Virus disrupts supply chains

by April 6, 2020 0 comments

Organisations will have no choice but to redraw their sales and operations planning and adjust to the new realities

India is in a lockdown till April 14. Whether it will help us stop the exponential spike in Coronavirus cases, only time will tell. Meanwhile there is an economic challenge that is already unfolding. In the beginning of March, the only concern that corporates had was supply disruption, with critical centres in China, Italy and Korea being under lockdown. Now, the bigger concern is the consumer being grounded and the supply pipeline being strangled. While we can afford to lock down the whole population for some time, we still need to keep the consumer goods flowing at all times.

The first impact of the Coronavirus crisis was the explosion in demand for masks, sanitisers and hand-wash liquids. The availability of these items is still poor. People had already been stocking up on essential commodities since mid-March in anticipation of shortages and lockdowns. Prime Minister Narendra Modi’s announcement of a 21-day shut down sent people in a panic-buying frenzy. Not only did people order in excess online but they also made a run on the nearest grocery stores. Some sense of the panic buying can be gauged by the spike in sales of e-grocers just before the lockdown. Before the shut down, the average “basket value” on the Big Basket platform was around 20 per cent higher than regular days. The number of orders on Grofers was 45 per cent higher, while the average order value increased by 18 per cent.

However, as soon as the lockdown was imposed, the operations of e-grocers came to a grinding halt as all delivery centres and staff were required to get local permissions for offering essential services and the process was very slow. The first week of the shutdown allowed e-commerce firms to complete backlog deliveries. In the second week of the lockdown orders are still being accepted but with delayed delivery schedules.

Items such as food staples, comfort foods such as instant noodles and essential home and personal care products like toothpaste, soap, shampoo, dishwash liquids and so on, will continue to be in demand. There may be a little drop in demand for a while once the hoarders feel content with their precious stock and start consuming as per regular needs. The news is not so good for other categories though. Official data from China indicates that the lockdowns in January-February caused a 20.5 per cent fall in retail sales. Given how “conservative” data from China often is, this figure could be much higher.

Experts believe that consumer sentiment is already taking a hit in India as well. Fear of loss or fall in income and uncertainty over health and well-being is curbing all non-essential and discretionary spending. As the health crisis abates, hopefully in the next three months, we will be in a severe economic slowdown/recession which may last up to two years. Consumer sentiment will thus continue to be low for some time to come, for all non-essential purchases. Major categories affected will be apparel, home decor and furniture, electronics and appliances, sports goods and automobiles.

However, the immediate and most pronounced impact will be on retailing as under lockdown and self-imposed social distancing, we will continue to see an increase in online purchasing. The direct-to-home delivery channels (including online) may actually see some sort of permanent shift in their favour. For essential daily needs, the neighbourhood mom and pop convenience stores will continue to be vital. Open format supermarkets and hypermarkets will be major losers. This means companies will need to re-organise their distribution based on this new reality. As of now, even these channels are struggling because of overwhelming demand and restricted last-mile supply. The sudden nature of the shutdown has also created a lot of confusion on what is “essential” and what is not. The Delhi Government, in a notification dated March 26, listed all the e-commerce companies, diagnostic labs and couriers that would be allowed to make deliveries, after earlier notifications left ambiguity on who could operate essential services. In most States such uncertainties are still being cleared and ironed out.

The possibility of an extended lockdown in the current form has been ruled out by the Government. However, some shut-in measures will remain beyond April 14. Intermittent complete lockdowns in the coming months for two-three weeks cannot be ruled out either. The altered consumer behaviour and present last-mile and retail bottlenecks will also have a direct impact on distribution and transport. Hubs and distribution centres will be stuck with a lot of non-moving inventory and may in some cases also face shortage of space for in-demand items. Till March 29, truck movement was severely restricted till the Centre allowed highway movement of all commodities and not just essentials. Hopefully, this will ease the problems, though delays and bottlenecks may still remain for some time. One thing is for sure, this will completely disrupt the warehouse throughput. Some warehouses will starve for stocks as they do not receive supplies, while others will choke due to the inability to distribute goods. Before the lockdown, there was a small concern among consumer goods factories with raw materials/components coming from China and South Korea. Now as China is opening up, we have gone into a shutdown. As production re-starts, sourcing will be an issue as different nations go into lockdowns. On the demand side, the consumption downturn will pose different challenges. Organisations will have no choice but to redraw their sales and operations planning and adjust to the new realities. An important lesson that managers have learnt is to take supply chain risks more seriously.

(Writer: Meenal Jagtap Sharma / Sachin Jagtap; Courtesy: The Pioneer)

No Comments so far

Jump into a conversation

No Comments Yet!

You can be the one to start a conversation.

Your data will be safe!Your e-mail address will not be published. Also other data will not be shared with third person.