Since the the beginning of the pandemic, the topic of supply chain crises have often been in the news. Especially for internationally active companies having an efficient supply chain management system is a key component of competitiveness & that means digitalisation. What are the key trends affecting the digitalisation of supply chains 2022? Why is digitalisation such a hot topic in Southeast Asia?
Table of Contents
Brief Overview of How Supply Chain and Operations Management Developed
OK, so I’m not a supply chain historian so this is just from my very personal perspective…
For decades up until the late 70s, vertical integration was the name of the game. What that means is that companies would try to own the whole process. Eg a car manufacturer would own producers of all of the component parts, and might also go back further in the supply chain to own the component suppliers…& suppliers of the component suppliers (you get the idea – in theory that could go back to the mines bringing out the ore). A bread manufacturer might own cereal mills and even farms. I’m not saying that doesn’t still exist to a certain extent today (after all it has advantages in terms of controlling the quality and knowing all the pricing) however in really complicated cases, companies started to divest their “non-core” business and to outsource during the 80s.
Global Supply Chain
Companies looked for cheaper locations for their productions (& often ways to get around increasingly complicated and costly regulations at home, but that’s another story) and started to move across continents.
With this more horizontal supply chain (ie companies who are my partners rather than daughter companies) came the need for structuring HOW to manage everything in the most effective and cost-efficient way. The supply chain management team has to make sure that the right amount of raw materials are available in the right place and in the required quality at the right point in time. Going forward towards the client, then of course the right products also have to be delivered in the right quantity and quality at the time needed.
Mistakes that were made with globalised supply chains
- Overfocus on labour arbitrage – so companies took cost savings as their highest priority and moved to where labour at the time was cheapest, ignoring the fact that this left them vulnerable. Offshoring the whole production might be cheaper, but of course you then have to factor in the expense of quality control and also the stock management process when your supplier is on the opposite side of the world, weeks or even months away by ship.
- Underestimating the challenges that differences bring. These differences could be language, culture, legal or fiscal in nature… Even if you outsource your production to a neighbouring country eg from Singapore to Vietnam you have these issues
- Ignoring the challenges of physical logistics. Over the centuries many wars (or military campaigns) have failed due to the failure of supply lines (anyone who invaded Russia in the past 300 years could explain that in detail as Napoleon and Hitler both struggled). Wellington also recognised that without excellent logistics then campaigns further from bases were at risk as “the army marches on their stomach”.
Just because we are now in more modern times and talking about business rather than military applications doesn’t change the fact that if your supply lines stretch around the world, then it takes time (& therefore money) to get your products where they need to be and this reduces the cost benefits of labour arbitrage above.
Covid highlighted the vulnerability of our globalised supply chains
As countries went into lockdown at different times in 2020 it became crystal clear that relying on a single supplier on the opposite side of the world to keep your production running, might be the cheapest solution, but it’s also risky. Same thing with only carrying enough stock for a couple of days and having all your deliveries JIT (“just in time”) – when ports delay loadings as their staff are in lockdown, you can be in a really bad place, even without having a virus problem in your country.
Covid accelerated several trends in the supply chain industry generally
Larger companies have realised that on the face of it, it may be the cheapest solution to have one supplier in China, but it leaves you open to disruptions. This process of moving production either elsewhere in Asia or closer to home (for US companies back to say Mexico or for European companies to Turkey or Eastern Europe) had already begun earlier.
China may be a manufacturing superpower, especially for certain kinds of products, however increasing wage costs (& legal safety standards in the country) mean that it’s no longer the cheapest option for many things.
Many companies are also reconsidering whether they really want to be dependent on one large supplier or whether it could be better to have several medium sized ones in different locations even if this means increased costs in terms of managing, auditing and working with those suppliers.
Digitisation in Supply Chain
At times when costs are rapidly increasing around the world, and suppliers are potentially no longer in the cheapest countries, then supply chain managers need to begin looking at ways to reduce the human risks both in terms of error (as we know, the only humans who make no mistakes are the ones doing no work) & with disease (who knows as I write this in June 2022 how long covid will continue to impact workforce availability?). Generally, that means looking at ways of automation and digitalisation.
