04 May, 2022
Author: Mr. Rajesh Khatri, Vice President, Passenger Vehicle Business Unit, Tata Motors
The impact of the Covid-19 pandemic on supply chains world-over has been profoundly disruptive, to say the least. Reeling under sudden lockdowns, fluctuations in demand and supply, logistics disruptions and shortages, the automotive industry was left in the deep end for over a year and is still recovering from the shock. Global semiconductor shortages continue to haunt the automotive industry even today. What the pandemic has taught us, above all else, is the need to entirely rethink our strategic objectives when it comes to supply chains.
Prior to the pandemic, most supply chains were focused on cost-optimization and throughput - the priority was to source parts at the lowest cost as quickly as possible. We weren't really thinking about flexibility or business continuity plans, or wondering, what if customer demands shift dramatically overnight? But post Covid-19, these questions have become central to supply chain management. As we venture into the future and plan for 2022 and beyond, it is time to reimagine our supply chain strategies to be FutuReady.
Covering bases-Fundamentals in supply chain planning
On a primary level, it is critical to ensure the supply chains we build function well according to some basic parameters. It is necessary, for instance, that we have complete visibility of our overall supply chain. We must view it across tiers, keeping in mind customer demands, technicalities of the procurement of raw materials, semi-finished goods, or components that go into our finished goods. The further we can go down and into the supply chain, the more effective we're going to be at planning our supply chain. Closely understanding manufacturing and warehouse processes, logistics, shipping, and third-party logistics can also present optimization opportunities. Further, a solid understanding of the cost structure at a unit level is very important to prevent sudden supplier breakdowns and can help organizations keep costs under check while maintaining steady margins, even allowing them to leverage supplier clusters to minimize cost.
Besides this, it is also necessary to diversify the supplier base. It is important that you ensure you have a plan B, a plan C, and backup vendors in case one vendor cannot meet your needs. This may reduce purchasing power with any one given supplier, but that might be a worthy trade-off while gaining flexibility, dependency, and reliability within your supply chain. Your existing suppliers must also be reliable. When determining supplier reliability, make sure you consider some questions like: Is it likely our suppliers will have to shut down or not run-in full capacity during a tumultuous time? Are they proactively collaborating with their supply chain on changes in demand, capacity requirements and other critical factors? Are they adequately staffed?
Ensuring business continuity with supply chain optimization
Once we have addressed our basics, we can optimize the supply chain in several ways. Consider for instance, ways in which you can simplify products and standardize parts. Overly complex products involving a large variety of materials makes the supply chain complex and prone to disruptions. Instead, procuring standard catalogue rather than product-specific parts can help maintain a lean supplier base - case in point: an application specific integrated circuit in the semiconductor industry. Another way to have a minimum disruption supply chain is optimizing logistics. Procuring parts locally instead of obtaining them across the globe can help mitigate geo-political risks.
Demand and supply planning can also be critical in enhancing efficiency in the supply chain. Companies that can align demand with supply gain an edge when compared with the rest. Since this delicate balance starts with the proactive management of demand, demand planning and forecasting acquires critical priority. Aligning with your customers' needs improves the customer experience, accelerates cash flow and brings profit to the bottom line. To understand demand fluctuations, keeping an ear to the ground and getting in touch with stakeholders (customers, sales staff and customer service representatives) can be fruitful. On the supply front, it is important to ensure capacity readiness, and retain agility and flexibility while delivering consistently as per demand.
On a broader level, it is also important that we learn to manage risks proactively, rather than reactively. While it is certainly impossible to predict black swan events like the pandemic, one can remain acutely aware of one's own vulnerabilities, especially vis-à-vis pressure areas in the supply chain. Instituting a comprehensive business continuity plan can prove invaluable in this regard, giving companies a systematic framework to anticipate risks and work towards mitigation. The moment risk is sensed from any sector, this BCP must be set in motion. This can play a crucial role in allowing the OEM to insure itself against long-term damage.
A vision for future - Digital, sustainable, productive
Ultimately, the supply chain networks of the future must incorporate the larger values of our transforming world. Advancement in online connectivity and digital technology has made itself apparent and has promising potential to revolutionize the functioning of supply chains. Digital tools (a supply chain control tower) can provide real-time data, predict trends, provide early warning signals, and closely track supply performance. At the same time, we must also remain in alignment with the global move towards sustainability. Supply chains must build roadmaps for achieving net zero emissions, water neutrality and full recyclability of materials in the next few decades.
Going forward, we must strive to build an agile, productive, resilient, digital and sustainable supply chain, driven by strategic business continuity plans and proactive risk management at the core.