EY Interview Part II: U.S.-China Trade Disputes and Supply Chain Digitalization

Given the uncertainty in U.S. trade policy, making plans for doing business in the Asia Pacific region has been daunting lately for supply chain managers. In this first installment of a two-part interview with Nathan Roost, EY Asia-Pacific Supply Chain Solutions & Manufacturing Practice Leader, we try to provide a few transactional tips.

Supply Chain Management Review: What specific technologies are being adopted by companies in China, Southeast Asia and Asia in digitalizing supply chain?

Nathan Roost: We observe that companies in China and Asia adopt AI, robotics and analytics as adjacent, foundation building capabilities of automation, and as part of a supply chain transformation that makes the leap from doing to being digital. Taking EY as an example, we have been leveraging Supply Chain Smart Maps, an end to end supply chain visibility engine, to provide insights to companies through analytics, benchmarking and qualitative performance assessment in order to help clients drive operational performance improvements.
In addition, there are two key digital supply chain trends having significant positive impacts on companies: lights-out planning and blockchain.

Companies tend to establish “lights out” planning with intelligent automation based on cognitive and artificial intelligence (AI) and robotic process automation to greatly reduce the reliance on human input into the planning process.

Blockchain is another enabling technology revolutionizing the supply chain. Through blockchains, companies gain a real-time digital ledger of transactions and movements for all participants in their supply chain network. Companies can benefit from saving time, money and effort on several front, from procurement, digital contracts and payment, to smart contracts to end costly procure-to-pay gaps.

SCMR: Can you tell us a little more about the level of supply chain resilience in China/Southeast Asia/Asia, and how companies can strengthen what is already in place?

Roost: Due to trade disruptions, supply chains in smaller, globally exposed economies, such as Singapore, may bare the brunt of short term, global trade uncertainty. On the other hand, markets with a larger percentage of domestic consumption compared to export amounts, such as China and India, should have more of a cushion to manage their economies therefore more resilient in the intermediate term. Nevertheless, all markets should work to reinvent their supply chain networks assuming that trading partner relationships become more complex as nationalistic economic policies become common. Supply chain resilience should be strengthened through digital transformation, optimizing production flows and networks, and ensuring that the right channel strategies in an omni channel environment can drive growth.

It is important to recognize trade and tariff measures as an undeniable opportunity in the supply chain function in an organization. Monitoring of these changes to input costs would afford supply chain professional the chance to react or recover quickly if adverse financials outcomes do occur. If done before the rest of the market responds, this creates a first mover advantage via trade flow and cost analytics. Procurement professionals who are responsible for sourcing might then be able to gain a better contracted price for products and services for input or finished good prices in markets. For example, if faced with US or China reactive tariffs, it is possible to mitigate the impacts through changing the operating model — shifting production to new countries or financial supply chain engineering using transfer pricing methods or first sale for export arrangements.

SCMR: Digital strategy of supply chain transformation adopted by MNCs and SMEs in Asia progress at different speeds, do they not? Can you describe how of supply chain digitalization differs across different sectors, including pharmaceutical, mining, energy, consumer products, industrial goods, utilities, banking and defense industries?

Roost: To survive in an increasingly challenging business environment, companies are leaning towards disruptive technologies to transform their supply chains for maximizing profitability and operational efficiency. A recent study found that 80% of the C-suite believes that a “digital operation is a critical driver for competitiveness.

In general, MNCs and SMEs in Asia are transforming their supply chains by machine learning, for example, can improve forecasting accuracy by as much as 15%. Chatbots is also used to streamline internal source-to-pay processes can drive efficiencies of up to 40% while reducing processing cycle time. Blockchain in an emerging technology that should provide more end-to-end traceability and certainty of supply.

Modernizing traditional trade channels such as distributors and whole-sellers are also very important in the digitalization process. Technologies such as IoT and data analytics, which could drive a US$387 billion increase in the region's GDP by 2021, can meet consumers' evolving preferences to control inventory. More and more companies are considering more vertically integrated supply chains from design to production to distribution with intelligent analytics and management tools to maintain business margins.

SCMR: What are the challenge faced by companies when embarking supply chain digitalization and how companies can address those challenges?

Roost: It is challenging for traditional MNCs to embark on a supply chain digitalization journey as they face issues such as a legacy supply chain asset base, discrepancies in capability across the network and striking a balance between maintaining and developing the existing business and venturing into new areas. Whereas start-ups or mid sized companies can invest in their business without dealing with many legacy issues larger companies deal with. Supply chain digitalization is more than a migration of systems or application updates, it would require fundamental rethinking of the concepts of supply chain management, the right talent and partners and a feasible supply chain strategy.

Companies can address these challenges by adopting an approach that has top-down leadership support and equally balances business needs with emerging technology imperatives. This includes fostering a culture that emphasizes an agile and iterative approach, and working with strong partners to co-innovate and support the overall journey.

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