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AEB foresees continued change in SC

Mallee
Mallee

By: Contributed Content, Global
Published: Jan 13, 2012

LOGISTICS   FORECAST   AEB

If I were to describe 2011 concisely for supply chain professionals, I would say that it was a year of change within the industry. As the local economy continued to withstand the global turbulence, supply chains have gained traction in terms of penetrating new markets, establishing new innovations and optimising existing networks. We seem to be close to reaching a tipping point in the industry; where the gap between businesses that have made their supply chains more efficient and agile and those that haven't is evident in the impact it has on the organisation's bottom line. The lessons were clear in the wake of natural disasters like the earthquake in Japan and the more recent Thailand floods, that supply chains needed to be able to respond swiftly in order to minimise disruptions to the bottom line.

2012 is set to be another year where the change movement to create more sophisticated and responsive supply chains will continue. The key economic and social drivers behind this change in the Singapore supply chain industry are:

1. Anticipated economic squeeze

Nomura's chief Asia economist Mr Rob Subbaraman has lent his voice to the growing expectation among experts that Asian economies will stumble during the first half of this year. Even the Monetary Authority of Singapore (MAS) suggested that the global economy is in its "most fragile state" and that Singapore's economic prospects are heavily dependent on developments in the US and the Eurozone. Although at the moment, a recession in South East Asia is not expected but rather a slowdown in growth; businesses are beginning to tighten their budgets. It will be a time of increased risk and uncertainty and businesses are trying not be caught with their pants down again.

According to the November 2008 McKinsey Global Survey, 34% of companies worldwide introduced new products and services to gain market share from weakened competitors. The onus is on supply chain managers to use this recession as an opportunity to make improvements in the supply chain, rather than the goal being to just ride out the a potentially difficult 2012 and then see what happens. The unforeseeable direction of exchange rates to currencies in major western markets has the potential to further fuel the uncertainty of their demand. The businesses that can keep inventories lean, manage their cash flow well and have the visibility to respond and adjust supply to fluctuating demand will be perfectly positioned to capitalise during the recovery.

2. SMEs reluctance to use IT

In South-East Asia, I am afraid that there remains a large reluctance within a major part of the SME community to use supply chain IT solutions. It is interesting because the region hosts the fastest growing ICT markets, yet adoption of ICT products in smaller businesses has been low. This largely stems from the fear that investing in an IT system would be expensive and entail high upfront costs. Although there have been signs of improvement and interest in technology adoption among SMEs, the reality is that SMEs are losing out to MNCs, who are quicker to market, more responsive and have faster innovation cycles.

The flip side is that there are programmes in place to improve the situation. For example, the Infocomm Development Authority of Singapore (IDA) and the Office of Government Chief Information Office (OGCIO) in Hong Kong and other organisations are providing funding for SMEs to enable business transformation in their business. In an effort to close the gap between SMEs and larger organisations, marketing efforts must be increased to create more awareness of these programmes, which I feel will go a long way towards improving the competitiveness of South East Asia's SME's supply chains on a global scale.

3. Customer driven environment

The shift in the supply chain dynamics from being supply focused to becoming a demand-pull environment has perhaps caused the biggest challenge in the industry as it entails an operational rethink and creation of new processes. Also, there is a greater need for skills in procurement and demand planning worldwide, with salary increases expected to reduce the shortage of demand planning skilled professionals, especially in the Asia Pacific region according to the Supply Chain and Logistics Employment Market Survey (EMS) conducted by Logistics Executive in November 2011.

Supply chain visibility will be a key part of demand planning. Accurate predictions and forecasts in customer demand will be down to businesses looking for and receiving the correct data through their IT solutions. The learning curve will be steep as businesses change their focus to anticipate demand rather than push out products periodically.

4. Collaboration within the supply chain

In the year ahead collaboration between partners will become very important. Businesses are beginning to realise that by working together with partners and suppliers towards a common goal means they all benefit in the long run. An integrated approach will greatly speed up responsiveness and make it easier to plan adjustments in demand. This will entail giving your suppliers and other stakeholders access to information that is directly useful for them to improve their performance. It also creates an open platform across stakeholders where information is in black and white, making it easy to solve disputes, identify problems and issues and solve them swiftly through a combined effort.

5. Resurgence of the Green Movement

Green supply chain management (Green SCM) has not been in the news much recently. That does not mean that it has been forgotten. Over the last 18 months there has been so much change in the supply chain dynamics that green SCM has become a lesser priority for businesses. However, the time is right for highly developed supply chains to turn their attention back to greening their chains.

There is also increased awareness that many techniques to reduce the carbon footprint of a supply chain inadvertently reduce supply chain costs, which makes it easier to convince upper management on the need to undertake green policies. I foresee the green movement once again gaining momentum within the South East Asian supply chain industry.

Conclusion

2012 will be an interesting year for supply chain managers. The economic and social climate in ASEAN will be crucial in shaping the development of new sophisticated supply chains. The changes in supply change dynamics we have seen since the recession in 2008 and the expected changes in 2012 are for the better. They make South East Asian businesses more resolute, and improve their competitiveness on a global stage. I look forward to a great year ahead.

Contributed by Dr. Torsten Mallée, general manager of AEB (Asia Pacific) Pte Ltd.

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