CELERITY SUPPLY CHAIN TRIBE SEPTEMBER 2022 by Celerity Supply Chain Tribe

INSIDE Captivating Insights from the Visionaries  Food retail veteran Mr. Yogesh Bellani on leadership and the road ahead for startups  Lt. Gen. Balbir Singh Sandhu on managing the toughest supply chain –the Army SUPPLYCHAINTRIBE.COM September 2022 Volume 6 Issue 5 For private circulation only ARE SUPPLY CHAINS READY FOR DIRECT TO CONSUMER (D2C) BEHEMOTH? New age D2C brands lead the winds of change with exceptional supply chain as the fulcrum

Keynote Speaker

Shri Niraj

Verma - Group General Manager - Opera�ons & Business Development and CPRO at Dedicated Freight Corridor Corpora�on of India Ltd

In the last couple of years, Direct-to-Consumer model has been gaining traction and digital first brands are having a dream run in India. Largely driven by Tier-II, III and IV cities, or what is called Bharat, these fast-emerging D2C brands stand out from the crowd due to a supply chain, that is not only agile, flexible, real-time, and responsive, but is also able to augment consumer shopping & delivery experience. Our recently hosted webinar, ‘Demand driven Direct-to-Consumer (D2C) Supply Chain’, unraveled multi-faceted answers to the pertinent question, Is Supply Chain Ready for the D2C Behemoth? September 2022

The views expressed here are solely those of the author in his private/professional capacity and do not in any way represent the views of the publisher. All trademarks, products, pictures, copyrights, registered marks, patents, logos, holograms and names belong to the respective owners. The publication will entertain no claims on the above.

Food retail veteran Yogesh Bellani, Founder, Uttishta Partners, stresses that as long as companies are able to bring relevant differentiation in their products, and are able to tell their story in an effective & engaging manner, they will be in the game.

Shobhit Jain, Industry Leader (Retail and Wholesale Distribution) - EMEA South, SAP, offers a 10-point agenda that can help organizations in their endeavor to build a ‘Best Run Supply Chain’.

Editor:

Creating Relevance & Differentiation through Unique Brands

INDIA-UAE CEPA: A New Opportunity to Explore & Flourish

In Pursuit of a BEST RUN Supply Chain

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DISCLAIMER: This magazine is being published on the condition and understanding that the information, comments and views it contains are merely for guidance and reference and must not be taken as having the authority of, or being binding in any way on, the author, editors, publishers who do not take any responsibility whatsoever for any loss, damage or distress to any person on account of any action taken or not taken on the basis of this publication. Despite all the care taken, errors or omissions may have crept inadvertently into this publication. The publisher shall be obliged if any such error or omission is brought to her notice for possible correction in the next edition.

CONTENTS September 2022 Volume 6 Issue 5

Our recently conducted webinar offered insights into all the intriguing aspects that emphasize the importance of this agreement and prepare Indian companies to explore newer opportunities… During WAR, there’s no Room for FAILURE in SCM

Lt Gen Balbir Singh Sandhu shares the experiences & expertise of managing the toughest supply chain – the Army and achieving an arduous feat.

Finance and Supply Chains –THE PERFECT MATCH Clive Webb, Head – Business Management, ACCA Professional Insights Team, presents the synchrony that finance & supply chain have in common and how can they work together to bring Greater Good for companies.

No part of this publication can be reproduced or transmitted in any form or by any means, without prior permission of the publisher. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only. Prerna Lodaya Is the Supply Chain Ready for Direct to Consumer (D2C) Behemoth?

www.supplychaintribe.comCharulata.bansal@celerityin.comPublisher

Printed by: Xposures, A 210, Byculla Service Industrial Estate, D K Cross Road, Byculla, Mumbai- 400027.

A Forward Outlook

India’s Foreign Trade Policy continues in its efforts to enhance India’s exports. The recently signed India UAE Comprehensive Economic Partnership Agreement (CEPA) is one such commitment. Our Webinar on India UAE CEPA offered insights for Indian companies to Leverage CEPA to increase their exports to UAE and via UAE. Read about it in our Special Report section. With these positive outlooks in business, let us drive forward with faith and speed, leaving behind the shadows of the pandemic.

Logistics Partner: Blue Dart Express Limited

Dear Readers, The ten days of Ganesh Chaturthi festival started on a larger scale this year with the religious fervour and excitement after two years of restrictions. May the God of ‘removing obstacles’ and ‘showering prosperity’ bless us all and the Indian economy. And in these auspicious times, we at Celerity announce that we will be monthly from this September 2022 issue onwards.

The D2C brands are showing tremendous growth in the retail ecosystem and the market is expected to grow to $60 Billion by 2027 growing at a 40%. To leverage this momentum, these companies need to invest in demand driven supply chain. Supply Chain Tribe hosted a Webinar on Demand driven D2C Supply Chain, with experts sharing first hand experiences, challenges, and tips. Read all about it in our Cover FoodStory. is another category which is showing an impressive level of technology driven innovations. Food retail veteran Yogesh Bellani shares his journey in the Food eco-system and his anticipation of the future.

Godspeed and Good Luck! Charulata Bansal

Published by Charulata Bansal on behalf of Celerity India Marketing Services

Edited by: Prerna Lodaya • e-mail: prerna.lodaya@celerityin.com

India remained the fastest growing economy. Start-up funding through private equity and venture capital investments continues for technology driven companies with FinTech, B2C/D2C and EdTech companies in the top three sectors, as per data released for 2021.

UNIQUE BRANDS Creating Relevance & Differentiation through

Talking of the F&B retail transition, I believe that multiple factors are at play.

During the initial days of the pandemic, no one had any idea as to how to keep the businesses running and even taking care of our people, be it family or employees.

About two years ago, it was board meeting of July 2019 that I asked Del Monte board to plan for a transition so that I can move on to newer opportunities after having served the business for over 13 years. I was the founding member and the first employee to start the Del Monte journey in India in January 2008. After having established Del Monte as one of the fastest growing Food & Beverages brand in India and having set up the business for a sustainable future, I decided that it was time to move on to more challenging opportunities. However, the turn of 2020 witnessed the worst human crisis in over a Century, and I had to delay the plans of moving out of the business. In October of 2021, post the second wave of Covid-19, I decided to move on, having already done succession planning for the business.Beginning 2022, I along with three of my former senior-colleagues, launched Uttishta Partners. Here, our mission is to bring in pedigree international brands and launch them in India through our unique business model. We understand the Indian retail and food services ecosystem well enough, our platform partners with international brands to cut their learning and growth curve. It is an innovative business model that is in equal parts challenging, inspiring and exciting for all of us. I am also enjoying my role as an advisory board member with some of the leading organizations in the food & consumer space and am actively investing in the start-up ecosystem with my experience to help strengthen and scale promising businesses.

With growing disposable incomes, greater awareness and willingness to try newer cuisines and experiences, the food & beverages sector is ripe for exponential growth.While at home, during lockdowns, people started experimenting with various cuisines, which further led to a huge spike in the organised food retail. The good news is that the out-ofhome food consumption is once again picking up, aiding the industry from the food services perspective. The last couple of years have only strengthened the organised food sector, which is an impressive feat.

What have been the crucial learnings during the tough times? We went through massive disruptions in the last two and half years. There were demand disruptions on the food services side. There were supply disruptions in terms of raw materials procurement. In such trying times, I believe the two biggest learnings for all of us have been Patience & Resilience. The pandemic has really tested our ability to get the best out of the worst times and stay afloat.

“Food is a mature category, which is adapting the New Normal exceptionally well. The key lies in creating the balance where businesses pivot and show agility in changing times. Companies that remain relevant will always be in a much better space to survive and succeed in tougher times. As long as companies are able to bring relevant differentiation in their products, are able to tell their story in an effective & engaging manner, they will be in the game,” stresses food retail veteran Yogesh Bellani, Founder, Uttishta Partners, during this exclusive interview.

On the one hand, there is a shift from unorganised to organised at a sector level, given the aftermath of the pandemic and a growing concern amongst consumers for both food safety and hygiene, on the other hand, India is at the inflection point from a Consumption Boom perspective.

After being a part of food & retail world for over two decades, you have taken the entrepreneurial trajectory. How do you see the landscape shaping up?

From the peoples’ perspective, it has been a great learning for all of us. We tried to maintain a balance of keeping our employees safe, keeping them emotionally & mentally healthy and keeping the business afloat. Compassion was one of the biggest factors, which we, at Del Mote stood our grounds firmly on, all throughout the pandemic. I am the most satisfied about one big decision of ensuring that there was no loss of job during these times. We were able to keep everyone secured. We created support structures that could help people in need. The key lies in creating

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With over two decades of rich and immersive Leadership experience in the food industry, Mr. Yogesh Bellani has a proven track record of starting, building and scaling-up consumer businesses. He has built two immensely successful businesses, Kohinoor Ready to Eat Foods (later acquired by McCormick, US) and Del Monte in India. Now on an entrepreneurial journey having launched Uttishta Partners to bring in international consumer brands to India, he is also an independent board member for leading consumer organizations. Passionate about Coaching & Mentoring startups, he serves on the Advisory Board of the Atal Incubation Centre at Birla Institute of Management, IIM Udaipur and is a Jury Member of the Hult Prize Foundation.

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The funding boom that we witnessed in the last couples of years has already started to cool down. The reality is striking home and the valuations are moderating. At the same time, the pandemic has brought with it different changes as far as consumer consumption

Today’s brands need to create their relevance in the market. They need to create that affection & stickiness for the brands with the consumers. I believe the problem statement remains the same. Today we are far more progressive from a stakeholder’s perspective. Government has become supportive to the startups and the recent structural changes, such as GST or PLI, have been the proof of the same. There are lot of positives that we can draw from the fact that it’s a far more conducive environment for the startups today – supply chain network, the desired infrastructure, social commerce, a transformative manufacturing landscape, business-friendly policies and to top it all, a great consumer appetite to try newer things. I truly believe in the India growth story that new age startups have much more to gain and serve the incredible Indian consumers. the balance where businesses pivot and show agility in changing times, and at the same time, keep the employees’ safety & happiness as priority because people are the ultimate asset for any organization’s sustenance. When organizations take the humane stance, the response you receive from your people is phenomenal. In fact, looking at the morale of our employees, our distributors & partners too responded in the same manner and the chain continued, which ultimately boosted the business sentiments and people’s spirits. To share, we were the fastest to get our factories started. Within close to 6 days of closure, we were back to production, all thanks to the equity we had established over the years with local authorities. Everyone was forthcoming to support us in the endeavour that we had taken upon ourselves. We ensured people safety during the production cycles. We needed to make sure that supplies don’t stop because food is the most important and the most basic necessity during these times. When we restarted the plant, we didn’t know what to produce because the supply lines were disrupted. We couldn’t even gauge the market demand dynamics. We activated all channels of retail to reach our consumers – from delivering directly to consumers to putting up mobile vans in residential townships or tying up with last mile delivery aggregators, etc., driven by a common purpose of keeping food supply lines running for our consumers, the team exceeded all expectations. While it was a challenge of a different magnitude, it brought with itself crucial learnings that will stay with us forever.

There are always two sides to the coin.

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Looking at the impressive growth, the business was acquired by McCormick at a meaningful & impressive valuation.

We were one of the fastest and the first ones to set up a state-of-the-art manufacturing plant, which was way ahead of its time in India. That allowed us to export to retailers & food brands to developed markets, countries that India traditionally never exported value added products to. That’s how we became the poster boys of the ready-to-eat industry.

Today, while food is a far more mature category, consumers are far more accessible & receptive to trying newer brands & products. The emergence of social media, D2C channels has further boosted the exposure of brands to Indian consumers. Such platforms are the great mediums for new brands to engage with their target audience, which was never the case earlier. Even when we started Del Monte, we used to struggle to have proper distribution channels. We had to build everything from scratch. Today the competition is much more, whereas a decade back, there used to be only a handful of brands. Now-a-days brands need to create their relevance in the market. They need to create that affection & stickiness for the brands with the consumers. I believe the problem statement remains the same. From a stakeholder’s perspective, we are far more progressive, today. Government has become supportive to the startups and organised sector, the recent structural changes, such as GST or PLI, have been the proof of the same. There are lot of positives that we can draw from the fact that it’s a highly conducive environment for the startups today – supply chain network, the desired infrastructure, social commerce, a transformative manufacturing landscape, businessfriendly policies and to top it all, a great consumer appetite to try newer products & experiences. Challenges will always be there from an operational point of view, but I truly believe in the Indian growth story, and that new age startups have much more to gain and serve the incredible Indian consumers.

You have built two immensely successful businesses, Kohinoor Ready to Eat Foods (later acquired by McCormick, US) and Del Monte in India. How challenging was it then and how do you see the scenario shaping up now? Starting up any business from scratch is never easy. There will always be battles to fight on a daily basis. Yes, the landscape has changed tremendously. When we started Kohinoor, it was an export-oriented business. We learnt about the product category and brought in technology to facilitate the business.

The post-pandemic era is starkly different that the pre-pandemic one. Has it been an easy way up for the budding entrepreneurs or is the road to growth getting tougher?

As I have mentioned earlier as well, the PLI scheme has been playing an enabling role in this regard. Indian food processing industry has been lagging in adopting advanced technologies. I believe with changing consumer dynamics and more premiumization, increased awareness on food safety & hygiene, a shift to organised trade from the consumers’ as well as the regulators’ perspective, the food industry is going through a shift of formalization. This will result in food industry moving up the value curve. Scheme such as PLI will aid in private capital formation, which will attract new technology, which will also allow Indian companies to participate in value-added food products both in the domestic and global markets. This will also enhance farmers’ income and ensure the sustainability of raw materials supply directly to food producers and processors.

Do you see any lacuna in the current academia? How can the corporates bridge this gap?

SCALE is envisioned to enhance our food processing industry’s brand equity among the global counterparts.

