Business

Debottlenecking the Strained Supply Chain during Covid-19 Pandemic and Beyond

Published

2 years ago

2021/08/1

by Denver Brian Coorey

The SARS-COV-2 or the novel Coronavirus Crisis has pushed economies into recession or even depression by triggering economic downturns caused by long-orchestrated lockdowns that brought down International trade to a near standstill.

The Pandemic has changed the business environment for many organizations around the globe. As the acute restrictions and lockdowns created many urgent situations that required immediate attention in the early days of the pandemic, many companies now have begun to move to a “recovery mode” having started not only short and medium term, even long-term planning strategies. It is clear that companies have been faced with substantial business and operational disruptions which include mitigating the effects of reduced supply and stocks in hand, managing disruptions to logistical providers, reviewing contractual obligation and many more.

As a result of the closure of export customer facilities due to disruptions and lock down situations in the target markets overseas, revenues of our exporters/manufacturers reduced during the pandemic affecting cash flows and overhead absorption. However industries adapted fairly well by minimizing overhead costs and diversifying products and delivery channels to mitigate the adverse effects on the revenue, profitability and cash flows. Further, assistance by means of new working capital loans and extensions for existing loans were provided by banking sector as per regulator guidelines.

It is seen that the importance of supply chain resilience and risk management has become more apparent than ever before.

Nevertheless, badly affected companies need a vibrant revival strategy with a positive approach.

The Supply Chain and its current strained state

The movement of goods and services from the point of origin- POO ( Raw material/product supplier) to the point of consumption-POC ( consumer) involving various stages or phases is known as a Supply Chain. Further, it includes the flow of products, information and funds.

The objective of the Supply Chain is to fulfill the requirements of the customer by a smooth flow without disruptions and bottlenecks. As we are aware, during the pandemic most of the global supply chains have been disintegrated and disrupted. It can be a problem mainly related to product, information and most crucially funds.

Let me highlight some of the key areas with bottlenecks observed in the supply chain.

Demand Planning- it is hard to establish forecasts of demand as the future is unknown and unpredictable. Forecasts can generally deviate from the original projections as per its characteristics, but during this pandemic it will be further inaccurate. Historical data will not help establish demand forecasts during crisis such as a global pandemic.

Sourcing- Numerous tier 1 and 2 suppliers have gone out of business and supplier selection process has become a difficult operation. Availability of raw materials /products is lower than before.

Procurement- Decisions on what to buy, when to buy and how much to buy is somewhat questionable and risky as the organizations do not properly foresee the market future .We may use Material Requirement Planning (MRP ) software programmes to establish e buying decisions but inputs such as future demands, safety / buffer stock and the lead time will vary greatly and more rapidly due to the unfurling Covid 19 pandemic situation, hence the output from such systems too will not give the required authentic results.

Lead time- This has exploded due to overwhelming demands on one hand and the demand fluctuations on the other. It is observed that disruptions and delays in production, internal transport (haulage), booking of vessels, stevedoring, sailing times and also congestion in ports add to severe delays in lead times. As we all know currently there is a huge delay in shipping due to disruptions and restrictions in logistics all over the world.

Distribution to the final user/consumer – during the pandemic the objective of the distribution is not fulfilled. That is to deliver to the right place at the right time has somewhat not achieved during the pandemic.

Rebuilding the strained Supply Chain

We have identified some of the key areas of bottlenecks observed in a strained Supply Chain. Now let us see how the debottlenecking should progress in order to have a resilient supply chain.

Planning and Procurement- In a restricted supply chain operation, the organization should identify, carefully analyze and ascertain the “real” need of the raw material /products etc. Short and medium term planning is advisable as long term strategic planning should only be done if the Supply Chain Managers properly foresee the future of markets. What to order, when to order and How much to order should be determined by MRP using the basic principles of procurement such as future demand, stock in hand with safety stock, on way stocks, lead times prevailing during pandemic, production delays if any, port congestion and possible delays, transport availability etc.

