Amitava Sengupta

Executive Vice-President & Practice Head, Digital Consulting–Industry &

Process, HCL Technologies
April 14, 2020 9 min read
Opinions expressed by Entrepreneur contributors are their own.

Several times over the last few weeks, I have heard of 2020 being refered
to as a bad movie with a particularly grim storyline. The repercussions of
COVID-19 outbreak are being felt more strongly with every passing day,
and despite the unprecedented steps and cumulative efforts undertaken
by governments, businesses and individuals to stem its growth, the virus
continues to rampage unchecked across the globe, causing loss of life and
hitting businesses across industries and verticals. The fact that the origins
of the virus lie in China, the de-facto ‘factory of the world’, has only
served to accentuate the damage from an economic perspective with a
significant percentage of supply chains reeling in shock and crumbling
with each passing day.

As per a March survey conducted by the Institute For Supply Chain

Management, nearly 75 per cent of companies reported supply chain
disruptions in one form or the other due to coronavirus-related
transportation restrictions, and the figure is expected to rise further over
the next few weeks. Other interesting figures that emerged from the
survey included the lack of any semblance of a contingency plan for
almost half the companies in case of a supply chain disruption leading
back to China, and well over 50 per cent of the companies also reported
experiencing sudden, unexpected delays in receiving orders, a problem
compounded by supply chain information blackout from China. 

The figures above serve to bring out the vulnerable state of global supply
chains, the lifeblood of our towering economies in sharp relief. However,
the writing had been on the wall for quite some time. Consolidation of
suppliers by geos, where efficiency has historically been the key strategy
driver and limited focus on de-risking procurement and supply chains over
the last several years, has contributed to the current state of affairs with
shortages of key items globally, barely three months into COVID-19—
bringing into question the very foundations of the ‘ultra-globalized’
economies that we see around us and live within today.

While there are people drawing comparisons with the Spanish flu
pandemic of 1918, there are several key differences from a global trade
and supply chain perspective between the post-World War I scenario of
1918 and the world we inhabit today. The current situation is also
different from past pandemics from the recent history, due to the vastly
different economic equations. To take just one example, when the SARS
virus hit in 2003, China contributed somewhere around 4 per cent of the
world GDP. Today, that figure is 17-20 per cent, making the origins of
COVID-19 in China, all the more painful and damaging from an industry
perspective. 

In this article, while alluding to the larger macroeconomic problems, we

will focus on the impact of COVID-19 on global supply chains. In the later
part of the article, we will also talk about new opportunities that may arise
in a post COVID-19 world, as our race puts itself back together and
attempts to glean learnings that would make us stronger, should such a
situation arise again in the future.

Key macroeconomic challenges associated

with global crises
Manufacturing: Manufacturing today is a far complex process, compared
with just a few decades ago, with subcomponents required to assemble a
single final product sourced from several places across the globe. The raw
materials required to manufacture these subcomponents could also come
from different countries and continents, and the finished/semi-finished
goods may then require to be transported all over the world. This massive
dependency upon logistics make import, manufacturing and export a
difficult proposition in case of disruption to the supply chains.
 

Consider a relevant example in the current situation: India imports well

over half of its active pharmaceutical ingredients (APIs) from China.
Between the Indian government selectively restricting API import and the
logistics challenges created by COVID-19, India’s pharmaceutical industry
is going to find it difficult to maintain its export numbers. Considering that
India is the biggest supplier of generic medicines worldwide, this could
very easily lead to a global shortage.

Procurement: At the other side of the coin lies the procurement

challenge for the sourcing organization.

In a globally integrated world, a drive towards efficiency has caused an

increasing consolidation of production in lower cost geos—primarily based
in China, Taiwan, Vietnam or other low-cost economies. With the
pandemic starting in China and hitting countries across the globe, and the
resultant fallout and shortages, the need for distributing risk has become
more evident than ever.

Distribution:

 Distribution of products is going through some unique challenges

such as staffing of warehouses, a need for direct distribution and
more intelligent and responsive allocation across channels.
  Retailing is also been impacted in a peculiar way. The lockdown and
curfew scenarios across the world have led to a unique situation
where there is demand as far as essentials are concerned, subdued
demand in some niche areas, and big challenges in the luxury items
segment, and we are likely to see several retailers down their
shutters while many others will be severely challenged on operating
margins and models.
 On the consumer side, hoarding/stocking of essential commodities
and over-the-counter medicines has led to unusual stress on the
supply chains. It is not unusual for consumers to panic stock food
and other essential commodities during times of crisis. While this
leads to stress if the stockpiling goes beyond a few weeks, it is
natural for consumers to be anxious about availability and resort to
this kind of behavior. This unnatural spikes in demand and the
required supply fluctuations are extremely difficult to handle and
together create a bullwhip effect in the entire supply chain often
leading to artificial shortages.

