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].

COVID Pandemic: New Business Opportunities from Procurement and Supply Perspective

Did anybody ever imagine that Nokia, once the world’s largest mobile handset manufacturer, would almost go into oblivion in the face of a new entrant in the industry, namely Apple? It took just seven years for Nokia to go from being the market leader to getting sold to Microsoft in 2014. 

How could one explain that three of Indonesia’s current unicorns (companies with a market value of over US $1 billion)- GoJek, Tokopedia and Bukalapak- started their journey within two years of the 2008 global economic recession? It was a time when industry-leading organizations like Lehman Brothers and Washington Mutual suffered bankruptcies. (Tech Collective 2021)

Could we ever imagine that Apple’s entry into the smartphone market in 2007 would not only disrupt Nokia’s dominance in the market, but it will affect the sales of clocks, cameras, calendars, maps, and even gum? The emergence of smartphone culture has liberated consumers from the monotony of waiting at checkouts in supermalls, leading to a significant decline in the impulse buying we once used to do.

These are some of the realities that went against all odds, defying our sensible, rational expectations. For example, handset manufacturer Nokia, in the early 2000s, held as much as 40% of the global market, but since Apple’s iPhone launched in 2007, the Finnish company experienced a sharp decline in its market share, reaching as low as 3% in 2013. Nokia’s market dominance can also be described by the fact that it contributed one-fourth of Finland’s economic growth during the 1998-2007 period. (Lamberg 2019; Lane 2016)

The unexpected nature of these events definitely took all the stakeholders involved by surprise, and they had their impacts, be they positive or negative, worldwide. However, all these events may not, yet, be comparable to the ongoing global pandemic in terms of the latter’s severity of the negative impact felt across the world for more than two years now, and it is still counting.

The world has seen rapid changes over the past three decades in terms of globalization and the emergence of modern technology. It has only made businesses ever more competitive in a fast-paced world. When there was once insufficient information to make informed decisions in organizations, there is now an overflow of information coming in from all directions as a result of open and easy access to information technology. From lack of information to information overflow, this positive shift over the years has brought some challenges along the way. Today, the question is not about the quantity of information; rather, it is about interpreting information into knowledge that can be used to the organization’s advantage.

Global Impact of COVID 19:

The COVID-19 pandemic has severely affected people across the world, from their personal to social lives, leading to an economic crisis across the world. According to Statista, the world has lost around the US $2.96 trillion of economic output in the year 2020 alone. The United Nations, back in mid-2020, predicted the world would lose the US $8.5 trillion worth of economic output in two years. Almost every sector, from the economy to business, has faced challenges, many of which have never been seen before in human history. Millions of people have been reduced to extreme poverty as a result of the loss of jobs and businesses. (Statista; UN)

Small and medium-sized enterprises (SMEs) have been hit the hardest, given their lack of cash reserves to survive the indefinite lockdowns and shutdowns in almost every part of the world. As bilateral trade, too, was disrupted to a large extent, there was a severe shortage of daily commodities, including energy resources like gas and oil, in many parts of the world. Food security has been a huge cause of concern for poorer countries, including those in Africa. A mass vaccination drive has not been administered as successfully in developing and poor economies as has been in developed ones. In more than one and a half years since vaccination began, only around 65% of the world’s population got at least the first dose of the vaccine. But what is even more concerning is that Africa only got 20% of its total population partly vaccinated. (Our World in Data 2022)

Not all gloomy in the pandemic-hit World Economy:

The economy may have shown glimpses of recovery in 2021 with a 5.6% global economic growth predicted, but the growth was not expected to be evenly distributed across the world, with large contributions from the US and China predicted by the World Bank (WB 2021). The potential threat of another wave of COVID massacre, coupled with a huge discrepancy in vaccination drive, points to a slow recovery of the global economy, as it will take a considerable time for the world economy to go back to its pre-pandemic state.

