Effects of COVID 19 on Supply Chain

Planning in the FMCG and Milk industry:

Recommendation to Haleeb Foods

Submitted by:
Ayesha Zahid;
Sameen Zehra Zaidi;
Mahhum Mirza.
BBA 7A
Contents

Introduction...............................................................................................................................................3
COVID 19 impact on FMCG industry.....................................................................................................5
COVID 19 impact on Milk/Dairy industry..............................................................................................7
Recommendations to Haleeb Foods.........................................................................................................8
References................................................................................................................................................10
Introduction
Even experts have hard time predicting how long this pandemic could last and whether its affects
would be temporary or for a longer time period. Even when the COVID 19 was limited till
regions of China, the global supply chain had started to get disrupted as China being the
production hub and consumer market for major industries. But, since the virus has become the
world pandemic and spread beyond china’s borders, the impact could be the history’s greatest
setback supply chains have suffered globally.

The one single factor that impacted the supply chains globally was demand uncertainty.
Companies are unable to predict the behavior of consumer sector which is a big part of economic
growth of industry. Companies are unsure of level of downgrade in consumer demand or
whether they will be able to recover fixed costs with the sales of remaining year.

More than manufacturing sector, the supply chains were highly impacted due to obstruction for
labors working together because of risk of virus, hurdles for labor mobility and obstacles for
logistics. The impact is much significant and prominent since more and more countries have
been going into lockdown. Companies have to trade-off between keeping everyone safe or
experience unexpected losses that might take years to recover even for large companies.

Measures companies all around the globe have implemented to handle the impact of
COVID-19 on supply chain:

It needs to be identified whether there is still hope for companies with global network of supply
chain. Firstly, there must be some precautionary actions that must be put into action
immediately:

 Employees and suppliers must be educated and make aware of risks of COVID-19 and how
to avoid them. Employee safety must be the top priority amidst crisis. Employees with
existing health issue must be urged to provide their medical records and take extra
precaution. Work schedule should be redesigned to practice distant working.
 Extreme measures should be implemented without any delay if an employee is sick or
showing symptoms. Regular screening of employees must be made sure to detect early.
 Labor requirements should be planned ahead to decide on essential workers, prepare
alternative flexible work schedule, and paid leaves for non-essential workers. Implement the
distant and working wherever possible.
 Companies should forecast increase in labor absenteeism and be ready to bear cost of it
because it would be still be a lesser loss than halting the operations of whole facility. There is
a possibility of temporary plant closures, as well.
 Companies must immediately start focusing on cash liquidity and develop an effective
treasury plan to reduce accounts receivables and payables. A survey estimates that 85% of
SMEs will run out of case within three month if this crisis didn’t go away.
 Integration of technology into operations would help enable the remote working. Making
sure the employees are somewhat equipped with IT skills. There is a rise of online activity
around the globe and if companies still fail to align their systems in IT, they would not be
able to keep up. Companies that already did that before the crisis are in a much better
situation.

Immediate action plan must be put into place to make sure the supply is not hindered:

 Companies need to focus on their Tier 1 supplier. The companies must team up with key
suppliers to back map the chain up to the Tier 1 supplier. The company needs to step up so it
is identified by the Tier 1 supplier and make them their one of the preferred companies. Try
to develop alternate route plans ad schedule with the Tier 1 and rest of the supplier team. All
supply team must be connected on digital platforms at all time to avoid shortages and create
backlogs.
 Alternative supply sources must be identified immediately so companies can quickly shift to
second best alternative if the original source fails to comply. If the supplier is abroad, it is
best identify alternatives in least affected countries.
 Companies must start lowering their inventory levels across their supply chain and instead
use safety stock to handle variations of demand and supply. Mitigating the risk of supply
shortage while not going bankrupt is the balance companies need to achieve.
 Companies must expect delays in supplier delivery due to lockdown in many areas. IT
systems could help companies locate and track inventory. This would enable company to
 more accurate record keeping that would not overestimate or underestimate inventory level in
warehouse systems.

To remove demand uncertainties, the companies should:

 Prioritize the products with highest demand, procure material which can be used for multiple
finished goods, and maintain low levels of inventory. Scheduling production with all
departments meeting will help company design better operational plan. Companies can also
take this opportunity to alter the product portfolio they offer, discontinue the low growth
product or introduce new product relevant to COVID 19 trends.
 Multinational and international companies must do their planning globally. It must be
determine which countries plant would be operational according to the customer demand or
level of threat there. [ CITATION Kil20 \l 1033 ]

The COVID 19 impact is significant on supply chain but as some solutions were discussed, it
could be understand that there is still hope for industries and companies. Pakistan would and is
facing similar issues and so would Haleeb Foods Limited (HFL). HFL products can be
categorized into FMCG industry and Milk industry. In the next section, we will analyze COVID
19 impact upon these two industries globally and in Pakistan.

