Logistics in Post-Pandemic India

 Modern businesses are built on the principle of specialization. Their finished products may often be consisted of critical components or sophisticated materials that require technological skills to make. For example, a car at the showroom floor is unthinkable without an AC, an   LCD panel or touch screen none of which is manufactured by the automotive company. Apart from these highly sophisticated products, other spares - from simple nuts-bolts to BSV1 compliant engine-parts- are sourced from SUPPLIERS specializing in their manufacturing. These suppliers could be spread in different parts of the country or even continents. Connecting the sourcing units to the manufacturer and the manufacturer to the end user is the important role the logistics & supply chain industry performs. Of late however, logistics industry is going through a phase of uncertainty. The supply shock that started in February last year in China was followed by a demand shock the world over as the global economy shut down, have exposed the sourcing units, manufacturing companies and the logistics, 3PL and supply chain partners to uncouth vulnerabilities.

In the years subsequent to economic depression in 2008-09, amidst widespread unemployment and rising inequality between rural poor and urban middle classes, populist regimes riding the nativist slogans came to power in many countries the world over. They centralized power to

·         Encourage domestic production to create employment

·         Imposed a tariff barrier (import substitution) making cross-border trade an expensive affair

Economic nationalism thus developed has resulted in a huge disequilibrium in demand and supply. Manufacturing companies, dependent as they are, on a variety of sourcing companies spread across the globe, will resort to procuring from domestic suppliers which often lack resources, and credit availability to scale up. This will escalate the product prices and at the same time quality could be questionable. Nonetheless, a vast consumer-base across nationalities, already exposed to the quality and efficiency of the products, would continue to look and demand the same. In the immediate to medium term, though, there would be pressure on the manufacturing to logistics companies to invest heavily in value-chain while being competitive at the same time. Easier said than done.

As we have seen since the late last year and what has come to be known as “Vaccine Nationalism,” a group of chemicals which are used for developing DNA and mRNA-based Covid-19 vaccines and DNA-based drug therapies are sourced mainly from China and South Korea. Because of rising nativism, many vaccine producing countries and companies have become vulnerable. This has disrupted the vaccine manufacturing, and India which used to source raw materials to manufacture vaccine for the world, is faced with an unprecedented crisis.

With localized lockdowns in the face of epidemic and devastating second wave that is ravaging India has put Indian logistics firms and 3pl players in a perilous position. Manufacturing units kept the machines running and when the lockdowns announced, they were caught unawares flush with a lot of inventory. There is a scarcity in demand especially for discretionary items and warehouses are full to the brim with little possibility of normal operations anytime soon. Whatever the pent up demand created last year after lockdown was lifted would be harder to come by this time around. Obviously, when it rains it pours.

3PL and logistics partners would be required investing big to stay in the game. To start with,

·         End-to-end logistics and integration of value chain across spectrum. Logistics companies  have to invest further in hub-and-spoke concentrically operating, to connect sourcing/supplying units with manufacturing plants and then to the consumer across board

·         With self-reliance in manufacturing a theme, tertiary and secondary units will be encouraged to build themselves around larger manufacturing plants. They will have little capacity to hold the inventory and would require a 3PL partner. How quickly the 3PL and express distribution partners will invest in and around manufacturing belts and SEZ areas would be able to reap the benefits

·         Technological innovations and finding a right balance between human force and automation would be another key element for 3PL & express distribution companies

·         Uncover and address hidden risks in operations and invest in creating human capital up for such exigencies in future.

Importantly, manufacturing, 3PL & distribution partners would be forced to innovate and move to decentralizing their facilities so that in exigencies, their other units are operational.

 

Source: https://www.reddit.com/user/safexpress1/comments/nhjth5/logistics_in_postpandemic_india/