The pandemic-induced lockdowns derailed economic activities, resulting in slower or negative growth across the world. Food and beverage, hotel and restaurant, aviation, public transport, education and other industries have been severely affected by the pandemic. There is a saying, however, that every crisis brings with it some opportunities as well. All that one needs to do is to identify those opportunities and utilize them to his or her business advantage. Resources and abilities required for this purpose are what David J. Teece terms Dynamic Capabilities (DC).

Businesses, both in major and minor economies, faced either permanent or temporary shutdowns. Yet, there are a few who not only survived this crisis, but eventually grew over this period in terms of financial output. While, in some sectors, the pandemic was felt a bit more intensely, there are sectors that have seen unprecedented growth, such as online education, takeaway food, grocery delivery, home fitness, online games and board games.

A closer look at these sectors would clearly show that these are nothing but alternative choices consumers consciously made in the face of the pandemic. The common factor in these choices is the use of internet-enabled digital devices, both from the buyer’s and consumer’s end. This is where technological innovation helpful. For example, education has been one of the worst-affected sectors since the global pandemic was declared. Indefinite closure of educational institutions, however, saw a growth of 426% in online education within the first year of the pandemic. Similarly, work-from-home contributed to extraordinary growth in gym and fitness products, video-conferencing tools like Zoom, home entertainments like board games, online games and internet-based streaming platforms like Netflix. (Mint Formations)

So, the innovation observed so far has been largely based on the strength of the internet. The online route was well-explored and adopted by a large number of people worldwide, as it has created significant value for both the business operations and end-users.

Business Opportunities and Successes during Pandemic:

Let us begin with an established company like Coca-Cola. The soft-drink giant’s supply chain has seen a digital shift recently, paving the way for faster, smoother and more accurate order processing. Earlier, it used to be done manually, which was time-consuming as well as not cost-effective. This is a standard example of how technology adoption can lead to improved operational performance.

Nike, the global footwear giant, has also gone online during the pandemic, introducing its digital ecosystem, which includes applications, such as the Nike app, the Nike Training Club, and the Nike Run Club. This way, they have moved closer to their customer base, without the interference of any intermediaries. By implementing this technology, Nike has tapped the ‘how to sell’ aspect of innovation. This digital transformation of customer-end operations will help them take a more customer-centric procurement approach, unlike the traditional approach in which value creation is limited to savings and compliance.

Early adoption of innovation or advanced technology has always yielded a certain number of competitive advantages. So, the companies that had a strong online presence from the pre-pandemic time found it much easier to keep their businesses operational as their customer base had already been used to it. IKEA, which sells ready-to-assemble furniture and kitchen products, did not face too many challenges in staying operational online as it had already gained a significant online presence even before the pandemic hit the global economy. Its competitive advantage can be attributed to its successful identification of market opportunities through scanning the external environment.

Environmental scanning is an effective tool used to analyze information found in the external environment of the organization with a view to making informed decisions regarding the organization’s future plan of action. The sole objective of scanning external events, trends and forces is to derive a sustained competitive advantage over competitors in the long run. To this effect, successful scanning requires an investment of both money and time over a period of at least three years. (Choo 1999)

Two Small-business Success Stories from Singapore:

Singapore, as a country, would rank higher than most others in terms of its COVID management measures. Still, their economy suffered significantly during the “circuit breaker,” a two-month lockdown measure to stop spreading the virus. Singapore has also been highly successful with its vaccination drive, thus, easing off the restrictions much earlier than many other developed economies. The Singapore government has also provided stimulus packages for various groups, such as Jobs Support Scheme (JSS). Yet, many had to close their business operations. The interesting fact is that Singapore has seen a lot of new businesses open up even during the pandemic-hit 2020, so much so that new businesses outnumbered the aggregate closures by 20,000, which was even larger than 2019’s number of 14,000. It was probably because a large number of people lost their jobs during the COVID crisis, and the government packages encouraged them to set up new businesses. (CAN 2021)

While many were forced to shut down their businesses, there are some motivating success stories found in the same market. The first success story is that of Ms. Sandra Sim. She was the owner of a successful Cantonese restaurant and bar, which she had to close during the pandemic crisis. She gave all her effort to save her business from being shut down, but when sales continued to decline even after the “circuit breaker,” she did not have any other choice but to stop the operations in the face of a struggle to meet the operational costs.

