Supply-chain shocks push firms to tweak long-term strategies in Asia-Pacific

COVID-INDUCED supply chain shocks have nudged companies to rejig their longer-term strategies in Asia-Pacific, even as supply chains in the region have been more resilient than expected amid the pandemic.

A third of all companies surveyed are conducting a complete overhaul of their supply chains geared towards the longer term. Only 22.9 per cent said they are not making any significant changes, a global report by Citi and the Economist Intelligence Unit (EIU) showed on Wednesday.

From a sectoral perspective, close to half of supply-chain managers in the automotive sector, and 40 per cent in the footwear and apparel industry, are conducting a strategy overhaul, higher than the average of 32.6 per cent.

This compares against 16.7 per cent for the IT/tech/electronics industry, 23.1 per cent for manufacturing, and 33.3 per cent in both the food and beverage and healthcare/pharmaceutical/biotechnology sectors.

While longer-term changes in supply chains - dictated by geopolitical and economic factors - were already underway before the virus outbreak, the crisis is accelerating these changes, said the report.

How supply-chain managers are rethinking their strategies varies in different regions.

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While 40 per cent of managers in Europe and 48 per cent in North America said their companies are pursuing diversification as their top strategy, this stands at just 24 per cent among those in Asia.

Supply-chain managers based in the region are pursuing a more diverse mix of strategies that includes diversification, localisation, re-shoring and China-plus-one.

While diversification is a widely-pursued strategy at this point, the report found that larger companies are more keen to move away from "single sourcing" to reduce supply-chain dependence, while smaller companies prefer localising and shortening supply chains.

Covid-19 has also resulted in a greater focus on the digitisation of supply chains and investments in technology for purposes such as trade facilitation, supply and demand forecasting, financial management and inventory management, said the report.

Of all supply-chain managers surveyed, 32.5 per cent said their companies have increased investment in digital tools or processes by more than 50 per cent due to the pandemic.

While this number stands at 12 per cent among managers in Europe and North America, it is well over 40 per cent among those in Asia.

These investments are largely in the areas of trade facilitation, forecasting and predicting, inventory management and manufacturing processes.

"Increased investments in technology and digitisation will help companies build resilience while advancing digital trade and supply chains more broadly, areas that have been relatively slow in keeping pace with technological change," said Rajesh Mehta, Asia-Pacific head of treasury and trade solutions at Citi.

The report further found that supply-chain managers in Asia are more bullish about globalisation and international supply chains than their counterparts elsewhere.

Over half of the managers in Europe and North America cited increased concerns over the resilience of existing supply chains as the top factor driving their Asia-Pacific supply-chain strategy, compared to just 3.2 per cent of managers in Asia.

Instead, 46.4 per cent of those in Asia said the ongoing impact of the pandemic is the top driver of their supply-chain strategy.

Only 9 per cent are concerned about a breakdown in global trade, compared to 52 per cent of managers based in Europe and North America.

Chris Clague, Asia editorial lead of trade and globalisation at EIU, said: "Supply-chain managers based in the Asia-Pacific region are clearly more optimistic about the resilience of the region's supply chains than managers based elsewhere. This stems from factors such as greater confidence in globalisation and a more nuanced understanding of different markets here."

That said, he noted that the pandemic has resulted in companies thinking deeply about what its effects and longer-term geopolitical and economic trends might mean for the resilience of their supply chains.

The Citi-EIU report was based on a survey of 175 global supply-chain managers across six primary industries.