Members In The News

Indian Supply-Chain Sector Pivots for Profitability: ET-ILC Members

By October 8, 2020 No Comments


Across the world and in India, companies are reinventing crisis management mechanisms and remodeling supply chains. As per the Institute for Supply Chain Management, 39% of companies have faced a severe impact on their supply chain with a 22% reduction in target revenues. No country can any longer be dependent on a single source or supplier even as they find optimal ways for international collaboration.The pandemic has focused attention on fragile geopolitical stability and legacy systems that urgently needed a revamp.

All the underlying factors that affect the fundamentals of the economy, cement production, sales of commercial vehicles, infrastructure development and construction are all connected with road infrastructure and transportation, and issues that affect these, need to be tackled quickly.  “The road transport industry is one of the sectors most impacted by Covid-19. The restrictions imposed to control the pandemic, resulted in disruptions to supply chains and mobility networks and the overall economic slowdown,” says Raaja Kanwar, Chairman and MD, Apollo International.  Transport operator finances, revenue and cash flow, all need to be looked at carefully in this sector for it to gradually rebuild.

For strong supply chain firms with robust networks, the dip in business in the last six months has been not so much because of the inability to operate but because of the shutting down of non-essential manufacturing units. Having said that niggling issues of labour unavailability, inter-state travel hindrances due to different state policies, have posed substantial challenges. However, nimble and agile firms in the supply chain sector have effectively pivoted to keep the damage to a minimum. “We found a solution for those businesses by organizing specialized charter flights in and out of India, thus maintaining the supply chain and causing minimal disruption,” says Vaibhav Vohra, MD, Continental Carriers which is aiming to launch its own Air Freight Station shortly.

Just-in-time processes which were hailed as among the best in the operations world globally are being revaluated. Companies are building a larger inventory buffer to prevent supply chain disruptions. On the other hand, the pre-covid strategy of some  air and ocean asset players  building larger capacities for better  margins is also evolving. Profitability is now far more important than capacity. Firms like DSV, operating in the global transport and logistics space have in fact grown their year-on-year  India region revenues at 68% and gross profits at 50%.

“We have been able to achieve this success due to a few reasons. One is that we always try to maintain an above market growth rate. In addition to that the benefits of the Panalpina acquisition have started showing. We are seeing the value of catering to  new customers and businesses and a substantial increase in the freight rates. For us, pharmaceutical and chemical verticals have done well and fashion now is slowing picking up,” says Sameer Khatri, Regional Director – Indian Subcontinent & MD India, DSV.

For supply-chain firms catering to FMCG, the bullwhip effect created inefficiencies and disruptions in the early part of the lockdown. Now, both manufacturers and logistics companies have learnt to deal with them. “The lockdown, having led to a higher demand for essential items and a subdued demand in luxury items, retailers are faced with inventory exhaustion. Online delivery options have boomed and retailers are severely challenged on operating margins and models. Hoarding of essential items causes unnatural spikes in demand and supply fluctuations. The resultant bullwhip effect in the entire supply chain, led to artificial shortages,” says Raaja Kanwar.

Most supply-chain firms have been able to cater to this capacity starting in August. In addition to capacity building, each of them is focused on building a USP that can differentiate them from the rest. “ Apart from providing  transportation services of raw materials and inter-operational goods movement from one unit to another at 30 locations in India, we’re also supporting our clients with warehousing facilities; which forms an  integral part of the supply chain,” says P.Sundarraj, MD, Subham Freight Carriers India.

The upgradation of  warehouse management solutions is emphasized even by large manufacturers. “We’ve introduced a digitalized Warehouse Management System that will further improve stock accuracy and traceability, while reducing obsolescence by ensuring FIFO/shelf life monitoring. The upgraded WMS will also enable tracking of parts within the warehouse, including pre-defined storage locations, storage levels and optimization of material flow using advanced put-away and picking techniques,” says Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles (DICV).

DICV also created a  65 page manual of restart procedures with all the new health, hygiene and safety processes included to ensure a safe ramp up of production. Knowing that smaller companies wouldn’t have access to that kind of resource on their own, they made it accessible to their partners. Thus, the company which already has a 90% localization rate in India, used the supply-chain disruption in the March-September period to further strengthen its systems and relationships in the country.

Players that have focused on the well-being of their employees in addition to digitalization , have been most adept at getting operations to pre-Covid-19 levels. Brenntag, a global chemical distribution company with a large presence in India has provided its supply chain staff with furnished accommodation near the warehouse. They’ve also catered to the provision of daily amenities which has reduced the risk of getting infected and improved employee efficiency. Additionally, the company’s digital platform DigiB seamlessly transitioned them to a virtual way of working.

“The pandemic has changed the buying behavior of customers and is more pronounced in the retail segment. While customers in the industrial segment still resort to the traditional ways of procurement and supply, most customers have now realized the benefit of working with reliable partners who have strong QHSE norms and thereby ensure sustainability of business. During these times, consistent delivery of material which would prevent production stoppage is top priority,” says Balakrishna L, Managing Director, Brenntag.

During the lockdown, the government’s policy in terms of international travel has helped to make more air freight capacity available again. This was needed to meet the demand of exporters and importers. Now, supply chain companies are hoping to get certain waivers and concessions like moratorium extensions, waiver of interest, state tax waiver, Insurance waiver and toll tax waivers from the government. Other improvements in  supply chain management which include road and infrastructure facilities, reduced check posts and faster process related to e-payment will also be beneficial for the industry.

Important initiatives, such as the Air Freight Station policy or the digitalization of customs, were pushed back due to the pandemic. However, as business slowly returns to normal, industry insiders are hopeful the National Cargo Policy to make India a global logistics hub is well implemented. While all players are keen on the steps being taken by the government on self-reliance they believe that a parallel open-ecosystem will give local industries incentive to improve and be globally competitive. The sector is hopeful of regaining lost ground and functioning at an optimal level as demand resumes.



Leave a Reply