and trust.
Visibility is the ability to plan better because every asset, every stock-keeping unit (SKU), every kilogram is discernible. Variabilisation is to ensure most players in the supply chain don’t worry about how to dynamically allocate their resources since they won’t have financially and physically fixed assets but will leverage variable ones from specialist operators. Trust is the ability to go deep and broad in supplier bases without worrying about performance, price or quality. Without these three vectors, it is not possible to build a resilient and dynamic supply chain. And the most crucial part of enabling these vectors is embracing innovation in digital and financial supply-chains. Let’s delve deeper into these three factors.
We get annoyed, as buyers, if we end up purchasing rotten fruit or spoiled meat. What we don’t realize is that this infected food product is part of a bigger batch that has now found its way into many homes. At its core, this everyday struggle — of having to check groceries before buying them — is a supply-chain problem. The average buyer cannot be expected to notice spoilage that is undetectable to the naked eye. In fact, even corporations find this challenging. And while an individual needs to only scan the items they are purchasing, the channel or distributor has to examine each item riding the conveyor belt, making their task much more onerous.
This is where digitalisation and innovation enter the mix. Imagine, for example, an IoT (Internet of things)-enabled device that has a sense of smell. Such a device can detect whether or not a perfectly normal-looking food item is spoiled from the inside. This is what innovation does — turn the entire supply chain into a ‘glass pipe’ that gives all relevant stakeholders end-to-end visibility on their order, from its whereabouts to its physical state.
One of the most vital components of the job of a supply-chain professional is to diversify sources, channels and modes of transport to optimally make in-price and on-time deliveries. A huge deterrent to this goal is the challenge of switching. With service levels rising by the day, adequately planning their supply chain is a bare necessity for corporations to stay competitive. Broadly, goods are either built-to-order or built-to-inventory. Building to inventory involves producing just enough to fulfil the demand for the foreseeable future, say a week or a month. This can be inefficient owing to inventory-carrying costs such as paying for storage and the risk of spoilage, among others. Additionally, the consumer’s options are limited to purchasing goods off the rack, which leaves little scope for customisation.
On the other hand, build-to-order is a production approach in which goods are manufactured only after receiving a confirmed order. Thus, the end consumer determines the time and number of goods produced. Perhaps the most significant benefit of this method is its suitability in today’s demand-elastic environment. This insulates companies from bearing such costs while improving service levels.
The ability to fulfil demand at the whim of ever-changing consumer needs requires a level of planning intricacy that involves a high degree of demand forecasting. Additionally, the supply chain should be well oiled, which means there are no delays, as they directly lead to postponing the fulfilment of orders. Hence, such supply-chain models, despite all their benefits, require a high degree of sophisticated planning.
The variabilisation of physical assets reduces the inertia to switch between approaches. This has been done by corporations that divest such assets and instead outsource supply chains, which allows them to swiftly start up and shut down production and distribution as required. It also enables them to diversify and flip channels — from online to offline and vice-versa — and to switch distribution and procurement from global to local as the need arises. A greater reliance on 3PLs (third-party logistics) gives today’s corporations such flexibility.
Supply chains, by their very nature, leverage deep collaborations with third parties. And, after years, this trust develops to a point where the channel becomes a partner. However, given today’s constraint-rich environment, the need to switch partners, suppliers and channels is a reality and even crucial to ensuring visibility. For example, outsourcing distribution in Tier-II and Tier-III cities allows a company to serve these geographies when demand spikes. On the other hand, investing in fixed assets would reduce the speed at which it could hit those markets.
Today’s innovations enhance the ability to underwrite these physical dependencies with extensive data, offering sharper and better ways to monitor their usage, performance and several other factors. Over time, as we monitor the interlinks between these assets, we can rank and rate them, solve for leaks or gaps, better identify delays across the entire network, and, if needed, switch.
We are already applying artificial intelligence (AI) and machine learning (ML) in everyday networks. For example, to optimize a delivery personnel’s route to deliver maximum orders during a shift, thus fulfilling consumers’ rising expectations for faster, or same-day, deliveries. Augmented reality (AR) and virtual reality (VR) technologies are revolutionizing the buying experience and trust by creating an immersive experience. Such technologies are also being used inside warehouses to get visibility of the entire infrastructure, leading to swift decision making.
In summary, I believe we are better placed today than ever before to not only manufacture and distribute in India but also to embrace existing technological innovations to create utilitarian stacks, using which we can leapfrog what more developed economies have taken much longer to build.
The Physical Internet was conceived by Benoit Montreuil, Coca-Cola Chair in material handling and distribution and professor at Georgia Institute of Technology. Montreuil applied the principles of the internet to logistics, thereby enabling a global, open, interconnected network using a set of collaborative protocols and standardized smart interfaces. He envisioned that physical goods could be sent and received in standard modules — instead of packets of information — just like data flow on the internet. I think India has the opportunity to be the first true Physical Internet country. And not because we are the furthest ahead, but because we have so little to hold us back.
(The author is Co-founder and Managing Partner at Lumis Partners)
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