Role of global supply chain management in India’s economic recovery in a post-Covid world

By Prof. Avijit Raychaudhuri

What is common among Ana del Valle, Mukhtar Ahmed, and Sylvia Goldsholl? They are centenarians and only a handful among the living populace who had witnessed the Spanish flu and have also beaten the Covid-19 virus. The Spanish flu pandemic is the only event in recent memory which compares in scale and devastation with the ongoing Covid-19 pandemic. Such has been the disruption throughout global supply chains caused by the pandemic that everyone seems to have suddenly become familiar with the term, if not experts on, supply chain management.

A different kind of disruption
Supply chain disruptions, irrespective of cause or scale, generally have temporary effects on businesses. Companies respond to disruptions by deploying either existing business continuity plans or ad hoc measures or a combination of both. In some cases, external intervention might also be required to tackle the disruptions. The intended outcome of such responses is generally to revert to business as usual at the end of the disruptions.

The ongoing pandemic is a supply chain disruption without a contemporary parallel. Unlike any other disruption, the cause of the pandemic – a virus – does not directly affect manufacturing facilities or distribution and sales channels. Instead, the highly contagious and potent virus afflicts humans at a rapid pace which eventually disrupts entire supply chains from sourcing through consumption stages.

India’s economic recovery will depend on how well we respond to temporal challenges
The very nature of the disruption caused by the Covid-19 pandemic indicates that economic recovery will also follow an uncharted path. India is among the worst affected nations with its economy expected to contract in FY21. Although a V-shaped recovery is what the nation hopes for, the reality is likely to be very different. For the sake of setting more pragmatic expectations, we need to take a look at the short-term and long-term factors that will affect India’s economic recovery.

In the short term, the economic recovery will be bumpy at best and will be driven primarily by agriculture, consumer products, and pharmaceuticals. Four factors will play a decisive role through FY22, assuming that the spread of the virus can be controlled by then. First, consumer demand has been decimated due to unfettered rise in Covid-19 infections, government and self-enforced lockdowns, and reduced average spending power due to layoffs and pay cuts. Hence the speed of recovery will depend on how quickly consumer demand increases, especially for discretionary items. Second, rising consumer demand also needs to be simultaneously accompanied by an increase in demand for capital goods. Third, with increasing variability of enforcing and easing of localised lockdowns, the pressure from the demand side exerted on the supply side will increase, pushing the already fragile supply chains to the brink of collapse. Hence only the companies which are able to generate positive cash flows without artificial support provided to their supply chains are likely to survive. Fourth, while some countries are witnessing a resurgence in coronavirus infections, India is yet to reach the first peak of infections. This essentially implies that India has not yet experienced the economic effects of the pandemic at its worst.

Clearly, enough supply chain risks and uncertainties exist at present which can quickly reverse any short-term recovery made by the Indian economy. A stable long-term recovery will be entirely predicated on how quickly effective vaccines are developed and distributed en masse. Development, production, and global distribution of new vaccines in record time is a supply chain management challenge which has not been encountered before on such a massive scale. Ironically, the only way to stop the global supply chain disruption is itself a global supply chain management problem of an unfamiliar nature, to say the least.

The pandemic is a catalyst in disguise for implementing supply chain innovations
Despite its devastating effects on businesses and societies, the pandemic can act as a catalyst for companies worldwide to rapidly innovate their business models to make their supply chains more agile and resilient to future disruptions. The primary enabler of this global revolution will be digital technologies. Fortunately, India has a copious supply of bright minds who are not only conversant with cutting-edge digital technologies but also highly adaptable to the ever-changing technological landscape. Furthermore, the Indian diaspora is one of the few ones who are omnipresent across the globe. They are a potentially extremely powerful medium through whom India can better understand global cultures of societies and businesses. The combined potential of India’s resident workforce and expats presents the nation with an incredible opportunity to play a huge part in redefining global operations in ways that would vastly improve both efficiency and responsiveness of businesses. This is also the best way that India’s economy will recover, stabilise, and grow in the post-Covid world.

