Critically evaluate what is considered to be the most important and relevant contractual, legislative/or regulatory arrangements that are involved in the commercial arrangement of delivering the procurement and supply of goods and services at your organization in 2022 and in the future?

1. Introduction:

Have we ever wondered why some countries are ahead of others when it comes to attracting outsourcing jobs from the US and Europe? How does a small country like Bangladesh become one of the top global manufacturers of readymade garments (RMG)? Is it because of the availability of cheap worker? But then, how could Bangladesh lose out to the Philippines when it comes to Business Process Outsourcing (BPO)? Now, if you say this is because Filipinos are generally much better at English than the average Bangladeshi, then how come the former concede significant ground to India when it comes to software development despite having much better English proficiency and a higher literacy rate?

Answers to all these questions are related to factors influencing business-to-business (B2B) partnerships, such as how one partner is chosen over another at a remote location; how, in a particular business, different segments follow different preferences while striking partnerships; how buyer-seller power dynamics play out during the procurement process; and various other issues leading to awarding contracts.

Now, let us explore the above-mentioned questions from a different perspective. Tech research and consulting firm Gartner last year found that 80% of the world’s logistics heads have seen their outsourcing budget grow by 5% by 2020 (Outsource Accelerator, 2021). It is because outsourcing has largely been conducive for them in fulfilling their end-to-end supply chain and other business goals. But does it mean that countries in their respective outsourcing segments will continue to dominate globally in the years to come?

Technologies like robotic process automation (RPA) and many others powered by artificial intelligence and machine learning are increasingly coming into the scene. Even in traditional BPOs, cybersecurity and data protection are becoming significant issues to deal with. More advanced and newer technologies are constantly threatening low-skilled jobs while creating new opportunities for high-skilled ones. What does it mean?

It means that the outsourcing industry worldwide is not going to shrink; rather, quite the opposite trend is being reported. But the industry itself is constantly changing and reshaping in terms of required skills, calling for greater ability to adapt to the changing nature of the jobs. With more frequent changes in jobs and skill requirements, the competition for stakes in the outsourcing market is going to be even more intensified, with a high potential for strong new entrants joining the race in the upcoming years. In such a scenario, the balance of power would be further tilted towards organizations looking for offshore logistics partners during the negotiation process. However, a completely different and contrasting buyer-seller dynamic can be observed in the context of India’s agriculture sector.

2. Indian government’s withdrawal of three new farm laws: A Case for Buyer-Supplier Power Dynamics:

The Indian government was forced to take back three new farm laws in November 2021 following a year-long protest by farmers from states such as Punjab, Haryana and the western part of Uttar Pradesh. The government tried its best, both through flexing muscles and through several rounds of negotiations, to convince the farmers of the benefits of the three new bills. At last, the government had to concede defeat, taking them back just a few months before elections in five highly important states.

A number of industry leaders supported these bills and, upon their repeal, expressed concern about their impact on exports and the related food processing industry. (Seth 2021) Those in favor advocated these bills being an expansionary reform that had been long overdue for the agriculture sector.

Both the government and those who have a dominating presence in the industry echoed that these firm laws would have created new growth opportunities for Indian farmers as they would have been able to sell their agricultural products directly to the private companies, bypassing the APMC (Agricultural Produce Market Committee) markets and the middlemen. They would also suggest how these laws would have made way for farmers to get into large-scale contract farming, thus scaling up productivity and better storage systems resulting in reduced wastage. Most importantly, as they claimed, farmers would have received a much better price for their product compared to what they get now. (Bhushan and Anand 2021)

Farmers, on the other hand, were suspicious of the government’s intent, given its pro-capitalist policy practices, as exemplified by large scale tax-cuts to the country’s select few business houses, and also by the continuous privatization drive of public sector units (PSUs), such as Air India, a former government-owned airline. The sticking point, however, for the farmers was that there was no mention of MSPs in these farm laws. The MSP or minimum support price, launched in the 1960s under the APMC acts, was one of the most successful welfare systems introduced by an Indian government.