But, in the end, it is not all gloomy for Sim. After closing the restaurant, she launched a private dining service, which is going very well. She is also selling a new chicken dish online. This way, she is doing her business without having to commit a large fixed cost.

The second success story is that of a former sneaker shop owner Mr. Vince Foo, who, before the pandemic, was enjoying a profit margin of 45 to 55 percent on retail prices. However, as fate would have it, he made some wrong decisions during the pandemic. First of all, he kept his shop open for too long before going online and then invested too much in his inventory, which he would later clear by offering high discounts online.

Finally, Mr. Foo has found a new avenue of earning by using his experience in the sneaker business. He continues with his online business, but with a shifting focus from products to services. He is now offering training on customizing and refurbishing sneakers.

It is not that Ms. Sandra Sim and Mr. Vince Foo have been highly successful, but they have found their own ways to survive in business, while many others could not. Their success lies at this particular point in a pandemic-stretched economy.

Mr. Foo has looked to survive in the market by employing a product or service differentiation strategy in which he is offering something that would probably have less competition while also focusing on mitigating risks as it does not involve large capital investment or attack a large fixed cost. He is basically selling his knowledge.

Mrs. Sim has also minimized her costs by exclusively going online. She is basically employing the “focus” approach in which she is targeting a narrow segment, touching upon both the “cost focus”- reducing the cost, thus offering competitive price- and “differentiation focus”- as she is giving a new chicken recipe online.

At the beginning of the article, I mentioned the example of Nokia’s losing out to Apple. Yes, Apple had cutting-edge technology, which they still enjoy over their competitors, a clear competitive advantage based on Apple’s highly sophisticated technology, which is rare and hard to imitate. The Resource-Based view, as postulated by Birger Wernerfelt (1984), would certainly attribute sustained competitive advantage to Apple in the long run.

But that does not mean Samsung and other major players have had to leave the market. Several bad choices, coupled with a disadvantageous organizational structure, led to their retreat from the market. They initially failed to identify or sense their needs (through scanning), and then, once they sensed them, they failed to seize that opportunity with the capabilities they possessed. But then, they could have pursued a cost-leadership and focus approach, as proposed by Michael E. Porter’s (1980) generic strategies, to stay in the market, though in a different segment.

Learning Lessons and Future Plan of Actions:

Both success and failure provide us with valuable lessons. It is important for all of us to learn them and use that experience in our future course of action. Those who earlier faced challenges like 2008’s economic recession or the SARS epidemic in 2003-04 have been better equipped to deal with the current pandemic and its challenges.

Mr. Kelvyn Chee, who is the owner of a growing apparel business based in Singapore, was 26 when he experienced how his father failed to save his apparel business during the SARS outbreak in 2004, which almost forced the family into bankruptcy. But during COVID, Mr. Chee, who started his own business back in 2005, has in fact grown his business significantly while others struggled to stay on the market. During the pandemic, he opened 12 new stores, capitalizing on the lower rental costs due to the current economic downturn. He also did not repeat his father’s mistake of borrowing large amounts from banks, and would never present himself or his family members as personal guarantors for bank loans.

Learning lessons is an important way to enhance one’s experience and capability, which is an invaluable asset for any business.

Works Cited:

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Flipkart’s Expansion in Rural India: Will it be Successful?

Introduction:

Home to 1.4 billion people, India is one of the largest and fastest-growing e-commerce markets in the world. As of January 2022, the country has 658 million internet users. In 2020, 95.3% of internet users in the country, aged between 16 and 64, visited e-commerce websites. More than 70% of users looked up products online, and a similar percentage made an online purchase. Nearly 60 percent of internet users bought products from their smartphones. According to Kearney, online retail accounts for 4%, valued at $4 billion at present, but that would reach 19% by 2030 with a value of $40 billion. 

