In the face of the pandemic, the vulnerabilities of traditional supply chains were exposed, with certain critical industries being caught off guard. Yet, an EY study, Investing in Southeast Asia: Reimagining manufacturing and supply chains, revealed that with the manufacturing sector looking to be the growth driver for Southeast Asia post pandemic, companies in the region need to reimagine and optimize their supply chains.
While the traditional approach saw companies tapping on the just-in-time methodology to optimize their supply chain through reduction of inventory and work-in-process, organizations are under pressure to redesign their supply chain with a focus on responsiveness, reconfiguration and resilience.
Atul Chandna, EY Asia-Pacific Supply Chain Leader says:
“While dependence on a single source of supply enhances reliability, it hampers flexibility. As we all observed in the past 22 months, the pandemic and trade tensions globally has forced companies to identify alternative, lower risk and local suppliers for diversification. Proximity to consumers will also result in faster time to market, lower logistics costs and allow companies to better adapt to local demand.
“With evident cracks in the just-in-time model, reverting to the just-in-case model for critical components is the obvious solution. While companies look to reconfigure their production and supply processes to prevent any supply shocks, they should strive for a balance between just-in-time and just-in-case models by maintaining inventory levels for components that do not have a diverse source or are critical in keeping the supply chain running, even in disruptions.”
For companies that are rethinking their regional supply chain strategies, they must consider eight critical factors – namely, customer collaboration and order fulfilment; regional trade and tax value chain optimization; footprint, assets and investments; supply chain visibility, intelligence and traceability; product innovation; supply chain resiliency and sustainability at different stages; workforce restructuring and upskilling; and digital enablement.
Shaurya Ahuya, EY-Parthenon Partner, Consumer and Digital, Ernst & Young LLP says:
“As companies relook at their supply chain strategies, there are opportunities for them to incorporate digitalization into the supply chain for greater efficiency. For example, creating a digital twin can help with demand forecasting and planning or scenario testing; deploying shared databases via blockchain can enhance traceability; and using RFID tags will offer full visibility of the supply chain.”
Regulatory boost supports manufacturers to tap on Southeast Asia’s potential
The EY study also highlighted regulatory incentives and initiatives to support manufacturers to set up operations in Southeast Asia. For example, Singapore has invested in port infrastructure and terminal development through the new Tuas port, which will ramp up the country’s cargo capacity and improve productivity to support supply chain in the region.
Similarly Vietnam has a seaport masterplan for 2021-2030 to enhance infrastructure connectivity, reduce logistics costs and promote marine economic development, while Malaysia’s Industry4WRD National Policy on Industry 4.0 will support adoption of digital technologies in the manufacturing and related services sectors. Other regulatory interventions to improve supply chain include free trade agreements such as the Regional Comprehensive Economic Partnership to facilitate trade and reduce tariffs.
Citing the example of the Singapore+ Model, an initiative by the Singapore Economic Development Board, Enterprise Singapore and private sector companies to position Southeast Asia as a gateway for manufacturing, Chandna says: “Business can combine the synergistic advantages of dual locations in Southeast Asia with the ‘SG + 1’ twinning model, tapping on Singapore as a hub for innovation and corporate activities, while being a short flight away to manufacturing locations. Such arrangements can help manufacturers build more resilient and efficient supply chain by leveraging the complementary strengths of the Southeast Asia nations.”
Consumer goods, health care equipment, electronic manufacturing services and agritech sectors have potential to see significant growth
Foreign direct investment (FDI) inflows into ASEAN have taken a hit in 2020 due to the COVID-19 pandemic, with manufacturing being the biggest contributor of the decline, falling by 55% from US$49 billion in 2019 to US$22 billion in 2020, according to the ASEAN Investment Report 2021 by ASEAN Secretariat and UNCTAD1