Digital Megatrends – Shaping Supply Chain Innovation
Digital megatrends – Shaping Supply Chain Innovation
Opinion Editorial by GeTS
Confronted by supply chain disruptions, companies were mired in deep uncertainty in 2021. At the beginning of the year, there were fears that there wouldn’t be enough COVID-19 vaccines to go around. Then people’s basic needs came under threat.
In Singapore, for instance, there was a period when eggs were running out as consumers hoarded them. Retailers responded by ordering more eggs. But they overestimated the demand and by June, there was an oversupply and 250,000 eggs had to be thrown out.
In the logistics circles, this is known as the bullwhip effect which surfaces from a sudden spike or drop in and can significantly affect profit margins. According to a McKinsey report, supply chain disruptions cost the average organisation 45 per cent of a year’s profit over a decade.
The road ahead remains bumpy, with the pandemic still dominating the news and Russia’s recent invasion of Ukraine threatening global stability and supply chains.
But delays in supply, production and shipment can be managed by planning for a more resilient response.
Small and medium-sized enterprises (SMEs) can achieve this by tapping into technological megatrends shaping supply chain innovations, – like artificial intelligence (AI), machine learning and software as a service (SaaS). This improves supply chain visibility and digital planning.
Manufacturers and suppliers who ensure timely visibility of actual demand and clear communication across supply chains have been at an added advantage during these trying times.
FALLOUT FROM LABOUR CRUNCH
The production sector in Singapore has been hit by waves of layoffs over the past two years, especially when circuit breaker measures were imposed. Some are still feeling the pinch as geopolitical tensions add to the uncertainty.
In other manufacturing sectors like the semiconductor industry, labour shortages due to movement restrictions led to supply chain disruptions worldwide.
For instance, when Malaysia allowed only 60 per cent of its factory workforce to operate during the lockdown in June last year, it aggravated the global semiconductor shortage. The country is a key node in the world’s semiconductor pipeline, accounting for 13 per cent of global chip assembly testing and packaging.
Ford Motor Co’s operations in the United States were hit by the ripple effect. The automobile company had to temporarily halt the production of its popular F-150 pickup truck at one of its plants.5
Semiconductor shortages worldwide have also made the going tough for Singapore’s Creative Technology, a leader in digital entertainment products, since 2020.6 Shipping delays due to port congestion and shortage of containers, along with skyrocketing freight costs, were among other reasons for the company’s woes as it expects to close with an operating loss this financial year.
BENEFITS OF HIGHLY INTEGRATED SUPPLY CHAINS
To combat supply chain disruptions, highly integrated supply chains driven by new technology such as AI and machine learning may offer a solution for original equipment manufacturers (OEMs) and suppliers to boost efficiency and productivity.
There are already several technology players whose systems enable near-real-time sharing of data between entities and supply chain partners.7 Such close collaborations can also reap cost savings for companies.
For example, McKinsey found that integrating supply chain activities could save OEMs and their suppliers in the global automotive industry between €40 (S$59.90) and €65 (S$97.30) billion per year.
To go one step further, supply chain orchestrators should come in to define open standards for data exchange and put the necessary infrastructure in place.
An orchestrator works with supply chain partners to come up with appropriate standards and protocols to build a digital platform for data exchange. CALISTA is a prime example of a supply chain orchestrator.
Many companies have close contacts with their first-tier suppliers, but lose touch with the fourth or fifth. By leveraging advanced digital platforms like CALISTA, OEMs and suppliers will have direct and increased visibility of their goods while on the move.
This ensures greater production efficiency at suppliers’ sites, while allowing upstream suppliers to provide early warnings to downstream players if they cannot meet a customer request.8
With CALISTA, businesses can easily obtain HS codes, calculate applicable duties, comply with exportation guidelines and check for available Free Trade Agreements (FTA). This saves both time and money. The platform also reduces paperwork by digitising data from trade documents as input, resulting in increased productivity and fewer errors, delays and fines, leading to faster customs clearance.
FUTURE OF SUPPLY CHAIN MANAGEMENT
To ensure cross-border trade can be made seamless and predictable, it is crucial to incorporate advanced technology, such as SaaS, to achieve end-to-end digitalisation of the entire supply chain.
Innovations in technology will not only allow businesses to cope with current supply chain disruptions, but with the use of smart data management systems, it will also enable them to predict and pre-empt future obstructions.
As this trend allows smaller companies to rely less on physical infrastructures, their upfront capital expenditure and investment will be significantly lower. They will also need fewer employees, which will help ease the labour crunch.
At the end of the day, to curb supply chain disruptions, companies will need a highly capable mix of technological and human expertise to sustain growth and prevent errors in production and supply.