Supply chains have become highly sophisticated and vital to the competitiveness of many companies. But their interlinked, global nature also makes them increasingly vulnerable to a wide range of risks from pandemic, climate, and other unexpected disruptions. Maybank can help businesses make their supply chains more resilient without sacrificing on productivity and competitiveness.
Since the onset of the COVID-19 pandemic, the supply chain has encountered productivity issues, labour shortages, raw material shortages, and timing delays that have impacted nearly every industry. What's more, weather-related and other unforeseen events - like the March 2021 Suez Canal blockage - continue to exacerbate both the intensity and frequency of ongoing supply chain disruptions.
Due to the interconnected nature of supply chains, they are now increasingly vulnerable to more potential points of failure, while reducing the margin of error for absorbing delays and disruptions. Thus, the challenge for global companies going forward will be to make their supply chains more resilient, without compromising on productivity or weakening competitiveness.
This requires in-depth analysis to identify both risks and areas for improvement, diversification of supply bases to reduce dependence, as well as leveraging the latest technology to maximise productivity. Backed by deep insights and a strong market presence, Maybank can support and guide as they relook into their supply chain and trade strategies to adapt to the new reality.
Mapping the supply chain to identify risks and opportunities
Modern products often incorporate critical components that require specialised technological skills to make. Manufacturers in most industries have turned to suppliers and subcontractors who narrowly focus on just one area, and those specialists, in turn, have to rely on many others. Such an arrangement leaves companies vulnerable since they are dependent on a single supplier somewhere deep in their network.
Understanding where the risks lie so that companies can protect themselves may require a lot of digging. It entails going far beyond the first and second tiers to map the full supply chain, including distribution facilities and transportation hubs. The goal of the mapping process should be to categorise suppliers according to levels of risk, and to do that, experts suggest applying customised metrics.¹
Examples of metrics include the impact on revenues if a source is lost, the time would take a particular supplier's factory to recover from a disruption, and the availability of alternate sources. It is vital to ascertain how long a company could ride out a supply shock without shutting down, and how quickly an incapacitated node could be replaced by alternate sites when the entire industry undergoes a shortage.
Beyond risks, businesses should also identify productivity areas within the supply chain that can cover any upsurges in cost via cost restructuring, reusing of materials, waste reduction, maintenance optimisation, or sourcing changes. The supply chain is extraordinarily complex and financing those savings may require help from experts that know it best.
Diversifying the supply base to reduce market dependence
Once the risks and opportunities in the supply chain have been identified, this information can then be used to address them by either diversifying sources or stockpiling key materials or items. Diversification is the more obvious way to address heavy dependence on risky sources by adding more sources in locations that are not vulnerable to the same risks.
For instance, the US-China trade war has motivated some firms to shift to a "China +1" strategy of spreading production between China and a Southeast Asian country such as Vietnam, Indonesia, or Thailand. Nonetheless, shifting production from China to Southeast Asia will necessitate different logistics strategies, since these locations have differing levels of ports capacity and efficiency.
When looking at specific industry sectors like textiles or petrochemicals, proximity of raw materials would also play an important role in choosing the locale. Vietnam for instance is the third largest exporter of textiles globally. Thailand is the region's largest automotives manufacturer, while Indonesia and Malaysia are the largest producers of crude oil.
Meanwhile, if alternate suppliers are not immediately available, a company should determine how much extra stock to hold in the interim, in what form, and where along the value chain. Of course, safety stock runs counter to the popular practice of just-in-time replenishment and lean inventories. On the other hand, maintaining a strong relationship with existing suppliers backed by an exhaustive contract can go a long way in avoiding potential disruption.
Leveraging on process innovations to boost productivity
Both supply chain mapping and diversification can often be expensive and time-consuming, which explains why most major firms only focus their attention on strategically direct suppliers that account for the largest amounts of their expenditures. But a surprise disruption that can bring businesses to a halt threatens to be much more costly.
Fortunately, new supply chain technologies are emerging that can help boost agility and resiliency across the end-to-end supply chain, without the high costs and long duration typically involved. The traditional view of a linear supply chain is transforming into digital supply networks (DSNs) where functional silos are being broken down and businesses are more directly connected to their full supply network.
These new technologies already or soon will allow companies to switch more flexibly among the products they manufacture, rendering obsolete the installed bases of incumbent competitors or suppliers. This includes using supply chain automation, virtual & augmented reality, and smart sensors to decrease operating costs, increase asset efficiency, and improve demand planning.
Many of these advances also present an opportunity to make supply chains more environmentally sustainable. For instance, renewable energy can be used to decrease long-term costs, drive new revenue, enhance brand value, and improve employee engagements. As technologies mature, companies should be re-evaluating their energy procurement strategy to take advantage of these benefits.
Navigating the future with a forward-looking regional partner
The economic turmoil caused by the pandemic has exposed many vulnerabilities in global supply chains. Instead of backing away from globalisation, companies should use this crisis to take a fresh look at their supply networks, take steps to understand their vulnerabilities and opportunities, and then take concrete actions to improve robustness and productivity.
This would require a regional partner that has familiarity in navigating the complexities and diverse environments across the region - an advantage Maybank possess with presence in all 10 ASEAN countries. We use our capital, connectivity and insights to guide our clients identify their key priorities and best practices to uphold in their supply chain transformations.
While the current landscape presents a tough environment, Maybank believes it is always a cycle and will undoubtedly improve in time. Backed by our deep regional insights and wide ASEAN network, we can help businesses stay prudent and well-prepared for any disruptions and to take advantage of emerging new opportunities in the post-pandemic world.
To learn more about how Maybank can help your business maximise supply chain resiliency while boosting productivity, please reach out and connect with our team.
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