Hence, identifying the correct order quantity is vital since it will reflect on the future stocks, production and distribution. During a pandemic, a robust plan may not be activated or fully implemented. It is desirous to evaluate real time data as far as possible. However, no ad hoc or haphazard planning should be encouraged. Further, it is important to formulate a contingency plan for emergency situations.

Sourcing- Supplier network to be updated to consider new sources if Tier 1 and 2 suppliers are not performing or if the prices have gone up tremendously due to the pandemic. Availability of the required quantities with supplier must be known prior to ordering.

Lead time- this is key as it has a lot of concerns from the raw material stage, production, transport to final destination. Estimated Time of Delivery / Estimated Time of Arrival (ETD/ETA) to be known and properly followed up with the supplier/ shipping agents.

Distribution- delivering to end user should also be planned as per the identified priorities. Distribution resource planning/Distribution requirement planning (DRP) through the system network will provide what to deliver, when to deliver and how much to deliver to the correct locations. Most importantly the inputs to the system must be accurate, specific and timely.

In addition to above identified areas for de-bottlenecking, as Steve Jobs said the way to de-bottleneck a problem is to simplify, simplify and simplify the process. Reducing non-moving inventory as it releases more warehouse space and release locked up capitals, is one such area. Simplifying the supply chain and having a separate supply chain for different types of demand profiles can significantly reduce the clutter. It is noted that many top companies simplified their planning, ordering and distributing (delivery) using modern technology and further, outsourcing of certain activities are encouraged specially during the pandemic and beyond. In general simplifying means reducing the phases in the supply chain to fewer steps from supplier to customer.

Let me briefly touch upon the current most important and much talked, distribution of vaccines in Sri Lanka.

As I mentioned under the above demand planning, the “real” need should be identified, analyzed and ascertained considering most vulnerable groups, high risk groups/ areas, age groups districtwise, as per MOH areas , GN divisions, etc. It is needed to carefully follow the above procedure till the consignment is cleared for product release and distribution to identified locations. It is also important to formulate a contingency (alternate) plan if the existing plans fail.

The top management of organizations should take control of the Supply Chain during the pandemic and needs to manage and control the supply chain at every stage or phase ensuring the smooth flow towards the end customer. Supply Chain Management is key to the success and increased performance of a supply chain. Companies looking to change their supply chains should consider how to integrate elements and practices around environmental protection, product sustainability and ethical business practices.

Radically changing an existing supply chain is not as easy as it may sound as creating a robust and secure supply chain will need to balance the demands for cost efficiency. At the same time, new logistics considerations may also have an impact on supply chains and the changes thereto. In the short and medium term, it is expected that companies will begin to search for more diversified supplier base while looking to develop a flexible and a resilient but cost efficient supply chain.

In conclusion, may I suggest that companies appoint a facilitator/a senior manager, preferably a position in the board room that has the responsibility and authority to rebuild the supply chain and coordinate with planning, procurement, quality, production, marketing, sales and distribution or hire an external Supply Chain Advisor to inject best-in-class competencies into your Supply Chain team.

Companies that are faster in rebuilding their Supply Chains will have a competitive edge and will conquer a major market share.

(The writer Denver Brian Coorey is a Consultant /Lecturer on Supply Chain Management and can be contacted on suveentrading@yahoo.com)

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Business

Arpico Insurance PLC continues its growth in Q1 2023

Published

6 hours ago

2023/05/28

Thilina Walpola

Dr. Kelum Senanayake

Arpico Insurance PLC, one of the most innovative and trusted Life Insurance providers in the country and fully owned subsidiary of the blue-chip conglomerate Richard Pieris & Company PLC, reported a 19.5% growth in Gross Written Premium (GWP) in Q1 of 2023, exhibiting the fifth highest growth in the life insurance industry.

The Group Life business recorded the highest GWP in the company’s history, with over Rs. 226 million, also registering the life insurance industry’s second highest business volume in the reporting quarter.

The rider benefits, which are add-ons and an additional level of protection a policyholder can enjoy along with the main life insurance policy, made a remarkable leap with the company’s rider attachment ratio increasing to over 50%. This momentum that focuses on providing protection was helped by a continuous drive towards attaining an ideal of ‘Insurance for the Living’.

