Asean companies should rethink supply chains to drive growth: EY

WITH economies starting to open up, the manufacturing sector looks set to be the growth driver for South-east Asia and companies in the region should optimise their supply chains to bank on these opportunities, said professional services network Ernst and Young (EY).

In its latest study on investing in South-east Asia published on Feb 21, the consulting firm, which is also considered 1 of the Big 4 accounting firms, said that the Covid-19 pandemic had exposed vulnerabilities in traditional supply chains and organisations are now under pressure to reconfigure their supply chains to become more responsive.

Study co-author Atul Chandna, who leads EY's Asia-Pacific Supply Chain segment, said the pandemic and trade tensions had forced companies to identify alternative, lower risk and local suppliers for diversification, and companies should strive to strike a balance between just-in-case and just-in-time models.

The former model refers to a management strategy that aligns raw-material orders from suppliers directly with production schedules, while the latter indicates strategies where companies keep large inventories on hand, according to Investopedia.

In the vein of digital enablement, Shaurya Ahuya, partner of consumer and digital at EY's strategy consulting arm EY-Parthenon, said companies looking to revamp their supply chains could take this opportunity to incorporate digitalisation into the supply chains for greater efficiency.

"For example, creating a digital twin can help with demand forecasting and planning or scenario testing; deploying shared databases via blockchain can enhance traceability; and using radio-frequency identification tags will offer full visibility of the supply chain," Ahuya, who is also a co-author of the study, added.

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Digital twinning in supply chains refers to a complete digital replica of the supply chain process using real-time data to sense problems and respond, which can help company management make rapid decisions with a high-degree of confidence in the outcome, according to a separate EY report.

Narrowing the scope to South-east Asia, the study said that regulators have been supporting manufacturers to tap on the region's potential.

Vietnam's seaport master plan for 2021-2030 aims to enhance infrastructure connectivity, reduce logistics costs and promote marine economic development, while Malaysia's Industry4WRD National Policy on Industry 4.0 will support adoption of digital technologies in the manufacturing and related services sectors, EY said.

Singapore has also invested in port infrastructure and terminal development through the new Tuas port, which would ramp up the country's cargo capacity and improve productivity. International manufacturers can also take advantage of the country's Singapore+ model, an initiative developed by the Singapore Economic Development Board and private sector companies.

Chandna said: "Business can combine the synergistic advantages of dual locations in South-east Asia with the Singapore+ twinning model; tapping on Singapore as a hub for innovation and corporate activities, while being a short flight away to manufacturing locations.

"Such arrangements can help manufacturers build a more resilient and efficient supply chain by leveraging the complementary strengths of the Southeast Asia nations."

The study observed Johor in Malaysia and the Batam, Bintan and Karimun islands in Indonesia as some nearby locations that benefit from the model.

Furthermore, other regulatory interventions to improve supply chains include free trade agreements such as the Regional Comprehensive Economic Partnership to facilitate trade and reduce tariffs, the study said.

Meanwhile, the study highlighted 4 sectors that will potentially have significant growth - namely, consumer goods, healthcare equipment, electronic manufacturing services and agriculture technology.

Growth in these sectors will be encouraged by factors including shifts in consumer purchase patterns, growth in telehealth and remote patient monitoring and analytics, electronic manufacturing companies seeking to expand in South-east Asia and increasing focus on healthy food options and sustainability.

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