Welcome to the post COVID-19 era, a time where we are unable to step out of our homes but can get access to almost every item that falls under the category of essential products. All of this is possible through the magic of supply chain. This phrase ‘someone brought it to you’ is what supply chain is all about. This article focuses on how supply chains can be made resilient for natural disasters.
Supply chain systems are simply routes through which an item produced by the producer reaches the customer. They can be as diverse as multiple players getting involved in the operations to cases involving just the producer and consumer. Unless the product is for self-consumption it will have a supply chain to reach its consumer. To understand the importance of supply chain management, let us consider the supply chain of the premier FMCG company Unilever. To maintain its global leader position over the years, they have followed a unique approach.
Unilever as a company was on a mission to double its size by the year 2020 and as a medium to achieve this, Unilever changed its practices along the supply chain in 2010. The reason for change in their practices was because they understood that growing the company in size would also require them to streamline operations and reduce pain points. Unilever stepped up their game and decided to move to sustainable practices along their supply chain. This not only required a change in policies but also a largely motivated new thought process among an employee base of 171,000. This shift was not limited to the organization but also extended to its partners. Through the change, they were able to reduce costs and align themselves in line with the larger strategy such that no player is left behind. This helped Unilever in two ways: one was that through these practices they were able to significantly reduce their carbon footprint. Secondly, they could create a trust among their partners that Unilever as a company, understands the value of its suppliers and partners which has benefited them significantly to transform the company. This example demonstrates that a shift in supply chain practices is not a switch which runs on our whims but would require enough sow time to bear the fruits.
After a brief trip to history let us now come back to 2020 where the shift towards resilient supply chain systems is not only required, but also the only way of survival. What is the way forward? Can we create a production plan to defy natural disasters? Can we create supply chain networks that would remain immune to a pandemic? The answer is a NO. Instead, what we can think of is building a supply chain that will be able to absorb such natural disruptions. This is essentially pushing us towards a new phase in operations that is supply chain 4.0, the digital supply chain.
Digital supply chain is the implementation of internet of things (IoT) and block-chain technology that would allow end-to-end visibility of products across the spectrum of production enabling the affordance of flexibility in the production. The application of this supply chain mechanism requires big data analytics in software and systems embedded through censored automation on the production ground. The visibility offered through this technology is helpful in cutting down material holding cost prior to production and create room for holding on to the finished products for a longer duration and in larger quantity that acts as a cushion to absorb disruptions of disasters. Switching over to digital supply chain and operations company would create pipeline transparency of raw materials, goods in production and inventory. This ensures better preparedness of the companies and would enable better quality of forecasting. This transparency is important for any company to draw a strategy of growth accounting for contingencies of natural disasters. The next aspect of automation that can be looked at post the recent COVID-19 impact is use of robotics in warehouse management which enables companies to adopt to social distancing norms, which as per the WHO are here to stay for at least for the next 18 to 24 months. Overall this would create the capabilities of designing sustainable and dynamic production plans which are internally optimized by removing departmental blindfolds and benefiting the organization.
From the aspects of operations and supply chain management, let us now focus on strategic decisions that would help run operations even during black swan events. One of the major factors affecting smaller supplier companies during the time of natural disasters and global disruptions is ‘liquidity crunch’, the inability of a company to maintain required working capital to continue operations. During these times, larger companies must focus on the strategy of vertical integration. They have financial muscle to rescue their supplier, such a gesture from companies would build trust with their suppliers. Through mergers and acquisitions and partnership deals would benefit the companies a clear message of similar targets and goals is sent. Such partnerships are beneficial for the large companies to ensure the raw materials required by them would always met, as they are integrally a part of the supplier. It would also allow them to profit from their own order placed. These partnerships also provide companies with unique opportunities to create custom-made designs and products through the resources of the existing supplier. These capabilities would immensely benefit the R & D of any company and enhance its resilience in production and supply chain alike.
Another strategic decision for organizations would be the use of Pareto principle where it becomes essential to identify key elements and product components within the supply chain and ensure that enough cushion in terms of production aid as well as monetary support to the suppliers is available. These 20% operations or components would impact nearly 80% of the results or value of product created. Identifying and safeguarding these areas are key to resilience. Similarly, sourcing strategy for the remainder 80% of the supply chain or components have to be reworked based on availability. If the components or services are not critical reaching said standards is satisfactory and the strive for excellence in such domains would be futile was of time, energy and resources. Therefore, change in sourcing and supply chain strategy, moving towards closer suppliers and services of non-critical components is another method of increasing resilience inherently.
Although the above discussed ideas would require considerable investment for implementation, it would infuse the much-required flexibility in the operations and supply chain networks which is the prime vulnerability against natural disasters. Therefore, flexibility is the mantra for building resilience in supply chains and providing enough reinforcement to withstand the disruption shocks. For decades, reduction in costs was considered equivalent to reduction in operation costs to make the system efficient, but now is the time to invest the gains from operations into operations, making them resilient and ensure their existence.
Shravan is a Civil Engineer and has worked in the Construction industry for three years. He is currently pursuing an MBA in Operations from TAPMI, Manipal. A true Bangalorean at heart, he is a die-hard cricket fan and a vegetarian food enthusiast. His hobbies also include photography and binge-watching TV shows.
Rashmi is an MBA candidate at TAPMI, Manipal. A Computer Science Engineer by qualification, she has worked in the IT industry for around two years. She is a Marketing and Strategy enthusiast and a passionate public speaker. A true Delhiite at heart, she describes herself as a bibliophile, clinomaniac and a big-time foodie!