‘We are delighted to have outperformed the life insurance industry despite the various challenges that the country has experienced during recent times and we are continuing our growth trajectory in all aspects of our business. We are very optimistic on the promising outlook of the company and are taking steps to revitalize our strategic priorities in each of the domains,’ said Dr. Kelum Senanayake, CEO and Principal Officer of Arpico Insurance PLC.

Sharing similar sentiments, Pramoda Karunathilake, General Manager – Strategic Planning and Partnerships, said ‘We are looking at improved performance across our key metrics and have especially taken tremendous effort to grow and develop our Group Life insurance business. We have ambitious plans for each of our segments, driven by our cutting-edge processes and exceptional levels of customer care. We are also proud to have produced one of the first COT members of this year, within the industry’.

Business

Sri Lanka Insurance posts a record profit of Rs. 12.47 billion before taxation for the year 2022

Published

6 hours ago

2023/05/28

Thilina Walpola

Ronald C. Perera, P.C. Chairman, SLIC (Left) and Chandana L. Aluthgama, SLIC CEO

The nation’s insurer, Sri Lanka Insurance yet again recorded a stellar performance in the year 2022 to record a profit before taxation of Rs. 12.47 billion for the year 2022, with a combined Gross Written Premium (GWP) of Rs. 41.2 billion.Despite the adverse economic and social conditions that prevailed in the country in the year 2022, Sri Lanka Insurance was able to increase the asset base to Rs.274 billion and the Life fund to Rs. 156.7 billion to uphold the position as the largest and strongest insurer in the country.

Further although placed on a negative watch as all other local insurers due to the current economic situation of the country, Sri Lanka Insurance managed to retain A (lka) Fitch rating for insurer financial strength. SLIC is the only insurer to be certified with an A (lka) rating.

In the year 2022, Sri Lanka Insurance recorded a Life Insurance premium volume of Rs. 20.9 billion. Surpassing its own record, the company declared a staggering sum of Rs. 10.49 billion as Life Insurance bonus to its policyholders. Since 2006 SLIC has triumphed in declaring the highest Life Insurance bonuses year on year in the industry cumulating to a massive Rs. 92.8 billion making the SLIC bonus payout unmatchable.

Sri Lanka insurance Motor Plus the flagship brand emerged Market No 1 again enhancing the lead by Rs. 1.9 billion, recording a total volume of Rs. 12.78 billion premium value securing a market share of 19.6%. The category recorded a 9.5% growth above the industry growth which recorded at 7.3%.

SLIC also introduced many firsts to the Insurance industry in terms of Insurance solutions. Motor Plus Pinnacle the premium motor insurance product, Drive 60 a personal accident cover for senior citizens and JanaRakuma a personal accident cover affordable for all. SLIC also introduced Medi 60 the first and only medical cover for the senior citizens of the country and School Fee Protect the only insurance policy that provides protection for your child’s school fees for the entire school period.

Understanding the modern consumer SLIC has been taking the lead and making steady progress in transforming its operational architecture and front end customer interfaces to ensure increased digital integration to ensure extreme customer convenience. Claim settlement process has been re-engineered to facilitate fast-track and contactless claim settlements to customers.

SLIC also accelerated the digital strategy to systematically automate the systems and processes with the ultimate aim of migrating to a paperless environment at all levels of the business. The “Work Flow Management System” is transforming all internal manual and paper-based operations into digital-driven systemized operations. Payments processes are also transforming towards more digital and paperless procedures to enhance efficiency as well as to reduce cost components. SLIC also ushered in a performance driven culture with assigned KPIs at all levels.

Commenting on the achievements CEO of Sri Lanka Insurance Chandana L. Aluthgama stated – Amidst very challenging market conditions and ever evolving consumer patterns we have been able to demonstrate our resilience and prudent strategic practices to record a phenomenal financial result for the year 2022. We were able to accelerate our strategic initiatives to enhance digital integration and deliver exceptional service levels to our stakeholders and instill a performance driven culture linking rewards accordingly to introduce a variable pay instead of the traditional year on year fix increment. Looking at the future ahead we are geared now with increased internal efficiencies and productivity improvements to face the fast evolving insurance landscape. The success is also an embodiment of the commitment and agility of our staff and field force to an ever evolving insurance market.

