Rethinking Supply Chains in Asia Pacific

By Dennis Pabelico

Last October 28, 2021, KPMG sponsored a webinar entitled “Rethinking Supply Chains in Asia Pacific”. I was only able to attend the first part with guest speaker Rakesh Agrawal, Supply Chain and Digital Transformation Partner of KPMG Singapore.

According to Rakesh, most discussions in the boardroom right now revolve around effectively managing supply chain issues. His talk focused on the current supply chain turbulence — which we are currently experiencing — and how it is impacting the Asia Pacific region. He added that supply chain turbulence will continue for the next few quarters or until we stabilize the situation.

He stated that there are many factors affecting the supply chain as of now. The first factor is inflation/cost, which has driven organizations to rethink how they plan to address some of the supply chain issues. Cost is a very important factor, especially with the increase in raw material and shipment costs. Organizations are actually thinking whether they can pass some of these costs on to their customers. Similarly, fuel and power prices have been high for almost three years as an effect of global demand. When it comes to labor costs, its increase is caused by labor shortages. For instance, most of the manufacturing capabilities of Vietnam can be found in the cities. Because of the very long COVID-19 lockdown, most workers went home to their provinces. Similarly, organizations in Singapore and Malaysia are grappling in most of the key industries that support manufacturing because of migrant manpower squeeze. Meanwhile, Thailand employs more than a million migrant workers from Myanmar and, because of their current situation, they are struggling to get their workers back.

The second aspect relates to supply chain delays. There are a lot of shipment delays happening right now due to lack of containers and labor shortages. This leads to an imbalance that greatly affects sales as it takes weeks before shipments can be unloaded. Manufacturing companies also experience constraints due to suppressed demand. Additionally, there is a global shortage in raw materials also due to supply chain turbulence caused by COVID-19. Rakesh cited semiconductor, automotive, and electronics as some of the greatly affected industries.

There are a lot of factors leading to this, depending on the industry and geography. First is disruption, which is going to be the new business-as-usual. Organizations had already faced a lot of disruptions in the past— from the Asian Financial Crisis, the 9/11 terror attack, oil crisis, Brexit, etc., to our current COVID-19 situation. Having said this, organizations may have to rethink their strategies in becoming more predictive when it comes to planning. They have to plan ahead and try to become more nimble and agile.

Next is supply chain strategy. Organizations initially focus more on optimizing costs, which leads to the concentration of supply chains in selected countries. According to our speaker, this is something that organizations may have to rethink as well as it has also been somehow amplified by geopolitical issues. These issues have caused frictions between superpowers, which leads to an increase in the cost of doing business and eventual uncertainty in addressing customer demands.

So, what are the organizations or the CEOs thinking? Supply chain issues are keeping CEOs up a night, thinking of how they can organize their respective supply chains for the next five years. A quarter of CEOs are expecting business models/supply chains to experience permanent change.

Here are three key aspects that came out of KPMG’s CEO survey:

  • Almost two-thirds of CEOs are going to increase their investment in digital transformation. They expect digitalization to become a means of mitigating risks around disruption.
  • Almost half of the CEOs are revisiting how they can make the supply chain process more diverse in the next five years. Two-thirds plan to bring manufacturing closer to home or closer to the customers.
  • Environmental, social, and governance (ESG) initiatives are going to be very critical. 71% of the CEOs will be increasingly held responsible for driving their ESG agenda. Almost one-third of the CEOs are going to invest more than 10% of their revenue to research how they can make their organizations sustainable in the next five years. Organizations are now trying to be more climate and environment friendly — some are experimenting how they can make waste materials being used by their industry reusable and recyclable.

What is the future? What can organizations do to be ready in the next three to five years when it comes to supply chain? Supply chain has to become more customer-centric and come up with a hybrid approach in the next three to five years or even 10 years. Organizations must practice forward-thinking and take innovative approaches to strengthen their supply chain and increase profitability, even in turbulent times. Companies across different industries, including those supporting the manufacturing industry, must be able to plan ahead, be predictive, nimble, and agile to overcome crises. Lastly, leaders must rethink their supply chain processes and not heavily rely on one country or geography, but strengthen their presence globally.

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About the author:

Dennis is an avid collector of authentic NBA jerseys. He also sells some of them on his online store. Despite his busy work schedule, he makes sure that he goes to the gym for a workout and an aerobic class at least once a week. During his free time, he reads spiritual books and attends meditation classes.

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