Image Source

The pandemic definitely spurred the growth of online shopping in India, but e-commerce companies are now facing a new challenge. Big cities reached saturation point. In order to grow their businesses, local e-commerce companies must expand in semi-urban and rural areas, but this is a major uphill battle. In this assignment, we shall look into the logistics operation of Flipkart, one of the top Indian e-commerce companies, to try and understand if there is any limitation that is hindering its expansion.

Rural India: The New Frontier for e-Commerce Companies

Before talking about Flipkart logistics, we need to talk a bit about rural India to understand why it is important for the future growth of Indian e-commerce companies.

At present, around 65% of India’s population lives either in rural or semi-urban areas, which will come down to 53.5% by 2040. Currently, rural India plays a pivotal role by contributing 25-30% of the country’s GDP. According to a Bizom report, in the FMCG market, rural consumption increased by 58% YoY, twice the rate of urban consumption.

Despite facing numerous challenges, rural India is growing rapidly. With proper policy implementation, improved infrastructure and better internet infrastructure, the government can overcome many of these challenges, thus unlocking the true potential of the rural economy.

Mobile internet is now more or less available in Tier I and Tier II level Indian cities. Still, a large portion of the country’s rural areas has insufficient internet coverage.

Since 2011, the Government of India (GoI) has been implementing Bharatnet, a megaproject that will bring all the villages in India under broadband internet coverage. The project took off in 2011, and the first phase has been completed, connecting 300,000 villages. The second phase is ongoing, and upon completion, an additional 150,000 villages will be connected.

Along with improved Internet infrastructure, the rising literacy rate will also drive internet penetration and upward economic movement. Both government and non-government organizations are working to educate the rural youth. As of 2021, the literacy rate in rural India reached almost 73.5%, of which 81% were male and 65% were female. As more and more people become well-educated, they will also become tech-savvy. They will increasingly rely on mobile internet to perform daily tasks, such as online shopping, bill payment etc. According to a statement given by the Internet and Mobile Association of India (IAMAI) and consulting firm Kantar, the number of internet users in rural India will probably increase more than in urban India by 2025.

All these are indicative of the fact that rural India is the way for the future growth of e-commerce companies.

Flipkart: A Brief Overview

Founded in 2007 by two IIT Delhi graduates, Sachin Bansal and Binny Bansal, Flipkart is one of the top e-commerce companies in India at present. As per the October 2021 report, the online marketplace supported 375,000 sellers. It wanted to increase that number to 420,000 by the end of 2021. According to news reports, on average, the company fulfills two million orders every day. In FY 2020, the company had a Gross Merchandise Value (GMV) of $15 million.

Flipkart Logistics:

The success and future growth of an e-commerce company depend on the range of quality products it can offer to customers at an affordable price and deliver those products on promised time. Realizing this, Flipkart started its own logistics operation in 2010. Over the years, its logistics capabilities have grown. Thanks to all the investment and planning, the company now has a highly sophisticated supply chain that is end-to-end managed. Aside from developing its own logistics, the company also partners with other logistics service providers. Through its logistics, Flipkart delivers products to customers as well as procures products from suppliers and merchants. Flipkart’s operations team works on supply chain, procurement, warehouse management and customer support.

·         Flipkart’s in house logistics capability:

·         Flipkart operates more than 100 warehouses and about 2600 delivery hubs all over India. It has its own logistics subsidiary, eKart Logistics, that handles all its logistics operations.

·         Third party logistics service providers:

·         Flipkart’s in-house logistics handles 60-70% of the order fulfillment while the rest is done through third-party logistics. The company maintains a database of logistics companies and their respective areas of operations. In many places, there are no logistics services. In that case, the company uses India Post. For efficiency, the company allocates slots to different logistics companies when they collect their goods.

Product procurement:

·         Flipkart sources products from different suppliers. It has regional procurement teams that work with local suppliers and a central procurement team. The central team overlooks the entire operation and deals with big suppliers.

·         Based on customer data, Flipkart collects products from suppliers.

·         For fast-moving products, Flipkart collects them from suppliers and delivers them to its customers using its own logistics or third-party logistics partners.