A lot of work is happening on the supply side from an enabling environment and infrastructure development point of view. Similarly, on the demand side, we are working towards positioning Indian food products as a credible and reliable supplier in the global value chain.

dynamics are concerned. Today health & wellness and food safety have become the top priority of people. Consumers have become more conscious about their choices, which is ultimately pushing brands and organisations to move up the health curve. The governing bodies, such as FSSAI are playing a crucial role in this. While online retail is coming down from its peak, its penetration has increased tremendously. The brick & mortar stores have started doing well as we are accepting and adapting the New Normal. The hybrid model of online & offline shopping is functioning seamlessly and has been reflecting great growth curve for all the companies. It’s a great space and time to venture into the entrepreneurial journey. Food is a mature category, which is pivoting and adapting the New Normal exceptionally well. Companies that go with the flow will always be in a much better space to survive and succeed in tougher times. As long as organisations are able to bring the differential aspect and the relevance in their offerings and are able to articulate their story in an effective manner, they will stay in the game. What’s your plan of action with Uttishta Partners? What’s your longterm strategy? Through Uttishta Partners, we are bringing in global brands to India through joint ventures. Given our experience of establishing consumer businesses & brands in India, me and few of my former colleagues have launched this venture. Through this, we intend to create a platform that will allow international brands to come to India and also enable promising domestic food brands to scale up. We are providing the necessary infrastructure, right from supply chain to marketing to go-to-market strategy, distribution infrastructure using advanced technology. Our vision for Uttishta is to be the most accessible and adaptable platform for brands to leverage the burgeoning food retail landscape.

You are on the advisory board of SupplyNote. Kindly share with us the potential you see in this fast-growing supply chain automation space? What are the USPs that made you be a part of this innovative startup? I think food supply chain automation is a very interesting subject, which is still at an infancy in India. For restaurants, cloud kitchens and other F&B businesses, a lot of cost solely goes into warehousing, inventory management and other infrastructural requirements. SupplyNote, a cloud based SAAS platform operating in the F&B domain, provides full stack supply chain management services including warehousing and eCommerce so that their clients can focus on the core business strategies. It provides a cloud-based procurement management suite with integrated e-commerce for restaurants, thus providing a precise solution that benefits the F&B industry to save up to 8-10% of the running cost. Additionally, it will be a great leveler for small restaurants who don’t have financial muscle for better sourcing. SupplyNote has been working relentlessly towards reinventing the way F&B outlets work in India and has exhibited tremendous growth so far. The brand has already grown over 3.5x by GTV in the last one year. Its technology has already benefitted over 5000 F&B businesses including buyers and suppliers. I am excited to work with a group of passionate young minds in revolutionising the F&B supply chain with my experience. The company envisions to become the backbone of the F&B supply chain by evolving into the one-stop solution for all supply chain needs – inventory, POS, and marketplace and this is precisely what brings us in sync to work forward and bridge the gap. We would like to get insights from you on the roadmap to grow the Indian Food Processing sector 10x in the next five years as you have been nominated to the Food Processing Task Force set up under the aegis of SCALE (Steering Committee for Advancing Local-value add and Exports).

Our vision matches and reflects the India consumption story. With the growing income prosperity, India is one of the fastest growing markets globally. We believe there are still many white spaces that brands can explore to expand & grow their business. We want these incredible food retail brands to make the most of these shifting sands of time through Uttishta Partners.

There is a greater need for exploring innovative ways to increase Local Value Add in critical sectors of Manufacturing amidst existing disruptions in the worldwide value chain. This will enhance the presence of India in emerging global value chains. The SCALE Committee is formed by the Ministry of Commerce and Industry has been working closely with the Department for Promotion of Industry and Internal Trade (DPIIT), under the guidance of the ministry. The entire premise of this is to boost competitiveness of the industry. Through this initiative, the intent is to enhance the ability of Indian companies to be competitive in the exports market.

There is no dearth of talent in India, what we need is a greater collaboration between industry and the academia. The more we work on bridging that gap, the more the

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What are the criteria or the skillsets that you look for in startups before investing?

I believe there is no secret sauce to success. All brands that make it big are brands that stay relevant to the consumers’ needs. As long as companies are solving problems in a manner that consumers are looking for, they will stay in the game and rule the market. Brands need to build trust among its consumers and trust is an outcome of consistently delivering on set expectations, at the same time, brands need to stay relevant to changing times by bringing about changes to their products & processes. Brands that consistently deliver and exceed the expectations of their consumers, are the ones that survive and sustain in the long run.

Up, Close & Personal

Passion, conviction and the uniqueness of the idea and quality of founders are the factors that must appeal me to invest in futuristic brands. There needs to be a merit in the idea. Idea needs to create a positive unit economics in the future. It needs to be a sustainable and profitable business. I believe in solving the never-heard-before problem statement through such future-forward brands. Most importantly, founders need to be driven by the ideas they present to us. While we will find many startups buzzing with idea, it is the Discipline that needs to be nurtured if they want to fructify their vision. They need to have Resilience if things don’t work as planned. In short, their mindset needs to be strong. One success mantra that you would like to share with supply chain leaders of tomorrow. Supply chain is an integral part of the value chain of any business and should not be seen as a silo. Supply chain leaders are true business leaders in their own ways. With the kind of uncertain environment that we live in at both the macro and micro level, supply chain leaders will need to wear many hats to manoeuvre their businesses through these tough times.

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academia works closely with the industry issues, the more the industry engages with the academia, it’s a circle of life. I am happy to see increased activity happening on this front. While the developed markets are far more advanced in building and sustaining such collaboration, we have taken that first step and things will only move up from hereon. There is greater emphasis on skill development.

Premier institutes are doing a wonderful job in terms of industry outreach and offering a promising launch pad to the young Indian talent. Incubation centers in association with NITI Aayog are being launched at various B-schools. It gives me great confidence that with the increased participation of all the stakeholders, things are only going to get better. What’s your take on the policy interventions for scaling startup ecosystem in the country? We all know that there has a greater thrust from the government on this front. What’s the ground reality and what’s your suggestion to the government authority to make it even more seamless? Being a part of the startup ecosystem, I can confidently vouch for the fact that there is plenty of support from all the stakeholders involved. This ecosystem will only blossom going forward.

What are the steps of creating a unique game changing brand and who better than you can decipher on them as we all know the success story of Kohinoor and Del Monte in India?

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Direct Consumerto Behemoth?(D2C) Is the Supply Chain Ready for In the post-pandemic retail era defined by ease of access and personalization, direct-to-consumer (D2C) is emerging as a business model that offers end-to-end customer service without the need for traditional intermediaries. If reports are to be believed, in India, the total addressable directto-consumer (D2C) market is expected to grow by over 15 times from 2015 to 2025. In 2020, the total addressable D2C market was valued at US$33.1 billion. By 2025, the total addressable D2C market is forecast to grow almost threefold and reach US$100 billion. There are various factors at play behind this impressive growth trajectory, which includes the e-commerce boom and the increasing demand for digital shopping experiences. What would set these fast emerging D2C brands to stand out from the crowd is an impeccable supply chain, that is not only agile, flexible, real-time, and responsive, but is also able to augment consumer shopping & delivery experience. Our recently hosted webinar, ‘Demand driven Direct-to-Consumer (D2C) Supply Chain’, unravelled multi-faceted answers to the pertinent question, Is Supply Chain Ready for the D2C Behemoth? Excerpts from the captivating webinar…

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What does D2C allow a business to do?

D2C is opening a new direct relationship between a manufacturer with direct consumer of product or services creating a more “personalised” experience. This “personalised” experience is the newfound mixture in the success for both consumers and industries. markets moved from Urban to Rural areas, the velocity of the customers started to reduce in-congregated areas to rural areas. That increased the velocity of shipments from a certain high-mid value to low-mid value. At the same time, the Channel (layered) structures were getting costly and B2B organisations wanted a reason to stop relying on individual dealers alone. Hence, ‘Directto-Consumer’ as a new form of physical logistics and then a monetization model was born. Then Covid-19 took over. It changed the way mankind started to deal with each other, our consumption styles changed, our buying habits changed. Covid brought in a ‘forced’ adoption of e-commerce in all sectors. That was the last straw in the B2B coffin!!! The rest is all in front of us. D2C or Direct-to-Consumer is the new engine of customer experience in the digital age and specifically of this century. By year 2000, the value chain (models) or distribution footprints in B2B were clearly defined: Manufacturers produced their goods, sold them into a network made up of intermediaries or wholesale dealers, who in turn, supplied to smaller dealers locally or to the end users. At the turn of the millennium, more and more companies focused on establishing online shops and therefore created an online sales strategy. From a customer’s point of view, as the generational cohort moved and new generation started to take over, the markets started to become more and more efficient, intelligent, and technologically matured at a young age. This further hastened the progress in the right direction.

D2C is a classic example of a new business Model whereby an organisation can profit more from the customer’s available data (Demand, Preference, Location, Consumption patterns) if an organisation is willing to invest in modern technology including harnessing the capabilities of their employees. It can create a new model, which is virtually non-replaceable for a long time since this is the future of all current value chain models. Applied correctly, D2C is a profitable sales strategy. When introducing D2C, great outcomes depend on using the right methodology, right process and optimum technology. For starters, a new D2C enterprise should continue to generate a new high-performance monetization channel without neglecting the B2B and B2C model. However, we must note that over next five years, we will see every available commodity and market will move to D2C model, regardless of any business dynamics or push backs.

If we focus on India, we are riding a huge new wave & opportunity. Which are the big / new shaping trends that will drive this massive growth forward? The D2C transition was always on the cards even before Covid-19 came into picture. We just needed some movement or a sentinel to make it more pronounced. It is considered that in next 3-4 years, India will become US$100 billion consumer’s market. The momentum is evident with VC funding, multiple consolidations, IPOs, dynamic market reactions in recent times. These What is Direct to Consumer and why is it termed as new may be different?

From a customer’s point of view, would a customer be common to both D2C and B2C?

The traditional B2B sales channels remained intact for a while but not long. Influenced by increasingly strong international competition with digital customer experience strategies, the demands on B2B companies increased, and so did the cost structure as well as expectations from the customers. As

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What is the speciality of D2C?

SANJAY DESAI Co-founder & Regional Director, Humana International (S) Pte Ltd.

Regardless of whether it is a D2C or B2C model, a customer can be the same. The difference in the two models being, in a D2C business model, almost all middlemen are fully eliminated, and the manufacturing or mainstream organisation ships the products direct to customer without the presence of the traditional Channel partners. The illustration on the next page explains this phenomenon very well.

How do you foresee the future of D2C?

D2C is here to stay and stay for a long time than what we all can anticipate. It is opening a new direct relationship between a marketer (or a manufacturer) with direct consumer of product or services creating a more “personalised” experience. This “personalised” experience is the newfound mixture in the success for both consumers and industries. D2C is not some “magic bullet” that will automatically spur any business to greatness. In fact, implementing the D2C model without really knowing what the minimum requirements are, is a short-cut to burn cost, efforts, time and people’s passion. May be in the next two decades, the patterns of success in D2C will change, there will be new maturity angles, Performance KPI will drastically change and define success. And the Bell Curve will start shifting. It is also possible that we may go back to a reverse journey of entering offline retail of a different nature. Today, we have new entrants (Mamaearth, Sugar Cosmetics) who are tapping into physical retailing formats, further strengthening brand visibility, experience, and reach.

events do indicate that the Indian D2C ecosystem is boiling at an inflexion point of rapid growth driven by the seismic move to online & growing social media consumption. Some of the major trends that will re-shape the D2C markets in India are… b Access to affordable internet data and smartphones on a larger scale of society b Growing middle class with appetite to spend money on technology is enormous b A slow and definitive shift from Joint Family system to Nuclear / small family b Rise of individualism / buying smaller units for self only, no more family shopping b Young consumers experimenting across categories, retailers, promotions leaving brand loyalty out of the window b Accentuated focus on wellness, hygiene, nutrition, and sustainability in a new way. Clearly, there is a great potential, but is success a given for enterprises? What are the minimum “Must haves” that an enterprise must address? While the potential is huge and consistent, it is not given or simple. If an enterprise wants to go down the path of moving to D2C model, they need to study the underlying risk and opportunities, the ecosystem, the commodities that they deal in and how the Regional or Local trade sentiment is moving along. Beside the normal “must haves” like Vision / Mission / Purpose / Brand building / Talent, enterprise needs to think a bit beyond and peel the layers to understand what it would take to find success in D2C model. There are few important elements that enterprises need to chart as they embark the D2C journey. Let us see a bfew…Objective /outcome of D2C Channel: Consumer insights great experience, brand building, sales management, scale strategy from Urban to Rural b Product to be marketed: Optimised product offering, understanding unit economics, regulation to enter a market, addressable market, margins, and potential in future b Product mix & pricing strategy: Right mix of portfolio, Consumer benefits, differentiated pricing market segmentation, rational for mid and premium range b Technology and payment: Payment gateways, 3P payment systems, CRM support for order entry / product in/ out accounting b Cost management: Storage, freight, packing, FOC, seasonal upsells, returns management b Sustainable approach: Use subscription model, SEO campaigns, celebrity influences How critical is the role of information technology in D2C business model? Within D2C, modern information technology and digitalization play pivotal roles. The main focus is to support the company’s internal digital and e-commerce strategy with an optimized piece of technology. In doing so, special attention must be paid to the scalability, reliability, and time-to-market efficiency of the shop solution. Technology allows manufacturers/ wholesalers gain greater visibility into their data. The entrepreneurs must remember to strike a balance between technological investments alone v/s a combined focused investment on all three fronts – People, Process and Tools. Transformation is NOT about Technology. It is more about People than anything. Furthermore, it is essential that the technology is flexibly adjustable and expandable. After all, customers’ behaviours and expectations will constantly change, as are the demands on technology. Here are some of the major benefits of a Tech based approach to your business… b Helps the platform to reach its full potential b Seamless integration of order taking to customer POD b Enables end-to-end value chain operations including providing E2E network visibility b Helps to create ‘Returns’ as an alternate line of revenue

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What’s a D2C model, according to you? The D2C model is all about having an end-to-end control over the entire customer experience. A D2C company doesn’t have any middlemen between the company and its end customers, and they can reach them directly, be it offline or online. This has traditionally been the case with the fashion Industry with companies like Levi’s or Lee who have been selling directly through their stores and also through multi-brand outlets.

Supply chain professionals have been enamored with 'Just In Time' model, but there are some good aspects in the agile supply chain model as well, where, if we are able to correctly identify the safety stock, inventory turn, and the right reorder point, be it variable schedule, achieving serviceability of 90%+ is possible. Even for a model with 10-15 minutes/day over hundreds of different pin codes, it is something that can be accomplished effortlessly and is also extremely sustainable in nature. I've seen a couple of firms in the past where teams were significantly reliant on demand prediction accuracy, where teams wanted to push above 95-98%, taking a huge risk, especially in the opportunity scenario.

