Swim with the tide
Supply chains and logistics must be strictly kept flexible. That is one thing the pandemic has taught us
Never before has a pandemic affected economies and collapsed businesses so badly as Covid-19. There are several channels through which the outbreak has affected various parts of the economy, and the disruption of supply chains is the major one. Unemployment is on the rise, along with a slowdown in the manufacturing and services industries. Workers are back at their home in faraway places, thereby leaving the coming harvest in uncertainty. Lack of orders may eventually lead to massive trade contraction.
Besides, disrupted air travel, collapse of the tourism industry, contraction of outdoor entertainment industries, rise in bankruptcy and NPAs, even though these are short-term effects, these shocks can spill over to other sectors and economies via trade and production linkages.
For the Indian manufacturing sector, COVID-19 crisis presents a watershed moment. As conversations around local production gain steam with the call for “Atamanirbhar Bharat” (a self-sufficient India), companies are looking to ‘think global, act local’ in a bid to push for resilient supply chains and sustainable businesses. As social distancing becomes a norm, the companies will need to reconsider raw materials sourcing, supply chain optimisation, floor management strategy, manufacturing cycles, transportation of raw, part, finished goods along with workforce welfare.
Nikhil Kumar, country head, India, HERE Technologies, says, “In the aftermath of the pandemic, one of the critical lessons learnt is the need to accelerate the ‘digital-first’ approach. Leveraging connected technologies such as IoT (Internet of things) and cloud computing in the supply chain to transform every touch point into a sensor thereby providing real-time business insights as well as addressing concerns (even before they arise) is now a must-have. Something that could help the manufacturers develop a better understanding of how the systems work or why they fail in addition to providing valuable insights to make informed, on-the-go decisions related to demand forecast and products the customers want.”
At the heart of the entire manufacturing operations of an organization, however, sits rich and intelligent equation of ‘location’ that can help tremendously to improve the efficiency and safety of the entire resource structure of an organization. Real-time, precise and detailed insights into the ‘where’ component of any step in the process can allow manufacturers to locate and track the movement of any connected object or people (indoors or outdoors) with an unprecedented level of precision. This can contribute in enhancing and optimising production output, last-mile delivery, operational efficiency as well as rebuilding resilient & sustainable supply chains worldwide. Location technologies such as geofences, routing algorithms, API trackers and digital indoor maps are today opening up exciting opportunities that can, in fact, enable safe operation of autonomous guide vehicles (AGVs) such as forklifts and inventory carts.
Amit Kumar Alsisaria, co-founder & MD, Polestar Solutions & Services India, says, “All businesses across the globe are facing unprecedented levels of uncertainty, and it has become extremely difficult for them to keep their financial wheels running smoothly. Indian businesses have to work on multiple fronts to be able to ride through the storm. Firstly, they need to design an agile and adaptive supply chain to help react to changing demand and supply scenarios better. This will help companies maintain their customer service without incurring high costs.”
Striving towards operational excellence, manufacturers are adopting a range of strategies and practices including Total Quality Management (TQM), Automation & Virtual Integration, Flexible Manufacturing, etc. Manufacturing companies are also evaluating and adopting flexible business operating models to manage their internal processes more efficiently and to minimize the capital expenditure and operational costs to abate the risk associated with huge capital investments.
Srinivas N, MD, industrial and logistics, Savills India, says, “Manufacturing companies in India are increasingly seeking the OPEX business model, especially in sectors such as solar energy, pharma R&D, electronic appliance manufacturers, auto component manufacturers, small and medium scale enterprises and start-ups as there is no upfront investment in fixed assets. Given the rising trend for OPEX business models, increasingly driven by new firms, this will foster more entrepreneurial businesses in the manufacturing sector in India. On the other hand, property developers, product specific Special Economic Zones (SEZs), Free Trade and Warehousing Zones (FTWZs), government and private industrial parks are offering Built to Suit (BTS) and ready to move in facilities for the manufacturing companies to boost the operations without investing on land and building of the manufacturing facility.”
The crisis, believes Partha Dash, senior VP, enterprise business, Moglix, presents India's opportunity to reform its manufacturing sector and make its supply chain more competitive. India has a demonstrated history of pursuing reforms during a crisis. As manufacturing enterprises typically pivot "make or buy" decisions on costs, a focused approach to cost optimization during the ongoing crisis and beyond can turn India into a global manufacturing hub. He adds, “The cost-efficiency of procurements of manufacturing materials affects the cost-efficiency of the final product, owing to cost-plus pricing at every tier in the supply chain. Therefore OEMs in India must simplify macro-level cost-efficiency targets into MSME-specific cost-efficiency targets at the micro-level and build collaborative supply chains from the ground up. There is a direct proportionality between cost-efficiency and plant capacity in manufacturing. For component manufacturing MSMEs in India to be cost-efficient, the size of operations has to attain a minimum viable level through higher investments in plant, equipment, and machinery. However, investment caps in the regulatory framework that define the scope of MSMEs in India are agnostic of manufacturing requirements. Relaxing the investment caps for component manufacturing MSMEs can enable capital expenditure for plant capacity expansion and stimulate their cost-efficiency.”