Commenting on the financial success SLIC Chairman President’s Counsel Mr. Ronald C. Perera, commented “During unprecedented challenging times SLIC has been able record robust performance retaliating yet again the financial & operational prowess of the company, I thank the board, management and staff of SLIC for their efforts in achieving this remarkable performance”

Business

Sampath Bank maintains a strong value proposition to all its stakeholders amidst ongoing economic challenges

Published

6 hours ago

2023/05/28

Thilina Walpola

Sampath Bank continued to reinforce its commitment to all stakeholders notwithstanding the ongoing economic challenges. Stepping in to support the customers affected by the prolonged economic downturn, the Bank continued to offer tailormade options and alternative repayment plans to help its customers sustain their businesses while staying true to its ethos of customer value creation. Similarly, the interests of another stakeholder group of the Bank, the shareholders, were kept in mind by paying the industry’s highest cash dividend of Rs 3.45 per share and a further Rs 1.15 per share in the form of scrip dividend.

The Bank also continues to honor its commitments towards the community via the “Weweta Jeewayak” tank restoration initiative as well as the Oceanic Ecosystem Restoration initiative titled “A Breath to the Ocean” which includes coral restoration, mangrove planting, and turtle conservation programs. The Bank continues to honour its commitment towards the community by focusing on environmental sustainability and towards that end completed the restoration of the Halgahawala forest reserve which it will continue to support even after the project’s conclusion.

The Bank succeeded in raising Rs 10 Bn in Tier 2 capital via a debenture issue in February 2023. Despite the depressing economic outlook in the Country, the issue was oversubscribed – a testament to the investor confidence placed in Sampath Bank and widespread acceptance of the stability and prudent governance of the Bank. The newly obtained capital will enable the Bank to rise above and prevail as one of the Country’s pre-eminent Bank.

Sampath Bank registered a profit before tax (PBT) of Rs 4.5 Bn and a profit after tax (PAT) of Rs 2.6 Bn for the three months ended 31st March 2023, indicating a decline of 30.5% and 44.3% respectively from the figures reported in 1Q 2022. This decline was mainly attributed to the exchange losses recorded during the quarter as a result of the appreciation of LKR by Rs 39 against the USD on its foreign currency reserves. All other income lines recorded performance well above the previous period.

Key highlights of financial results declared by Sampath Bank and the Group for 1Q 2023 compared to 1Q 2022:

* Strong NII buttressed by the higher AWPLR.

* 19% increase in net fee and commission income driven by trade-related operations

* As a result of the appreciation of LKR against USD by Rs 39 in 1Q 2023 vs depreciation of Rs 93.75 in 1Q 2022, the exchange income declined by Rs 10.9 Bn.

* 27% increase in impairment provision on loans and advances.

* The high inflationary conditions resulting in 22% increase in operational expenses.

* The upward revision in Income Tax rate and the introduction of SSCL resulting in higher tax expenses.

* Group’s PBT and PAT for 1Q 2023 was Rs 5 Bn and Rs 3 Bn respectively, reflecting a decline of 27% and 38% respectively.

Impairment charge on loans and advances: In the first quarter of 2023, the impairment charge for loans and advances increased by 27% compared to the same period in the previous year.

Impairment on Individually Significant Loan (ISL) Customers:

During the first quarter of 2023, the Bank evaluated a substantial portion of its loans and advances under the ISL category, taking into account both their financial strength and external macroeconomic pressures. Consequently, Rs 4.6 Bn was charged as impairment provisions against ISL customers in the first three months of 2023, an increase of Rs 1.3 Bn compared to the same period in 2022.

Even though a slow recovery was witnessed in some vulnerable industries, the Bank prudently maintained the previous level of impairment provisioning against ISL customers in these industries as it did not deem that the industry risk had significantly declined.