For example, if you have a larger event and some unforeseen circumstances may disrupt your forecast accuracy, at that point in time, inventory visibility makes more sense than identifying the right KPIs at every level of the supply chain and maintaining those KPIs and serviceability as well, everywhere, rather than just at individual nodes in the supply chain. What are the challenges, do you foresee for startups in a D2C delivery model because you need to be agile and you should have a supply chain model, which will cater to unit rather than a box, also be able to be quick and turn around things faster?

Secondly, one needs to also have a proper S&OP in place as we cannot really adopt the enterprise supply chain, which might make sense for big companies like Unilever or Marico where an S&OP cycle would really take 40—45 days. A D2C company, which needs to be agile, cannot really follow the same process. While having a mix of B2B and D2C business, you also need to have accountability in place. S&OP is very much needed. We can implement all sorts of tech here, but that tech will not really be of much use if their backbone isn't there to really take that forward or run it on an ongoing basis itself. Of course, startups don't need the muscle and strength like big players, but they still need backbone to handle that entire strength as well.

How can companies optimize inventory management to reduce D2C supply chain variabilities?

How critical inventory visibility is from a D2C perspective; whether it is really undervalued in day-today operations?

In B2B too, direct sales do happen. For instance, in previous experience with the oil & gas companies, a lot of sales used to happen directly between companies themselves. So, companies would directly work with the drillers. Even in the machinery segment, companies directly sell to their consumers along with having a distributor network. It is possible in all aspects.

The entire beauty of doing inventory management lies between finding a right demand forecasting model to identify inefficiencies and inaccuracies in the demand forecast and then try to compensate that with having the right safety stock, having the right reorder point in place. All of these factors comprise the inventory turn, whether it is growth prediction or SLA requirement, because attempting to increase or decrease

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RAHUL VISHWAKARMA Co-founder & CEO, Crest The entire beauty of doing inventory management lies between finding a right demand forecasting model to identify inefficiencies and inaccuracies in the demand forecast and then try to compensate that with having the right safety stock, having the right reorder point in place.

One of the bigger challenges is not having the right person accountable for a lot of the processes. Of course, tech is needed, but tech along with people, is also very much needed especially until three years or so ago, there weren't a lot of consumer focused startups coming up who wanted to grow very fast but given how, for instance, Mamaearth and Sugar, paved the way and became inspiration for many forward-looking brands and even for businesses, which are importing and selling, one needs to have a system in place, which is tracking each and every step in supply chain.

What’s your take on the importance of demand forecasting in D2C? More than demand forecasting, it’s the balance between forecast accuracy, safety stock and the inventory turn in itself. Demand forecasting, after a certain point, has diminishing returns. Even if you can go beyond 80% accuracy, you cannot really reduce or cut down on your safety stock. So, after a certain point, I don’t think demand forecast accuracy adds a lot of value.

But in today’s changing paradigms, sales happen through the companies’ own websites as well. Does it necessarily need to be a consumer product or can a B2B product be considered as D2C?

Inventory visibility, along with creating your pipeline, ensures that at every stage, companies have a running assembly line of supply chain, be it same day versus a 10-20 minute delivery or even 2 day delivery. Visibility enables companies to define their hierarchy of supply chain in a way that every step has its own buffer, including the pipeline, so that they are able to replenish time and again.

any of these parameters will result in massive inefficiencies in the system in managing the complicated supply chain. D2C is all about creating a common rulebased engine for either safety stock or determining the best reorder point; it should be SKU and location specific, and it should be reviewed on every cycle. A better inventory management model should include elements of trial & error as well as forecasting.

HEMANT KEJRIWAL VP – Supply Chain & Operations, Sugar Cosmetics Winners in this game will be the D2C brands who can stand out of the crowd and are able to convince investors to give them the money to push the product in the offline channel, where the biggest part of ‘Bharat’ still shops.

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Contrast that with D2C brand that has precious data about their loyal end customers who are most likely to use the new product. It can directly talk to them to get feedback. Today there are homegrown brands, which are just making a few hundred pieces, put it out in front of the customer for feedback on the pricing, packaging, positioning & keep tweaking it till they find the right product-market fit, or even take a decision to kill it – much faster and at a much lower cost. Which is great! This has allowed entrepreneurs to start small and paved the way for so many innovative products & brands to reach the consumers and create value for everyone. Having said that, a low barrier to entry has also made the markets crowded and highly competitive. I don’t see this trend slowing down in the near future. Brands and products are getting added every day, which is good for the consumer but, raises the bar for the brand. It shifts the goalpost from a great product to great distribution.

For example, even Sugar started as a D2C brand, but is now an omni-channel player with a massive field force to sell offline – through our 100+ exclusive brand outlets across the country, counters at departmental stores and malls, and through 1000s of small beauty outlets on the high streets, through hundreds of stockists & distributors appointed across the country. So, we are, in a way, playing the same old traditional game. Yes, it takes deep pockets to venture offline. So, the winners in this game will be the D2C brands who can stand out of the crowd, and hence are able to convince investors to give them the money to push the product in the offline channel, where the biggest part of ‘Bharat’ still shops – at least for the next 7-8 years as I see it, if not more.Looking ahead, they will have to understand the salient features of each channel and learn to leverage the strengths of each. For example, from our experience, even within cosmetics, we have products and shades that sell only offline and some which sell only online, but not so well at the retail outlets. Then there are other business needs such as liquidation of aging & slow moving inventory. Traditionally, when D2C did not exist, it was very difficult to manage liquidation of stock because of revenue leakage. Now, we have the option to offer deep discounts online, and sell off slow moving stock in a very controlled manner. In summary, I think that as a D2C brand succeeds online & with its EBOs, it must and it will venture into multi-brand outlets offline, become omni-channel. Winners will emerge from the companies who can actually play the omni-channel game really well.

How have you seen the D2C space evolve in the last 5 to 6 years and how do you see this playing out in the future?

How do you manage the Liquidity of the slow moving and obsolete inventory? One thing we must always keep track of is the age of the inventory using the appropriate technology and keeping the pipeline intact. There are definitely new age-solutions that can help predict the slowness or obsolescence of inventory. Keeping track of that can help businesses prepare 3-4 months in advance. Once you have that, you can also go into deep discounting via the D2C channel. That way, you can definitely liquidate the majority of stock that will become obsolete.

Is supply chain for D2C different from traditional methods and what are the challenges that you are facing? Yes. The two channels, while not entirely different, have significant differences and are unique in their own way. Let me try to explain it with what I have seen at Sugar. In the beauty business, whether you are selling colour cosmetics or perfumes, you need to have testers to avail customers of try & buy option. But you are not expected to send testers to online shoppers. You use photos,

To get a perspective on this space, let us divide it into two parts – Product and Distribution. The single most important thing that the D2C channel has done is that it has reduced the friction at several points – from the time a product is conceived till it finally reaches the customer. If a traditional, non-D2C company wants to bring a product to the market, it needs to conduct surveys with focused groups, manufacture a big batch of tens of thousands of pieces, carefully select a few areas in which it needs to be piloted, extend credit to the distribution channel, educate the sales team & the retailers, allocate advertising & marketing budgets for local activation, etc, and then track its progress carefully of the next several weeks. It is a pretty time consuming and expensive exercise.

What are the things one must do to plan inventory better? This, I think, is a very big piece with several moving parts. So instead of trying to cover it all, I would like to just re-emphasize some very basic principles which, I have seen very often, we tend to lose focus on. Why do we stock inventory?

An out-of-stock situation is not always a crime. It depends upon what product you are dealing with. If you are dealing with something like F&V where margins & shelf life – both are very low, overstocking will potentially hurt your bottom line far more than being out of stock. The first and the most sensible thing to do is to not take very big blind bets.

Inventory is nothing but a hedge against loss of business due to a stock-out. If we lived in a world where everything would be delivered to us next day, why would we build big warehouses & keep months of inventory? Keeping that in mind, one has to always optimize between the cost of a stock-out versus cost of overstock.

Option 1: Outsource nothing – I build my own infrastructure and run the day to day operation myself. Option 2: I own the infrastructure but let somebody else run the day to day operation, or vice versa.

infographics, explainer videos to do the job of testers. From the supply chain point of view, what that means is if you sell only online, you stock 500 SKUs. But if you also sell offline, you need to manage 1000 SKUs (500 saleables + 500 testers).Secondly, a pure play D2C company may be processing tens of thousands of orders, but each order is very small, for example, 4 pieces per order on average. So, the product development team of this company needs to think of only single pieces. They do not need to develop bulk packs. Further, an order for a customer almost never exceeds one box, and even that must be designed to impress the customer and build the brand. But an offline / omni-channel player needs to think of bulk shipments too! Take Hindustan Unilever for example. Their distribution network is just not designed to sell single pieces. Their system processes orders for only packed boxes with 6 / 8 / 12 / 20 /50 pieces per box. As I mentioned earlier, an omni-channel player will have to manage both. Another key difference is the need to handle multiple MRPs for a given SKU. In case of pureplay D2C, if you decide to hike or drop prices, you can change your packaging, update the prices online and you’re done. But it doesn't work that way in B2B, where companies have inventory lying in multiple channels, with several distributors and thousands of touch points. An omni-channel entity needs to have a robust system in place to handle multiple MRPs of the same SKU, so that they can be ordered, tracked, stocked, and sold separately. Price mismatches in inventory and between the invoice and the physically delivered goods to a customer creates a lot of issues. If you process 500 B2B orders a day, imagine the invoice carrying new MRP, alongside the products with old MRP getting packed & shipped. Your customers and the sales teams will start getting exasperated, and the accounts team members will get busy issuing credit notes and debit notes, while the other team would be managing the massive mismatches in the system vs physical inventory at the warehouse, all of which ultimately would result in customer dissatisfaction, loss of sales plus revenue leakage. To give you yet another difference, for all D2C players, sales returns are a part of life. But that is not the case with B2B where you don't get returns unless there is a genuine mistake in taking the order. Even the tech ecosystem of SaaS tools being used by D2C companies right now is not fully ready and mature enough to handle the B2B business. Players transitioning from pure play D2C to B2B and trying to go omni-channel are struggling currently as the SaaS tools also learn and evolve. I can share a lot of critical & interesting differences! But I hope I have been able to drive home the point that the supply chain requirements of a D2C company though not completely different, are significantly different vis-àvis the traditional B2B.

Option 3: Outsource everything – the infrastructure, and the day-to-day Firstoperation.ofall, there is no right or wrong answer. It all depends upon the stage where you are in your business.

I think it goes back to the fundamental business strategy. It makes sense to fully outsource if you wish to scale up rapidly.

At an early stage of the company where uncertainty is high, the last thing you want to do is incur big CapEx. At this stage, it makes sense to completely outsource. But having said that, once you've found product market and you are scaling, you want to think about building sustainable differentiators – be it the product, the last mile delivery, the customer support experience, etc.

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Let's just think about the options available to us on the table and start with the simplest of all.

But, over the longer term, if you remain fully outsourced, the service provider

If you wish to introduce a new product in the market, you can’t straight-away place an order a few months of inventory. Companies should order the smallest batch possible, put it out in the market, check the acceptance level in terms of pricing, quality, packaging, etc. The first job is to mitigate product risk. Once you get the customer acceptance for the product, order bigger quantities and then keep a close watch on the sales velocity.

Just make sure you do not get distracted with a lot of jargon, complicated forecasting tools & methodologies. These are very important and helpful but can prove to be useful only if there is clarity on the fundamental business objectives & principles. Does it mean that whether a self-managed supply chain model or outsource model do you have a better balance and where you have more control – self-managed or and completely outsourced supply chain model?

We need to remember that there are no easy shortcuts. Further, if for any reason, sales drop, do not just wait and hope for sales to pick up, till the product is only 1-2 months away from its expiry date. Keep a hawk-eye on the stock cover. If you sense trouble, offer a discount early, increase trade margin, or bundle it with a fast-selling product. If companies are vigilant at each step and act timely, they will not have to panic or face big inventory write-offs later. And equally importantly, it will help the customer get a product much earlier, when it is much fresher.Itis actually not very complicated.

In an omni-channel world, where companies are directly connecting with the consumers, every address becomes that experience centre for us. How do you define D2C from an omni-channel perspective?

In the traditional world, the D2C model had always existed. There are multiple outlets where the experience is dictated by the organisation itself. The experience of shopping would range from having the right assortment, the availability, the great discounts, etc., which comes from the outlet owned by the organization. In that case, companies have a higher degree of consistency in quality with regards to products, communication, or the people that they interact with. In an omnichannel world, where companies are directly connecting with the consumers, every address becomes that experience centre for us. So, whether the customer is shopping from Zepto or from our own website, dictating and having the right degree of control, right from availability, discounts, and the quality of the communication, are the key parameters that help companies define D2C in the omni-channel world. Additionally, it is equally important to have the same consistency for the marketplaces, such as Amazon or Flipkart or Q-commerce platform such as Zepto. In a nutshell, it’s about reaching & acquiring existing customers and new customers as directly as possible while delivering a significantly superior experience across many touch points that the customer has access to. Is the customer impressed more by the last mile or is it really an end-to-end experience? Is it the entirety of the functional work that helps get a greater experience or does the D2C experience only reside in the last mile? The sum of all these aspects dictates the customer experience but last mile plays a very big part for sure. Since we are a product-focused organization, the last mile is the critical link that can make or break the ultimate consumer experience.

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Today, as well, across India, no matter how many delivery partners you partner with, having a close monitoring on it, having a degree of control that ensures that last mile is proper; is the key to growth and customer retention. For example, at Sleepy Owl, we choose that degree of experience. As we are based out of Delhi-NCR, we ensure that our DelhiNCR deliveries are done through our own set of riders and whenever the orders get placed, the riders go out and ensure that all the aspects of the delivery, the way it is handed over in a package, the way they speak to those customers, are in our control. But, as you move the product across the different value chains, the last mile can actually break that experience. So, having that control is absolutely necessary. How the traditional capabilities can deliver the right D2C experience, from the left side of the value chain to the extreme right side?

will learn from your experience and offer the same service at a premium to your competitor. So, it is very important to start bringing key competencies inhouse and start building on those as you scale up. I personally lean towards a hybrid arrangement – outsource the undifferentiated portions of infrastructure and day-to-day running. But invest in innovating & building proprietary tech & processes that can truly help differentiate you in the eyes of the customers and delight them. You must keep building that competence inhouse, and never outsource it.

