Decoding FY 18 Corporate Results for Supply Chain focus areas

FY 18 has been a year so far, where each quarter results have been shifting the pendulum for Supply Chains in India. From emerging growth prospects to policy changes impacting demand its been a period of time where Supply Chains have not had a consistent image of market.

Q1 FY 18 was impacted due to roll out of GST. (Day 1 of Q2 - 1st July). Channel partners had to go light with Q1 end inventory hence most of the organisations experienced a lesser channel partner demand in Q1. While the retailers recorded one of the highest June sales, contrast was the case for Manufacturers of the products.

Q2 FY 18 was attributed to GST implementation issues. The lack of awareness of the systems & other teething problems. Organisations still found a way to encash with  festive season and e-tailers having one of the best times with discount sales. Some celebrated with rural demand for 2 wheelers, tractors recording higher sales indicating good rural demand. Confuses with other data which shows farmer distress. Supply Chains were confused with conflicting signals.

Q3 FY 18, results which have come so far, now offer some direction to the Supply Chain leaders. Most of the sectors indicate that the volume demand is not a bliss. Take an example where one of the leading Paint manufacturer reported a profit growth increase of 1/6th from the previous year same period, but the revenue growth remained flat. Considering that last year Q3 demand for a FMCG company was badly impacted due to demonetisation, the base being lower should have improved the volume sales for this year Q3. That has not happened uni-formally.

Coupled with the fact that India's inflation has crossed 5%, Oil prices have bottomed out , global commodities prices rising, my primary guess is FY 18-19 would see higher Cost of Goods Sold. If the Global Economic Growth, basis projection by IMF and subsequently also published by WEF, meets its projections then the commodity prices may stay firm for next few years. This along-with lowest growth rate in per capita income of Indians which is projects for this year (recently published data shows per capita income for FY 18 is expected to be around Rs. 1,12,000 up from approximately Rs. 1,04,000 last year). Lower purchasing power will not allow producers too much of lever to pass on the higher costs into sales prices.

This leaves the Supply Chain Leaders in India with "Cost Containment" as a key lever to stay competitive. An adhoc approach to squeeze Suppliers & Service providers for "Price" reduction may need to replaced with a structured effort offering long term "Cost" optimization. As this trend may well stay for a at-least the current business cycle which may turn by 2020.

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