COVID 19 impact on FMCG industry

FMCG is one of the industry who got under pressure due to the lockdown and closure of shops
and markets to prevent the spread of this pandemic COVID 19 globally, more specifically the
industry is facing logistic challenges due to increase in customer base and to providing the
essential commodities on time and continually becoming a huge challenge. But industry has also
seen significant growth, According to data received from Quentin, Reply’s search data tool there
is increase in growth of FMCG about 32% since the February. Most growth in food sector was
seen in diary (54%) and ice cream (22%). [ CITATION Rep20 \l 1033 ]

And as the availability of FMCG good are limited due to impact of COVID-19 on global
logistics and supply chain industry so the consumers are receiving fewer products and companies
are facing backlogs orders and the prices are also high. Hence many FMCG’s companies are
changing their supply chain operational planning strategies as the day to day operations are
getting effected due to pandemic.
As in some countries agriculture sector is exempted from the restriction so the supplies of food
and daily FMCG products from there wards is smooth but due to lack of transportation services it
is becoming difficult to reach to retail stores hence resulted in obsolescent of perishable item
hence make a huge cost for companies. [ CITATION Mar20 \l 1033 ]

FMCG companies have to change their strategies of planning advertisements campaign as the
tone of communication matters a lot in success now a days. As people start to stockpiling the
essential groceries items including FMCG’s in this panic condition in order to reduce risk as
sales of pasta, yeast, sanitary products wipes and dairy products are the main items which causes
the main opportunity for the food manufacturers and retailers to shift from out of home to at
home. [ CITATION IRi20 \l 1033 ]

Safety and social distancing remain the main factors for consumer now a days and the behavior
of shoppers has changed as less frequent shopping trips like two in a month unlike as before and
with bigger baskets at one time shop and online purchases of groceries item accelerated which
causes the demand to trigger for the FMCG industry to adapt their new operational planning
strategies for manufacturing and delivering processes. [ CITATION IRi20 \l 1033 ]

As people around the world become more concerned about the product health and highest quality
particularly regarding cleaning products, antiseptics and food items in this aspect manufacturer
and retailer's and other industry players are required to communicate why their supply chain and
products should be unique and be trusted ,they must rethink their strategy about how to provide
clean and healthy product including hygienic supply chain processes to fulfil customer demand
there must be transparency in processes to ensure consumer about the product safety and hygiene
from raw material to factory to finished goods to distribution processes. [CITATION Nei20 \l 1033 ]

In the beginning of this lockdown all over the world and in Pakistan consumer products foods
and beverages companies which are part of FMCG facing reduced consumption and supply chain
disruption challenges but in last month out-of-home consumption of consumer reduced and at-
home consumption has been sparked have made immediate impact on FMCG companies and
they have to diverting their supplies more to retail stores as demand increases. The apparent
bullwhip effect has companies perceived demand uncertainties. Prices rose in early days for
consumer goods as some outlets began selling goods on high prices and authorities, due to
limited control access, weren’t able to stop it.
Hence these all changes in demand due to this pandemic causes the FMCG industry in all over
the world and in Pakistan too enable them to make changes in their competitive and supply chain
strategies (SCOR MODEL) which resulted in alteration of their operations and others processes.
In this situation of lockdowns it is noticed that the retailer’s with strong digital capabilities are
experiencing growth (having large sales and delivery slot booked for months) in whole world
while the retailers with weaker e-commerce are losing customers as it is also announced in
Pakistan that leverages will be given on online business so it can boost the demand too.

COVID 19 impact on Milk/Dairy industry

The global scenario of milk industry was seen that due to its versatility and health benefits, there
was a sudden increase in milk demand as people started panic buying and hoarding. According to
a report, milk purchase rose up to 53% in the end of March with significant increase in other
dairy products consumption as well. Although there was an increase, it only came from the
grocery or retail sector. Shutdown of restaurants, cafes and schools have impacted the wholesale
market. Milk supplier find it harder shift their maximum of wholesale packaging to retail
packaging for grocery stores all of a sudden. Milk transport has become an issue for the whole
chain as its getting difficult to find drivers willing to take milk supply across long routes and
plan shifts according to it. [ CITATION Huf20 \l 1033 ]

Although whole food sector is showing trouble signs but milk industry was hit particularly hard
because the commodity is highly perishable and cannot be freeze to store longer like meat or
grains. If the milk is overproduced to meet the high demand, much of it gets wasted due to
delayed deliveries to the consumer. In the US, farmers were asked to dump their milk due to this
crisis. A milk farmer commented he dumped 4700 gallons of milk from his 480 cows. This is
indeed a problematic situation. [ CITATION Huf20 \l 1033 ]

While Pakistan is the fourth largest milk producing country of the world, the scenario is changed
compared to rest of the globe. The milk industry had always underperformed its actual potential
and majority of it is unregulated. Only 5% of country’s total milk production is converted into
packaged milk. When the industry is made up of small farmers with little resources and informal
distribution network controlled by milk contractors, it will be harder for authorities to control it.
Sudden lockdown had an immediate severe negative impact on small farmers’ community when
milk prices declined 30-40% (Rs70 from Rs110) due to surplus supply, early closures of diary
shops and tea restaurants (dhabbas). People have started stoking up on dry milk instead of cow
milk to store longer. Milk transport has not become an issue yet due to PM Pakistan’s soft
lockdown instructions. [ CITATION Pak20 \l 1033 ]