ANIRBAN LAHIRI VP – Supply Chain, Sleepy Owl Coffee

Our experience, collectively, has been all about balancing these elements together. For our D2C brand that is operating on an omni-channel space, there are two ends of the spectrum – Product experience and Customer experience. Brands like Sleepy Owl are stretched on both sides where customers demand a top-notch product & service experience. Typically, both of these are very different capabilities. At one end of the spectrum, we have the big giants such as Unilever and P&G, while on the other side, we have marketplaces such as Amazon and Flipkart that are really customer experience focused. This conundrum plays out every single day in my life and for every supply chain professional managing D2C supply chain. We are optimizing this as we move along but, as an organisation in the D2C space, there are always two North Stars that stem from. If you are a product brand, it starts with the product itself, the consistencies, and the capabilities that we want to build in-house for the product to deliver that kind of experience. The distribution leg of the supply chain would need a degree of orchestration because then you have a lot of stakeholders that come in either as partners through your ecosystem or you slowly build in those capabilities.

For example, if it’s a sales ecosystem, either you have your distributors you are partnering with to take in stocks and distribute it across or you have the logistics partners who do the first mile till the last mile of the deliveries; when it comes to D2C ecosystem, there is the returns and the customer experience team. These elements require a very close orchestration in the entire value chain; and it’ll continue to be so in an omnichannel world. If you decide to be on the other end of the spectrum – customer experience –then you develop all those capabilities in-

Supply chain does evolve over a period. Companies need to bring in more people to drive bigger hygiene factor and as you scale up, find technology that can optimize some portion of it, but obviously with the ecosystem growing wider and wider, the answer is always going to be People and Technology. The second thing, which I would like to focus on is that S&OP is an absolute MUST at whichever stage the company is. Yes, the bigger organisations do have a longer cycle, while for us, the cycle is actually smaller. Certain D2C channel dynamics come into play very early on and therefore you try and predict the factors driving those recurring predictability and the factors that might have variability in the D2C forecasting and the other channel follows the model that fits into the channel dynamics. During the initial stages, as you build in rigor in S&OP, forecasting becomes stronger, but the initial stages are through inventory management and in my experience, having a supplier or a reliable supplier who understands that variability and manages those variabilities at his end and the partnership that you develop over that period, eases that variability that comes in month on month. There are some months where requirements might shoot up, having an ecosystem or supplier that understands this variability and be able to react to it at a much faster pace rather than having suppliers who are working on fixed schedules to drive more efficiencies in the supply chain, will always prove to be beneficial.

How do you account for the degree of returns, especially in a grocery environment? In a consumer product, there are always damages, wrong shipments, wrong packaging, how do you really account for such eventualities?

I think returns percentage is a function of the categories that the brand typically operates. For example, in a clothing brand, you will see a return that is far higher Source: YourStory

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house but, for us, our North Star is being product first brand because, as a brand and as a product, we do service one need gap and we continue to address that gap for that particular individual. That’s how the orchestration gets defined. Now, as a brand, do I leave the entire ecosystem to be completely orchestrated? No. In that type of ecosystem also, which needs orchestration, whether it’s 3PL logistics, distribution, having in-store experiences, you define the areas that need and deliver that experience. At Sleepy Owl, we chose that in Delhi-NCR, we ensure all our deliveries are top-notch. We take that burden, extra effort and build that capability in-house to do that day in and day out. That’s how we are trying to orchestrate portions of it as we scale along the journey. So, it all comes down to what you want the brand to control the experience for. That’s precisely why we see Nike going direct and other brand retail stores, besides being present on Myntra and other websites. Is this new knowledge that we have in the last 5 years because of communities and leaders like you who are startups, disruptors, different thinkers or is it because the supply chain fraternity, even in B2B, has realised this? I would rather resonate with the B2B aspect. When I started out my journey, Flipkart was a nascent player and, over a period of 10 years, we saw the fragmentation of supply chain from 3-4 day delivery, to now 10–15-minute deliveries, so, the supply chain itself has shifted and I have been a very close observer to this; even B2B organisations and my past organisations like Marico do take cognizance of this transformative shift in the supply chain and how it plays out as a competitive advantage over others. There are learnings that have been gained from the B2B experience and have been re-engineered & innovated over time and implemented in the D2C supply chain models. Who, in your entire supply chain, is responsible for each activity and how do you distribute that responsibility?

A B2B and a D2C supply chain are completely different from each other.

A D2C supply chain needs a degree of flexibility in their in its entire value chain, right from the suppliers’ ability to schedule and reschedule requirements as and when it comes. In these cases, companies need to perform due diligence in their supplier evaluations and supply consistency. They need to invest in S&OP, which is appropriate with a lot of rigor and shorter life cycles. Once you bring these three things together in harmony with having a technology to overlay it, it will obviously result in a D2C performance that you want to achieve.

Wastage and expiry don't have an easy solution. This has been an ageold challenge for all supply chain professionals. Wastage and expiry need a very hawk eye to the inventory and ensuring that this is cash at the end of the day. The degree of importance is carried all the way to the top and also across the breadth of the organization. At Sleepy Owl, our products have a shelf life of six months. We have a strong supplier ecosystem in place that understands this challenge. If you are packing with a co-packer, we understand we work with their vendor partners or we introduce our own vendor partners who can supply materials at a much shorter lead time, so they don't have to carry their own inventory or they don't have to take longer runs patch sizes.

because the flirtatious nature of the product with the customer itself defines the degree of returns. Fortunately, we operate in a category that is much more planned. There is a degree of consistency in consumption, which defines the kind of planned purchases that we have and again it defines the kind of returns that we get on our D2C orders. Fortunately, for us, the returns have been historically low. Now when it comes to accounting them as a percentage, there are different technologies that help us assess data pin code wise through that micro granularity in terms of the potential of high returns and the potential of no return. There are technology solutions that we have deployed in our ecosystem that identify customers and their past purchase behaviour to understand returns better and we continue to use that through day in & out to assess and ensure that our returns can consistently stay lower. For us, deploying those technologies to get incremental improvements in return helps us a lot in ensuring the right quality product stays in the entire supply chain. How do you achieve the liquidity lever while managing the inventory, asset management, and the customer satisfaction for the organization?

Companies need an individual or a team of individuals or a team of planners who are looking into this with a rigor and ensure that products are liquidated at the right time.

I think the fundamentals for building a product or the brand in itself, remains the same irrespective of any channel. However, the D2C channel allows you to test your hypothesis very early on and with D2C, you have the early adopters in place. You can continue to experiment with your product proposition, i.e., rate during the entire life cycle and then launch it in your offline channels to see and validate those tractions. It's always a series of small jumps that leads to a bigger jump and that helps us. Secondly, when it comes to brand building, D2C allows two-way conversations between the company and the consumers and often times, we get feedback from our consumers that are addressed in the most relevant fashion. These aspects ensure consistency in product quality, ascertain that the narratives are in place and that the customer understands the price value spectrum that the company is offering them. Once companies do this process day in & out, it reinforces a strong belief. For instance, Sleepy Owl stands for ‘Simply Great Coffee’. We go that extra mile to deliver that experience and reinforce the belief that our customers do have a simply great coffee at whatever time and need that they might have. Internally also, we look all our discussions and debates through this lens – Consistency in whichever channel that we operate, which ultimately builds and strengthens the ethos of our brand, which does take a longer horizon and a longer time.

How effective is D2C over traditional supply chain model if you have to build your brand quickly and without much friction?

One of the key aspects is to really be cognizant of the customer behaviour as there has been a constant shift in the market trends contemporarily. Companies must be open to be an omnichannel player. I would like to share

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We brainstorm with them, understand their challenges and constraints around batch scheduling, then we go back to the drawing board to incorporate those concerns into our product design stage.

Having a supply chain that cuts short a lot of lead time, middle time and delivers a great last-minute experience are the must-haves for a D2C model. an example of my previous employer Pepperfry, that started out as an online store, selling furniture, and continued for about a couple of years. Eventually, they realized that there has been a large set of customers who would prefer a more traditional approach of physically visiting a store and selecting their furniture along with interacting with an expert to help them place an order, which led to expanding into physical stores. Something similar happened with Ikea where they changed their flagship model in India, and launched micro-stores. Here, one of the key aspects to understand is, how the customer behaviours change based on geographical What are those must-haves in order to excel, in a D2C model, or the virtues that an organization must bring on to the table?

We follow this approach day in & out as part of the new launches to control the wastage and expiry. Having shorter batches and shorter runs and having the suppliers who are able to turn it around faster helps in controlling, but nothing defeats a hawk-eye in each of these stages.

PRADEEP BILLAVA Senior Director – Control Tower and Customer Experience, Zepto

One of the key elements that has really changed at Zepto, is the way we really plan our inventory, fill rate and efficiency around the fill rate, as that gives a clear picture of the momentum on the App that is driving those purchase patterns.

I think one of one of the key aspects for any D2C brand is the last mile part because that's also the moment of truth for their customers and it also amounts to a significant cost in terms of the overall value chain. When you are in an industry that has got brutal competition, there are a lot of challenges in terms of having that share of last mile team as you grow. The only thing that comes to solve is basically innovation in every way.

How do we really balance the cost and the customer experience given that you need to do everything right into the entire value chain?

Companies need to optimize deliveries through not just riders but through cyclists, that's something that we would really want to build on to because that eventually saves the cost for the person doing the delivery too and then when he sees that value add, he would actually be able to deliver as well, so changing that mix of delivery, finding alternate delivery model is what we are focusing on. When we were at Flipkart, we started to deliver not just through dedicated people at supply chain but also exploring the kirana model wherein we asked kirana partners to tie up with Flipkart and do deliveries for their local areas. It took about two to three years for us to scale it up to a level where it would be significantly contributing to lower costs in the overall value chain but eventually, it proved to be a great backbone for us to leverage on cost. In short, you really have to be innovative and keep exploring newer models of delivery to reach the optimum.

If the firm is able to manage the entire cycle in a short time span, it leads to delivering fresh products to the endusers conveniently, and that too not just groceries but any kind of inventory, like apparels, furniture, etc. Fresh products fundamentally mean a great experience to customers. Having a supply chain that cuts short a lot of lead time, middle time and delivers a great last-minute experience are the must-haves for a D2C model.

From a customer demand velocity or customer integration aspect, how do you manage or shape that demand velocity for such a model; does the forecasting efficiency become extremely prominent? When you start off, you go by certain assumptions, however, over a period of time, once the customers start coming in, the realization hits about what’s actually being sold online, the categories that you can experiment with, in turn making the business forecasting stronger by the day.

This is the era for a ‘Quick Commerce’ industry where you deliver in 10 minutes, if we are falling short on the availability of an inventory even by 30 minutes, we are missing out on actual sales. Also, this leads to losing on customer recall, the reason being, whilst we were inverting a product during those 30 minutes window due to unavailability, the customer may have gone elsewhere to buy it.

I believe the process of trial and errors is actually going to help companies build what is going to last for a longer period of time and the earlier they find the alternatives, the faster they're able to build on the model and gain momentum.

How are you able to strike a balance between inventory levels and stock availability?

Secondly, distribution is one of the most important frameworks for the customers; facilitating end-to-end sales depending upon the availability, how quickly it gets sold off and the speed in which the business is able to replenish.

This is one of the key things that happened at Zepto. We sell quite a few products that expire soon. We are into fruits and vegetables as well, which have a shelf life of 2-3 days. I strongly believe in starting at a slow pace. When you are confident about how much you are able to sell, that helps you to stock inventory as per requirement. Apart from that, there are some key levers that that can be leveraged, like how soon can you replenish. We typically started off with having replenishments once a day and now there are times when we are looking forward to replenishing our stores every 10 – 12 hours. Then, there are some stores where we replenish even faster. If you build your relationships with your partners in such a way wherein you are able to leverage on the replenishment timelines, you get more control over your stocks. This entire process derisks your business, helps in changing MOQs or changing the replenishment cycles. Today we have our own mother warehouses. We also keep certain items, which have slightly longer shelf lives to ensure that our replenishment cycles are much faster. In this digital world, companies need to leverage the latest technologies, which give them early warning signals and help them take those liquidity actions on time.

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Eventually, this is where the business starts losing its customers. Hence, according to me, Precise Forecasting is one of the key ingredients in the recipe of quick commerce. Every organization learns with experiences overtime and then they start building their business around it, as they say, ‘Rome wasn’t built in a day’, hence, consistency and the right approach is a mandate for any business. Also, they need to understand their design of experiments and explore innovative options about what new approaches can be taken, like introducing a new category or a new line of product, something that can be actually delivered to the customers hassle-free. Hence, a goal-oriented planning is pervasive and comes foremost in Supply Chain Management, as we are well aware that if we get that right, it’s definitely going to deliver the business that we aim to achieve.

locations. One of the things I vividly remember during my stint with Flipkart was the kind of traction we received from tier II & III cities. The customers from these geographical areas loved buying their electronics online, which made our distribution and supply chain verticals to ensure that even if the order is placed from the most remote areas in the country and there were time and logistics constraints, we still had to take the extra efforts to deliver those products. As a team, we took that path anyways, which led Flipkart to get massive business specially during the Big Billion days yearon-year, and then they built further on the serviceability of the business.

The importance of supply chains has been highlighted by the COVID-19 pandemic. Considerable media attention was paid to supply chain disruptions from delays at key ports, shortages of semiconductors, energy supply issues and increasing costs. Supply chains became topical. There are several areas where finance and supply chain teams can benefit from working together, which focus on a strong business partnering relationship. One of the key tenets of the function is to be more collaborative across the entity, reflecting the fact that increasingly finance teams are looking to both financial and non-financial performance measures.