·         For low-selling items or items where the demand fluctuates, the company uses the just-in-time method. In this method, Flipkart procures the product from suppliers only after getting orders from customers. Just-in-time procurement is expensive and has slow growth.

Goods inbound:

·         Flipkart collects the goods from suppliers.

·         After the goods reach the warehouse, employees conduct a quality check.

Storage management:

·         Employees at the warehouse create a list of the products.

·         They also check for pending orders. If 'Yes' then the product is delivered. If 'No' then the product is stored and the product list is updated.

·         An item is labeled “Out of Stock” if it is not available in the warehouse or the vendors cannot supply it within the mentioned time limit.

Goods outbound:

·         A product list is generated.

·         Employees then pick up the products from the shelves.

·         The product is packed to make it tamper-proof, weather-proof, and breakage-proof. 

·         The product is then categorized based on delivery locations.

Order fulfillment Process:

·         After the customer places an order, the Flipkart Operations team checks inventory to see if the product is available in their warehouse or if they have to order it from the supplier.

·         The good is transported to the mother hub and then to the delivery hub.

·         From this delivery hub, last-mile delivery is made either by motorcycle or bicycle or on foot.

·         The customer gets SMS, email, or message from the website.

Delivery:

·         Based on location and product availability, product delivery varies from three days to three weeks.

·         If the product has to be imported from abroad, it might take about three weeks to deliver.

·         If the product is available in the local warehouse, it is delivered in three days.

Mode of transportation:

·         To transport goods at long distances, Flipkart uses air cargo.

·         If the location is close, goods are transported by train or truck.

·         For goods transport in cities, Flipkart uses two-wheelers and bicycles.

Product return and reverse logistics:

·         To gain customers’ trust, Flipkart has a flexible return policy.

·         In case of product replacement, Flipkart returns the product to the supplier and obtains a replacement, which is then delivered to the customer.

·         If the replacement is not possible, Flipkart gives customers store credit or a similar amount they paid to purchase the product. The customer then purchases another product.

·         In many cases, third-party logistics cannot deliver to the address, or the customer changes his mind and does not accept the product. In that case, the product is delivered, and the customer contacts customer support and returns the product. Flipkart then collects the product and processes it on its own expenditure.

Increasing logistic capability:

Better logistics capability makes a big difference for e-commerce companies, but developing such capabilities requires solid planning and a huge investment. Flipkart is well aware of this challenge and has been tackling it head-on since the beginning. The company developed a state-of-the-art system that connects all its operations and ensures smooth data exchange and coordination between different branches.

The company has been investing heavily to improve its storage management and order processing capacity. Since 2019, eKart has been using Automated Guided Vehicles (AGVs) in its warehouses. These robots can sort 4,500 packages every hour.

Last-mile delivery is the single biggest challenge for every e-commerce company in India. Because of unplanned urbanization, many areas do not follow any zoning system or policies. To tackle this problem, Flipkart announced to invest $2.5 billion in logistics in the next 4-5 years. The company will invest in building more warehouses and acquiring delivery vehicles. In addition, the company is also using machine learning technology. The company also partnered with 10,000 local shops that serve as pick-up and drop-off points.

Customer fraud is another big challenge. Flipkart is using a data management system to prevent customer fraud.

Can Flipkart successfully expand into rural areas?

From a business perspective, Flipkart ticks all the right boxes, but expanding into rural areas comes with a whole new set of challenges. Some of the major challenges of rural India are:

Cash-on-Delivery:

In rural India, people still prefer to transact in cash. Last year, CMS Infosystem published a study that revealed that more than 65% of online sales transactions in India happened in the Cash-on-Delivery (CoD) mode. A company spends a lot of money to deliver a product to a customer, but after receiving it, if the customer refuses to purchase the product or makes delays in payment, it affects the company’s business. CoD customers have a high product return probability. During the pandemic, Flipkart temporarily suspended CoD for fear of contacting COVID from cash.

Logistics:

Infrastructure and internet connectivity are still major issues in many rural areas. Many villages are not well connected by roads. Many villages do not have reliable Internet connectivity.