Collective Impairment: Impairment models used in 2022 were continued in 1Q 2023 to ensure adequate buffers were in place to absorb any potential credit risk that could arise in future. This cautious strategy was in response to the uncertain economic conditions witnessed both locally and globally. The Bank continued to maintain in 2023, the allowance for overlay which it applied in 2022. The probability weightage applied to the worst-case economic scenario remained unchanged during the reporting period.

During the period under review, the Bank also proceeded to reclassify customers from Stage 1 to Stage 2 considering their potential credit risk. Meanwhile customers operating in Risk Elevated Industries were also reclassified under Stage 2, with additional provisions recognized against them.

Impairment charge on other financial instruments:

The impairment charge on other financial instruments amounted to Rs 0.4 Bn for 1Q 2023, a 95% reduction compared to Rs 6.7 Bn reported in the corresponding period of the previous year. In 1Q 2022, the Bank recognised a substantial impairment charge against FCY denominated government securities in response to the downgrade of Sri Lanka’s sovereign rating in April 2022 and the announcement by the Government of Sri Lanka (GoSL) on the restructuring of the country’s external debt through an IMF-supported economic adjustment program. No such provisioning was deemed necessary in 1Q 2023 as substantial provisioning had already been recognized against the said instruments as at 31st December 2022.

Operating Expenses.

Operating expenses in 1Q 2023 showed a 22% increase in comparison to the first quarter of 2022. The 41% increase in other expenses could be attributed to the prevailing inflationary conditions and other factors such as LKR depreciation, increased taxes and import restriction. Personnel costs too grew by 7.4% in 2023 mainly owing to annual salary increases.

Tax Expenses

Total effective tax rate of the Bank increased to 57% in 1Q 2023 from 42% reported in 1Q 2022, owing to the combined effect of the newly introduced Social Security Contribution Levy (SSCL) and the increase in income tax rate.

Key Ratios

The Return on Average Shareholders’ Equity (after tax) decreased to 8.37% as at 31st March 2023 from 10.95% reported at the end of the year 2022. Return on Average Assets (before tax) stood at 1.38% as at 31st March 2023 as against the 1.16% reported as at 31st December 2022.

Capital Ratios

The Bank’s latest capital adequacy ratios improved further in 1Q 2023 from the figures reported in the previous quarter in addition to their being well above the regulatory minimum requirements. As at 31st March 2023, Sampath Bank’s CET 1, Tier 1 and total capital ratios were at 12.51%, 12.51% and 16.12% compared to 11.92%, 11.92% and 14.27% respectively at the end of 2022. These increases are attributed to two main reasons – Rs 10 Bn worth of Tier 2 capital infusion in February 2023 and decline in risk weighted assets resulting from the LKR appreciation.

Assets and Liabilities

Total assets of the Bank declined by Rs 18 Bn (by 1.4%) from Rs 1.32 Tn as at 31st December 2022 to Rs 1.31 Tn as at 31st March 2023. This decline was mainly the result of the Rupee value reduction in foreign currency denominated assets on the back of the LKR appreciation against the USD.

Similarly, the total Advances declined by Rs 22 Bn (by 2.4%) in the first three months of 2023 from Rs 920 Bn as at 31st December 2022 to Rs 898 Bn at the end of the reporting period due to the LKR appreciation against the USD.

Sampath Bank’s total deposit book declined from Rs 1.1 Tn reported at the end of 31st December 2022 to Rs 1.07 Tn at the end of 31st March 2023, a decline of Rs 32 Bn (by 2.9%). The CASA ratio at the end of 1Q 2023 was 32.8% compared to 32.7% reported at the end of 2022.

Dividend

The Shareholders of Sampath Bank at the Annual General Meeting held on 30th March 2023 approved the final Cash Dividend of Rs 3.45 per share and Scrip Dividend of Rs 1.15 per share for the financial year 2022. In its 1Q 2023 Financial Statements, the Bank made a provision of Rs 5.3 Bn to facilitate the payment of the approved final dividend, while Rs 1.1 Bn was capitalized for the purpose of creating shares under scrip dividend. The Bank paid the dividend in April 2023.