Rethinking the supply chain for a new era

Companies need to shift their thinking and approach towards supply chain management to capitalise on untapped opportunities.

Rethinking supply chain

An increasingly globalised world means that competition in the corporate sphere is no longer company-to-company but between supply chains, says Professor Pervaiz K Ahmed of Monash University Malaysia.

“The world has a huge amount of complexity and connectedness, and with that comes the increased need for transparency and data flow, which is changing how we are doing business. Today we seek to compete with supply chains,” said Pervaiz during his opening remarks at the recent “On The Edge” talk entitled, “Malaysia at The Heart of Global Supply Chains” at Monash University Malaysia.

Guest speaker Professor Jan Godsell, who is Professor of Operations and Supply Chain Strategy at the University of Warwick in the UK, says the advent of Industry 4.0 –  the current trend of automation and data exchange in manufacturing technologies – requires products and services to be customised, and for operations to be done locally.

“With globalisation, you have two choices – you can be a protectionist or you can be part of the global economy. We should embrace globalisation as an opportunity rather than a threat,” says Godsell, who shed light on how to think about and approach supply chain differently, in view of changing trends.

Taking a strategic and holistic view of supply chain planning

In developing policies, one of the principles Godsell advocates is to take a holistic, rather than functional perspective of supply chain planning.

“We need to take an end-to-end view of supply chain instead of looking at it as a repackaged purchasing function. Very often, there’s a tendency for companies to keep manufacturing and operations separate, when they are in fact connected,” she notes.

Another principle to consider is to move companies’ focus from manufacturing to planning, which holds the supply chain together. The tendency for companies is to be overly manufacturing-centric instead.

She cites British American Tobacco as an example of a company that created regional supply chain service centres to balance and coordinate the supply and demand of their operations.

“Eighty percent of their global supply and demand is planned in Southampton UK. If you understand supply and demand, you would know where is best to place your factories,” Godsell says.

Instead of always looking to re-shore operations further, companies may want to consider local or regional “right-shoring”, which may be just as comparable if not more competitive than further locations.

Supply chain planning, she says, cannot be an afterthought; it is an integral part of business strategy. “You don’t have to have a trade-off between product strategy or supply chain strategy. Strategic alignment is critical for success. Companies should use supply chain together with commercial strategy to lift the bar higher,” she adds.

Designing for future business models

Godsell says that out of the 10% of the top 25 companies listed on the FTSE in the UK, only 10% of them had management board members who had professional supply chain or manufacturing background.

“What this means is that majority of corporate decisions are more commercial or product driven. This presents an opportunity, as the Internet is driving the next generation of business models in Industry 4.0 where digital meets physical,” she says.

Future trends include becoming more customer-driven, rather than cost-oriented; focusing on total landed cost instead of just considering manufacturing costs; shifting from global to local manufacturing locations; and social and environmental sustainability taking a more prominent role in supply chain.

“Supply chains of the future show environmental footprint and social footprint along with the price of service or product. The younger generation of consumers is more willing to pay for something that is ethically produced and sourced, and companies will be held more accountable for their labour standards because customers demand that,” she says.

The circular economy is also driving new business models, where there is a shift in thinking to create products that can be repaired rather than replaced totally. “This includes leasing models of products as services, collaborative consumption such as car sharing services,” she says, citing the HP Instant Ink service in the UK as an example of this.

HP Instant Ink is an ink replacement subscription service where one’s HP printer notifies the company to deliver replacement ink to the customer before it runs out.

“The Internet of Things (IoT) and the circular economy are enabling productivity through supply chain integration. If you can make things flow in supply chain, we make not just one company efficient but the whole value chain,” she says.

Investing into research and development is important to ensure companies become hubs of global supply chain.

“Building capability is the first step but you will need to create value and new knowledge by innovating. Identify niche opportunities and create industries of the future. Malaysia must invest more in R&D – we must take a longer-term strategic view of thinking how we can contribute to future business models,” Godsell says.