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Supply chain management – in perspective

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In today’s business environment supply chains have contributed immensely to the success of any organization. The age old  dictum, “Right quantity, Right quality, Right time, Right source and Right place still holds good. These 5 ‘R’s are basically the cornerstone for the evolution of any successful supply chain logistics management strategy.

Understanding Supply Chain Management

When business strategies are formulated such as marketing, production, human resource and so on, these. In simple words, supply chain management (SCM) has the power to boost customer service, reduce operating costs and improve the financial standing of a company. It emanates right from manufacturing of a product to its final delivery to the customer. It involves the procurement process of raw materials, warehousing capacity, inventory management, packaging and transportation. The most significant challenge is that each of these factors has the capability to influence each other. For example if there is a delay in procurement of raw materials, it would delay the manufacturing process and thereby lead to a cascading effect in the entire supply chain management process.

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Concepts of Supply Chain Logistics Management

Historically the concept of supply chains is built upon three major traditional concepts that are Procurement, Operations and Logistics. However, SCM has evolved now to include the flow of information, product/materials and funds. The key objective of any supply chain management strategy is the maximization of profits and ensuring customer satisfaction. Harry Gordon Selfridge, founder of the luxury store that bears his name, summed up the importance of flawless service when he reportedly coined the phrase “the customer is always right” at the start of the 20th century, but it has taken more than 100 years to make a link between customer experience and the bottom line. In the words of Peter Drucker, “To satisfy a customer, is the mission and purpose of every business”.

Challenges in Formulating SCM Leadership Strategy

The challenges therefore to any SCM leadership strategy will be to ensure material flows as inventory quickly without any slippages through different points in the supply chain. The quicker it moves, the better it is for the enterprise as it minimizes the cash cycle. It will also be imperative that there is always a constant interaction between the producer and the consumer. In many instances, we also see that other partners like distributors, dealers, suppliers, retailers and logistics service providers participate in the information network. Therefore it is extremely essential to manage all the three flows properly if an efficient and effective supply chain is to be achieved. The most crucial factor is the visibility of all flows on the click of a button.

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Individual companies have to ensure that their supply chains are more resilient and competitive. It is important to note that if anyone link in the supply chain is disturbed, the entire supply chain gets stalled. For example in the case for the manufacture of gears; automotive production of mesh parts takes place in Pune, sub-assemblies are made in Hosur and the final assembling is done at Manesar. If any single activity is shut down at any one place, the entire supply chain gets stalled. Therefore, every supply chain model will have to have a contingency plan inbuilt. Resilient capabilities will have to be developed in order to respond to uncertainties. Warehouses will have to relocate closer to customers.

Need for Contingency Planning

For any SCM strategy to be effective it must cater for a contingency plan and must have the potential to respond to the changing requirements in a way that accelerates the delivery of ordered goods to the customers. The strategy therefore has to incorporate flexibility, speed and accuracy. This vulnerability was exposed during COVID 19 where it impacted most modern global supply chains. According to a research by “Accenture”, 94% of Fortune 1000 companies witness supply disruptions. 75 percent of the companies had a negative impact on business and 55% had to downgrade their growth outlooks. New and unexpected crises are inevitable. The best way to create a more flexible and resilient supply chain is by developing contingency plans and managing data through automated processes.

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Scourge of Lean Inventory in Pandemic Times

We are aware that most companies are built upon the architecture of “Just in Time” manufacturing pioneered by Japanese automaker Toyota a few decades ago. Most industries since then have embraced lean manufacturing as the standard. Eliminating excess inventory has allowed companies to maximize production efficiency and greatly reduce warehousing costs. Ironically the car industry shouldered the fiercest impacts of global shortages estimated to lose 60 $ billion in sales this year forced by the acute scarcity of critical manufacturing components- computer chips.

The only company which escaped the wrath of lean inventories was Toyota itself. Toyota realized that the supply chains of each of the 1800 parts and 30000 components which make a car had unique vulnerabilities. It tweaked its strategy to incorporate long term strategic planning for building resilience in the supply chains and carried out stockpiling of two to six months requirement of semi-conductors.

Also Read: Is the Supply Chain Management in the Indian Army future-ready?

India’s logistics and supply chain costs add up to a whopping 400 $ billion or 14 per cent of its GDP, far less competitive than the global average with far more potential for damage in the wake of supply chain disruption. One pre-pandemic study on supply chain disruptions found that on average, Indian companies lose 2.88% of share holders’ wealth over an 11 days period covering a disruptive event, significantly higher than US companies. It is therefore evident that building supply chain resilience is arguably the most potent survival strategy for any industry, business or country.

Impact of Supply Chain on Indian Industries due to Chinese Dependence

According to a report published by the United Nations Conference on Trade and Development (UNCTAD), India is among the top 15 economies most affected as slowdown of manufacturing in China disrupts world trade due to COVID-19 outbreak. The trade impact for India is estimated to be around US$348 million, with the chemical sector expected to take a big hit – of about US$129 million. Some of India’s most prominently affected industries are automobile, pharmaceuticals, electronics, and chemicals. Indian drug makers source about 70 percent of their ingredients from Chinese factories.

Chinese firms supply between 10 and 30 percent of auto parts to various carmakers in India. These include braking and steering systems, engine parts, and illumination systems. India’s own auto parts industry says it will benefit from China’s supply chain blockages but how far this local capacity exists on the ground is yet to be tested. It was reported in the media earlier this week that automakers are paying high prices to fly down components from China and South Korea on chartered flights.

In light of growing calls for economic measures to be taken against Beijing, a central challenge for Delhi will be the extent to which manufacturers and suppliers based in India will be successful in weaning off its reliance on Chinese imports within their supply chains at a moment of severe instability for industrial production. Although China accounts for only 5 percent of India’s exports, Chinese imports remain essential for maintaining India’s supply chain operations at home with the vast majority of major components still being primarily manufactured in China before being imported into India. Chinese imports make up 39 per cent of India’s overall imports for electrical machinery, 31 per cent for industrial machinery, and 23 percent for aluminium and other related articles.

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Maj. Gen. Dr. Rajan Kochhar, VSM
Maj. Gen. Dr. Rajan Kochhar, VSM
Maj Gen Dr Rajan Kochhar, VSM, retired from the Indian Army, as Major General Army Ordnance Corps, Central Command, after 37 years of meritorious service to the Nation. Alumni of Defence Services Staff College and College of Defence Management, he holds a doctorate in Emotional Intelligence and is a reputed expert on logistics and supply chain management. Gen Kochhar, a prolific writer and defence analyst, has authored four books, including “Breaking the Chinese Myth” which was released recently. He is a Senior Adviser with Defence Research and Studies, Member, Manoj Parikkar Institute of Defence and Strategic Analyses, New Delhi, Centre for Land Warfare Studies (CLAWS) and Society of Airspace Maritime and Defence Studies (SAMDES). He is also on the Board of Management and faculty with Noida Institute of Engineering and Technology, Delhi NCR.


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