The great supply chain 'reset' in Asia

IN Asia, supply chain planning is on the precipice of a great reset. Manufacturing hubs have made South-east Asia their home for the longest time due to geographical location, regulatory and economic advantages.

The Covid-19 pandemic changed this drastically causing widespread shortages, empty supermarket shelves and supply chain shortages. Industries had limited time to address these disruptions and had to scramble to source for various parts and materials due to the sudden demand. Now, there are resulting manpower shortages, and higher oil and commodity prices due to Russia's invasion of Ukraine.

As a result, in South-east Asia, it can now take 2 to 3 times longer to procure many raw materials and finished goods - and 10 times more supply chain planning effort - than it did pre-pandemic. And just as restrictions are being lifted and borders are opening up, the region is now experiencing a whole new set of cascading supply chain disruptions and challenges due to the Russia-Ukraine war, which is again forcing re-planning across the end-to-end supply chain.

It is apparent that the way we have always planned, and the technology used for decades, are no longer enough. The very fundamentals upon which we plan are shifting at a time when planning has never been more important. Resilient supply chains must continue to do the same things well while adapting in new directions as disruptions - large and small - challenge businesses around the world.

Where will this reset take us? What are we learning about the new state of supply chain today and what should we be thinking about for the future? Here are 5 top trends driving the future of supply chain and what leaders can do now to be ready.

1) Supply chain has become a board-level topic

CEOs and boards are charged with the long-term growth and strategy of a company, so they are concerned about barriers to future growth.

According to the KPMG 2021 CEO Outlook, these priorities shifted in 2021 for a 3-way tie between supply chain, sustainability and cybersecurity. These issues are hardly separable. A company's supply chain contains on average 5.5 times as many greenhouse gas emissions as its own operations.

The growing use of IoT (Internet of Things) and automation on the factory floor has hastened the convergence of OT (operating technology) and IT, and increased the attack surface for cybercriminals.

These incursions are no longer confined to customer data and can quickly bring down a supply chain.

Supply chain has risen to the top of many lists of corporate concerns and into the headlines. But this attention hasn't been all positive, as supply chains have received blame for the snarls we face but little credit for our success. To operate at the board level, supply chains need to be ready and able to connect their value to the wider enterprise - sales, marketing, operations, finance. For example, CSCOs need to speak the CFO's language and show how they can not only deliver operational success but also translate it into financial results.

2) The role of AI is growing

According to the 2021 MHI annual industry report, over the past year, the number of supply chains adopting AI (artificial intelligence) increased by 42 per cent, from 12 per cent to 17 per cent, 1 of the largest increases they've seen, with another 24 per cent expecting to adopt AI in the next 1 to 2 years.

The challenges of managing the unpredictable demand signal have driven greater interest than ever in improving forecasting, but supply constraints are a nearly equal challenge.

Planners are more overwhelmed than ever, and yet their expertise has never been more valuable.

The opportunity is for AI to augment human intelligence with as much automation as possible, so planners can apply that expertise to the most pressing and complex problems that cannot be predicted or automated. As demand surges (or falls) far outside past sales patterns, AI-driven techniques like demand sensing find new insights by bringing in signals like weather, social media or even commodity prices to update the short-term forecast.

Planners remain in the driver's seat, validating decisions and applying their own expertise, while AI increases accuracy, automates the mundane and learns from decisions to recommend future actions.

3) Effects of disruption cascade from linked supply chains

Predictions from the US Federal Reserve chair Jerome Powell (and other economists) are that the current supply chain woes will continue in 2022 and stoke inflation.

Powell cites the bottlenecks resulting from factors like supply shortages due to factory closures in Asia and clogged ports. Add to that list labour shortages, rising energy prices increasing disruptions from climate change (droughts causing crop shortages, wildfires, floods) and continued high consumer demand. With fears of shortages looming, consumers and even businesses are engaging in hoarding, which further disrupts the demand signal.

The combined effects of these global constraints lead to cascading impacts that are difficult to untangle. Demand sensing is one approach that can help supply chains manage the complex effects of both supply and demand shifts.

4) Shrinking the time between planning and execution is crucial

Planning cycles vary considerably by industry and even company, but whatever cadence a company had, it most likely shortened in recent times. Monthly plans became weekly, weekly plans became daily, and in some cases daily became hourly.

While professor Jan Fransoo of Tilburg University likes to say that planning and execution will always be separate functions as long as lead times are not zero, these functions have grown closer together as volatility continues, along with evolving but insistent consumer demand.

Customer expectations, even in B2B companies, remain high but require fulfilment in increasingly complex channels.

Readiness to respond faster includes creating living, learning digital twins - virtual models designed to accurately reflect the physical supply chain and enable the testing of an infinite number of possible scenarios. With that in place as a foundation, capabilities can be added, such as a command and control centre approach to monitor disruption signals to ensure supply chains are better equipped to manage a shorter loop of sensing a signal and executing a response.

Whether you're facing supply-side disruptions of unexpected customer demand, or latency in response to increases in supply chain instability, preparing for even greater agility increases the ability to synchronise supply and demand and satisfy customers.

5) Sustainability is a business imperative

More than 21 per cent of the world's largest public companies have made corporate commitments to sustainability in the form of net-zero targets. Yet a survey of supply chain managers by the Chartered Institute for Procurement and Supply (CIPS) found that 80 per cent had little to no involvement in sustainability planning or awareness of a corporate sustainability strategy.

The key to supply chain sustainability is a shift to circularity. Most supply chains today are linear, starting with raw materials we make into products and then discard at the end of their life.

Moving towards a circular supply chain means finding ways to reduce (for example, Jabil's multifaceted efforts to use less packaging), reuse (for example, Cisco's Takeback and Reuse Programme), and recycle (for example, Procter & Gamble's commitment to use all reusable or recyclable packaging by 2030). These kinds of shifts towards a circular economy can save costs and even generate revenue.

The takeaways

From the boardroom to the shop floor, the state of supply chain is changing. While we can't predict the future, keeping pace with top supply chain trends can help pave the way to ongoing competitive advantage and future success.

Many companies are turning to digital transformation as a way to "reset" how they plan - trading traditional processes and old technology for modern-day solutions and techniques.

By undertaking this great reset, organisations in Asia will be perfectly positioned to address emerging trends, mitigate risk and disruption, and embrace exciting new opportunities.

The writer is vice-president and Apac sales director of the Kinaxis Singapore office at Kinaxis