Power of Relationships in Supply Chain Management
Anyone who reads this blog regularly will know that I regard relationships as the key to all international business and supply chains are no different.
From the time that the globalisation and outsourcing process accelerated then the requirements for intercultural competence within the supply chain grew. Relationship management is a core competence and a key factor in any company’s competitive advantage.
Even within the ASEAN region, the various countries are extremely diverse, meaning that a one size fits all solution is unlikely to be successful. On thing that unites the countries in the region though are their focus on the importance of building relationships and working partnerships.
Whilst it isn’t necessary (or practical) to be an expert in all the cultures of a region that you may be working with, it’s certainly vital to be seen to be making an effort to learn and understand the culture.
Empathy for the client or supplier problems will go a long way to deepening your relationships, especially if you understand their stories and can relate in story form how you in turn can support them.
Trends in the Digitalisation of Supply Chains 2022 in South East Asia
These are just some ideas, together with a few questions that it may be relevant for companies to consider.
Investments in technology
Companies should think through what they need and whether there is a SaaS solution (= software as a service, usually a subscription model) or a need to buy (or even build).
- What kinds of technology will future-/crisis proof my business?
- How can I connect my business with the ecommerce platforms out there in order to leverage their power for my products?
- Can collaborative technology help streamline my warehouse processes and relieve some of the recruitment difficulties?
- will AI modelling help me become more efficient?
Cross Border Selling and Omnichannel Solutions
Once a brand is selling online in their own domestic market, they will often consider how they can start to tap into other markets.
- How can I optimise my online-offline offering?
- Which marketplaces do I need to learn to cooperate with?
- Who can take care of my logistics?
- Do I need a full service fulfillment partner?
This kind of approach was limited to larger companies in the past but the pandemic has also forced SMEs to speed up this side of their digitalisation.
In mega cities where last-mile logistics are a complete nightmare to do well, so-called “dark stores” have begun to pop up. These are brick and mortar ecommerce fulfillment centres without consumer facing retail.
The repeated lockdowns in many cities have shown that brands need to be closer to their clients so having a pick up point nearby became an increasingly popular option. This started in cities such as Tokyo, but is also growing in Bangkok and Jakarta (anyone who’s driven or taken a taxi there will know why it’s great to be able to collect your purchases nearby!).
Direct to consumer (D2C)
The pandemic has driven many manufacturers to consider how they can become less dependent on brick and mortar retail that may be closed down – and selling directly to consumers is one of the potential solutions.
- how can we as a company be closer to our consumers?
- we still want to have distribution partners but also to profit from online direct opportunities
- how can we leverage ecommerce marketplaces?
- how can we reduce our risks?
- how should we manage this change in our whole logistic process?
Traceability (only possible with Supply Chain Digitisation)
Being able to prove the provenance of your raw materials is not only a good move for ensuring quality compliance, however it also is a great marketing advantage. This is increasingly a topic in Southeast Asia – it’s been common practice in certain industries in China (eg infant formula) for a number of years already.
You may need this level of transparency to prove that your product is genuine, that you’re not using child labour, or that your suppliers don’t have any animal rights issues for example.
On the one hand, it helps you to trace specific batches in the event of any problems, whilst also allowing you to improve the forecasting at all steps of the supply chain. If you want to you can also build marketing assets around this transparency, as well as potentially a whole customer loyalty programme. Consumers may be willing to pay 2% to 10% more for products from companies that provide greater supply chain transparency.
With more data and digital systems comes also the ability to better analyse what it happening in the business.
- are my warehouse workflows optimised?
- should I be carrying more or less stocks?
- how are my consumer tastes changing?
- how much do I need to request to be produced in the next months?
- which raw materials will I need?
- are all of my suppliers reliable?
Of course there are many more questions here, but just to give a few examples…
Why are many South East Asian companies afraid of digitalisation?
