Optimising supply chains for the post-pandemic world

ROUNDTABLE PARTICIPANTS

• Christopher Ong, managing director and senior vice-president, DHL Express

• Sudeep Nair, group chief executive officer and executive director, Food Empire Holdings

• Jackson Aw, chief executive officer, Mighty Jaxx International

• Lee Pak Sing, assistant chief executive officer of trade, connectivity, and business services, Enterprise Singapore

Q: What are some key challenges of optimising supply chains, and how did you overcome these?

Ong: One key challenge is sourcing from new locations and suppliers to diversify risks and sources. Pre-pandemic, this was already challenging due to the foreign environment. Often, businesses need to do due diligence to ensure that the new supplier meets their quality and ethical standards.

This became exponentially more challenging when the Covid-19 pandemic happened and travel became restricted. We have seen our customers embrace business-to-business e-commerce where they use digital platforms to source for suppliers and leverage on ratings and opinions of others to aid in their decision.

A second challenge is customs compliance. Every country has unique concerns, and what can or cannot be shipped is different everywhere. Not adhering to such concerns would cause freight to be stuck at borders for inspections with additional paperwork. This may result in clearance delays, penalties, or even fines if not duly complied with.

DHL was prepared for these changes and we had a dedicated European Union customs website where customers can learn more and continue to enjoy a smooth shipping process with DHL Express. In addition, we have our Global Trade Services, a suite of free tools that will help customers calculate duties and landed costs, determine the classification and other everyday tasks encountered in international shipping.

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Aw: One of the key challenges was the lack of visibility and transparency across our end-to-end supply chain. This made it difficult to monitor customer demand, market trends and inventory to remain agile as a fast-growing company with millions of products shipped in a year. As our business grew, we quickly realised the increasing need to unify our data across the business, operations and IT into one data management system.

It was imperative to have a robust system that could streamline various processes across our supply chain including demand, procurement, supply, inventory, delivery and customer data. We needed this visibility to monitor key performance indicators such as cost reduction, inventory turnover, production lead time, return rate and return on assets.

Given the complexity of tasks and the multiple steps in analysing data from various sources, we needed a holistic enterprise resource planning platform like Microsoft Dynamics 365 with a well-integrated supply chain module that could provide supply chain visibility, advanced analytics, demand forecasting and asset monitoring all in one place.

Having and managing on-ground local human capital is another key challenge. In the wake of pandemic-related lockdowns, we could not gain proper supply chain visibility and inventory management in China. As a company, we had to understand which tasks could continue to be performed remotely and which ones required workers to be on site. Although digitalisation and the use of technology is crucial, human capital remains key in optimising supply chains.

Lee: At EnterpriseSG, one of our key priorities is to ensure we have a resilient and efficient supply chain ecosystem to support growing trade flows through Singapore. One major prerequisite for optimisation is better visibility of supply chain data throughout the ecosystem.

Digitalisation is a key first step to addressing this. Companies must have digital capabilities and systems in place to achieve visibility of their operations, which in turn allows them to track, identify and pre-empt supply chain issues. While larger corporates generally possess or can acquire such digital capabilities through investing in customised technology, small and medium-sized enterprises (SMEs) may need a helping hand with resources, talent, know-how and scale.

We have worked with industry stakeholders to support SMEs in developing their digital and supply chain capabilities. EnterpriseSG also facilitates collaboration among supply chain ecosystem partners to share operational data via Singapore Trade Data Exchange, so that players along the supply chain can gain greater visibility and better optimise operations at the wider ecosystem-level.

Q: What lessons did you draw from the Covid-19 pandemic’s disruption of global supply chains?

Nair: At Food Empire Holdings, we have some raw materials being manufactured in our units in Malaysia and India, and other supplies coming from places like China and Europe. Some of our consumer markets are located in Eastern Europe, Russia or Commonwealth of Independent States countries that are very far away. The shipping times and costs ballooned and we risked being out of stock due to longer times and lack of container slots along with ballooning costs of goods.

The only way to resolve that was to find alternative routes and vessels and to build up larger inventory to compensate for unpredictable disruptions. Another solution (was) to increase our inventories within the market to make up for the longer transit times and new routes, while optimising the routes for cost.