Under this system, the government procures certain major crops (over 23 now), if they remain unsold in the APMC market, for a minimum support price through FCI (Food Corporation of India), and the government, then, uses these crops for its various other welfare schemes. Over the years, this has performed as a safety cushion for the farmers. However, since the 1990s, the APMC market system has been involved in a number of malpractices, gradually shifting its focus away from providing better infrastructure for farmers and toward profit maximization. Middlemen have become overpowering, exploitative figures, while government procurement through MSPs is not equally practiced across the states. (The Indian Express 2020)

Throughout the farmers' protests, there was an ever-increasing demand for MSPs to be made mandatory by law. The rationality behind a mandatory MSP now requires a different discussion altogether. But even the farmers have agreed that India’s agriculture sector needs reforms.

In this battle over farm laws between farmers as suppliers and the government as a buyer, the latter had to concede defeat, at least for now. Maybe it was the very nature of how the government introduced the bills and bulldozed through the parliament to turn them into laws overnight that escalated the elements of suspicion among the farmers, which did not dissipate ever since.

The power dynamics between a buyer and a seller depend on a lot of issues. The electoral power held by farmers played a significant role in forcing the repeal of these laws. But the same power dynamics could act unfavorably for the farmers if they were to negotiate directly with large business corporations, a potential reality that proved too inhibiting for the farmers to even consider the idea of lucrative contract farming.

India’s agricultural and processed food sector is showing a strong revival following the economic downturn in the last couple of years. The ongoing 2021-22 fiscal year has already recorded $23.1 billion in exports in this sector, well on course to meet the annual target. However, the MSP-style welfare structure could overburden the economy and disrupt the fair distribution of government investment in agriculture. So, private sector procurement should be encouraged through different policies, but not without the consent of the farmers. (Ministry of Commerce and Industry, India 2022)

APMC’s structural reform could yield greater value for agricultural products, which would be a win-win scenario for both the farmers and the business organizations. Value creation is an important aspect of the commercial management of procurement and supply chain. As suggested by Lowe and Leiringer (2006), “Value can be read from an economic, marketing and business perspective. Contemporary theory sees ‘value’ in a procurement sense, as a social construct; different firms in the procurement supply chain, dependent upon their position and power, will interpret value in different ways. To some, value in procurement will be the traditional ‘low price’; to others it will encompass a wider set of selection criteria such as soft values of compatibility, social chemistry, shared vision and co-operation. Hence, value in procurement is a social and political construct as well as being bounded by economic selectivity…”

Effective government policies taking farmers into confidence can genuinely lead to the creation of new opportunities for the agriculture sector and the associated processed food industry.

3. Supply Chain Management (SCM) and Logistics:

Supply chain and logistics are a significant part of the commercial management of an organization. Supply chain management (SCM) intends to manage and coordinate the overall flow of products or services through different departments and/or organizations, from their inception to their consumption.

While describing SCM, Bernard J. "Bud" Lalonde (1997) sees it as being “defined as the delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption.”

Though the idea of logistics predates that of SCM, the former, today, is considered just a part of the supply chain. While SCM focuses on the process of integrating workflows of various phases of a product’s journey from the beginning to reaching the consumer’s end, logistics, on the other hand, only focuses on ensuring customer satisfaction, dealing with the flow and storage of goods in an organization.

Supply Chain Management (SCM) is actually the evolved version of earlier logistics management with a more holistic approach towards buyer-supplier transactions. Earlier, the supplier’s and customer’s ends used to be viewed separately; thus segregated approaches were employed in their management. Over the years, industry leaders and academics have felt the need for a dyadic buyer-supplier relationship. (Cox et al. 2004)

With the growing realization of the need to view procurement value beyond cost reduction and compliance, this modern holistic approach to SCM gradually emerged. As industry leaders started to recognize how significant a procurement drive can be in terms of product innovation, revenue generation and customer satisfaction, SCM began to appear as a system in which the whole process of product inception to consumption is administered with a clear focus on achieving a sustained competitive advantage in the market. From procurement to product innovation to order management to transportation of products to customers, this whole process comes within the scope of supply chain management.