The role of the finance business partner is fundamental in a successful relationship between supply chains and finance functions. The finance business partner, especially those working with supply chains, needs to be fully conversant with the current risks and opportunities but also to be innovative in considering how to manage issues. The challenge is how to think of new solutions, as the problem is often not falling demand but a scarcity of resources, especially human capital, and this will define the coming few years. This

CLOSING THE LOOP

Finance and Supply Chains THE PERFECT MATCH

environmental, social and governance lens is requiring entities to develop a deeper understanding of their networks.

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Clive Webb, Head – Business Management, ACCA Professional Insights Team, through this analytical piece, presents the synchrony that finance & supply chain have in common and how can they work together to bring Greater Good for companies.

“The supply chain is the lifeline of a company like [a] blood vessel [is] to the human body, and finance is the brain of a company. the healthy and effective cooperation of the two can ensure the sustainable development of company,” Stated a Finance Manager based in Mainland China. Supply chains are a fundamental part of the modern business environment. The management of these chains often presents entities with challenges and opportunities. The disruptions during the time of the pandemic have focused attention on this area. Technological advancements are changing the ways in which organizations manage their supply chains and the Clive Webb is a qualified accountant who worked for one of the Big 4 firms. Clive's research focuses on the issues for the CFO and their team. His recent research covers the future of the finance function, the collaboration with supply chain professionals and the use of technology in business. He is the author of ACCA’s research, Learning for the Future, as well as Leading Inclusion, ACCA's review of diversity, equity and inclusion in the profession.

The strong relationship between finance and supply chain teams is becoming ever more important to an entity’s success.

Below are few areas of common interest for finance and supply chains…

ROLE OF FINANCE AND THE FINANCE BUSINESS PARTNER

T HE pandemic has seen entities challenged by several disruptive forces from port delays to workforce shortages deliveries at all levels of the supply chains have been taking longer in certain cases. However, it should be appreciated that in many instances supply chains have proved resilient during the pandemic. Disruption is an ongoing reality, be that from natural events or from more human related activities, such as the Suez Canal incident. Manging the impact of these requires a focus on supply chain risk management and supply chain resilience. Both actions integrate across entity wide activities that include finance teams. The longer-term impact of these disruptions, together with the macroeconomic impacts of the pandemic, are requiring entities to rethink some, or all, of their sourcing strategies. The late part of the 20th century and the early 21st century were focused on lowcost manufacturing and an increasing integration of supply chains. As some of those cost advantages are lessened, so entities are thinking about strategies such as nearshoring or moving away from just-in-time manufacturing processes, where these are possible.

Smaller entities have distinct challenges in supply chains. As they often lack finance functions with the necessary breadth and depth of expertise, their external advisers can fill some of that void. Yet in every supply chain, there is a constituency of smaller entities. The level of understanding of the issues that they face, and how the developments in other parts of the supply chain affects them must be a cause for concern. With the growing emphasis on larger companies’ understanding of their tier II & III suppliers and beyond, there is a need to create visibility of key information throughout the networks. This enables the effective management of supply

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in turn has created inflationary pressures in a range of economies which further exacerbates supply chain issues.

PRODUCT PROFITABILITY

ACQUISITION OR DISPOSALS OF ENTITIES

One often-forgotten area of collaboration between the two teams was the due diligence process in the acquisition or disposal of entities, finance teams tend to perform it in isolation and what you find when you finish the transaction is that due diligence done at this high level has not really looked at the stuff that really matters operationally or day-today. The nature of the supply network should never be assumed to be static and the implications of strategic advantage via consolidation, as seen in Industry 4.0, should not be ignored. Finance professionals need to have a dialogue with their colleagues to consider these risks and how they affect strategic and detailed planning models.

ADVISING SMALLER ENTITIES

PAYMENT TERMS

At a time where liquidity is a key focus of entities, a closer collaboration between the respective teams is advantageous. CFOs need to recognize that lower margin products will not survive, and it is important to understand the relationship between the customer and the recoverability of the accounts receivable. There could be benefits in paying earlier, such as strengthening the relationship between the suppliers and the entity. Having an informed conversation can be beneficial.

UNDERSTANDING THE BUSINESS MODEL

Product profitability is a key area of collaboration between finance and supply chain teams. The pandemic has seen changes in customer behaviour, with an increased emphasis on online ordering. Small customers can be expensive to serve and have expectations of rapid delivery times. Those customers who you considered to be the most profitable might not be when full costs are considered.Thechallenge of allocation can be considered by using the ‘Cost-to-Serve’ approach, which analyses the costs in a supply chain and shows how each product and customer combination involves a different series of activities and as a result has a different cost and profitability profile. Unlike Activity Based Costing, this approach is not resource intensive, and focuses on aggregate analyses of a blend of cost drivers. The approach gives an integrated view of costs at each stage of the supply chain, providing a factbased view to see through the complexity of multiple supply chains and channels to market. It enables a focus on both longterm decisions and the prioritisation of short-term actions. There is a need for finance teams to support such approaches and to provide relevant data to make comparisons feasible. In an increasingly online consumer experience Cost-to-Serve is not only about the cost of shipment, but also the costs of managing the returns. There are variants in the approach to the calculation of the Cost-to-Serve, not least for allocation methods. The overall approach is to identify the relevant costs related to serving a customer. These may include the following categories:  Order management overheads  Customer service overheads  Factory planning overheads  Materials planning overheads  Cost of goods sold and carrying costs, including workforce costs  Sourcing and procurement overheads  Transportation, warehouse, and delivery costs  Product returns and repair  Cost of quality management. Each of the overheads is apportioned across the product volumes. This can be a complex process and as a result several software packages have been developed that integrate with enterprise resource planning (ERP) solutions that can perform the calculation.

One of the first fundamentals is to ensure that finance professionals fully understand the business model. The fourth Industrial Revolution and the impact of the pandemic are changing the way that entities operate. The need to adapt quickly to changing circumstances is becoming paramount if entities wish to survive. Only by understanding the business model and the supply chains can the finance professional be an effective contributor.

*Views expressed in the article are based on the report ‘Supply Chains: A Finance Professional’s Perspective’

THE ESG AGENDA AND SUPPLY CHAINS

With the increased globalization of treasury functions in large corporates, the ability to manage the cash and liquidity on a more holistic and timelier basis offered more opportunities for engagement. The advent of Logistics 4.0, with an increased capability for the capture of real-time data and the use of more predictive analytics permits a greater clarity on positions and allows the treasury team to take a more active role in managing cash positions in the light of expected funding requirements. chain risks, at a time when sourcing strategies are being questioned by many entities, moving from single to multiple, and often geographically distributed, sources.

FINANCE AND LOGISTICS 4.0 The digital nature of the interactions between the various parties in the chains and networks is increasingly facilitating transparency at many levels of the process. Applying the techniques of Industry 4.0 can lead to efficiencies in processes and hence cost reductions. The use of smart contracts is one example of this trend, as is the use of blockchain more generally. The adoption of Industry 4.0 leads to opportunities to optimize the working capital requirements by using techniques such as supply chain financing. For some time, factoring has been used by entities to manage their debt burden. The use of supply chain finance is a more recent evolution of this. While factoring or invoice finance is used to discount the accounts receivable portfolio to achieve a more rapid payment, supply chain finance also brings into consideration the use of the credit ratings of the organisations in the supply chain into consideration.

For a finance professional appreciating the activities of the entities in multiple levels of the supply chain is not just about addressing the disclosure requirements that are increasingly been required by governments and investors.

This alone can be problematic as the level of appreciation of the nature of these chains, which are in reality networks, is an area that needs improvement.

The ethical nature of some of the supplier interactions, such as workforce conditions, requires entities to make strategic decisions about those who they tradeInwith.addition to disclosures, it is also a question to ensuring liquidity in the supply chain, especially in the face of disruption and inflationary times.

Finance teams need to collaborate with supply chain teams in the application of ethical procurement policies, such as those outlined in supplier codes of conduct or in ISO 20400:2017 Sustainable Procurement. Supply chains are the focus of several the UN Sustainable Development Goals and as entities increasingly focus upon these so understanding the impact and reporting progress will become ever more important.

Financing activities including treasury and supply chain financing are increasingly relevant as liquidity continues to be challenged. With the increased focus on vertical and horizontal integration across supply chains from Industry 4.0 either through acquisition or through collaborative structures such as joint ventures so ensuring that the agreements accommodate the impact of other entities in supply chains becomes valuable. These are just some of the areas of collaboration. Close cooperation is key to the fortune of many entities. The similarity to the mission of the supply chain teams is clear, which is to have one integrated view of the organization based upon a common set of data. Generally, there is a lot of room for improvement in the communication between the two groups, namely the supply chain group, and the finance group, because historically the relationship is very functional. Yet, the events of 2021 and 2022 have caused further disruption to entities and their supply chains: disruption that may yet have a course to run. ‘Disruption’ is a key word of our time.

The years 2020 and 2021 will go down as pivotal points of change in the way that businesses operate. Not only has the pandemic challenged many of our traditional ways of working, but so have the technological and data advances, which have in many cases been accelerated by the pandemic. The new world is one of collaboration: one in which professionals work together to address problems and execute plans.

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TREASURY MANAGEMENT Historically, there has been limited engagement between treasury functions and supply chain teams. The overall financing of the cash position was regarded as a strategic operation while the collection and payment processes were part of the finance function. With the increased globalization of treasury functions in large corporates, the ability to manage the cash and liquidity on a more holistic and timelier basis offered more opportunities for engagement. The advent of Logistics 4.0, with an increased capability for the capture of real-time data and the use of more predictive analytics permits a greater clarity on positions and allows the treasury team to take a more active role in managing cash positions in the light of expected funding requirements.

OPPORTUNITIES COLLABORATIONFOR

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Supply chains are pivotal to business success. However, when it comes to building a robust supply chain, only few companies are able to do it. While the task is certainly daunting, but once achieved, it can enable organizations to build resilient business models and deliver sustainable results. Shobhit Jain, Industry Leader (Retail and Wholesale Distribution)

- EMEA South, SAP, offers a 10-point agenda that can help organizations in their endeavor to build a ‘Best Run Supply Chain’.

HILE there is no denying that supply chains are the backbone of organizations, it is more important to underscore that best run supply chains lead to significant competitive advantage. These organizations outperform their peers on various metrics – Revenue growth, On Time in Full (OTIF), Time to launch new products, Cost of sales, Logistics & distribution cost and Sustainability KPIs.

For example, they have upto 50% lower stock outs, 25% lesser supply chain costs and 40% fewer quality issues, which is a significant difference. They are not only efficient and reliable, but also more adaptive and resilient. So, what do these supply chains do to consistently deliver exceptional results? What is it in the DNA of these supply chains that enables this?It certainly does not happen by chance, but through a rigorous and consistent set of actions, well enunciated in the quote by Michael Jordan, ‘Some people want it to happen, some wish it would happen, others make it happen’

In pursuit of a

Shobhit Jain has over 19 years of experience across diverse areas covering end to end supply chain, manufacturing and operations, customer experience and engagement, Finance, and other functions. He has worked in different setups and ecosystems encompassing line leadership, consulting and business transformation, product management, sales enablement, and value realization.

In my view, here are the ten attributes of the best run supply chains. It is important to note that lot of these characteristics are interdependent (and in many cases synergistic) and hence being an outstanding supply chain requires excelling in most of them.

2. Collaborative mindset – The bestrun supply chains believe that having a collaborative mindset is essential for unleashing its full potential. This is demonstrated through improved inter-functional and intra-functional collaboration (within supply chain) as well as collaboration with external partners (eg: suppliers). Inter-functional collaboration calls for a deeper and frequent interaction with other functions. For example, working closely with the marketing team to reduce the time for new launch, or engaging with Finance to reduce Capex in order to

BEST SUPPLYRUNCHAIN W

1. Completely aligned with business objectives - They recognize that supply chain objectives need to be in sync with business objectives and priorities. This is because in the absence of this alignment, the supply chain agenda will not get required management focus and commitment, restricting its ability to deliver sustainable and long-term performance. It may also result in misaligned KPIs, with supply chain performance failing to improve business performance. Furthermore, with business dynamics changing fast, collaborating with business ensures that these supply chains can adapt much faster to the changing business reality. For example, if the business need is to deliver products with clean label (food industry), the right supplier base can be timely developed. Another example is to proactively expand distribution network in line with the envisaged business growth.

THE 10-POINT AGENDA

Some industries such as retail, automotive and QSR can have end consumer demand visibility. This data is critical during new launches, campaigns and promotions as well as periods of high demand volatility (eg: Covid-19), resulting in high responsiveness without causing upstream volatility and higher stock levels. Organizations that deploy good demand planning and sensing tools to capture, transmit, and use the demand data (vs. dispatch data), see significantly lower stock-outs, inventory and write-offs. achieve targeted returns. Collaboration and engagement with key suppliers can provide repository of innovative ideas which can be leveraged as a win-win proposition (eg: packaging innovation, value chain efficiency initiatives like yield improvement). Finally, they also ensure that intra-functional conflict and misaligned goals are not a hindrance to achieve its objectives. They ensure harmony amongst various supply chain teams by developing aligned goals and focusing on Total Cost of Ownership (TCO). 3. Set a rhythm through a robust S&OP process – These supply chains drive an effective S&OP process with a well-defined objective, timelines, accountability and performance review mechanism while ensuring participation from cross functional teams (Sales, Marketing, Finance, Production etc.). They recognize the importance of a robust S&OP process in providing critical inputs (Campaigns, promotions, CRM activities or other causal factors such as sales incentives) to demand planning, supply planning and resource planning. It is also an excellent forum for cross functional collaboration, and these organizations make the most of it by effectively driving initiatives for longterm improvement. The S&OP process is typically enabled by appropriate technology / systems to make it more sustainable, reliable and effective.

Demand visibility is at the heart of any successful supply chain. They build a reliable and responsive supply system by ensuring availability of timely, accurate and granular downstream demand data. The extent to which downstream data is available is determined by the industry and channel.

4. Leverage demand data – Demand visibility is at the heart of any successful supply chain. They build a reliable and responsive supply system by ensuring availability of timely, accurate and granular downstream demand data. The extent to which downstream data is available is determined by the industry and channel. Some industries such as retail, automotive and QSR can have end consumer demand visibility. This data is critical during new launches, campaigns and promotions as well as periods of high demand volatility (eg: Covid-19), resulting in high responsiveness without causing upstream volatility and higher stock levels. Organizations that deploy good demand planning and sensing tools to capture, transmit, and use the demand data (vs. dispatch data), see significantly lower stock outs, inventory and writeoffs.