Language and Culture:

As we move further into semi-urban and village areas, local language is spoken more. Keeping this in mind, e-commerce companies have to develop more contents in local languages. This is a serious problem because different languages are spoken in different parts of India.

A deep understanding and appreciation of rural culture are also very much necessary because rural communities are very close. People do business with those they know. They are not very comfortable with outside influence.

How Flipkart will tackle these challenges?

Flipkart is one of the pioneers of CoD in the Indian e-commerce industry. A large number of Indian people do not use credit cards or digital payment systems. The only way to get these people to buy something online was to use CoD. So, Flipkart offered CoD to customers, which became one of the major reasons behind its growth. The company has ample experience and knowledge in handling CoD problems. For this reason, they can easily attract customers from rural areas.

When it comes to tackling the issue of infrastructure, Flipkart is partnering with various regional logistics service providers and local shops. Yes, there will be complexity in product delivery and product sourcing from remote areas, but Flipkart will have to come up with innovative ideas and technologies to successfully navigate those problems. Things will gradually improve in the near future.

In order to enable people located in areas with poor internet connectivity, Flipkart launched Flipkart Lite in 2015. It is a web app that works on low-cost smartphones and sketchy internet connections. The app will allow a person to access the Flipkart marketplace and order products.

In 2019, Flipkart launched Flipkart Samarth, a platform that enables rural artisans, craftsmen and weavers located in remote rural areas sell their products on the Flipkart marketplace. The project is now supporting 950,000 artisans, weavers and craftsmen. It is also working with the government to help rural people. Recently, the Ministry of Rural Development, under its Deendayal Antyodaya Yojana– National Rural Livelihood Mission (DAY-NRLM) program, partnered with Flipkart to sell products made by rural artisans and craftsmen. Flipkart should take more such initiatives in the future. This will help the company to build a better image in rural communities and will motivate people to purchase products from the marketplace in the long run.

Final Thoughts:

The reality is that “Rural India is not prepared for e-commerce.” Villagers are still not used to the idea of paying for a product without touching or feeling it first. It will take a long time and consistent effort from e-commerce companies to develop online shoppers in rural India. Companies that will start earlier will gain the “First Mover Advantage.” Top e-commerce companies like Amazon and Flipkart are very much aware of the potential. So, they are slowly and gradually trying to establish their footholds. They have to come up with strategies that will enable them to achieve people’s trust. Once it gains that trust, people will feel comfortable buying products on its platform. 

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The Impact of Russia-Ukraine Conflict on United Kingdom’s Wheat Supply Chain. What Can be done to lessen this impact?

The United Kingdom produces 80 to 85 percent of the wheat it consumes. Although the country does not import a large amount of wheat, the ongoing Russia-Ukraine conflict has an indirect impact on its wheat supply chain.

Already, the country’s economy was reeling from the effects of Brexit and the coronavirus pandemic. Food prices increased due to inflation. In December 2021, the United Kingdom saw 30-year high inflation of 5.4%, causing a rise in many food items, petrol, used cars, clothing and furniture. In January this year, the price of staple food items such as margarine, tomatoes and apples increased by 45%.

The pandemic also affected truck drivers in the UK. They were under immense stress. They could not eat or sleep properly. As a result, many truck drivers switched jobs. Before Brexit, people from the continent came to the UK and worked as truck drivers. After Brexit, they left the country, creating a severe shortage. As a result, big stores found it very challenging to offer products to customers last Christmas.

In 2021, UK companies that traded goods to and from Europe were not required to make full customs declarations or go through a rigorous checkout process, but it all changed as 2022 rolled in. Now, these companies have to go through a long and rigorous checking process and submit documents containing details of the goods they are bringing in or out and pay all the tariffs. This has become a very challenging task for many UK importers. A survey conducted by the Federation of Small Businesses (FSB) and the Institute of Directors (IoD) revealed that many firms were not aware of these changes. Many UK companies had to readjust their supply chains after Brexit. The December 2021 UK economic report, published by the Office for National Statistics (ONS), said that only 7.7% of companies changed their supply chains. 41% of those who did are now using UK suppliers and 11.6% are using more EU suppliers. Overall, 60% of businesses saw a rise in their cost of doing business since Brexit. Nowhere this rise is more visible than in transport and bureaucratic processes.