In the e-commerce sector, last mile delivery has been a big challenge across the world, especially in those countries where a small population is scattered over a large geographic area. This is definitely a logistics issue, for it is directly concerned with customer satisfaction in terms of product delivery time and cost. However, the logistics manager cannot solve the problem on his or her own. For that, the management of the supply chain has to take initiatives, such as making strategic partnerships with courier companies and local shops (for product drop off and pick up), and setting up warehouses in strategically important locations and employing a part-time local workforce. Offering services like same-day delivery and Q-commerce, which are in high demand in the global e-commerce industry, are the conceptions of SCM while maintaining and monitoring the smooth flow of quick delivery system comes under the logistics department.

4. India’s Last Mile Delivery Boom in E-commerce:

A country of India’s population size and density, it has a huge potential for growth in the last mile delivery segment. The country’s overall logistics market stands at a whopping $320 billion as of August 2021, of which $240 billion is contributed by shipping products by road. Going by the penetration rate of over 10 percent in India’s last mile delivery segment, RedSeer analysis has projected the market to reach $6 to $7 billion by 2024.

In a pandemic-hit economy, home delivery is increasingly becoming the most convenient way of shopping. Naturally, innovations in product delivery services, such as same-day delivery and Q-commerce, are grabbing attention in global e-commerce. The same-day delivery market has gone from $4,810.1 million in 2020 to an expected $16,739 million by 2027. (Singh 2021)

India’s Q-commerce or quick commerce portals like Swiggy, Instamart and Dunzo are driving the country’s e-commerce popularity, with annual shipments expected to reach 5000 million by 2025, a sharp increase from 1364 million in 2020. As the pandemic is still around the corner, it is expected that demand for home delivery services is going to persist. So, new innovations in this segment of the global e-commerce supply chain will remain dominant too.

5. Russia-Ukraine Crisis and Global Pandemic: A disruptive economy for procurement and supply chain:

Nothing could have been worse than an ongoing war between Russia and Ukraine when the world economy had already been struggling to cope up with a global pandemic. Russia and Ukraine are among the world’s largest wheat-producing nations, thus, a supply chain disruption has already been in view with regards to wheat exports to different parts of the world, especially to the African countries. Wheat is the main ingredient of bakery products, thus, a prolonged status quo of the war could lead to inflation not only in Africa but all over the world. (Mureithi 2022)

Food prices have already been on the rise across the globe, and they are still progressively rising. The upward march of fuel the price, too, indicates more threatening inflation and a severe downturn in the economy. The United Nation’s Food and Agricultural Organization (FAO) has just painted a gloomy picture (BBC 2022):

“The UN’s Food and Agricultural Organisation warned last month that food prices could rise by up to 20% as a result of the conflict in Ukraine, raising the risk of increased malnutrition across the world.

It has cut its world wheat projection for 2022 from 790 million tons to 784 million, because of the possibility that at least 20% of Ukraine's winter crop will not be harvested because of “direct destruction”.

But it said global cereal stocks could end the year 2.4% higher than the start because of stockpiles building up in Russia and Ukraine as both countries’ exports would shrink.”

Though the first three months of 2022 have seen some semblance of an economic recovery in the absence of strict lockdown, the Russia-Ukraine conflict is now posing a renewed challenge for the world economy to deal with.

The disruptive nature of the economy calls for different measures. While the challenges are huge, we should not forget that new challenges always open up some new opportunities as well. A supply chain manager must be diligent enough to explore different alternatives and should have the vision to explore new sources for procurement and supply. A supply chain manager may not be too comfortable with ‘manufacture to order,’ one-off procurement, or temporary partnership for procurement, but in the current economic climate, a supply chain head should not be too rigid to take up new opportunities, even if it is for the short-term.

Different industries demand different supply chain approaches. While awarding short-term temporary contracts suits well with the construction industry, a more settled setup like the food industry seeks long-term, proactive supply chain contracts. However, the current economic scenario is not an ideal one. So, looking for an ideal solution could eventually prove to be a futile practice.

