Supply Chain Diversification: The ASEAN Opportunity

Globalization dominated the headlines over the last few decades until COVID-19 emerged. The benefits were obvious: Lower manufacturing costs in countries such as China and also the built-in market for products in those same emerging regions. The growth of China as a global manufacturing hub has been a key trend, however, as we move into the “next normal.” The pandemic amplifies ongoing global trade uncertainty and supply chain challenges. As this happens, we see organisations rethinking their manufacturing and supply chain strategy, especially where all the operations have been focused in China. Manufacturers have started considering the neighboring ASEAN (Association of Southeast Asian Nations) region now in their expansion plans.

Diversifying risk while managing complexity

Companies seeking to diversify their risk have been considering a China +1 diversification strategy, which would have them relocating parts of their manufacturing and supply chains. This, however, requires organizations to evaluate the direct costs of relocation and manufacturing, and a “total supply chain cost.” They would also need to evaluate the strengths and weaknesses of setting up operations within a destination country or region. As we look forward, one thing is clear; the factory ecosystem and associated supply chain will be increasingly complex.

This diversification will increase the complexity of managing multiple locations with ecosystems that need a network of providers to supply raw materials, services, talent, infrastructure, and regulatory frameworks at a competitive level. IT must take complex data and provide decision support or autonomy across these local “micro- chains” and ensure accuracy and agility. In the supply chain, this translates into systems and platforms that offer new levels of supply chain visibility and integration with partners. With this framework in place, manufacturers can respond rapidly to new challenges and opportunities.

Guidance for enabling a diversified supply chain

When considering where to set up operations, companies should contemplate the following areas

• Identify economies that provide support. All major ASEAN nations have a strong Industry 4.0 policy support. These include: tax breaks and incentives, grants and funding, R&D support, ecosystem capacity building support and skills development.
• Take advantage of trade agreements. For Japanese companies, the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) provides opportunities for tariff reduction and regional accumulation regarding country-of-origin considerations.
• Utilize vendor capabilities. Consider vendors that will help you build an investment roadmap that spans core manufacturing domains which integrate suppliers and other supply chain partners.
• Integrate beyond Tier 1 suppliers. The IDC 2020 Supply Chain Survey showed that 54% of ASEAN manufacturers are focusing on overall supply chain visibility as the top area for risk mitigation. Procurement-supply-production-delivery is one area where risk, with the right tools, can be monitored and managed to reduce disruptions.
• Design the logistics and transportation network. Include logistics and transportation network optimization in the decision-making process to calculate “total costs.” Leverage additional services from logistics service providers to make the expansion to a new country a smooth one.
• Manage talent. Evaluate countries that support skills development and training. All major ASEAN nations have policies for worker development and training. In cases where this may take time, or if there is uncertainty about such policies, explore “factory of the future” initiatives that increase process and physical automation.

Sumitomo Rubber Industries is one company that has benefited from expanding its supply chain into ASEAN.  The company is a beneficiary of the Japanese government’s JETRO funding to move production lines out of China into Malaysia. Sumitomo’s diversification into Malaysia allowed it to take advantage of the country’s robust tire and rubber supply and distribution ecosystem to support its nitrile rubber gloves manufacturing. The glove manufacturer has joined the 1,500 Japanese companies Malaysia, which extend local knowledge support to their compatriots.

Another Japanese company that has benefited from the healthy ASEAN supply chain ecosystem is Sanko Precision Co., Ltd. Local partners in the Indonesian precision progressive press die manufacturing and precision metal parts processing assisted with technical tie-ups as well as practical considerations within the local market.

As these two examples show, the strong ASEAN supply chain and partner ecosystem has much to offer manufacturers. It is crucial for companies to evaluate the strength of its partners and the destination country business ecosystem as they seek to increase supply chain resilience in the wake of US/China trade tensions and COVID-19.

Nguồn: https://blogs.3ds.com/