Editor’s Note: Goh Puay Guan is an associate professor in the National University of Singapore (NUS) Business School's Analytics & Operations department. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.
2019 was a year of uncertainty, both economically and geopolitically. Coupled with these are ongoing technology transformations and disruptions. Combined, these factors have companies scrambling to re-evaluate their operations in order to respond to new or impending tariffs and government regulations. At the same time, companies are pressured to look into cost-saving initiatives amidst economic uncertainty and slowing growth.
In 2020, this sense of urgency is likely to continue. Business leaders have to juggle tasks such as risk management in existing markets, diversification into new and often unfamiliar markets, as well as prepare for disruption in traditional industry structures. To fulfil these tasks, leaders need to translate technology into both short-term operational and long-term strategic outcomes.
Reconfiguration of global supply chain networks
While the Wuhan virus and U.S.-China trade tensions are the elephant in the room, there are also a number of other global changes such as Brexit and potentially the Regional Comprehensive Economic Partnership (RCEP), which would transform sourcing and trade relations.
The increase in Chinese production and labor costs in recent years have reduced the financial incentives for outsourcing. Across the world, there are signs that governments are promoting more local production and consumption. There is talk of “Balkanization” or “decoupling” of supply chains, where they become more fragmented and regional. What this means is simply that while aggregate consumption and production volumes globally may not change, new trading patterns may develop and grow over time.
At the strategic level, companies need to understand how to optimize new global networks, as well as rebalance sourcing, production and inventory levels in different locations. Operationally, companies need to integrate new partners, suppliers and customers. This will involve planning, use of data, supply chain optimization, and technology implementation.
Integration is key
The abovementioned macroeconomic changes driving supply chains are part of a larger trend of supply chain realignment that has been happening over the years.
Improvements in manufacturing technology and processes have led to more near-shoring or on-shoring manufacturing initiatives. Rapid growth in additive manufacturing or 3D printing, is also leading to new possibilities for rapid prototyping, custom manufacturing, and small volume production.
With the advent of these new technologies is a need for digital infrastructure. Automation would require more than just putting in place robots. It is also about integrating robotics into the overall system, and monitoring usage and maintenance.
Industry 4.0 initiatives built around robotics, Internet of Things (IOT), and 3D printing would require integration of hardware and software. Physical assets in the supply chain need to be tracked, whether in the production line, upstream and downstream delivery and distribution, and across many different players. Smart devices would also be able to “talk” to each other, improving coordination of operating processes. Incorporating sensors for tracking is likely to become more prevalent as technology matures and becomes more cost effective.
Digital architectures built around 3D printing files transmitted to printers would be necessary to integrate the new decentralised manufacturing processes with cloud computing, for example. Such changes would also necessitate changes in workflow. It will not be sufficient to just automate an existing process in order to glean the full benefits of technologies, but would also require redesigning existing workflows.
Creating a visible supply chain with technology
Since the 2000s, companies have grappled with how to track their product movements globally. Historically, companies have aimed to create global supply chain control towers and visibility, with mixed success. Whilst tracking technologies such as radio frequency identification (RFID) may exist, the need to bring in all supply chain partners for full visibility and execution is often limited by a lack of technology infrastructure, cost of adoption, and level of readiness. These breaks in the chain have limited the ability to achieve supply chain integration and reap its benefits. Companies will continue to try, nonetheless, driven by imperatives for flexibility and visibility in an uncertain environment.
Standards in blockchain are still being defined by different consortiums and partnerships, as companies jostle for leadership in the new emerging market. The emergence of unified standards is not likely anytime soon, but large companies and technology providers will continue to push for adoption, and interoperability of different systems would be critical.
Technologies such as IOT and blockchain will likely play a role in supply chain integration for tracking of product movement, and communication of information across multiple parties, with more proofs of concept involving partners that are ready.
As we advance into 2020 and the next decade, we are likely to see large scale changes in global supply chain structures as companies adjust to new business imperatives. It is clear that technology adoption and implementation will play a big role in company and supply chain transformation. Business leaders would do well to consider where, what and how to execute in these areas, keeping in view the changing macroeconomic environment and evolving technology landscape in developing the strategic technology roadmap.
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