Learnings from the crisis for supply chain management

With the first dust of the pandemic’s immediate impact on supply chains now settled, Nexdigm senior adviser Ravi Menon explores some of the learnings from the past few months across three areas: business continuity, risk management and innovation and creativity.

Robust Business Continuity Planning

Robust business continuity planning (BCP) is pivotal in maintaining operational continuity for critical elements of a supply chain, and in recovering from disruptions rapidly, with minimum impact. Covid-19 had shown that the business continuity plans of many businesses were not effective. To explore what enables effective planning, we will decode the planning process in this section.

While the above figure conceptually mentions the planning and testing process that goes behind BCP, businesses need to ensure that the following enablers are considered to prepare the range of critical functions. 

Ensure a comprehensive system view

The first step of solving the problem is to measure its magnitude by evaluating functional interdependencies across the supply chain. A visibility of upstream and downstream impact helps in aligning the internal effort also as management has priorities defined clearly.

Key points to consider while building complete visibility across the supply chain include:

• Maintain comprehensive information about suppliers, Carrying and Forwarding Agents (CFAs), distributors, clearing agents, key transporters, etc., to understand the impact and vulnerability. Information should include locations, capacity, other customers, financial health, organisational structure, key personnel, etc.
• Assess the risks and vulnerabilities of different suppliers and distributors

War rooms for a quick response

Quick responses during business disruption mandate close collaboration of all internal stakeholders, which can be enabled by creating war rooms with required members from different functions for creating a dedicated collaborative team that reviews and solves the problem quickly. These war rooms can be virtual, where members interact via digital platforms. Important prerequisites for an effective war room strategy include:

• Maintaining reliable customer and supplier data
• Robust demand planning and forecasting, to enable robust production and supply planning
• Positioning financial planning as an essential component
• Dedicating senior resources to the war room, by reducing daily operational responsibilities
• Providing executive authority to war room members, to enhance agility during a crisis
• Preparing scenario-based checklists, procedures, and templates in collaboration with relevant stakeholders (internal and external, including functional and support teams, government authorities, etc.) 

Such war rooms were established early in the pandemic by Spanish financial organisation, BBVA and Indian information technology giant Infosys, which helped their timely decision making.

Interaction with the government

It is difficult for any government to contain the social impact of a crisis while also rebooting the economy. The government’s policies then have to take a balanced approach to save lives and livelihoods simultaneously. The following steps can help in eliciting a response from the government:

• Voice business concerns continually and provide feedback on the impact of policies
• Identify and align government stakeholders to support different business-related aspects
• Explain the criticality and inter-linking of each element of the supply chain
• Compare regulations and compliances across regions, to give appropriate recommendations
• Provide granular information for quick and effective supportive actions
• Identify and agree on single/nodal points of contact for problem resolution 

As explained above, the issues highlighted by Indian pharma companies helped government authorities provide timely intervention for import, export, local movement of labour and material, permission for manufacturing, impending compliances and regulations, and other related issues early in the pandemic.

Evolving internal policies and processes

Emergency situations do not have the same degree of effect throughout their course. Hence, the responses also need to evolve with situations. Figure 4 describes a framework to guide iterative decision-making during changing situations. These evolving tactics need to be innovative to tackle the situation presented. Management teams need to establish the elements defining the ‘new normal’ and update internal policies to suit these changes.

To illustrate, as the availability of workers became a challenge for businesses, Amul, an Indian dairy supplier, made arrangements for food and accommodation for their workers near their plants, hence overcoming the challenge that many others struggled with. Similarly, technology and IT companies have made multiple revisions to their work from home policies in 2020.

Cash and working capital management

Working capital is to businesses what gasoline is to automobiles. To increase the utilisation of assets and to generate enough cash to keep businesses running, the following points can be considered:

• Conserve cash by deferring non-essential spend
• Implement cost optimisation measures to reduce operational and variable costs
• Focus spend on key product units (SKUs)
• Renegotiate credit terms with vendors and customers
• Ensure sufficient working capital guarantee
• Reduce or defer capital expenditure
• Identify the services or goods in high demand during the crisis, and repurpose facilities to manufacture or supply those 

As the lockdown started, liquor distilleries like Radico Khaitan, multinational luxury goods suppliers like LVMH, and other manufacturing companies started producing sanitizers. Restaurants that previously only catered to dine-in customers redirected resources to provide home deliveries. Raymond, an Indian garment manufacturer, used its factories to produce masks and personal protective equipment (PPEs). 

Risk management driven by leadership

The initiatives taken by the risk management team, most often, are in silos and face challenges in implementation as they might be perceived as non-value adding. The leadership must hence display the following behavioural traits during a crisis:

Robust risk management strategy, planned and executed by the top management, ensures sustainable and healthy returns to the shareholders. 

Innovation and creativity

Here are innovative ideas implemented by certain Indian companies. PepsiCo tied up with Dunzo to enable last-mile delivery of its food products. Dine-in restaurants like Bengaluru-based Little Italy started to provide do-it-yourself (DIY) food kits to consumers.

This section outlines other initiatives that may help businesses in the long run.

Utilise available resources for value-added and strategic activities

• Work on strategic projects that don’t get implemented easily during normal business operations
• Invest in employee training and skill development
• Perform scenario planning for the medium term (12-18 months), to assess the impact on demand and formulate the business strategy.
• Consider key points for financial scenario planning such as understand the complete cash conversion cycle, the cash and liquidity position and investment cost and returns for projects
• Prepare a probability versus impact matrix for various events to outline response plans 

To take an example, by looking at the probability of disruption in a raw material supply due to a national lockdown and the resultant revenue impact, enterprises can devise mitigation plans.

Visualise competitors as collaborators

Companies that were a part of industry associations or were already involved in regular dialogue, were able to identify common issues quickly and brainstorm solutions collectively. Competitors can be envisioned as collaborators in exigent circumstances, by:

• Participating in industry forums and regularly engaging with members to develop a collective approach towards disruption management
• Understanding avenues for collaboration and resource pooling (for non-core functions that don’t provide a competitive advantage), to mutualise costs and improve the available capacity

Different Indian pharma industry forums helped in problem representation and fast, seamless resolution, which helped remove supply chain bottlenecks early in the nation-wide lockdown. 

Conclusion

While some businesses planned for the challenges post the emergence of the pandemic, others were prepared with robust and agile risk and response management procedures. While the frequency and impact of such unprecedented incidents cannot be predicted accurately, robust strategy planning and business continuity mechanisms can certainly help businesses survive those. Learnings from experiences can provide inputs to create a working response model.