For Circulation - Crisis Management.pptx

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1. CRISIS MANAGEMENT IN SUPPLY CHAIN Presented by Pankaj Dant 27 July 2023

2. Presentation Framework Pandemic - the recent big supply chain crisis- how it played out Just in Time model & the Pandemic Supply disruption Shipping Crisis Dramatically altered Demand dynamics Managing crisis / lessons learnt De risking supply chain Sourcing Implications Manufacturing implication Product portfolio re-evaluation Looking into the Future

3. Pandemic - The Perfect Storm

4. Pandemic- how it played out- 1 ‘Just in time’ model challenged: Time tested, widely adopted model for better working capital management Created by Toyota, followed by Japanese companies in 70s; globally adopted as a business ‘best practise’ Lean raw material….order only when needed…..manufacture and supply to customer just in time Successful model during the normal times But what happened to time tested ‘Just in time’ model during the pandemic?

5. Pandemic- how it played out- 2 Supply disruption: Raw material shortages Product requires a large no of components Companies accustomed to global sourcing to minimize cost Even the smallest component could stop the product from being manufactured Industry Example : a raw material was essential for Instant Tea manufacture; China was the sole supplier; contingency plan initiated to revive local defunct suppliers at higher cost Production was disrupted Hurdles in travel to reach factory/ office Restriction in deployment of labour in factory Indsutry Example: Plant needed permission from District officials to be operate; restriction on space between workers on factory floor; constant contact with DMs office to ensure minimize production loss; Export unit got special permission; stepped up Outsourcing option to meet supply shortfall Business had to run under extreme uncertainties; daily review with business head. Business Reviews with CEO would begin by supply review

6. Pandemic- how it played out- 3 Shipping Crisis: Usual turnaround of Shipping containers affected Containers piled up in some ports – at customers end Shortage of containers – at suppliers end Consequent delays in supply of products Took a long time for this imbalance to be corrected Industry example: Shipments to US delayed due to shortage of containers Freight rate were up 3 – fold; had to pay for meeting customers’ orders Customer retention called for selective air freighting Sole suppliers to some customers Managing customer relationship a key challenge and focus during this crisis; Opportunity to build customer trust by stepping up to meet their demand- builds customer loyalty

7. Pandemic- how it played out- 4 Dramatically altered Demand dynamics: Demand went up instead of coming down Stocking up by customers due to uncertainties of future supplies Government cash dole-outs to citizens in developed economies leading to greater purchasing power by consumers Industry example: Customers orders in export markets went up significantly - especially US Limited supplies had to be ‘rationalized’ to ensure a more equitable supply to all customers vs meeting over-stocking requirements of a few customers. Managing customers expectations was a key challenge. Spike in current demand from customers also made it difficult to forecast future sales .

8. Pandemic- how it played out- 5 BULLWHIP effect set in - causing distortion in demand: In creased consumer demand leads to uncertainty of future demand- leading to creation of ‘buffer’ in each link in supply chain- retailer / distributor / manufacturer / supplier leading to excess stock build up

9. Managing crisis- lessons learnt “Crisis is an opportunity to do things that you think you could not do before”

10. Managing crisis / lessons learnt- 1 Do not count on Environment, Social & Political Stability (ESP) F ollow business instincts- not just a cost focused approach. Example : Political & Economic conflicts between US & China are leading to large manufacturers to re-examine their supply chain strategy using multiple suppliers across different regions

11. Managing Crisis / lessons learnt- 2 De Risk your Supply Chain: Diversify suppliers & manufacturing partners. Incorporate ‘Risk Management’ tool in Supply chain planning Sourcing to focus on better control over critical raw materials, take ownership of vital components Diversified sourcing of raw materials across different geographies Manufacturing: single large factory vs geographically dispersed Industry example: Tesla – designing and making its own Microchips A recent initiative by Apple- which one? Supply chain is not just sourcing of raw materials but involves all flow of goods and services that transform Raw material into Final product.

12. Managing Crisis / lessons learnt- 3 ‘ China + 1’ Strategy : ‘China +1’ coined way back in 2013; S trategy in which companies avoid investing only in China; diversify their businesses to alternative destinations. Why this strategy? Past 30 years Western countries have invested in China due to cheap labour and production costs Hence- c oncentration of business interests in China Pandemic + growing conflict between US leading to increased risk of overdependence on China & China Hence China + 1 strategy has gained momentum Pandemic & growing conflict between US & China driving the China +1 strategy

13. Managing Crisis / lessons learnt- 4 How much has India tapped into the ‘China + 1’ opportunity? India has huge potential to gain; large domestic market is a key strength Experts vary in their opinion of how well India has done so far. Parliamentary panel (Mar 2023) report suggests that India has not done as well as it should have so far Southeast Asian economies like Vietnam , Thailand, Cambodia & Malaysia are bigger beneficiaries due to lower labour cost, free trade access, and a growing market This is still being played out …….so India has an opportunity to catch up

14. Managing Crisis / lessons learnt- 5 Re-evaluation of Product portfolio Last few years has seen high degree of personalization of products (niche / highly personalized / ‘segment on one’ products) Low margin products with complex supply chain often lack a strategic purpose Implications: Eliminate some products Modify some products- simplify design, standardize constituent raw materials Build a more profitable but leaner portfolio Industry example: - business practise already exists - greater momentum expected post pandemic A sound Product portfolio strategy requires striking a balance between offering a wide range & over proliferation with low margin products.

15. Managing Crisis / lessons learnt- 6 Re-evaluation of Product portfolio Last few years has seen high degree of personalization of products (niche / highly personalized / ‘segment on one’ products) Low margin products with complex supply chain often lack a strategic purpose Implications: Eliminate some products Modify some products- simplify design, standardize constituent raw materials Build a more profitable but leaner portfolio Industry reference: - business practise already exists - greater momentum expected post pandemic A sound Product portfolio strategy requires striking a balance between offering a wide range & preventing over proliferation with low margin products.

16. Looking into the future- 1 Future Innovations in supply chain / manufacturing : We are likely to see further innovations in the way supply chain and manufacturing is organised given a more uncertain environment that we face today What could these be?? Nano factories: an interesting innovation: Unilever has invested in factories that can be dismantled and moved to locations wherever need arises Suitable for new age E Commerce / Digital channels that require high assortment but less scale Can space exploration add a new dimension: there is diversity of raw materials on moon; could mining of space resources become a reality? – these are areas that are being explored What else could we see in the future? …..would be an interesting area to explore Supply chain was considered a relatively un-exciting function earlier; pandemic brought this to the forefront. Given the current geopolitical situation, we can expect more challenges ahead. The future of supply chain certainly appears both challenging & exciting .

17. Looking into the future : Climate Change The pandemic induced Supply Chain Crisis gave the world a glimpse of what a climate crisis would look like if left unchecked. A global climate catastrophe can dwarf the impacts of the pandemic. Its consequences will be felt especially by developing countries that are already suffering far greater economic losses when compared to high income countries due to climate related disasters. This calls for an approach of Sustainable manufacturing & Supply chain strategy to be adopted by the business. Businesses have a responsibility to manage profit in a responsible manner while caring for the environment

18. We must make sure the future is not this :)