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Value Chain Conundrum: New Risks and Bottlenecks

By Anchal Jain

1. MUST IN TIME inventory will replace the Just in Time philosophy. Companies will pay a premium to de-risk supplies. Increasing inventory norms will be considered strategic investment and no longer unnecessary blocking of working capital. Suppliers close to the manufacturing locations will get a preference, even if they cost more.

2. MIGRANT LABOR WILL PREFER WORKING CLOSE TO HOME. This labor will hesitate to come back without more security and better living conditions. Shortage of labor and increase in wages in cities will force some companies to shift their entire or a part of manufacturing operations to locations where the migrant labor now live. Other companies will find it more attractive to reduce their manpower requirement through rapid digitization and mechanization.

3. RURAL ARTISANAL SUPPLY CHAINS WILL GET A BOOST. With more migrant labour going back to roots, the desire to find alternate local employment or vocation will open opportunities for serious brands to support them wholeheartedly. Make from home in a rural setting is an attractive, de-risked value chain to build on especially if the backward chain is all local to that.

4. DIGITAL SUPPLY NETWORKS WILL IMPROVE SUPPLY CHAIN VISIBILITY. Manufacturers and suppliers will get digitally connected at all stages of the value chain for quick and transparent sharing of information such as inventory, production KPIs, transit details etc. Early warning signs will be picked up using real time information to prevent supply chain disruptions. Internet of things, artificial intelligence, robotics, 5G will prepare the digital supply network to respond faster and better during future Covid like unexpected situations.

5. CHINA WILL LOSE ITS COMPETITIVE ADVANTAGE. Companies will reduce their dependence on China. Local industries will get a boost. Benefits of global supply chain and economies of scale will regularly be weighed against reliability of supply chain. India will not be a natural beneficiary, we will have to earn it at enterprise level.

6. BACKSHORING OR GLOBAL TRADE? As we will see more companies bring back production to their own country, we will also see them continue sourcing or producing everywhere else. The difference is that cost will not be the only consideration anymore in making that choice. Buyers will travel far only for exceptional products. Those exporters engaged in producing vanilla products at a few cents less will need to think hard.

Disclaimer: The views expressed in this article are Val-More’s views only. Anchal is neither an economist nor an astrologer. However, besides having an ability to connect future dots, he is an eternal optimist always looking at the positives in human behavior in any difficult moment to come out stronger. Special mention of Manoj Kumar and Geetanjali Rastogi from the Val-More partner team for their contribution and challenges.

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