No matter how bleak the overall picture may look, there is always a way or set of ways to lighten up things. Finding that is the challenge. Now is the time to look into the traditional process, but not necessarily remain limited to it. For example, a detailed cost and price analysis should be explored, factoring in all the relevant aspects of the internal as well as external environments. But with an inquisitive mind, one can always explore other avenues, innovating new ideas and solutions to supply chain practice.

6. Conclusion:

This is the age of information. Extensive data analysis to make informed decisions is now a common practice that organizations follow in order to gain competitive advantages in the market. Strategies such as environmental scanning, employing Porter’s generic strategies, or the 4 Ps are all aimed at gaining sustained competitive advantages in the market. For that, an organization’s resource base must be strengthened and kept updated over time. But while focusing on resources and strategies to gain an advantage over competitors, risk factors often get pushed to the backseat.

Risk factors are there in any business, and mitigating risks while maximizing profit is the fundamental principle of business. Risk management is at the core of business management. From risk identification to monitoring and adaptation of risk, an in-depth analysis needs to be carried out with the use of different risk management strategies.

7. Works Cited:

Outsource Accelerator. (2021). Ultimate outsourcing statistics and reports in 2021. [online] Available at: https://www.outsourceaccelerator.com/articles/outsourcing-statistics/ [Accessed 21 Apr. 2022].

Seth, D. (2021). How Repealing the Farm Laws Will Hit Exports and the Food Processing Sector. [online] Business Today. Available at: https://www.businesstoday.in/magazine/briefings/story/how-repealing-the-farm-laws-will-hit-exports-and-the-food-processing-sector-313612-2021-11-26 [Accessed 21 Apr. 2022].

Bhushan, R. and Anand, S. (2021). Farm law rollback: Move may hit sourcing and expansion plans of food processing companies. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/news/economy/agriculture/farm-law-rollback-move-may-hit-sourcing-and-expansion-plans-of-food-processing-companies/articleshow/87809474.cms [Accessed 21 Apr. 2022].

The Indian Express. (2020). Ideas Explained: How APMC markets went from being a solution to a problem. [online] Available at: https://indianexpress.com/article/explained/explained-ideas-how-apmc-markets-went-from-being-a-solution-to-a-problem-6864862/ [Accessed 21 Apr. 2022].

www.pib.gov.in. (n.d.). India’s agricultural and processed food products exports touched USD 21.5 billion in Apr–Feb 2021-22; all set to achieve annual target of USD 23.71 billion in current fiscal. [online] Available at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1809639 [Accessed 21 Apr. 2022].

Lowe, D. and Leiringer, R. eds., (2006). Commercial Management of Projects: Defining the Discipline. 1st ed. Blackwell Publishing Ltd, p.74.

Lalonde, B.J. "Bud (1997). Supply Chain Management: Myth or Reality? Supply Chain Management Review, [online] (Spring). Available at: https://www.scmr.com/article/supply_chain_management_myth_or_reality [Accessed 20 Apr. 2022].

Cox, A., Lonsdale, C., Sanderson, J. & Watson, G. (2004) Business Relationships for Competitive Advantage: Managing Alignment and Misalignment in Buyer and Supplier Transactions. Palgrave Macmillan, London.

Singh, A. (2021). The changing landscape of express delivery in the last mile delivery sector. [online] SMEFutures. Available at: https://smefutures.com/the-changing-landscape-of-express-delivery-in-the-last-mile-delivery-sector/ [Accessed 21 Apr. 2022].

Mureithi, C. (2022). The Russia-Ukraine war threatens Africa’s wheat supply. [online] Quartz Africa. Available at: https://qz.com/africa/2141561/the-war-in-ukraine-war-threatens-africas-wheat-supply/ [Accessed 21 Apr. 2022].

BBC. (2022). Ukraine war causes giant leap in global food prices, says UN. [online] Available at: https://www.bbc.com/news/business-61036715#:~:text=In%20the%20UK%2C%20industry%20experts,increased%20malnutrition%20across%20the%20world. [Accessed 21 Apr. 2022].