We often have this impression that Asia is completely digitalised, and whilst there are certainly many hi-tech initiatives and mega cities probably have a higher general level of digitalisation that many in Europe, that isn’t the same across all industries and regions. However governments across the region are pouring money and energy into initiatives to rapidly advance the situation and digitalisation of supply chains 2022 is one of the major trends worldwide.
I’ve been into many important traditional grocery stores in the fairly recent past in Vietnam and seen that the owner is keeping track of turnover and stock sold in a notebook next to the cash till. A few years back there were also distributors in the regions who did all of their paperwork literally still on paper rather than in a computer.
Whilst those days for wholesalers are hopefully gone, still many of them have been working with excel up until now, which is ok but not a very scalable solution, nor is it very future proof.
- Lack of knowledge
If you as a company don’t understand what are the benefits of digitalisation for your company (or you can’t imagine how those might look) then you’re likely to be afraid. Some supply chain specialists talk in so much jargon that it’s intimidating for SME owners who have no idea what an API (= Application Programming Interface, or a connection between 2 pieces of software so they communicate with one another) is and why they might need one in future to their ERP system (=Enterprise Resource Planning, the kind of software used to run a whole company’s purchasing, production and forecasting)
- Fear Driven
What are the implications of having all this tech in the company?
Will we still have control of our own data?
Will we still be able to find the information that we need to make our business decisions?
- Limiting mindset – this arises from the lack of knowledge and fear mentioned above.
Companies simply think in terms of making the least possible investment today without considering the long term effect or requirements of their business growth.
As a result of the fear around supply chain digitisation, companies often simply plug gaps in their systems. Rather than looking holistically at what they need and how the needs of their company are likely to evolve in the next 5 years, they buy a short term solution for a single issue with the minimum investment possible. It’s also an approach, however in the long run, you are likely to have more headaches and higher costs by working in this way.
For any software supplier or consultant who is working with such companies on their digitalisation journeys then it’s important to empathise with these fears and attitudes. If you don’t understand the stories of the companies around why they are using the systems which they have now, then you won’t be able to help them understand what they don’t know. Remember most of these companies don’t know what they don’t know…
What are the factors for SMEs to consider when approaching a project on the digitalisation of supply chains 2022?
These key factors apply whether you are thinking about the whole supply chain or simply looking to update your warehouse management
This is a key in all international projects as situations can evolve rapidly and you need a solution that can grow and change with your business. Warehouse management software is often extremely rigid, which can make it complicated to update processes or to scale.
In today’s world speed of operations is becoming increasingly important, both in B2B but also B2C business. In China’s mega-cities delivery times of under an hour are quite normal in some industries, and whilst this isn’t the standard in South East Asia yet, expectations are definitely speeding up.
When humans speed up, accuracy diminishes, however with digital solutions this disadvantage can be largely eliminated.
Solutions also have to be quick to implement – in today’s rapidly evolving world, there’s no point in having a solution that needs a 3 year project in order to go live, we’re talking weeks as the target.
That doesn’t mean cheap, but if nobody can afford the product then it won’t be of any benefit to companies. South East Asian companies are prepared to pay for quality but they also need to receive value for their money.
It’s vital that companies move to data driven systems in order to remain competitive and that can only happen through automation and digitalisation. It doesn’t matter if companies are in distribution, manufacturing or logistics services, all of them need to consider how to reconfigure their business for a post-pandemic world whilst increasing the relevance for their customers.
Increasingly digitised supply chains will also improve resilience to risk. Sadly events such as extreme weather seem likely to become more frequent, especially in the sensitive South East Asia region so having automated systems that allow your company to keep operations running from cloud based systems will be important pillars of success.
It’s vital that companies look forward into the future and consider how they can harness the power that digitalisation bestows on them to accelerate their growth. Relationships will still be critical though, especially in regions with a high context culture such as Asia. The combination of digital data analysis (& AI modelling) with human creativity will create the strongest foundation for future success.
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