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6. Upstream visibility – They focus on building upstream visibility of key material categories (based on spend value and strategic importance). This involves visibility and understanding of available capacities and key bottlenecks (critical for high growth companies), major supply risks (eg: raw material availability or financial stability of the supplier), cost structure & what causes cost volatility, and procurement and manufacturing lead time for suppliers. Upstream visibility improves responsiveness, and ensures early detection and timely response to any disruptions. It also helps in better cost management by tracking cost drivers and changes in the value chain. For companies in food service space, upstream visibility enables much better control on food safety and quality.

5. Supplier strategy - These companies have a well-crafted and differentiated supplier strategy. This could be based on multiple considerations like spend value, criticality of item / category to business, innovation capability or other factors relevant to the business. Based on this, they classify their suppliers (eg: Strategic, Core, Others or other variations) and develop a supplier engagement strategy. This includes how much time to invest in relationship, understanding the supplier’s ecosystem (its business and supply chain) and joint performance review. Supplier strategy may also influence the contracting approach and its tenure (eg: what method to adopt for price finalization – Cost plus, one on one negotiations, auction etc.?). Many companies do create a good supplier strategy, but they do not execute it in spirit (for example, not engaging well with strategic suppliers or just focusing on driving down cost with them). Best run supply chains do not make that mistake.

Finally, they are also open to experiment with new and emerging technologies (through POCs and pilots with a clearly defined success criteria).

7. Investment in technology and systems – Best run supply chains meaningfully leverage technology in alignment with overall business priorities, build longer term digitalization landscape and maintain a relentless focus on driving adoption & business benefit tracking (this is important as many times while the investment is made, the anticipated benefits are not realized. It is also important for incorporating learning in future initiatives). Technology is also a key enabler in effecting changes in operating model (eg: same day delivery).

9. Innovation and sustainability –These businesses challenge the status quo, and develop & implement innovative solutions. It is not always about developing a novel or disruptive idea, but also about accelerating the adoption of appropriate innovation developed by other companies. For example, deploying Blockchain based solution for enhancing visibility and reliability or early engagement with suppliers for

10. People management (It all comes down to people) – Best run supply chains understand that while processes and systems are critical for driving high performance, consistently outstanding results hinge on people who run the supply chain. Hence, they invest in people right from selection, capability building and direction setting, and by allowing them to experiment. They ensure that people understand the vision and strategic priorities of supply chain and provide enabling ecosystem, which leads to higher focus and commitment from people leading to sustainable performance.Whilebuilding a detailed agenda for step-changing supply chain performance is the starting point, the real difference comes by driving a consistent and relentless execution on the plan.

8. Contingency / back-up planning In addition to robust processes, these businesses have effective backup and contingency plans. These plans are not charted just as a ‘formality’, but are practical and help them prepare and protect the business in case of unexpected events. This requires anticipating and envisioning various scenarios and planning responses to them. This could include supply disruptions (eg: capacity constraints or supply issues at a sole supplier), significant demand volatility (say demand is 3x of projections for a new launch), manufacturing and distribution network disruptions (eg: temporary closure of a manufacturing facility or a warehouse), cost volatility, and so on.

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Some of the key areas of investment include demand planning & sensing systems, supplier collaboration platforms, transportation planning and execution system, control tower, manufacturing execution system, deployment of IOTs, digital twins, integrated dashboards and many others. They are capitalizing on opportunities provided by the confluence of IOTs, data analytics and AI / ML systems (eg: condition and rule based predictive maintenance of equipment).

reducing product development lead time. These supply chains also have laser sharp focus on driving sustainability initiatives which could include responsible sourcing, targeted reduction in carbon footprint & consumption of other resources, and social programs.

The best-run supply chains believe that having a collaborative mindset is essential for unleashing its full potential. This is demonstrated through improved inter-functional and intra-functional collaboration (within supply chain) as well as collaboration with external partners (eg: suppliers). Interfunctional collaboration calls for a deeper and frequent interaction with other functions.

One of the primary objectives is to increase the bilateral non-oil trade to US$100 billion in the next five years between the two participating countries.

India-UAE CEPA is a comprehensive agreement with 18 Chapters covering

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India-UAE CEPA is touted as the ground-breaking agreement in delivering India’s strategy to adapt to an increasingly complex and fast-changing environment by strengthening the economy and driving the global post-COVID-19 recoveries through international trade. According to experts, CEPA will not only facilitate the free flow of goods, services, capital, technology, and people but will also propel the two friendly nations towards magnificent bilateral and economic relations. Our recently conducted webinar, India-UAE CEPA: Exploring Opportunities to Boost Trade, offered insights into all the intriguing aspects that emphasize the importance of this agreement and prepare Indian companies to explore newer opportunities…

NDIA and United Arab Emirates (UAE) have been trading partners since the beginning of the early 1950s. UAE has always been one of India’s largest and most important trading partners. The historic CEPA with UAE was inked on 18 February 2022 and is India's first complete free trade agreement to be signed with any country in a decade. The negotiations between India and UAE were concluded in a record span of 88 days, and CEPA was operationalized w.e.f. 1 May 2022. The CEPA has been executed with numerous objectives and initiatives.

INDIA -UAE CEPA A NEW OPPORTUNITY TO EXPLORE & FLOURISH

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The CEPA between India and the UAE covers almost all the tariff lines dealt in by India (11,908 tariff lines) and the UAE (7,581 tariff lines), respectively.

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SPECIAL REPORT 30 CELERITY September 2022

Issuance of customs rulings before import, facilitating cross-border clearance for economic operators, and adopting international best customs management techniques.

According to Mr. Abhishek Singhania, Director (Customs & International Trade), BDO India LLP, since the CEPA is more exhaustive than other FTAs, it covers different aspects of business between the two countries which include:  Provides Sanitary and Phytosanitary measures to protect human, animal, and plant life or health and strengthen communication, consultation, and cooperation between two nations.  Establishes a robust legal framework on technical regulations, standards, and conformity assessment procedures to ensure the smooth flow of trade in goods.

 Establishes a framework to promote consumer confidence in digital trade and foster an environment conducive to advancing digital marketing, including e-commerce and the digital transformation of the global economy.

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India – UAE CEPA has the potential to promote upward mobility throughout the economic value chain, resulting in hundreds of thousands of job opportunities in both countries. CEPA will be a valuable tool in the hands of the Indian industry in achieving the Hon'ble Prime Minister's vision of 'Atmanirbhar Bharat'.

India is expected to benefit from preferential market access provided by the UAE, covering over 97% of its tariff lines, which account for 99% of Indian exports to the UAE. India will also offer preferential access to the UAE on over 90% of its tariff lines, including lines of exportWithinterest.regards to trade in services, CEPA contains legal provisions to regulate cross-border trade in services and offers service providers an open and non-discriminatory environment for cross-border trade. Service providers in the UAE have offered market access in around 100 sub-sectors of the UAE, while Indian service providers will have access to about 111 of the UAE sub-sectors.

India-UAE CEPA specifically provides applicability to Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (“CAROTAR, 2020”). The said Rules aim to supplement the existing operational certification procedures prescribed under different trade agreements. A Certificate of Origin is the most valid proof of fulfilling the origin criteria. An importer intending to claim a preferential rate of duty under the CEPA shall be required to make a necessary declaration in the bill of entry that imported goods qualify as originating goods under the CEPA.

Stringent Rules of Origin for strict monitoring of trade flows between two nations to prevent circumvention of products from other countries. The agreed rules are based on compound criteria of change in tariff classification (CTC) of the good plus a minimum percentage value-added.

Prevent unjustified trade barriers, enhance transparency, encourage the development and adoption of sciencebased international standards, guidelines, and recommendations, and promote their implementation by the parties.

The Central Government vide Notification No. 39/2022-Cus (NT) dated 30 April 2022 has notified the Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between India and the United Arab Emirates) Rules, 2022, effective from 01 May 2022 providing for origin criteria to be met for claiming preferential treatment under India-UAE CEPA, i.e., wholly obtained criteria or product-specific value addition criteria.Vide Notification No. 22/2022Cus., dated 30 April 2022, the Central Government has notified concessional rate of duty for goods imported availing the benefit of India-UAE CEPA, giving effect to the first tranche of the CEPA.

 The Agreement also focuses on technical regulations, standards, conformity assessment procedures, marketing authorizations, notification procedures, and inspections relating to Good Clinical Practices (GCPs) and Good Manufacturing Practices (GMPs) for manufacturers of pharmaceutical products affecting trade in pharmaceutical products.

Trade in Goods, Rules of Origin, Trade in Services, Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) measures, Dispute Settlement, Movement of Natural Persons supplying services, Telecom, Customs Procedures, Pharmaceutical products, Government Procurement, IPR, Investment, Digital Trade and Cooperation in other Areas.

Clear rules on audit, certification, and import checks have been established to ensure that standards, technical regulations, and conformity assessment procedures do not create unnecessary barriers to trade between the two nations.

Indicate details like tariff notification for preferential rate, certificate of the original reference number, date of issuance of the Certificate of Origin, originating criteria, transportation details, etc., in the Bill of Entry.Let’s hear it from experts as to how the two countries can benefit from the agreement…

The objective of India UAE CEPA is to grant greater market access to both countries. Both the economies as well as both the government agencies are working as trade facilitators. Today there is greater understanding because of the other registration as well as participating government agencies' documentation, which has been considered the same. There are other sectors such as chemicals, wherein the goods fall in chapters 28, 29, and some more, so the arrangements will also be available for other sectors, including the most prominent gems & jewellery sector because a majority of the manufacturers of gold items and gems & jewellery import the gold from UAE and government has already given the reduction in the customs duty at one percent where the importer has some specified requirements to turnover limits and some already allocated tariff quota and I am sure that this partnership will also pave the way to boost the trade. The key lies in the agencies acting as the trade facilitation rather than being regulators to regulate and control the inward and outbound traffic between both economies.

Again, it is subjective and is between member countries basis the agreement as well as the strengths, weaknesses, and the very product because this 40% value addition criteria is not there across the board or all the sectors if it is gold and gems & jewellery sector, for example, the value edition criteria are mentioned as 3% because you cannot have 40% value addition in the gems & jewellery sector. The broader guideline is that there has to be a change in the tariff classification between four to sixdigit levels. That means if the products are traded from India to UAE or vice versa or any other economies, the tariff classification is considered as one of the bonafide nomenclatures or criteria to consider that this product is eligible and considered as a manufactured product, not a traded product to meet the specific requirements under the rules of origin for treated agreements.

What is the value that it adds to a country's valuation like transactions or the framework?

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Mr. Krishna Barad Partner (Customs & International Trade), BDO India LLP

Any fruitful agreement is based on the rules of origin criteria as laid down under the trade facilitation agreement executed by the WTO wherein there are over 150 member countries. Whenever the FTA agreements are executed, the rules of origin form part of the legislation, and the customs notification or the customs law in the respective countries lays down the major framework so that there is no dispute at the latter stage and there is proper compliance when the imports and exports are happening between the memberTypically,countries.since the FTA grants market access and trade facilitation, there are certain guidelines wherein the FOB value of the goods is considered for rules of origin criteria. This is one methodology. There could be the culmination of methods as well, which means if some imports are made, if I am a manufacturer in the UAE and I am importing certain goods from India, I will say that I have some bill of material out of some five items, I am importing one item from India and then I will have to do the manufacturing and overall manufacturing direct labour cost as well as other ancillary charges put together and my sale price in terms of the FOB value, there has to be a delta of minimum 35 to 40% value addition, in the sense of my raw material cost is 70 and another 30 is my other cost including the profit and the manufacturing cost overheads, etc., That makes my value or the sale price 100. Then obviously I have to sell that product at 135-140 US dollars per unit or per SKU, then this will be considered as a beneficial transaction or bonafide transaction to meet the threshold of FTA guidelines as well as the custom duty benefits and the exemptions as laid down in the rules of origin criteria.

Kindly enlighten us on the objective of CEPA and how will it impact various sectors in terms of imports and exports?

There are certain commodities, which are still due to get the sectoral priorities, and these are still imported or exported from other countries, and they are being shipped from either UAE or India also, will they and how will they qualify for any FTA benefits or the third-party invoicing and shipments? India already has almost 16 treaties and agreements with other economies, especially Southeast Asian countries as well as North American countries. While this has been an advantage for the importers as well as exporters, a few years ago, the agencies reported the misuse of FTA benefits. To have strict scrutiny, the government introduced certain governing rules to strengthen compliance with the treaties & agreements, in the 2018 Union Budget. Under this, there are greater requirements in terms of the monitoring and as well as inflow of goods This is the first of its kind cooperative agreement in the pharmaceutical space that India has signed with any country. It has paved the way for India’s continuing negotiations in the pharma sector with other agencies.

What are the precautions and compliance norms that need to be adhered to by exporters and importers for this benefit?

India is the largest trade platform for UAE and that is only going to go up.

Out of 500 line items, which ones are made in the UAE, which also depicts the country of origin as UAE, and the rest items are of the different countries of origin. It is the shipper's job also, if he is a trader, to be mindful that he is putting the respective item wise country of origin so that the importing country, on both sides, files the custom declaration accordingly and legitimately because if in case, the package is cross-checked and opened by the respective customs duty officer and he finds that the goods are made in China and not in UAE, it will attract lawsuit, litigation, penalties and ultimately loss of brand equity.

The mindset or the thought process is to always see the benefit without getting into the readiness or the acumen to have greater trust in the compliances. Indian customs operations are 100% digitalized, which helps in reducing timelines. Another aspect is that because of digitalization, the goods are selfassessed by the system itself, which also lays down a greater onus on the importer as well as exporters. This essentially means that the disclosure data filing information punched by the exporter or the importer or his customs broker is hardcoded in the system and then the government has the provisions to carry out the post clearance audit and there is a legislative change also, which has been brought in the customs law to arrest the non-compliance through post clearance audit. There will be a greater thrust on the importer as well as exporters to have the data availability and when customs demands a particular data, they should be ready to retrieve the data and submit it for further due diligence. Whenever such agreements are signed, there is an understanding between both the agencies that they will exchange the data whether through government formal channels or the importers as well as exporters so that there is no revenue leakage and there is proper monitoring of the trade inflow and outflow between both the economies.

