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Rebalancing supply chains
Not only is Asia Pacific’s booming middle class getting larger and wealthier – it is also becoming more demanding.
As the region’s middle class grows, so do consumer demands. To meet these demands, multinational companies targeting these consumers increasingly need to establish regional production presence. Local production can mean being more responsive to customer needs, and more price competitive.
At the same time, the supplier and production landscape in Asia Pacific is rapidly maturing, offering companies a broad range of possible locations outside established hubs such as China.
The offerings are diverse, with different markets varying in specific manufacturing capabilities, production costs and incentives being extended to global investors.
Creating resilience
A relentless drive toward reducing costs has spread supply chains across the globe in recent decades. But that efficiency has come at a cost of its own.
Maintaining visibility across these complex, expansive systems has proved difficult, and ‘just-in-time’ systems have left little capacity to absorb shocks, leaving supply chains brittle.
For many industries already grappling with uncertainty – from geopolitical tensions, rising manufacturing costs in traditional production hubs and natural disasters – the pandemic disruption has shown the necessity of rebalancing global supply chains towards more regional networks, while also making them more resilient.
“The pandemic is only the latest disruption to uncover the fragility of global supply chains, reinforcing the need to rebuild for the future. Asia Pacific is poised to become the world’s growth engine, but will need businesses to prioritise supply chain transformation for resilient growth.”
Sridharan Nair,PwC Asia Pacific Vice Chairman, MarketsTime for change
Many factors are fuelling a fundamental shift in production and supply landscapes, but a fast-maturing Asia Pacific means opportunity – not just to manufacture in, but also to source from and sell to.
Seizing the moment to take advantage of this opportunity means rethinking supply chains, rebalancing them and making them more resilient.
It means responding to changing market needs, while reducing the response and recovery time from potential bottlenecks.
Developing digitally integrated supply chains
Why?
Enhancing visibility to all customers – not just high-value ones – through digital tech empowers companies to communicate quickly and clearly during crises and normal times, improving customer experience.
How?
Instituting a ‘just-in-case’ approach
Why?
Prioritising supply chain redundancy for higher-value customers allows companies to not only maintain supply during crises, but can also improve customer experience by allowing quicker delivery during normal times.
For financial viability, companies should select the most critical points in the supply chain – those for which the cost of a potential disruption far exceeds the cost of building back-up capacity.
How?
“Reacting to recent disruptions, supply chain investments have gained momentum across Asia Pacific. Many companies are developing alternative buffer sites to minimise disruption risks, while others are building digital control towers for end-to-end visibility over regional partners.”
Steve Thompsett, Chief Customer Officer, DHL Supply Chain Asia PacificRebalancing supply bases for increased regional consumption
Cost and quality have long been the benchmarks for supplier selection, but recent supply shocks mean that supplier reliability must now be a major consideration.
Businesses must be able to effectively address changing market needs while becoming faster to respond to and recover from potential bottlenecks.
Success in this new world requires a more holistic selection framework.
How multinationals can choose the right suppliers
Supplier performance assessment:
can the supplier offer a competitive solution?
Supplier reliability assessment:
what is the supplier’s exposure to and visibility of key risks?
“Trade disputes and rising operational costs are driving footprint diversification in Asia Pacific. Besides being cost competitive, growing infrastructure investments and strong incentive packages are making it attractive to relocate production to new locations in Southeast Asia.“
James Hwang, Chairman and CEO, Getac Technology CorporationRealigning regional production footprints
Much has changed in the decade since China overtook the US as the world’s leading manufacturing destination.
Higher costs and tighter regulations – combined with an increased need for resilience – are calling into question the original business case and risk assessments for manufacturing in mature production centres. These factors are combining with the growing opportunities in Asia Pacific to make realigning regional production footprints increasingly attractive.
For those considering expanding their production footprint into Asia Pacific, there are two vital considerations:
How to strengthen due diligence processes to shortlist the right locations, and
- How local partnerships can help reduce entry risks and costs
1. Strengthening due diligence
Factors to be considered
Production and support infrastructure
Workforce
Environment and social sustainability
Regulatory
Learn more about the factors impacting location selection here
2. Strengthening local partnerships
Potential partners to consider
Rethinking supply chains is just one element that businesses in Asia Pacific must act upon to safeguard the region’s continued growth.
The era of passive growth is over; it is now time to act.
Building a resilient future for Asia Pacific will also require:
- Advancing the digital economy
- Enabling regional enterprise growth
- Future-proofing the labour force, and
- Building towards a net-zero economy.
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