Against this backdrop, the Russian-Ukraine conflict only made matters more complicated. Even if the war ends tomorrow, things will not return the way they used to be. Western countries imposed major sanctions on Russia and removed it from the Swift messaging system. It means the UK cannot do trade with Russia and Ukraine through traditional routes.

In this emerging geo-political situation, millers and other companies whose products require wheat as one of the major ingredients have to take various short-term and long-term initiatives to ensure the stability of their wheat supply chain.

Wheat Market in the United Kingdom:

Wheat consumption:

Wheat is used to produce flour, which is used to make bread. Aside from bread, many other food items are prepared from flour, including biscuits, cakes, pies, pizzas, pastries, batters, and coatings. 37% of the fiber, 35% of the calcium and 31% of the iron in the UK people’s diet come from flour. In the UK, per person, flour consumption was 59 kg in 2018 and 2019. According to 2019 Kantar data, 99.8% of households in the UK purchased bread. For this reason, wheat is the most grown crop in the United Kingdom. Approximately 1.9 million hectares of land are used to grow this crop. Based on climate and other factors, annual wheat production in the UK ranges from 11 million to 16 million tons per year. 60% of this wheat production is used to produce bread.

The UK is self-sufficient in flour production. The flour milling industry, whose main ingredient is wheat, has a £1.25 billion annual turnover. 32 companies operate 51 mills. Of these, the top four companies produce the lion’s share of the flour. Together, all these companies produce more than 400 different types of flour. They mostly use locally produced wheat. They produce 5 million tons of flour every year. These mills also produce bran, which is consumed by people, and wheat feed that is used to manufacture livestock feeds. Aside from flour, wheat is also used in starch and bioethanol manufacturing. These manufacturers use 1.3 to 1.5 million tons of wheat. 

Wheat Import-Export:

Although it is a small amount, the United Kingdom imports wheat from other countries. According to The Observatory of Economic Complexity (OEC), in 2019, the United Kingdom imported wheat worth $299 million, making it the 38^th major wheat importer in the world. Primary import destinations include Canada, Germany, France, Latvia and Ukraine. Latvia, Turkey and Ukraine are the fast-growing import markets for wheat for the UK. That same year, the United Kingdom exported wheat worth $243 million, becoming the 17^th largest wheat exporter. The Netherlands, Spain, Ireland, Portugal, and Algeria were major export destinations. 

Russia and Ukraine: Largest Wheat Exporters

Russia and Ukraine are the two largest wheat producers in the world. As per OEC, in 2019, these two countries accounted for more than a quarter of the global wheat export. In the 1980s, the then Soviet Russia was a major wheat importer. After the fall of the USSR, Russia started to become self-sufficient in wheat production. The Russian government allowed farmers to sell their products on the international market. Investment in agriculture technology and infrastructure, coupled with the devaluation of the Russian currency, accelerated this process. In 2001, Russia accounted for only one percent of the global wheat export. That increased to 26.4 percent by 2018. Vietnam, Senegal, the UAE, Sudan, Azerbaijan, Yemen, Nigeria and Bangladesh were the largest buyers of Russian wheat in 2019. Of these countries, Egypt, Turkey and Bangladesh accounted for more than half of Russian wheat export.

Ukraine, on the other hand, is the fifth largest exporter of wheat. As of 2019, the country accounted for seven percent of the global wheat export. 71 percent of Ukraine’s land is devoted to agriculture. Its highly fertile “black soil” makes it suitable for growing a wide range of crops. The country exports its agricultural products to Europe, so aptly named “Bread Basket of Europe.” Ukraine also exports wheat to Indonesia, the Philippines, Tunisia, Thailand, Morocco, South Korea, Spain and Israel. Turkey and Vietnam also import wheat from Ukraine.

Impact of Russia-Ukraine conflict on global wheat supply chain

From the statistics above, it is obvious that any instability in Russia and Ukraine will definitely have a major impact on the global wheat supply chain. After the conflict started, the export of wheat and other cereals from Russia and Ukraine almost came to a halt.

