Supply Chain Strategies for The Asia Era
The critical five R's - Supply Chain Strategies
As a result of recent and rapid developments in worldwide commerce, we have witnessed supply chains evolve into complex international networks, which can no longer adequately be described using the linear concept of a ‘chain’.
The depth and breadth of complexity, connectivity and inter-dependencies involved in today’s international commerce has resulted in the emergence of ‘Supply Chain Ecosystems’ – globally inter-weaved, multi-layered networks of partners, suppliers, regulators, service providers and customers.
Amidst rampant globalisation and the never ending pursuit of low cost labour, these supply chain ecosystems have become elongated, complicated and increasingly frustrated with challenges arising from Velocity, Volatility and Vulnerability.
At the same time, the traditional growth consumer markets in Europe and North America are experiencing varying degrees of economic, political, social and fiscal uncertainties, which intensify the continual challenge of forecasting demand that results in high degrees of variability in our supply chains.
Meanwhile, with the inexorable rise of the ‘Chindia’ powerhouse - (China + India together) combined with the increasing economic prosperity and emerging consumerism throughout the ASEAN region, our presence here-and-now in “THE ASIA ERA” is unequivocally confirmed.
The most important impact will be a renewed supply chain focus that will move beyond the traditional performance metrics of speed, cost and quality and incorporate more emphasis on five critical R’s of supply chain – Regional, Regulatory, Resilience, Rationalisation and Responsibility:
Regional– with increasing labour costs, especially in mainland China, the volatility in oil prices, and the trend towards regional free trade agreements, companies will seek to rebalance their supply chain complexity by adopting a more regional approach – for example ‘Made in Asia, for Asia’. Hence, there will be some production that will migrate ‘closer-to-home’, or adopt near-shoring - such as Eastern Europe or Latin America. This will not however be a mass exodus from Asia manufacturing – largely because of the well-established supply chain ecosystems that service the Asia-Europe and Asia-America trades, but also because the potential in the Asian domestic consumption markets is so enormous.
Regulatory– companies expanding their business activities in emerging markets - which are forecast to account for almost 60% of global GDP growth through to 2015 - will increase the emphasis on having the expertise to capitalise on free trade agreements, whilst deploying due diligence across local markets to ensure full regulatory compliance in all relevant jurisdictions.
Resilience– following the unpredictable events that in recent years have caused massive-and-immediate disruption to supply chains (hurricanes, earthquakes, floods, accidents, social unrest and piracy) companies are seeking to develop enhanced levels of supply chain resilience. A recent report identified that the greatest risk for global supply chains is ‘The Unknown’. Companies will be adopting combinations of what-if scenario modelling to stress test their existing supply chain ecosystems, and then develop strategies and tactics to build supply chain resilience and deploy sense-and-response mechanisms in order to be prepared for, and equipped to react to, the unknown unknowns – “Expect the Unexpected!”.
Rationalisation – within the 3PL sector, we will see increasing consolidation amongst and between logistics companies, both at global and local levels, as providers seek to leverage scale economies, extend geographical footprints and expand service offerings. Within the customer segment, we will also see further rationalisation of their supply base of logistics service providers – with companies reducing the number of outsourced partners to a handful of best of breed providers, likely specialised by geography, transportation mode or specific service offering.
Responsibility – sustainable supply chains are firmly back on the corporate agenda, driven by proven trends that buyers are placing much more emphasis on the suppliers’ perceived environmental reputation when making purchasing decisions – both for consumers and also in the B2B world. Environmentally Responsible supply chains will incorporate particular emphasis on green initiatives, carbon footprint measurement, recycling and waste management programs. There could well be progress towards the development of independent sustainability standards in the shipping and logistics sector for transparent measurement and reporting of a supply chain’s carbon footprint.
As we progress through the Asia Era, new supply chain challenges will surface, presenting many interesting and exciting opportunities for our supply chain ecosystems. Adopting a pro-active approach to these critical five R’s will empower businesses to overcome the obstacles and capitalise on the opportunities.