Blockchain startup KoineArth tells how supply chains can emerge from coronavirus disruption
COVID-19 is the black swan event of this century. It has seen unprecedented sharing of information and subsequent healthcare collaboration between nations in all continents. There is a lesson here for supply chain professionals: deeper visibility and collaboration is critical to overcoming supply chain disruptions.
Disruptions often become catalysts for change. Digital supply chains have been on the horizon for some time now with enabling technologies like Blockchain, IoT, andAI.
"This is the right time for supply chain leaders to act; to leverage technology to transform their supply chains – not only to overcome the COVID-19 disruption but also to prepare for the future," says Praphul Chandra, Founder of KoineArth.
Founded three years ago, KoineArth works with large manufacturing companies in India to track, trace, and validate the authenticity of commodities and transactions.
There is a growing consensus on how supply chains need to evolve and KoineArth proposes three steps for supply chains to emerge during COVID-19 crisis:
1) Create transparency in multi-tier supply chains
The first step towards achieving supply chain resilience and responsiveness is getting visibility. Do you know who your suppliers' suppliers are? Are they in a high-impacted region? Are they in a conflict zone? Are the logistics routes between them operational?
"Organisations rarely have visibility into the operations and capacity beyond their first-tier suppliers. This lack of visibility translates to higher risk, and is the first bottleneck in achieving supply chain resilience," says Praphul.
According to Allianz’ Business Risk Report of 2014, 51 percent of supply chain disruptions originate with Tier-II and Tier-III suppliers.
Understanding the risk and resilience of a supply chain requires information about total product revenues linked to specific supplier components, the degree to which key components are single-sourced, and the geopolitical and environmental risks associated with where a supplier operates and the financial robustness of the suppliers.
"Fortunately, technologies like Blockchain and IoT have the potential to dramatically improve visibility across the end-to-end supply chain," he adds.
KoineArth's product marketsN enable the creation of a digital twin of a supply network with just a few clicks. With real-time visibility of B2B transactions in the supply chain, silos between organisations in the supply chain are broken down and organisations become connected to their complete supply network. This enables end-to-end visibility, collaboration, agility, and optimisation.
2) Estimate Inventory & Demand - upstream & downstream
Most organisations know exactly how much inventory they hold, but very few know how much inventory is available in their upstream and downstream supply chain. How much inventory of spare parts components is available with suppliers? With distributors? How much capacity is available to fulfil a sudden increase or decrease in consumer demand? Is this change in demand likely?
"Traditional quantitative or statistical demand forecasting fails miserably in disruption scenarios since it takes past trends as input. But a disruption, by definition, is an abnormality – the past is not an indicator of what will happen after the disruption," says Praphul.
Expecting things to continue as before, where capacity planning is done internally and communicated to suppliers without a view of suppliers’ actual capacity, can backfire. This approach could lead to issues when it comes to resilience and responsiveness during times of crisis.
Supply chain visibility gives an insight into capacity constraints of the first-, second- and third-tier suppliers. By going further into supply chains, organisations can get a more complete profile of where components are coming from; whether existing inventory could be re-purposed for new production or if re-manufacturing with used stock could address supply issues. Such visibility is critical when evaluating the resilience of your supply chain and its ability to respond to disruptions.
"The primary challenge in enabling this is one of the right incentives rather than technical. Organisations rarely want to share their private data with other organisations. A supplier has no incentive to reveal his true capacity or inventory to his customer. A retailer has no incentive to reveal the demand he is seeing with the manufacturer," he explains.
KoineArth can create digital twins of supply chain and treat data as an asset. The data of inventory and demand can be exchanged between supply chain partners when the right incentive structures are put in place. Its product marketsN allow such incentives to be realised in terms of discounts, the share of the business,or pure monetary incentives. Availability of such data from suppliers, across all tiers, allows a real-time estimation of lead times and inventory levels. Trends in this data serve as an early-warning system for the interruption, and establish a recovery plan for critical suppliers by commodity.
3) Identify and secure capacity
Supply chain disruption is the time when one can plan, identify and secure capacity for when the demand picks up. It is hard to know exactly when this will happen. However, where possible, long-term contracts to secure capacity in the supply chain can benefit the manufacturer as well as the supplier.
For manufacturers, guaranteeing capacity is a way to ensure revenue from its customers when the demand picks up. "For the supplier, this is guaranteed revenue which can help it secure loans and tide over financial liquidity," says Praphul.
In the current COVID-19 situation, logistics contracts may especially benefit from such an approach. When manufacturers look to ramp up production and makeup for the lost time in their supply chains, pre-booked logistics capacity will keep costs in control, and enable priority access to logistics.
The challenge, of course, is the risk-reward trade-off of such strategies. What happens if demand does not pick up in time and booked capacity is not utilised? What if the supplier backtracks on the contract and does not deliver the promised capacity? Negotiated contracts must have clauses for such scenarios where risk and reward of both parties are balanced.
(Edited by Kanishk Singh)
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