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From a ‘just in time’ to ‘just in case’ supply chain in a post-Covid world

Karan Singh | Updated on August 29, 2020 Published on August 28, 2020

Delivery models will be built on self-reliant and robust value chains

The Covid-19 pandemic has drawn comparisons with various colossal events that became pivotal moments in history. Given the relative proximity of the ongoing crisis, World War II comes closest. Like it did then, this crisis has raised several questions against accepted norms that govern the modern world.

In the last few decades, goods with high value were manufactured in a competitive market, taking advantage of low cost of labour and materials. Aided by technology, this global network became highly efficient and the central mantra echoed by large companies was “just in time” — optimising inventory, maximising cash flow and profitability. However, with the prolonged Covid-19 pandemic, supply chains will stay disrupted, compelling companies to revisit their strategy and shift away from a ‘just in time’ to a ‘just in case’ model.

Consider the impact of this disorder on the pharmaceuticals industry. The current health crisis has amplified the need for safe and affordable medicine, an essential commodity even during normal times. From sourcing raw materials to manufacturing and distribution of drugs, traditional business fundamentals have fallen short, to meet the public health outcry. So, it is obvious that in the post-Covid era, we will see a rise in new delivery models built on a robust and self-reliant value chain.

Currently, the combination of lean production and multiple global networks is leading to supply issues. Companies need to plan for ‘just in case’ vendors and partners over and above, ‘just in time’ ones.

Particularly in pharmaceuticals, where the chain of regulations extends all the way to the last supplier, a diverse set of vendors from different geographies are key to hedging risks in case of similar incidents. Large companies are also expected to work with smaller supply chain partners in various regions, rather than pursuing devaluation approaches that destroy the chain altogether. In the medium term, this will allow companies to have contractors locally or regionally.

As the industry recovers, players will need to adopt innovative approaches to manage uncertainties and risks. This will require the deployment of predictive models to help visualise multiple scenarios and conduct ‘what-if’ analysis on several parameters. This includes anticipating changes in demand, identifying risks and dependencies in the supply chain, and being able to plan input requirements and production schedules in such dynamic scenarios.

Tech edge to manufacturing

Manufacturing value chains, particularly in the pharma sector, have a long gestation time. Investing in advanced manufacturing technologies can help unlock value from within by enhancing productivity and reducing waste through digitisation and automation. Additionally, by using concepts such as Industry 4.0 and technologies like IoT and Blockchain, companies can enhance quality control and ensure regulatory compliance — two issues that have plagued Indian pharma for some time.

India accounts for about 10 per cent of the world’s pharmaceutical production by volume, but only 1.5 per cent by value. This crisis also presents Indian pharma with an opportunity to go beyond generic drugs, to become a reliable supplier in the specialty segment.

This time is to not only be future-proof from such shocks but also realise its unfulfilled potential. While the industry re-imagines its operational philosophy, it needs a nurturing ecosystem led by the government in order to make a prominent mark in the global rung. Moreover, the government and regulators have a huge role to play in managing IP and, advancing innovation and R&D.

As global markets consider de-risking strategies, Indian pharma must proactively become more agile and resilient to emerge as the true ‘pharmacy of the world’ both in quantity and quality of medicines, starting from building its manufacturing capabilities.

As we look ahead with cautious optimism, the way forward can be summed up by something Henry Ford wrote, “The remains of the old must be decently laid away, the path of the new prepared. That is the difference between revolution and progress”.

The writer is Managing Director, ACG. Views are personal

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Published on August 28, 2020
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