Broken links in global supply chains

Who hasn’t stared at an empty supermarket shelf over the past two years and wondered what is going on with global supply chains? Or become frustrated by shortages and delays when trying to order a car, washing machine parts or a device reliant on semiconductor chips?

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The COVID-19 pandemic has made supply chain shortages a household topic in communities around Australia and globally.

“So what is driving this disruption and how can business innovate to adapt and stay competitive?”

This has been exacerbated and compounded by deep structural pressures and geopolitical tensions, leading to rising costs, shipping delays, fluctuating inventory levels and widespread business disruption. And while the trends are global, they are playing out in a unique way in the Asia Pacific.

A recent survey by Asialink Business, supported by Toll Group, revealed logistical constraints (33 per cent of respondents) and demand fluctuations (23 per cent), followed by labour and supply constraints, then government restrictions, weres the biggest supply chain concerns for businesses in the Asia Pacific.

So what is driving this disruption and how can business innovate, adapt and stay competitive? The research identified four key trends shaping the future of regional supply chains.

1. Moving beyond ‘just in time’ logistics

Over the last two decades, supply chains in Asia evolved to support low-cost production and just-in-time logistics, often extending across multiple countries.

Rising shipping costs and the rolling disruptions of the past two years has exposed the risks in these efficiency-based models and motivated many businesses to build greater resilience into their supply chains.

While the full impacts of the pandemic are yet to be seen, businesses are considering ‘onshoring’ and bringing operations back home. Onshoring is particularly attractive to Australian small businesses, with 30 per cent of respondents saying they were considering it to improve their supply chain resilience.

As a strategy, however, onshoring is only viable for certain industries where domestic manufacturing exists – the majority of businesses will struggle to compete on cost with Asian suppliers.

Building inventory as a supply chain resilience strategy was another option highlighted by the research. Retail businesses, such as the Reject Shop, reported keeping inventory levels high in order to continue to meet demand for low-cost consumer goods.

Hedging against supply chain delays in this way has helped numerous retailers record profits during lengthy lockdowns though it also reduces profitability.

2. Meeting Asia’s e-commerce boom

The pandemic has accelerated Asia’s e-commerce boom. Backed by growing internet and mobile penetration, Asia’s e-commerce market grew by almost 20 per cent between 2019 and 2020 and is forecast to reach $A3.3 trillion by 2024. Indeed, 62 per cent of all e-commerce sales in 2020 took place in the Asia-Pacific, compared with just 19 per cent in the US and 13 per cent in Western Europe.

Asia’s e-commerce landscape is complex and requires a nuanced understanding of the popular platforms which vary from market to market.

This rise in e-commerce has changed how consumers shop and disrupted the traditional retail fulfilment model. To compete in this rapidly evolving landscape, businesses need to meet and respond to evolving consumer expectations around:

  • Speed: As fast delivery becomes the norm business must reduce lead times by moving fulfilment centres closer to customers. For example, Walmart in China uses its stores to offer one-hour grocery delivery and Lazada in Singapore has partnered with 7-Eleven and Ninja Van to turn 7-Eleven stores into parcel collection points.
  • Convenience: Demand for a wide variety of products as well as a range of delivery and return options is adding to the strain on supply chains.
  • Traceability: Business needs to adjust to consumer interest in knowing the origins and delivery status of products and to track the delivery of their products.
  • Service: As e-commerce becomes widespread, superior customer service has become key. This creates added challenges for Australian brands who need to understand good service means different things across Asia.
  • Personalisation: This is a growing trend across Asia with customers seeking personalised experiences, for example, personalised packaging for luxury purchases.

Traditional supply chains are being put to the test by these expectations. Businesses that fail to invest in an agile, digitally connected supply chain or partner with organisations that can keep up with these trends risk losing market share to competitors.

3. Shifting expectations on sustainability

Sustainability is now at the forefront of supply chain decision making. Businesses are under increasing pressure from customers and investors to demonstrate sustainable production and distribution practices.

For example, over 70 per cent of surveyed businesses identified both reducing carbon emissions and combating modern slavery as key concerns and there is rising recognition of the need for greater transparency along the supply chain.

Some organisations are leading the way in demonstrating how sustainable practices can drive greater efficiencies and returns. Uniqlo has focused strongly on reducing carbon emissions in manufacturing by using filtration technology and making polyester fibre from recycled plastic.

4. Technology holds the key

Investing in technology and innovation is key to meeting these resilience, e-commerce and sustainability challenges - and for keeping pace with the rapid changes in Asia.

Technology is revolutionising supply chain management. The Internet of Things (IoT), machine learning (ML), artificial intelligence (AI) and improvements in data analytics are helping businesses increase manufacturing productivity, improve logistics, bolster resilience and provide tailored customer experiences. Technologies such as blockchain can also increase transparency for businesses along their supply chain, as well as cut costs and reduce waste.

When navigating Asia’s complex, competitive and fast paced markets, Australian business needs to accelerate the uptake of such technologies or risk being left behind.

This is particularly challenging for small and medium business. Asialink Business’ survey revealed 27 per cent of medium business and just 13 per cent of small business are investing in AI for supply chains, compared with 42 per cent of big businesses.

As Australian businesses come out of the pandemic, however, addressing these challenges and investing in resilient and sustainable supply chains will be key to tapping growth opportunities in Asia’s rapidly evolving markets.

Competitors from other countries are not waiting – they are positioning themselves for success. Now is the time act.

Rob Law is the Director of Advisory & Insights at Asialink Business. He helps organisations of all sizes understand, plan for and expand into new markets across Asia.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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