Crisis Management due to Supply Chain disruptions for Commercial Agreements

Prior to COVID-19, we have been doing business with the help of normal supply chains running without disruptions, for various products and services.

Government Initiative includes Opening up trade and Price Controls

Prior to COVID 19, we have been doing business with the help of normal supply chains running without disruptions, for various products and services. It is very important to have a good supply chain because that brings down the cost of production and hence the goods get produced in a cyclical manner. The normal components of a normal supply chain include producers, vendors, warehouses, transportation companies, distribution centres, and retailers.

Supply chains include product development, marketing, operations, distribution networks, transport/logistic, finance and customer service. For all these to function in a proper manner, we generally  enter into Commercial Agreements with various types of entities and the obligations are all fulfilled in a time bound manner, as per the terms of the Agreement. This leads results in the smooth functioning of the supply chain network and the production targets are met since every logistic is taken care of and all planning/ execution is governed by the commercial contract.

The bizarre change in normal

However, with the COVID 19 Pandemic spreading its wings globally from early 2020, the normal scenario of supply chains has changed drastically. In India the Government went on a total 21 day lockdown on 22nd March 2020 in order to control the spread of the virus. The entry of COVID changed the normal scenario very drastically and the major challenges and problems faced were panic buying and shipping challenges in order to meet the increased demand. Thereafter, the biggest challenge for all companies was to make supply chains based on a variety of disruptions rather than just plain finances and honouring contractual commitments. 
 
It is now still a major issue with disruptions that lots of Commercial Agreements have not been fulfilled on time, in the last few months. A lot of of Companies are facing a lack of workforce due the new normal being social distancing, and hence are unable to fulfil all contractual obligations. Lack of man force affects, decision making on aspects like how to find a way out and this ultimately hapers said production.

All over our country, malls, factories and raw material manufacturing plants are inoperational thereby  causing a tremendous loss. As the profits dipped, a lot of companies started downsizing the work force and good examples of this are Zomato and Swiggy the food delivery companies. This was due to the fact that  the restaurants were closed and people were under a lockdown due to which  the demand for online delivery of food dipped tremendously cleading to a major layoff of staff. Moreover, the retained staff had to face salary cuts and pressures of keeping the supply chain working by following social distancing norms.

Company policies

With the lockdown being imposed and then being extended at intervals, companies were faced with a new challenge of finding a supply chain closer to the end consumer, since most of the raw materials would earlier come from China. The closure of International Flights led to a block in cheap raw material coming into India and we were left with no option but to look for something locally. Till such substitutes were found the contractual obligations suffered and supply chains were disrupted. For eg. with Social distancing being the new normal, technology had to be explored in such a way that the smooth functioning of various industries through Webcalls etc was made possible. As a result there was a sudden surge and demand for electronic goods but no supply of the same, since most of the raw materials for this would come from China or Korea. Companies saw changes in consumer behaviour patterns like remote learning and working, self-quarantining, online shopping, etc and the same is likely to be the new behaviour and pattern of consumer demand. Therefore, companies thriving upon the corporeal model have incurred heavy losses and are even facing  bankruptcy.
 
Government initiatives
 
With cheap raw materials blocked from coming into India due to the closure of the borders and flights, the Government decided to become more vocal about the local market and the “Make in India” ideology was shared
The Indian Government is also trying to promote Agriculture, which is India’s core competence by giving incentives on exporting Agricultural goods and processed foods to help revive the affected economy. . The time period for realization and repatriation of export proceeds for shipments before July 31 had been extended to 15 months in order to provide greater flexibility to exporters in negotiating the future export contracts with buyers abroad. Thus this strategy saw that “The Make In India” “initiative got this best opportunity to spread its wings.
 
With the sudden increase in demand for Pharmaceutical products like Masks, sanitizers and surgical gloves etc., the Government has introduced price control for Pharmaceutical products like sanitizers and masks, price fixation orders are also put on food grains, cotton, jute, oils & oil seeds, fertilizers and sugarcane. Under Section 3 of the Essential Commodities Act the Central Government has the power of issuing orders, which may provide for regulation or prohibition in the manner of production as well as the supply and distribution of any essential commodity. It may be noted that an order made under section 3 shall have effect notwithstanding anything inconsistent with any enactment other than the Act or any instrument having effect by virtue of any enactment other than this Act. The Government has started controlling the prices by listing many products as essential commodities and controlling the price surges. Some good examples of price control are the Supreme Court setting a cap of Rs 4,500 on RT-PCR testing. Further, the Delhi High Court has mandated that antibody kits be sold to the Indian Council for Medical Research at Rs 400.
 
Therefore, as we have seen, the above regulation  of prices and the opening up of domestic trade has benefitted the badly crippled Indian economy after thi unprecedented pandemic to a great extent. Hence, it’sindisputable that the central and state governments need to work in sync in order to help revive the economy as a whole. The best way is to open up more incentives for trade and manufacturing. The interest subvention scheme available for MSME exporters should be stretched to all exporters and export based manufacturing companies. On the other hand for import banks, there is a need to prioritise credit documents along with the provision  of special cash credit funding. India can make stronger efforts to expand its export basket, by concentrating on building Industries which can help create cheaper raw materials that can in turn boosts production and hence the subsequent export. This will help reduce costs of production and logistics of importing raw material to complete products needed for export. We should identify our potential in branching out agricultural products which present a good opportunity since it is our core competence. Therefore, it is definitely required that our government float a lot of incentives to help tide across this uncertain situation.