Traders around the world are very much afraid to make any deals that might come under sanction. The price of wheat exceeded the price seen during the food crisis of 2007-2008. Through seaports in the Black Sea, Russia and Ukraine export their products to North African and Middle Eastern countries. Many poor Asian countries also depend on Russia and Ukraine for their wheat. With more than $4 billion expenditure per year, Egypt is the world’s biggest wheat importer. Russia and Ukraine account for 70% of Egypt’s wheat purchase. 80 percent of Lebanon’s wheat comes from Ukraine. Lebanon is already suffering from high wheat price. Somalia and Syria are also suffering.

Turkey is another big buyer. In 2019, 76% of its wheat import worth $1.6 billion came from these two countries. In 2021-2022, Turkey alone purchased 4.5 million metric tons, followed by Egypt with 3.2 million metric tons. Even before the invasion, Turkey saw a high inflation rate of 54.4 percent in February, the highest in the country’s history in the last twenty years. Turkish officials are worried that the price of food will only increase in the near future.

For Middle Eastern and North African countries, the Black Sea route is very cost-effective, and the conflict forced them to import wheat from other leading producers, such as the US and Australia, at a higher cost.

Rising food prices are a major element of political unrest in these countries. During the 2007–2008 food price rise, countries like Haiti and Ivory Coast saw serious protests. Bread prices caused serious political unrest in Egypt over the last fifty years. Grain price rise in 2009-2010 started the Arab Spring.

No one can say when this conflict will stop. Even if it ends tomorrow, the grain crisis will persist because the seeding of the spring crops in Ukraine starts from March. Many people fled the country, and able-bodied men who stayed are fighting against the Russians. So, there is no one left for farming. This will severely hamper their 2022 harvest. Many foreign companies invested in Ukraine’s agriculture. Because of the war, they stopped their operations.

Impact of this conflict on wheat supply chain in the UK

Since the United Kingdom grows most of the wheat it consumes, there is no immediate impact on its supply chain, but the country is not totally immune from the conflict. It is already having an impact in other areas related to wheat production, one of which is fertilizer. At the time of this writing, the price of fertilizers reached £1,000 per ton from about £650 last week. The price of nitrogen fertilizer increased 200% year on year. Farmers, already burdened by the rising cost of fuel, labor and feed, are purchasing fewer fertilizers. The UK produces 40% of its own fertilizer, but the fertilizer manufacturing plants need gas, which is in short supply because of the conflict. Russia is also the top exporter of synthetic fertilizers. The UK imports one-fifth of its urea fertilizer from Russia. After the conflict, Russia restricted exports. Wheat and corn are also used for livestock feed in the UK. Hence, the wheat price rise will also drive up the cost of meat, dairy and eggs.

According to the Office for National Statistics (ONS), the UK imported goods worth £10.3 billion from Russia in 2021, equal to 2% of the total value of goods the UK imported from other parts of the world. Of these numbers, one import is oil. The UK imported refined oil worth £3 billion and crude oil worth £1 billion. Other major imports include gas and non-ferrous metals. After the conflict, fuel and gas prices rose sharply not just in the UK but all over Europe. Energy is also necessary for processing wheat and food in different stages. This means the price of bread and other staple items will increase rapidly.

What can be done to lessen this impact?

In an interview with ITV News, Dr. Peter Alexander, lecturer on global food security at the University of Edinburgh, said that the UK government should intensify the production of wheat on existing land and bring more land into agricultural production in order to lessen the impact of the conflict. He also mentioned that bringing more land into agricultural production would also have a negative effect on the environment. Another thing the UK can do is develop trade relationships with other major wheat-producing countries and get into trade agreements with them.

Final Thoughts:

Even though the wheat supply chain in the UK did not see any major disruption, other factors such as rising fuel prices, Brexit and the pandemic contributed to the price rise. If the conflict continues for a longer period of time, it will definitely impact the wheat supply chains of developed countries in various ways.  

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