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Building a New Balanced Identity for ASEAN’s Supply Chains

By Vivek Luthra, Managing Director, Strategy & Consulting, Supply Chain & Operations (SC&O) and Industry X, Growth Markets, Accenture

As a new normal emerges from the global pandemic, businesses are presented with the opportunity to reassess the state of their supply lines. ASEAN would do well to rebuild and redefine its identity as the world’s prime manufacturing base. However, time is of the essence as their counterparts in China and Japan are already ahead.

When COVID-19 first hit us topside, recent news of toilet paper shortages struck me. It was an unsettling feeling. While we had plenty to be fearful about, the Internet trended playfully with a meme a minute, giving people a reason to laugh instead. At the same time, the shortage could be attributed more to panic buying and stockpiling than any disruption in the supply chain.

Still, it was a necessary reminder that we easily take for granted how well-oiled supply lines across the world have been. That is, until now.

For too long, the developed world has taken for granted the ability to order anything — whether offline or online — and to have the goods (toilet paper included) simply appear magically on store shelves and even doorsteps. Who even spares a thought to the network of entities and people who make this delivery process happen? Well, not anymore.

A Call to Rebuild and Redefine

An unrelenting pandemic and its latest Delta variant have thrown new twists and turn into already battered global supply chains. This has caused disruptions of a magnitude not seen since the Fukushima quake in 2011. Beyond the shortages in workers, there have been shortages in products from semiconductor chips to even milkshakes. Yes, milkshakes were off the menu at McDonald’s UK last month, thanks to a truck driver shortage crisis, leaving customers less than “lovin’ it”.

That’s not to say the coronavirus should have the final say.

If anything, these disruptions provide a golden opportunity for ASEAN’s businesses to build a new identity for their supply chains. One that is customer-relevant, operationally resilient, and socially and environmentally responsible.

At the recent Ecosperity Week sustainability conference, it was reiterated that climate action is not a cost but an investment opportunity, and we can do no less for our supply chains. In this, smart technologies will be crucial in accelerating and positioning the region to thrive — not just survive — in a new era of business. And ASEAN has absolutely no time to waste, as China and Japan are already ahead in the game.

ASEAN: Factory of the World, Backbone of the Global Supply Chain

It is almost impossible to mention China without bringing up a global manufacturing powerhouse in the same breath. Reports put China’s worldwide output at close to 30% from the manufacturing sector. Even amid the disruption and economic fallout from the pandemic, China has proved highly resilient.

Despite having this manufacturing behemoth as its neighbour, ASEAN nations have emerged out of China’s shadow as a backbone of the global supply chain — across a range of products, from gems to extremely complex machines. By our calculations, manufacturing exports from ASEAN member states grew at an average annual growth of 5 percent during 2015-2019, outpacing the global average of 3 percent.

While prolonged exposure to the virus as well as persistent lockdowns have left factories operating far below capacity, suspended or shuttered entirely, the region is ready to step up as the ASEAN alternative to Made-in-China manufacturing. Beyond cost competitiveness, however, businesses must think about driving new value-added revenue streams that give the region its competitive edge.

With the benefit of hindsight as the world shifts into endemic gear, I believe the way forward for ASEAN is through FOUR actionable steps. Here are my takeaways.

  1. Build End-to-End Visibility across Supply Chains for Greater Resilience

Let’s talk about why ASEAN businesses should invest in building a digital architecture to enable end-to-end visibility across the entire supply chain. Firstly, this can help them to increase resiliency and transparency at all stages of their supply chain operations.

Secondly, this grants businesses the agility to respond to customer demands faster and more effectively, making them more customer-relevant. Thirdly, a transparent supply chain can enable businesses to source correctly and eliminate waste, building more sustainable and responsible operations.

Take the Chinese pharmaceutical firm, Sinopharm Group, for example, which operates 100,000 pharmacies and clinics. The company implemented an integrated supply chain management system that has been pivotal to effective demand forecasting, information sharing and efficient scheduling, to name a few. Digitalizing its supply chain has helped the business reduce the lead time of long-distance transportation while lowering its logistics costs at the same time. Its pharmaceutical distribution business now accounts for nearly 80 percent of the market share.

  • Develop Smart Analytics for Insight-driven Decisions

Leveraging data intelligently is a key pillar for digital transformation. Nobody knows this better than e-commerce titan JD.com, which scaled its investments in Artificial Intelligence (AI) capabilities to improve its predictions of shopping patterns, as well as optimize its logistics networks across China. Retooling old algorithms to incorporate more leading indicators, such as social media sentiment and data from livestream influencers, allowed the company to offer more relevant product recommendations to consumers. This has led to a 3 percent increase in click-through rates and increased sales overall.

Another Chinese titan, Alibaba, last year unveiled its Xunxi Digital Factory. The first-of-its-kind factory adopts a “made-to-sell” rather than a traditional “made-to-stock” approach, leveraging digital solutions such as cloud computing and AI algorithms. This has enabled real-time resourcing, process and cost planning, automated in-house logistics and a manufacturing operating system. As a result, Xunxi is able to produce small-batch orders at reasonable costs and with shorter delivery times. In the process, its manufacturing efficiency has risen by 30 percent, while the need to hold inventory has declined by 30 percent.

  • Nurture a Digital Talent Pool to Acquire Capabilities

It goes without saying that a business can’t run itself without people. With the rapid shift towards digital, it has become increasingly imperative to develop and equip in-house talent with the emerging capabilities and skills necessary to navigate new technologies. Businesses across the globe are now exploring innovative ways to reskill and upskill both current and future workforces.

South Korea stands out in this aspect, with pioneers like LG Electronics which launched its own graduate-level education course. The LG AI Graduate School sets out to address the widening gap between demand and supply of well-trained AI professionals. The company is slated to launch a more advanced program, equivalent to a doctorate degree, in the future.

Another Korean multinational giant, Hyundai Motor Group, has taken a similar route. Its auto components maker, Hyundai Mobis, operates a five-month-long full-time AI training curriculum. This covers AI algorithm theories and data processing. A separate unit, Hyundai Motor Company, runs a five-month-long full-time boot camp on Big Data analysis.

  • Strike Global Partnerships to Boost Innovation Agility

Not every solution can be found in-house. In fact, businesses stand to gain much when making focused investments in building cross-border collaborations, which enable them to innovate at speed and scale. If required, they must look beyond the boundaries of their country and even this region.

A case in point is Toyota Motors’ recent rebranding of its Silicon Valley corporate investment arm, to Toyota Ventures. This was a reflection of the company’s expanding scope and commitment to partner with talented entrepreneurs, to bring disruptive technologies and business models to market. Its US$500 million funds now includes a climate change focus, wherein the company will invest in technologies and companies developing carbon-neutral technologies such as hydrogen production and carbon capture and storage.

When All is Said and Done

With the global economy and trade so intricately interconnected today, enduring some level of disruption across global supply lines is inevitable.

However, ASEAN is advantageously placed to take the lead as the manufacturing and supply chain superpower of the world. The current downturn presents a prime opportunity for the region’s businesses to rebuild their identity upon stronger foundations than ever before.

The key to resolving the next global supply chain crisis is to prevent shambles like the next Great Toilet Paper Panic from happening in the first place. We can do that only by charting the path to intelligent supply chain transformation quickly and confidently.

The question is, are our region’s businesses ready to seize the day, to build more resilient operations for the supply disruptions of tomorrow?

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