No one knows for certain how things will play out in the days to come. But, the key to how the broken supply chains of today function will depend a lot on what links the chains: logistics.

As the covid-19 disease mercilessly snakes its way to every nook and cranny in the world, it has been leaving behind a trail of largescale devastation and widespread despair. The world, already in the throes of a slowdown when the first outbreak was reported in China in December last, is now teetering on the brink of an economic disaster that would be hard to come out of. The global textiles-apparel fashion industry is down in the dumps, and the much-vaunted value chain—or, supply chain as others might want to look at it as—is broken in far too many points for comfort.

The discourse in the industry which started off as ruminations and speculations about what things might look like in a post-covid world has since veered towards more pragmatic deliberations. As scientific temper dawns on one and all, a scary and disconcerting truth stands stark: the coronavirus might not just go away after all and intermittent lockdowns the world over could well be a reality for months to come. Increasingly, therefore, the conversation is of making the industry pandemic-proof.

There is also increasing admission of the fact that this industry, as any other, was caught on the wrong foot in what is widely acknowledged as a Black Swan event. Many fixes are being proposed—some even already being hammered into place—at various levels and in different geographies. There are also many angles from which people are perceiving the problems, one of them being the supply chain issue. For an industry so vast and diverse in scope, scale and spread, how the supply chain will work in the future so that it can withstand shocks, especially since scientists have been repeatedly warning of similar virus outbreaks in the future, would depend considerably on an indispensable subset of the supply chain that keeps it all together: logistics.

But whether fashion will shape logistics or if it will be the other way around is anybody's guess for the moment. The industry is in turmoil and gazing at a crystal ball at this juncture serves no purpose. The problem is compounded by the fact that things are not just in a flux (for they always are, as Greek philosopher Heraclitus had pointed out 2,500 years ago), but that everything is hopelessly uncertain. In such a scenario, it would be prudent to keep an eye open for what is happening or might happen. Or, not. All this, to be fair to our subject at hand, from a logistics point of view.

Consumption and its unexpected effects

When the covid-19 infectious disease was beginning to strike parts of Europe, there were many who believed that once the outbreak had subsided after 2–3 months business would slowly get back on track. Three deathly months after the disease was declared a pandemic by the World Health Organization (WHO), the retail sector has plummeted to nadir. A day does not go by when one retail chain does not close many of its stores. Behemoth Inditex, the owner of Zara, has already decided to shutter over 1,200 stores worldwide. When Inditex, pioneers of cutting-edge supply chain management ideas that worked at lightning speed, cannot hold out against a retail shock, it is time to turn the idea of logistics on its head. The pandemic has blunted that (cutting) egde.

Meanwhile, the usual refrain is that consumers are not visiting stores in cities where lockdown measures have been eased is either because of the still-enforced measures of social distancing among others or because that wary customers are avoiding crowds like the plague. There is precious little discussion on the possibility that people might not be visiting stores because they don't have the money to splurge on clothes anymore. In April, the International Labour Organization (ILO) had said that 1.6 billion workers in the informal economy—roughly half of the global workforce—stood in immediate danger of having their livelihoods destroyed.  And that was just one month into the pandemic. In the US alone, the job losses had crossed 40 million in May-end.

As job losses keep mounting, leave alone plateauing, consumption levels will keep dipping at a pace faster than that of job losses. The sectors that keep going, albeit with constraints, are food and health, especially medicines. Apparel comes later; but people will still need to buy clothes, possibly at lower price points. Both in-house logistics departments as well as 3PL (third-party logistics) companies will need streamline themselves more towards price points. It would become increasingly difficult to maintain the balance between volume of units against volume of revenues. This, of course, would be in addition to maintaining minimum lead times and shorter supply chains.

Looking at inventories, differently

One of the key elements in the pre-covid era was that you could afford to maintain low inventories because supplies were assured of within a matter of days. That element has, since, turned out to be the bane of many. When China, in the first two months of this calendar year, entered the lockdown mode, there were many chains and stores that temporarily shut shop because they had run out of stock—even before the covid-19 outbreak was still to hit their shores. For years, it had been drilled into companies that the less inventory you maintained, the leaner you were. The concept of buffer stocks had been relegated to history. To be fair, such ideas did have their upside. But not today.

The ongoing pandemic, however, has shown that those in the retail sector that had maintained larger inventories were able to mitigate the supply chain disruption for a longer period. They have not had to sit on piles of excess stocks since production levels in the apparel-manufacturing countries are still a trickle. While China has been able to ramp up production to a considerable level, other major apparel exporters are still licking their wounds. Maintaining a sufficient inventory, however, does not work all the time; such a policy comes to your rescue only at times such as this.