Whenever any import takes place into the country, there are three documents required – invoice, packing list, and transport document in the form of a bill of lading or airway bill or courier web. This is the nature of the shipment. As the next step when the custom broker is creating a custom declaration, we call it a custom declaration to file the shipment for the customs clearance, which is interfaced with the customs electronic gateway (ICEGATE). There is an opportunity and provision in the customs declaration system that the declaration can be filed line item wise, entailing that if the company’s invoice runs into 500 line items, then the company can file the individual line items because there will be unit rate as well as a unit of measurement. It is the job of a customs broker as well as the instruction has to flow from the importer to communicate specifically about these 500 line items.

What happens if you have a huge packing list of a hundred commodities or even bigger commodities, 95% of them under the purview but only 5% of the commodities are not under preview, but they are in the same invoice packing list and probably in the same container, how would the imports be made?

from FTA countries. That is one side of the Thelaw.second side is that now especially if we see the Middle East as a strategic location for trans-shipment of goods from across the world. Salalah port in Oman is considered the largest transshipment hub for the goods movement for the global trade. The Middle East, over a while, has created large capacities in the form of free trade warehousing zones, which are proving to be major trade hubs, and obviously, there is greater flexibility, tax exemptions, etc., that come along with it. There has to be proper adherence whenever the trans-shipment or third country invoicing happens. The exporters and the importers have to be mindful that they are meeting the criteria to provide or get the certificate of origin as prescribed under the respective treaties & agreements and there is proper data flow as well as proper disclosure in the transactions.Theyhave to lay down the ground rules that simply goods coming from UAE or shipments made from UAE will not qualify for the concessional duty benefit under the India UAE CEPA and, every sourcing person as well as customs and other stakeholders, especially in the movement of the goods, have to be very thorough into an understanding of the legislation between India and UAE. The customs regulations need to be evaluated thoroughly so that there is no compliance challenge at a later stage to avoid all the fines, penalties, or litigations including the brand reputation. In short, every company must follow the law of the land.

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CEPA is expected to increase the total value of bilateral trade in goods to over US$100 billion and trade in services to over US$ 15 billion within five years.

UAE is the third largest trading partner with India, so India is going to benefit from the preferential market access provided by the UAE on over 97% of the tariff goods, which accounts for 99% of Indian export to the UAE in terms of value and more important, particularly from labour-intensive sectors like textile, leather, footwear, sports goods, plastics, furniture, and engineering products.

On the pharma side, the UAE, for the first time, has agreed that medicines or medical products approved by India will get market access and regulatory approvals in a time-bound manner, that is maybe around 90-days, which is currently taking more than six to eight months for an approval for a drug to be introduced in the market. For India, it will give market access to entire West Asia and Africa in all the above products basically because expanding the product range from UAE to the world is much easier than sending materials from India, so it offers a perfect gateway for the Indian products to get to the global market as well because most of the buyers are coming and buying it from the UAE market. For UAE, it would entail enhanced market access to India for its key exports such as petrochemicals, metal, and dates, in addition to the other normal products, which are currently being exported to India from UAE. With India projected to become the world's third-largest economy in the next decade, opportunities for UAE companies in the oil and non-oil sectors are going to be phenomenally high and benefit both countries.Ijustwant to mention one more thing because all along we have been talking about CEPA, only about the commodities and products, but CEPA also covers 11 service sectors and more than 100 subsectors like the real estate, advertising, telecom, construction, education, financial, travel, tourism, entertainment, sports, and transport. So, it also gives leverage and helps these industries to share knowledge and improve upon their services. India - UAE CEPA is the trade deal executed within the shortest time, which is the true reflection of faith between two trade partners, keeping the trade alive for mutual benefits.

So, the advantage is not only in terms of economy but also because these are all coming from labour-intensive industries, the job creation is also going to be phenomenally high for the Indian segment. Secondly, in the gold and jewellery sector, India will benefit from easier access to UAE through changes to the customs duty. It will mean that Indianmade jewellery, which is predominantly what is being sold in UAE, can be brought to UAE at competitive rates. The current duty is about 5%, which is going to be reduced. It should also help the jewellery industry operate out of India.

How can both the countries leverage CEPA and what are the immediate benefits of this partnership that you envisage?

When so many companies are being available in this country manufacturing various goods, it allows multi-brand and with this agreement, these brands have got the potential to enter the Indian market. For example, a simple product such as mineral water, there are plenty of plants available today in this country, natural water coming from Holland, Hungary, you name it, it's there. So, there are immense opportunities for brands to get into the Indian market, which allows the Indian people to have the luxury of having different brands, which can help not only in terms of availability of quality products but also in terms of the price benefits because when there is stiff competition, prices also become competitive. Secondly, Indian consumers will have varied options to select from for their requirements. India is the largest trade platform for UAE and that is only going to go up. CEPA is expected to increase the total value of bilateral trade in goods to over US$100 billion and trade in services to over US$ 15 billion within five years. Do you see a very concerted effort from the UAE Government in that direction that there will be a very certain and niche development with India as a part of the partnership in terms of very specific commodities or manufacturing sectors getting any leeway locally?

What is the significance of this trade agreement to UAE given that India's petroleum import bill is the largest single import item? There are more than 6000 foreign companies currently manufacturing products in this country and it is ever evolving. Every day we are getting requests from various global companies to set up their activities here. Now if you see the size of the non-oil trade exchange between UAE and India, it was almost about 45 billion dollars in the year 2021, which is immediately after the Covid-19 pandemic, which is a 60% jump from 2020. India accounts for about 14% of the total non-oil export of UAE to the world.

Let’s talk about the pharmaceutical industry; we are coming up with a project called the pharma city, which will spread over 200 acres of land where we are planning to bring in as many pharmaceutical companies across the world to come and manufacture their products in this country, especially after Mr. Amb. Dunston P Chief Operating Officer, The Royal Office of HH Sheikh Ahmed Bin Faisal Al Qassimi, UAE India - UAE CEPA is the trade deal executed within the shortest time, which is the true reflection of faith between two trade partners, keeping the trade alive for mutual benefits.

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This bilateral agreement between India and UAE, as a part of CEPA, will facilitate the Indian pharma products into the UAE market in a time-bound manner. I have worked closely with the Department of Commerce while making the draft version and negotiations with the UAE officials. To derive a decisive agreement, we analysed the current share of the Indian pharma industry in the UAE market, and we realized that as compared to Western pharma products, our share in the UAE is relatively low. One of the reasons is the longer timeframe required by the regulatory agencies for Indian pharmaceuticals to enter the market. Unlike any other commodities, for pharmaceuticals, once the entrepreneur has set up a manufacturing facility, he cannot immediately start exporting a pharma product into any country. He has to go through the regulatory procedures and that's the first step for marketing or exporting any pharma product into the country. Here itself, every Indian company is going through a long-run process of the regulatory regime by the agency. We attempted to reduce the timelines and identified the steps that can be done away with to ensure fasttracking of approvals. Once the application for the registration is filed, the first step is the inspection of the facility and post that usually the agency would do the complete dossier assessment or the compliance review of the dossier and after satisfying these two conditions, Market Authorization is given to that company to export that particular product into the market. As part of the CEPA agreement, the UAE has agreed to waive-off inspection of the manufacturing facilities located in India provided they have the approvals for those facilities by the stringent authorities of six countries namely the US, EU, UK, Australia, Canada, and Japan.

The Pharma sector in India is touted as a major beneficiary of CEPA owing to the bilateral corporation for the pharmaceuticals. What exactly does this mean for the Indian pharma industry and how is going to be benefited from this announcement?

I must say that this is the first of its kind cooperative agreement in the pharmaceutical space that India has signed with any country. It has paved the way for India's continuing negotiations in the pharma sector with other agencies and I am so pleased to mention that even Australia has taken a step ahead for such a bilateral agreement. Right after the UAE's negotiations, the Commerce Ministry started negotiations with Australia on similar provisions. We've received a positive response and we are moving ahead with a similar kind of proposal with the UK, EU, and Canada, wherein we are working with the concerned agencies in terms of facilitated access for Indian pharmaceutical companies.

Once that happens, India is also going to get benefited immensely because the global brands who are going to manufacture the medicines here, will be able to export these medicines to India as well. There is going to be an opportunity created for this industry both for India as well as the UAE.

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Kindly highlight the impact of Covid-19 on the procedural landscape. As far as the pharma sector is concerned, during the Covid-19 pandemic, there has been a lot of fast-tracking of procedures in place not just in the bilateral trade agreement, but in terms of the regulatory approvals as well. The widely used term across the globe in the last year, Emergency Use Authorization (EUA) of the Covid-19 vaccine, has been the result of such fast-tracking mechanisms only. Government agencies, health ministries, and even regulators globally have realized the emergency need for the availability of medicines for combating the Covid-19 crisis. They have taken these facilitated measures or accelerated approval processes. Covid-19 has hit the world in terms of the availability of medicines because of the ensuing supply chain disruptions, which has prompted Covid-19, the healthcare sector has been getting special attention from all quarters for almost all the countries and we, as a country, are looking at health sector in a very big way. We want to make sure that the medicines that are manufactured or are made available to the global market especially today if you see, most of the African markets don't have the facility to reach out to common medicines, so we want to ensure they can get these products. We are planning to bring global brands from India. We have already received so many inquiries and 2-3 companies have already signed up for starting manufacturing facilities here.

Secondly, for the dossier evaluation, the UAE has agreed to waive off the complete assessment cycle as they would count on the assessment procedure followed by these six countries, and ultimately, they have agreed to reduce the timelines to 90 days for the grant of one particular product, which earlier used to take more than one year. These changing paradigms are going to facilitate the Indian companies for the faster entry of those molecules into the markets. Another important point we have noticed is that earlier the UAE Government used to insist on the marketability of a particular pharma product in at least any of the two developed countries, such as the UK and the US, but now under CEPA, the UAE has also agreed that if that particular pharma product is approved in any one of the countries, they will directly allow the access to that product into the market.

So, we were able to cut down quite many procedural challenges that the industry was facing for quite a long time.

Ms. Lakshmi Prasanna Ch - Director-Regulatory Affairs,

Founder & CMD, Alpine Group, Chairman, Council for Leather Exports (CLE), India In terms of the diversification of our export product portfolio, what does this mean from a partnership?

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Our business-friendly policies have led to this improvement in the ease of doing business. I also believe the services sector can hugely benefit from this agreement.

It’s a very important point of discussion at this point wherein a lot of SMEs are aiming to enter the international market. While we might only hear the mentions of global pharma leaders in international markets, such as Dr. Reddy’s or Aurobindo Pharma, their backward linkages have been closely associated and integrated with the Indian MSMEs. In most cases, the pharma giants’ CRAMs (Contract Research and Manufacturing) have been assigned to the SMEs. One of the studies clearly shows that 90% of the domestic pharma market has been catered to by the MSMEs and the majority of the export-related trade has been taken care of by the large-scale units and even in the export, the study clearly shows that 50% of the exports are having some contribution from MSMEs, either through the contract manufacturing or outsourcing. Having said that, it's also a fact that MSMEs are confining their export positions into the rest of the world market, measurably Africa and ASEAN. The India-UAE CEPA agreement has given the tariff concession for more than 100 pharma products and majorly on APIs, which will be a great boost for both large companies as well as MSMEs. With the planned pharma city in the UAE, which is slated to cater to the needs of the African market and other GCC markets, MSMEs are going to have greater market access to the UAE. A lot of talks are underway to have technology transfer from the Indian pharma companies. All in all, it’s a great opportunity for the pharma sector. We have been facilitating many SMEs through various incentives and business-friendly schemes and year on year, we are seeing a huge jump in terms of the number of SMEs getting into the international market. This agreement would further enhance their strength in the international market and make them more competitive.

The US has been a substantial market for us. Almost a quarter of our exports have been going to the US. On the other hand, the EU, all put together, almost accounted for half of India's exports. Between the US and the EU, we have close to three-fourths of our exports. 77% of our exports are directed in that direction. West Asia, North Africa, and the rest of Africa have only accounted for about 6% of our total exports. The scope to take this up is tremendous. I feel that the FTA that has been signed with the UAE, opens up a lot of doors for us, be it the African market, and is a gateway for the balance of GCC countries. It is, in fact, also a gateway for exports into Russia and certain parts of Southern Europe. So, the potential to make this business grow is huge and I think with the FTA and the reduction of duties, our competitiveness has increased tremendously. There's a huge market waiting to be tapped for the Indian footwear industry, especially in the UAE. That is something that we are all looking at taking on a much larger scale. Our industry was present in quite a large number at a recent show in Dubai and every industry member felt that we now need to look at the UAE as a potential market and not just as a route into other markets and I think that's the direction that we are taking, and I am extremely optimistic about the promising development. This is a time when there are a lot of opportunities to attract FDI into India in all sectors. Even in the manufacturing sector, with this partnership with the UAE, I think those doors can open up and a lot more partnerships could get created.

What does this partnership mean for the Indian SMEs?

Mr. Sanjay Leekha

The current export of Leather, Leather products & footwear from India to UAE is not very substantial. However, with CEPA, the potential to make this grow is now attainable. I expect that in the next 2-3 years, we will see major growth in the Leather sector export to this destination. I also expect to see new partnerships being created in our sector between stakeholders on both sides. the policy makers towards indigenizing pharmaceutical requirements for the respective countries. Today every country is working towards strengthening the local manufacturing capacity of their pharmaceutical requirements. One most important aspect that warrants our attention is that developing a pharmaceutical facility is a long-drawn process, requiring technical know-how besides getting the elementary approvals and regulatory compliances in check.

Instead of this, there should be some alternative mechanism to immediately address the requirements of the medical needs of the country and there exactly such bilateral trade agreements enhance the accessibility of these medicines, especially the essential medicines or even to some extent the APIs – the basic raw materials needed for these formulations. In that sense, even the bilateral trade agreements have gained pace.