India’s role in global supply chains
India needs to develop a robust long-term vision to establish itself as a major player in the global supply chain arena. It is important to note that among other trends that will be accelerated due to the pandemic, one will be the increase in protectionist policies around the world which may hurt global trade. With this in perspective, India should not only endeavor to improve its global trade relationships but should also work towards being the country of choice for the facilitation of trade as much as for trade itself. In other words, India needs to fashion itself as a hub for global supply chains.

To realise this vision, India needs to follow a four-pronged approach to supply chain management: (i) organising supply chains having local, regional, and national presence, (ii) inculcating a culture of transparency in supply chains, (iii) promoting social and environmental responsibility in supply chains, and (iv) making India a highly attractive business destination for companies having global operations.

The first of the four goals will probably be the most capital-intensive; but it is also the bare minimum required for extracting the maximum benefit out of the long-term vision of becoming a global supply chain hub. India is a country of family-run businesses, and hence supply chain management is often synonymous with informal management of personal networks. To connect and streamline these largely unorganised networks, extensive investments will be required in transportation and logistics infrastructure, telecom infrastructure, and digital connectivity. An organized and well-connected supply chain space will serve two purposes: first, it will connect the economies of Tier I cities and those beyond, thereby uplifting the Indian economy as a whole, and second, it will present a unified image of the Indian supply chain landscape, thereby increasing its appeal to global businesses.

With increased global scale of operations, developing pan-India connectivity must be accompanied by an increase in supply chain transparency. Digital technologies will obviously play a critical role in building and improving supply chain transparency. However, a more culturally nuanced challenge would be to get local businesses to participate in fast and accurate exchange of information among various supply chain entities. Increased transparency will foster greater local and regional participation in nationally connected supply networks, and also make India a more attractive destination for global businesses.

A revolution of such a scale in the Indian supply chain landscape will eventually lead to a cul-de-sac if responsible supply chain practices are not adopted in tandem with building pan-India connectivity. For a while now, global businesses have been taking cognizance of the importance of social and environmental responsibility, not only from an altruistic perspective but also as a way of generating long-term value and safeguarding against unforeseen disruptions which are beyond human control. The devastating Covid-19 pandemic – which was unforeseen at the beginning of 2020 – will only accelerate the adoption of responsible practices across global supply chains. So far, such practices in corporate India have primarily been adopted by some of the largest business entities. However, a connected supply chain landscape will require a much greater coordinated effort in ensuring responsibility across supply chains.

Finally, all these efforts need to be supported by the Indian government over a sustained period of time. Irrespective of how domestic and international politics might develop over the horizon of the next decade or so, the government of India should support the transformation of India into a major global supply chain hub. The government should facilitate policies which will create a highly conducive and reliable environment for global companies to conduct their businesses in the backdrop of the Indian supply chain landscape.

The honorable PM Narendra Modi addressed the nation on May 12th this year, wherein he announced a stimulus package for helping businesses survive the ongoing crisis and talked about the opportune moment for the nation presented by the crisis. For weeks (and probably months) following the speech, the country deliberated on the effective quantum of the relief package announced by PM Narendra Modi. On the contrary, I found the most remarkable aspect of his speech to be the emphasis on supply chain management. One would be hard-pressed to find instances wherein heads of states have in the past used the term supply chain in addresses to their nations as frequently as PM Modi did in his speech. India’s heart is in the right place. A long term stable economic recovery and growth will now depend on the clarity of the vision signaled by the PM, and the efficacy of its implementation.

(Avijit Raychaudhuri is Assistant Professor of Supply Chain and Operations Management at the Indian Institute of Management Udaipur. He is also the Chairperson of the IIM Udaipur PhD program. Prof. Raychaudhuri’s research interests span a wide gamut of issues related to supply chain management, including corporate sustainability and supply chain finance.)