Packaged milk prices rose just a few weeks before lockdown to Rs180-200 for 1.5 liter pack and
Rs38-40 for 250ml, producers stated the reason to be high cost of productions and high
transportation cost due to increase in fuel rates. Prices are still kept unchanged from the producer
side during the lockdown but it’s the retailers and grocery that are hiding stocks to increase
prices. Although it is suspected that once the lockdown is lifted, milk prices will hike up much
faster almost to Rs20/liter in some regions.

Recommendations to Haleeb Foods

In this pandemic Haleeb should be proactive and to tackle this situation it should be adaptive
towards the ongoing situation and acquire new strategies. We have listed down some
recommendations which can help Haleeb plan its operations in supply chain effectively:

1. Awareness campaign: HFL need to start marketing campaign which spreads COVID 19
awareness for customers. It will show the responsible response of the company amidst crisis.
It could also include testimony that HFL is following all government provided SOPs or
footage of how Haleeb’s products are packaged hygienically, how workers maintain social
distance, etc. for transparency for their customers.
2. Safety precautions: HFL should obviously increase the safety measures inside the company
for the employees. The health of the employees and workers should be foremost priority.
Assembly line workers must be trained and made aware of risks of working in close
proximity.
3. Minimize demand uncertainty: Create a helpline for customers that could feature in
advertisements. Customers that would face shortfall of demand or unavailability of product
could call Haleeb’s helpline to inform that. This way demand uncertainty could be reduce as
demand would be known.
4. Production planning: HFL must plan its production using forecast of Ramadan season and
impact of COVID-19 on customer buying behavior. It should focus on production of high
demand products like its star product, Haleeb Milk and other variants of milk they produce.
5. Support supply chain partners: In the time of crisis, Haleeb should support the milk men they
procure milk from because they are the ones that are affected the most due to lockdown and
distribution centers that are struggling to survive due to shortage of products because
factories shutting down. HFL must show goodwill and find ways to support them so they the
whole chain operates smoothly without disruption.
6. Subcontract logistical parties: to meet the rising demand, Haleeb’s current distribution
network might not be enough so to fulfill the requirement Haleeb can subcontract distributors
instead of hiring them. It would be convenient for HFL to contract distributors that already
deal with distribution of packaged milk.
7. Data Integration: Since it has been discussed in above sections that some retailers and
supermarkets are trying to create shortages in market by hiding stocks. Haleeb can avoid this
problem by integrating the inventory data of supermarkets and retailers or put up a sales
teams that keep check and balance on the quantity of SKUs each retailer or supermarket has.
8. Online/Telephone order: Although, online grocery stores and marketplace has stepped up,
HFL could come up with their own delivery number or website where customers could place
orders and it would be delivered to their doorstep. HFL could either hire a delivery team but
if that too difficult it could use the existing delivery services.
9. Collaboration with online marketplaces/ecommerce platforms: HFL can also collaborate
with marketplaces like HumMart, Daraz Groceries, Bykea, CareemGo, and other platforms
to give vouchers or special discounts.
References
Huffstutter, P. J. (2020). U.S. dairy farmers dump milk as pandemic upends food markets. World
Economic Forum.

IRi. (2020). COVID-19: IMPLICATIONS FOR FMCG AND RETAIL BUISNESS. Retrieved from IRi Growth
Delivered: https://www.iriworldwide.com/en-GB/Insights/Publications/coronavirus

Kilpatrick, J., & Barter, L. (2020). COVID-19 Managing supply chain risk and disruption. Deloitte.

Market, M. a. (2020). COVID-19 Impact on Logistics & Supply Chain Industry Market by Industry
Verticals. Market and Market.

Neilsen. (2020, May 11). OVERCOMING ONLINE SHOPPING OBSTACLES AMID LOCKDOWNS IN AFRICA
AND THE MIDDLE EAST IS NOT ONLY RETAILER DRIVENOVERCOMING ONLINE SHOPPING
OBSTACLES AMID LOCKDOWNS IN AFRICA AND THE MIDDLE EAST IS NOT ONLY RETAILER
DRIVEN. Neilsen.

Reply. (2020, April 6). IMPACT ANALYSIS: HOW IS THE CONSUMER GOODS INDUSTRY RESPONDING TO
CORONAVIRUS? Retrieved from Reply: https://www.reply.com/en/covid-19-fmcg-industry-
impact-analysis

Today, P. (2020, 25 March). Fresh milk prices decrease due to closure of tea shops. Retrieved from
Pakistan Today: https://www.pakistantoday.com.pk/2020/03/25/fresh-milk-prices-decrease-
due-closure-tea-shops/