Build them up
Logistics companies are aware of the challenges and rushing in to do their bit. Last week, Safexpress, India’s largest supply chain & logistics company, launched its ultra-modern Logistics Park in Rudrapur. The development of Safexpress Logistics Park in Rudrapur has been done on a land area of over 1 lakh square feet. This Logistics Park is enabled with state-of-the-art transhipment and 3PL facilities. It will boost the industrial growth of this region.
Similarly, Blue Dart sees the faster comeback of demand in sectors like e-commerce, pharma, automotive and consumer electronics. Ketan Kulkarni, head of business development and CMO, Blue Dart said the automotive sector has been seeing a stronger recovery as compared to the time the lockdown began. "Everyone has suffered in this pandemic. Profits and bottom line has eroded. But we are optimistic. And we are seeing a lot of green shoots in the economy. If you see the GST collections, they are improving. The e-way bill numbers are improving. The PMI Index is coming back slowly," he added.
ESR, the largest APAC focused logistics real estate platform, is building a state-of-the-art industrial & logistics park in the heart of Chennai’s Oragadam industrial belt. Located on SH-48, close to Oragadam junction, the park would be connected by air, road, rail and ports. The 36-acre park is proposed to be IGBC Gold Rated. The industrial and logistics park will be built to the highest specifications and equipped with best-in-class infrastructure, demonstrating the full scope of ESR's sustainability initiatives and human centric designs.
Embassy Industrial Parks, the pioneer in lean model warehousing, is in the process of establishing its base at Hosur. Aditya Virwani, COO, Embassy Group and spokesperson, Embassy Industrial Parks, said, "The primary requirement for businesses is a good warehouse; and it is fundamental for procurement, manufacturing and distribution services — all of which collectively contribute to the growth of the economy. The positioning of warehouses is therefore crucial as it helps boost the brand image and drive growth. The demand for ecommerce and 3PL (third party logistics) is expected to grow exponentially once the present situation eases down. We have planned things ahead of time.”
One of the challenges facing Indian manufacturing is the lack of technical expertise and managerial know-how. “Resolving this challenge calls for large OEMs to partner with their suppliers to facilitate knowledge transfer through deeper collaborations on technology sharing and diffusion of knowledge resources. Transfer of technology (ToT) agreements through foreign direct investment (FDI) can be an excellent route to propel Indian component manufacturers and suppliers towards achieving best-in-class cost efficiencies,” says Dash.
High project costs have been one of the major pain points for Indian manufacturers, especially in verticals like engineering, production, and construction, logistics, and infrastructure development. Significant reasons for overrunning project costs include multiple rounds of stakeholder collaboration in contract management and clauses within contracts that allow parties to stretch project KPIs that impact project margins. Indian manufacturers need to leverage artificial intelligence and machine learning-driven contract management applications to track cost, quality, and delivery metrics to keep project costs under control, he adds.
Speaking about the impact of the pandemic on his manufacturing operations, Vamsi Gaddam, joint MD, Visaka Industries, says, “What we did to reduce impact was to set targets that were achievable. This time has also proved to be a reminder for the manufacturing industries to go back to basics and introspect on ways to tackle the issue with the resources we have. As the supply chain has been hit the most, adapting smart technology to minimise process time and increase supply chain collaborations can be a solution.”
With timely action, despite the migration of the labourers, operations had minimal impact as their manufacturing operations are automated to the maximum extent.
For the decision-makers, this means a delicate balancing act. Navigating a ‘new normal’ with an extensive network of sourcing partners, multiple distributors, service providers and physical locations, the last-mile delivery with a constantly looming threat of unexpected disruptions or delays without any additional costs, can be a daunting exercise, says Kumar of HERE Technologies.
Intelligent and smart supply chains can create additional business value by enabling accurate planning of production. Managers can trust the materials to reach them on-time or they receive advance notice to re-plan resources. Always-on tracking technologies can facilitate end-to-end visibility into how their supply chains are managing the ETA of shipments. Integrating this information with other enterprise planning tools can lead to the business process optimization with minimum human involvement. Real-time visibility into market demand-supply gaps along with the real-time movement of cargo from the distribution centres can help the companies redirect stock to oversee sudden changes. Thus, spatial technologies and analytics can empower retailers, on-demand services, and logistics providers to streamline business operations, he adds.