Post-COVID: The brave new ‘digital’ world

From an industrial perspective, the current situation is likely to accelerate
digital transformation initiatives for businesses across the globe, as they
are forced to face their weaknesses and vulnerabilities. Technology-led
business models will emerge as more critical and important than ever and
will play a key role in defining strategy as we reimagine the global supply
chains of tomorrow.

Based on lessons that are being reinforced and validated in the current
global crises, there are several ways in which businesses can go about
creating resilient supply chains in the post-COVID world. For one, there is
an urgent need to reduce dependency on physical labor across
transportation, logistics and warehousing. This can be enabled through
core digital technologies for Industry 4.0 like Internet-of-things,
blockchain, control towers, artificial intelligence/machine learning enabled
demand forecasting, rule-based and self-adjusting stock allocations,
autonomous devices such as AGVs and drones, among others.

Factories that can modularize production and shift/adapt lines due to

demand changes, will be the norm of the future. They would be backed by
supply networks capable of communicating intelligently with one another,
compounding their effectiveness and agility. Businesses are going to pay
a lot of attention to making critical systems available on the cloud so that
they can be remotely accessed by employees as they work from home.
We should also see some of the fence-sitters on cloud migration get that
final nudge to the other side—and finally move to the cloud to enable
business continuity. Safety will also be a key factor and supplier risk
management will be at the core to all planning initiatives. One of the few
positives of the COVID-19 scenario has been exposing us to the
possibilities of remote working across industries, domains and businesses,
and if sustained in the post-COVID world, this trend will lead to a renewed
focus on environment-friendly operating principles.

All this notwithstanding, the human element is the most important one
that will emerge as we pass through the COVID-19 period over to the post-
COVID world. Given the projections on the number of infected/
hospitalized, it will have a cascading impact on the availability of even the
core services. The situation in Italy, Spain, the US or China worsened
further due to the essential services providers such as medical
professionals, nurses and forces being impacted by the virus. This is also
visible in some of the newer impacted areas like India as well.

At HCL Tech, our supply chain practice has been at the forefront of
leveraging digital technologies to ease and build global resilient supply
chains. We continue to be committed to continuing our focus on
leveraging key technologies and offerings and to support businesses with
our expertise, as they recover and use their learnings from the current
crisis to bounce back stronger, and more resilient and capable of handling
disruptions than ever.

Some key elements, that will prove crucial in the supply chains of
tomorrow include: 

 Intelligent procurement: To help organizations understand where

and when to source using advanced machine learning algorithms
based on past purchases, commodity pricing, agro and industrial
trends, among others.
 Supply chain control tower: A single source of truth from
sourcing to delivery for all trading partners to see and adapt to
changing demand and supply scenarios across the world.
 Supply chain data management with intelligent automation
and analytics: End-to-end information management, taking the
form of a data vault of sorts to capture supply chain transactions
accurately with high consistency and minimum redundancy. This will
help supply chain organizations gather insights around supplier
performance, supply chain diagnostics, market intelligence and risk
management.
 Supplier risk management: N tier risk management helping
organizations model cost structures, trend performance data and
visibility in to extended value chain to keep abreast of any supply
disruptions and secure capacity. This could help companies avoid
sudden disruptions in supply chain and deal with lack of information,
something that many major global companies including Sony, are
facing today.
 Supply chain simulation: Modeling new supply chain strategies
based on business/operating model change, current and/or future
supply/demand/logistics constraints. Helps to validate and identify
the best cost-efficient network to achieve the necessary service
level across the value chain.
To conclude, the one thing that humans are better at than any other
sentient life-form is our ability to learn from our cumulative experiences
and implement those learnings to come back stronger. From a purely
business perspective, COVID-19 presents a slew of serious and sometimes
unprecedented challenges for organizations cutting across the business
environment, including a possible liquidity crunch, global supply chain
disruptions, increase in trade barriers, and a shifting consumer mindset.
However, the post-COVID world will see digital technologies playing a
critical enabling-role in delivering improvements throughout the breadth
of businesses, including more resilient supply chains, significantly
enhanced user-experiences, and intelligent optimized processes to deliver
business outcomes.

https://www.entrepreneur.com/article/349229