For some of our ingredients, where possible, we shifted to supplies within the same country or continent. Ultimately for consumer branded goods it's important for the brand to never be out of stock from the retail shelf, or else the risk of consumers switching to another brand exists.

Ong: One of the key lessons is the need to have a more agile supply chain. The pandemic brought to light unseen vulnerabilities within global supply chains, and showed us that the supply chain model can easily be disrupted by events that occur globally or at a local level.

During the pandemic, supply chain disruptions and product shortages across manufacturing and retail have caused many people to proclaim the end of just-in-time (JIT) inventory practices in favour of more just-in-case (JIC) supply chains with a wider geographic spread of suppliers and distribution centres. JIT could not guarantee supply chain resilience and disrupted manufacturing lines, with the cost of stoppage being much greater than the cost of inventory.

But one bright spot in the midst of the pandemic was the rapid innovation that went into vaccine development and distribution. As an industry leader in global logistics, DHL played an intimate role in connecting supply chains in the medical industry and delivering the vaccine to destinations across the globe.

Lee: When the pandemic first hit and disrupted global supply chains, companies that traditionally relied on single-source suppliers to achieve large cost savings have experienced the impact of these concentration risks.

While some were able to find alternative sources, this came at a higher cost and a delayed timeline. This environment has propelled many businesses to think deeper about making their supply chains more resilient. Many companies are reviewing their strategies – from moving supply chains closer to final demand markets, to source diversification to manage disruptions and risks in the longer term.

Companies also realised the importance of tapping on digital solutions, such as data analytics, that allow them to detect and implement informed countermeasures quickly in response to unexpected events such as port congestion and tightened border controls.

Aw: It is important to have a “China Plus One” strategy. As our main supply chain source is in China, the flow of goods out of China to customers was severely disrupted during Covid-19. Hence, there is a necessity to set up production sources and distribution centres outside of China – diversification of sources is key.

In response to the disruption, we had our warehouse in Singapore fully operational and ready to receive incoming shipments from suppliers and outgoing shipments to customers. We also proactively and frequently communicated with our logistics partners on how they can best support customers like ourselves, including the maintenance of network flights to ensure that all the shipments they handle have daily flights in and out of Singapore.

Optimising order fulfilment and warehousing are crucial to our business’ success especially when a good amount of our sales are direct to consumers via our e-commerce platforms.

Q: What advice would you give to businesses which are trying to build resilient and diversified supply chains?

Ong: Synchronisation of logistics operations in a cross-border context is crucial. This can be achieved through the integration of the right technologies and data applications with the logistics service provider.

Exchange rates, customs requirements, duties and taxes, and less developed infrastructures can be challenging to deal with. It is important for businesses to take time and understand the implications of cross-border shipping to their primary markets.

Businesses should look for resilient partners that can provide support amidst disruptions, with proven track records and the ability to operate even in a highly volatile environment. DHL, for example, was able to continue to operate throughout the pandemic due to our stable air capacity, and during lockdowns as a result of our dedicated fleet. We expanded our airfreight capacity multiple times to cater to the rising demand of shipments.

Aw: In the push for global expansion along with growing consumer demands, rebalancing your supply chain is key. Companies need to establish a regional production presence to respond to changing market needs as well as reduce the response and recovery time from potential bottlenecks.

While cost reduction is often a top priority, efficiency cannot be overlooked. Maintaining visibility across the supply chain is instrumental in developing capacity to absorb shocks and building resilience. This means investing in a central technology-driven solution to manage regional production hubs and supply networks with real-time links.

Such investments will empower businesses to communicate quickly and clearly during both normal times and in times of crisis which will translate into positive customer experiences.

Lee: It is not easy for businesses to build resilient supply chains on their own, especially without relevant resources or expertise. We encourage them to strengthen partnerships across the value chain, within and beyond their industry, to find technological solutions or tap on shared digital infrastructure.

For example, Singapore logistics companies such as GKE Corporation, Pacific Logistics Group and Legend Logistics have leveraged EnterpriseSG’s Trade and Connectivity Challenge to crowdsource innovative solutions in data analysis and automation.