Both retailers and brands at one end and manufacturers at the other will now need to think and act on their feet like never earlier. This would obviously have to entail better, leaner and real-time coordination. Monitoring inventory levels, dovetailing production schedules and maintaining the flow of products in between all have to work towards minimising, if not eliminating altogether, disruption possibilities. Logistics, therefore, would have to be 100 per cent digital and form the core of supply chain management. It would be more efficacious to move away from the hitherto linear way of inventory “management” to an inter-connected means of inventory “movement.” Logistics would make this happen, and inventory management will give way to inventory optimisation.

Beyond near-shoring and local sourcing

Ever since China went on to become the manufacturing hub of the world—particularly after the Great Recession of 2007–09, there have been efforts to move sourcing and manufacturing away from that country. These efforts, more often political in nature than not, have taken different dimensions and hues: from reshoring and local sourcing (as in moving manufacturing or sourcing back) to nearshoring (as in cutting short lead times). These have worked either in fits and starts or been confined to specific industries. Most of the advocacy arguments pivoted on the need to move away from being China-dependent. These have gained currency as the covid-19 pandemic rages on.

As more companies and individuals keep buying into this line of reasoning, they seemingly disregard the fact that none of these are future-proof. The idea of re-shoring to ensure jobs, of course, cannot be discounted; every country needs to generate employment. But, simply local sourcing or near-shoring would still leave companies vulnerable to future outbreaks or other unforeseeable circumstances. This has been demonstrated amply. When China locked itself out from the world in January and February, many apparel-producing countries projected themselves as alternatives—only to go down as well. Factories in Cambodia and Vietnam ran out of raw materials that they would import from China, and all forms of production in India came to a grinding halt with the lockdown.

The reasoned thing to do henceforth would be to go in for multiple-sourcing or, if that is not practicable, at least alternative sourcing (to be changed at moment's notice). After all, that is what the idiom about not putting all eggs in one basket is all about. If putting all the eggs in the China basket left everyone high and dry, the same could happen if one did with a Myanmar hamper. Spreading one's sourcing out—though not too thinly—would be a safer way out. Logistics, on that account, would need to work on a plug-and-play format. This would necessitate walking on a thin line and a wrong call at the wrong moment could sound the death knell of a company. In-house logistics wings of most companies are ill-equipped to handle such fluid situations. And, 3PL firms may need to work on an anywhere-to anywhere model. Any time.

Pinning logistics to risk management

The flurry of order cancellations a couple of months back that left apparel exporters deep in the red had, by and large, one element in common: the force majeure clause in contracts. Till this point not many in industry had even heard of it and few knew of the import of a proviso that would exist only in the fine print of agreements. Brands that cancelled orders that had already been manufactured came under fire, and the debate became more about wriggling out of contracts. But force majeure in itself is about extraordinary circumstances beyond one’s control. This is not about the contention about whether force majeure clauses should exist at all, but the possibility of "extraordinary circumstances" in the future. These usually include wars, riots, crimes and "acts of God."

What were once mere possibilities are fast turning into realities. As the covid-19 pandemic keeps widening the existing fault lines in society the world over, life itself cannot be normal anymore and by extension of the logic neither can business be so. Wars are not likely to break out (but, who knows), but border tensions are enough to disrupt business flow as the scuffle between India and China at Gangwan Valley has shown. Calls for boycott of Chinese products have reached a feverish pitch in India, and similar political tension can break out anywhere, especially given that many countries under acute financial distress exacerbated by the pandemic are on a short fuse. Right now, internal turbulence is what has been keeping many countries on the edge.

As these instances of turbulence take divergent dimensions in different geopolitical contexts—from violent protests to outright riots, and from the US and UK to Venezuela and Lebanon, business for sure stands disrupted. Companies will need to track all such internal disturbances in the days to come, and this would hold true for both ends of the spectrum—markets as well as producers. With countless companies already being cash-strapped, logistics would not just be about risk management. More companies would now become risk-averse. Managing can come later.

There is also one fact that has been downplayed all this while—why did the covid-19 outbreak which started as an epidemic in Wuhan, China become a Black Swan event after all? Industries and companies (as also governments the world over) could not see the disaster coming at them because they had no clue what a pandemic was. If lessons have been learnt, it can lead to more experts with science backgrounds (epidemiology and others) advising on risks. Logistics cannot stay rooted only in management theories and business processes. The thinking process itself needs to change.

Readying for the future

Anyone who keeps the argument confined to making the industry pandemic-proof would be missing the point. The covid-19 pandemic has already taught us that business needs to be future-proof, pandemics included. The standard operating procedures (SOPs) of logistics in the future will have to be fluid, very necessarily having the ability to adapt to any situation at a moment’s notice, preferably instantaneously. Contingency plans would have to be built into these procedures. And leaders cannot afford to be managers anymore; they would have to act like thinkers.

This article was first published in the July 2020 edition of the print magazine.