In essence, the world has learned the concept and the execution of the supply chain from the Army. In due course of time, the global supply chains got interconnected by sea, air, and communication, and technology played a transformative role in the case of the corporate and the commercial supply chain vis-à-vis the army. These changes in the corporate supply chains have far outstripped the army supply chain because the armed forces have to be conscious of the security needs, which is even the case with the advanced army like the US. However, armed forces, on their own part, have been injecting technology to ensure better inventory control, transportation management, etc. During my stint as the Director General of Supplies & Transport, I received a number of proposals to track our transport using advanced technologies such as GPS and other tools. While we have no such adverse relation with companies managing such technologies, we did not want to expose ourselves to somebody else to track our base locations because one must realize that logistics give away the size of the armed force and if I can track the realtime location of my vehicles through such Apps, then for sure, anyone else too can have this confidential data, no matter how failproof the system is. That’s precisely the reason that in the defence supply chain, we have to use our conventional means of navigation and not the GPS. That’s the reason we've been a little slow in transforming the supply chains.The second biggest difference is, in the case of corporates, you work on profits and just-in-time logistics. In fact, interestingly, recently I attended a seminar where one of the officials highlighted that nowadays our management doesn't say cut cost, they say vanish the cost and that the supply chain cost must be eliminated.

How do you view the supply chain from the defence parlance and how different is it from the other sectoral supply chains?

It is no secret that the function of Supply Chain Management and logistics originated from the armed forces when invading armies had to plan their sustenance for the period of the campaign, which was later adopted and refined by the industry. Centuries back, the communities lived on a barter system within the localized commercial dealings. It was only the invading army who had to plan their logistics while operating away from their bases. They used to think on the lines of self-containment as to how much to carry with them. They had to think about the lines of the transportation means they would use if it would be the donkeys, bullock carts, camels, or any other means of transport.

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On the contrary, in the case of the army and the defence, you work on just-in-case logistics. We cannot afford failure in the combat zone. That’s why we have reserves at the unit level, at the formation level right till the end because we can have no reasons to fail. There are no runners-up in WAR and logisticians certainly don’t want to be the cause of any Indian army’s setback. These are the major differences

“The industry must possess reserve finances to ensure resilience in the system to sustain at least the initial disruption period till alternate arrangements are made. It is interesting to learn that the supply chain in the armed forces has inbuilt resilience by advanced planning as also having clauses in the procurement manuals, which permit placing of repeat orders.”

Lt Gen Balbir Singh Sandhu, AVSM,VSM,PhD is the former Director General Supplies and Transport ( DGST) of Indian Army. He is a distinguished Fellow and holds a chair of excellence at the United Services Institution of India (USI). He has completed his PhD on peace, Security and Economic Development of Northeast India.

A firm believer in ‘Solution is the sole option and failure is not an option in the Armed Forces, Lt Gen Balbir Singh Sandhu speaks to Celerity about the experiences & expertise of managing the toughest supply chain – the Army and achieving the impossible feat. no room for FAILURE of SCM

During WAR, there’s

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One more important point I would like to bring to your notice is that at times of war, the challenges are even greater because, at that point in time, their consumption requirements shift from basic necessities such as food to ammunition and fuel for vehicles. Our job has always been to think about the unprecedented demands that may arise during such situations, plan the logistics in advance and be ready to serve the battalion with all their desired requirements on time every time. The art of logistics is supposed to be putting the right material in the right quantity at the right place at the right time.

What are the unique aspects of a military supplier chain?

How do the armed forces manage such a huge task?

First & foremost is that the Army supply chain works on a just-in-case model. The second and the most important aspect is the diversity of the terrain we have to cater to. It can be glaciated terrains like Siachen or the island territories like Andaman Nicobar or even deserts. So, the varied terrain and the expanse of logistics are what make our lives most exciting and the most challenging at the same time. Additionally, there are hinterland supply chains, such as Delhi or Mumbai. In the case of armed forces, while initially, we would be moving goods via train from the production facilities, then by vehicles of bigger sizes, then by vehicles of smaller sizes. During the last mile, we might have a transfer point to transport goods onto animals. The kind of terrain decides the mode of transport because, at some places, we also need to airdrop the goods where practically there is no means to even travel. In the case of islands like Andaman Nicobar, the last mile connectivity can be via ship. Another important aspect is we rely heavily on local resources to the extent feasible because that's the best and the cheapest way of doing things. It also allows the local economy to grow. Peculiarities are many and complications of military logistics are for more than corporate logistics. Having said that, the basic principles of logistics remain the same. You can’t replace forethought, planning, flexibility, simplicity of the plan, use of information, and communication from any supply chain as they are the foundation pillars of any supply chain. The principle stays the same and there is a lot to learn from each other.

Inventory management plays a huge role in the scheme of things. How do you do that?

in the armed forces supply chain vis-a-vis the corporate supply chain.

It is an evolutionary process. Just remember that armed forces have not come into being overnight and we have certain procedures, which we have inherited historically, and we try to improve upon them over a period of time. For instance, there used to be a longer response time because of physical signatures needed at all points of authority. Nowadays, it has been completely digitized. Armed forces primarily work on a push model and not a pull model. If I am in Delhi as the head of my service, it is my duty to procure things and make them reach within easy reach of people deployed in J&K, North East, Andaman & Nicobar. With better communication, managing such tasks is a bit easier, and we have set SOPs by which we ask the formations to give their demand far in advance, say a year ahead or so. This year, we will make the compilation of the demands for the next year, which also takes into account if there is any change of troops. We follow a very detailed and meticulous system with the flexibility to change at any given point. It is an interactive process that ensures seamless logistics. We monitor at each higher level. There are authorities at all levels responsible for planning, procuring, and dispatching demands at the last mile. The timelines are well chalked out and we are aware not to fall beyond a certain timeline. Earlier we used to give extensions to our suppliers, but I took a step and discontinue the practice because you might get delayed in reaching goods to the last mile and everyone is well aware of the fact that one point failure can have a catastrophic impact on the whole chain. In short, we keep on updating and bringing in innovations at every single point and process as much as we can to not only ensure smooth supply chain ops but also ensure economies of scale.

For the last few years, we have been working on deploying automation. For instance, with better connectivity between Delhi and Chandigarh, Chandigarh and Ganganagar, or any other forward post, we are having the ability to see through the inventory at various locations so that we can put that push model into play. We also work at reducing the inventory by outsourcing and delegating powers for the localized requirement of certain items. While inventory management is an issue, which will always be a challenge, authorities at various levels are empowered to give the local purchase sanction of an item, which could not reach through the central procurement. As time goes by, the challenge is visibility in the next echelon, that is ahead or behind.

The quality control, which is enforced by the experts, is now performed by the local suppliers, which has become a very fine balance. I firmly believe, “Solution is the sole option and failure is not an option in the Armed Forces.”

First, let me tell you what the military can learn from corporates. The military can obviously upgrade technology as is being used by the corporates and have more tangible outcomes. On the other side, having a contingency plan is what corporates can learn from the Army. The covid-19 pandemic is the biggest proof of why corporates need a contingency plan and risk assessment capability.

What are still the prevailing challenges in army supplies on borders and how should the government work on them on priority to ensure a seamless supply chain? Anything which we do against the grain of population or against the grain of civilization needs more effort. The mountains are supposed to be lived in by a very sparse population, all in nature, however, because of geopolitical compulsions or border disputes, we are now required to put a large number of troops in an unnatural environment. If we want our troops to combat in such conditions, they need to be well fed, well clothed, need to be comfortable, and above all, they need to feel cared for so that their morale is high and that's what gets you back the peaks like Kargil and others. To do this unnatural deployment, we need to move a higher quantity of goods to remote areas, and let me assure you that for a place like Ladakh and other mountainous areas, there is always the provision of advanced winter stalking.

When I was posted in Manipur as the Colonel in the insurgency area, the troops were deployed in penny packets. As per the army system, they are all supposed to come and pick up their rations for daily needs 2 or 3 times a week from a certain place and they are operating in very remote areas. There is only one route, and the militants can easily track their route and time of picking up the daily supplies, which poses a greater danger of an ambush. There is a pattern in the army that convoys that deliver such goods to the troops get ambushed. To ultimately try and break that pattern, we thought out-of-the-box. The supplies which we used to give for 15 days, we started giving for one month and there was no set day for dry ration, but for fresh stuff, we told the contractor to deliver it at every post because a civil vehicle can easily move in those areas. Outsourcing the delivery was a very simple thing, through which we could break that predictability pattern.

There have been many lessons that corporates can learn from the defence supply chain. Could you elaborate on a few, that they can really take on and have a very strong supply chain network?

While corporates are ahead in adopting new age technology, there has to be a certain human angle to the supply chain where they must reward and acknowledge the efforts of the critical players in the entire supply chain. Profits are important, but companies must reward these pillars of the value chain, which could at times, just be the lorry drivers. Additionally, the push model should be implemented, to an extent, in the corporate world to push things forward to the next line with better cooperation. Sense and respond kind of a model should be adopted so that there is a better distribution of commodities, which are in short supply. After the 2011 tsunami in Japan, Infusion of technology will be the biggest catalyst. While you can’t try to have a one-size-fits-all solution for the Army as the Indian defence challenges are totally different from the ones faced by the West. We are surrounded by two biggest adversaries who are nuclear powered, who also collude with each other, and India’s growing economy and critical stage threaten both of them. We have to continue to integrate and sustain ourselves so that we can grow as a country. If I had to sum up national security in one word, it is the Economy and if the economy is doing well, even one and a half percent of the economy will make much more money for modernization.

For that, the planning at the center starts more than a year in advance. As you move towards the border, you start spreading laterally and the requirement is less at each place. Some areas are so inaccessible that even a jeep can’t move. So, you have to move goods by Air. At times, even a helicopter can't land, so you have to do an airdrop in the mountainous areas and then there are valleys where at times, half the stuff goes down and never gets recovered. The challenge for the government today is working on improving the infrastructure in the border areas and I have always been of the view that you have to use such infrastructure, both for the military and the civil population, and once you start doing that, there will be better integration and they will be economy in logistics.Atthe same time, what we have been seeing right now is that while the government has been emphasizing a lot on infrastructure development in the North Eastern border areas, there has been again a challenge of ecoconservation and the growing instances of landslides. It's a catch-22 situation. In 2017 as the head of the service, when I visited the same area, I was shocked to see the number of roads that have come up over there lately. We have to become extra conscious as to what steps can we take to rejuvenate the jungles and the environment so that they do not put us in trouble someday. We have just seen what happened in Manipur recently.

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Air Force has always played a very critical role, where at times, the pilots have to fly very close to the Line of Control, endanger themselves, and land in certain forward airfields, which are not well equipped but that is the acumen of Indian pilots who understand their role to look after the troops that are deployed in more difficult areas; and we have seen them showcasing their mettle during Kargil and other operations at the higher altitude. The ability of the air force pilots to go beyond the stated heights that their equipment can go is the stuff of legend and they've often crossed the barriers and put their life at risk but made sure the furthest most soldiers get what they require.The limitation arises as they move towards higher altitudes, which in particular, do not allow aircraft to lift the number of loads they would normally be able to lift because there is a lot of pressure on the aircraft during the daytime. In order to achieve this challenging task to send a higher amount of cargo, the people in-charge of delivery ops, load the goods at night so that the aircraft is ready to take off in the early morning before the sun rises. Early morning, there is no such restriction for the aircraft to be able to lift load and they can go the full load. The effect of high altitude and heat comes into play at around noon time. I, myself, have been witness to the boldest moves and maneuvers by the pilots; they respond very well, and they continue to perform these duties in the high-altitude areas. Interestingly, I had the opportunity to witness this gigantic task up, close & personal. The aircraft landed with around 30 people in the morning on glaciated terrain, the moment we started the return journey at around 11 am, the Air Force officer informed me that the aircraft can’t carry more than 4 passengers including the pilot & the co-pilot. It is just one of the incidences demonstrating the Air Force’s might in ensuring supply chain ops and thinking beyond the unthinkable to deliver goods in time.

If I had to sum up national security in one word, it is the Economy and if the economy is doing well, even one and a half percent of the economy will make much more money for modernization.

INTERVIEW 39supplychaintribe.com

The infusion of technology will be the biggest catalyst. While you can’t try to have a one-size-fits-all solution for the Army as the Indian defence challenges are totally different from the ones faced by the West. We are surrounded by two biggest adversaries who are nuclear powered, who also collude with each other, and India's growing economy and critical stage threaten both of them. We have to continue to integrate and sustain ourselves so that we can grow as a country.

Cisco and Boeing revisited their supply chain to mitigate the risk of depending on the source of supply located in one region. There is a need for diversification of sources of supply and building provisions to ramp up the capacity of alternate sources when the main one gets disrupted. The current crisis has also highlighted the need for near sourcing and indigenization because businesses dependent on global sourcing are likely to be impacted more during such global crises, the frequency of which is now on the Asincrease.wegrapple with this historic crisis, a lot is expected to change in all spheres, and the supply chain needs to transform the most in a globalized and interdependent economic environment. Digitization and innovative use of technology will lead the change. Manufacturers may become less materialistic and go for multiple procurement sources even if that is not the most economical choice. Resilient, lean, and agile supply chain systems backed by technology will be a matter of necessity and not choice in case businesses must survive future shocks and disruptions. What, according to you, is the mantra of a successful supply chain?

For me, forethought, planning, and flexibility are the top three levers of a successful supply chain. If you plan in advance and be flexible with that plan, you will succeed. It will result in economy and higher customer satisfaction. A better-integrated supply chain with the national supply chain will be more reliable and sustainable, remember it is the resilient supply chain, which can ensure effectiveness for the sustainable period. Kindly share with us the indispensable role that the Air Force plays in logistics.

The fulcrum of activity has shifted to the IndoPacific. There is a need for collaboration between those who believe in the Rule of Law and that is what brings more and more cooperation between India and the US. India strongly believes in a multilateral way of operations and that is already proved by India’s stance on Ukraine. Logistics co-operation will ensure that there is stability in every region and that is the area where we are currently putting a lot of thrust on.

Would you like to give any suggestions to the government in ensuring seamless logistical operations? I think the government is already aware and is working towards integrating interservice logistics and national and military logistics, which is the part of the process for years. I would only say that in order to achieve economies at the national level and to achieve better growth for the national economy, integration of military and civil logistics, integration between the various ministries and various services – Army, Navy, Air Force, must be given the highest priority so that we get better value for every money spent and offers us a better degree of readiness. What are the global best practices that you feel India should emulate in terms of the supply chain?

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CELERITY SUPPLY CHAIN TRIBE SEPTEMBER 2022

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