As businesses begin adopting tech solutions, it is also important that they groom and build up a pipeline of supply chain management talent that can support the effective implementation of such solutions in the longer term.

Nair: The lesson we all learnt during these last years of disruption has been that we may not be able to predict every event or situation but we have to protect our brand and business – and hence we must secure supplies, carry certain higher levels of inventory than in the past, and secure alternative supplies closer to the markets.

For key markets, alternative supply chains must be tested out so that they can be activated and prioritised in case of emergency. Of course maintaining alternative supply chains and high inventories comes at a cost, but these are the only tools that can mitigate events or situations that we can’t predict.

Q: How important is it for businesses to embrace sustainability initiatives in their supply chains?

Ong: As convenient as it is to shop online, online transactions come with carbon footprints as well. The sheer volume of waste produced by the supply chain network has rendered it vital for companies to rethink their business practices.

Since 2017, we have been on a journey towards achieving net-zero emissions by 2050 with a focus on clean operations. As a leader in express logistics, we have a responsibility to guide and influence the industry to reduce carbon footprint across logistics operations.

To get there, we are following a clear strategy – a road map to sustainability that keeps our eyes on 3 key commitments: environmental protection, social responsibility, and good governance. We have recently announced the addition of 80 electric vehicles to our Singapore fleet. This transition is set to eliminate a total of 323 tonnes of carbon dioxide emissions yearly.

Adopting green logistics not only reduces environmental impact but also helps businesses better appeal to sustainability-minded consumers and improve their brand image.

Lee: Pressing environmental challenges have led to growing expectations for businesses to de-carbonise their supply chains and operations. In response, many multinational corporations now prefer working with partners and suppliers which meet or exceed sustainability standards.

Embracing sustainability efforts, such as adoption of resource-efficient solutions, would also enable companies to achieve cost-savings and enhance resilience to materials and operational costs volatility in the longer term.

Nair: Sustainability has several parameters and depending on the size, scale and age of the company, it's important to prioritise sustainability initiatives accordingly.

For Food Empire Holdings, we are focused on sustainability parameters like economic resilience, acting responsibly for all stakeholders, taking care of the environment and the planet. By working with supply chain partners who are also caring for sustainability, we are committed to doing our part.

Aw: Sustainability initiatives are becoming increasingly necessary to business objectives and the supply chain is a good place to start as it delivers tangible benefits like greater efficiency, reduced operating costs and better risk mitigation that can provide stimulus for action elsewhere in the business. If businesses review their supply chain and make positive changes, this can lead to big savings and better margins, along with reducing the damage we are doing to our planet.

5. What advice would you give to companies who are transforming their supply chain processes?

Aw: Employ the right people with global knowledge and local connections. You need to find the right partners and trust them to do the work that they are best at. Also take time to research and invest in tools and technology that can automate supply chains.

For our Mighty Jaxx business, we tapped into global e-commerce by utilising cloud-based multi-carrier software platforms like Easyship and navigating the complexities of international shipping with DHL.

Lee: Even as the pandemic eases, global uncertainties remain and supply chain disruptions will remain as the new normal for the foreseeable future. In this new operating environment, companies should pursue supply chain resilience as a constant ongoing process.

This can comprise the expansion of supply chain networks to ensure the adequacy of logistics resources, or adoption of technologies to streamline resource management, costs, and decision-making. For solutions not yet widely available in the market, companies should seek to innovate, and can consider leveraging innovation platforms to do so.

Nair: We would recommend to localise supply chains where possible and have potential alternative supply chain mechanisms that can be activated if needed.

Ong: While many businesses aim to digitalise their supply chains, it may seem daunting given the enormity of the task. But the journey of a million miles begins with one step.

The logistics space has been established as a traditional industry associated with manual labour and repetitive tasks. Businesses are often held back by legacy processes and dated IT systems. It is important to consider optimising existing processes before trying to digitalise and prevent waste in the system.

We believe that companies that adopt a constant improvement mindset at all times can thrive and leverage on disruptions to drive change and get better, even amid a crisis.