The Asia Era requires Agile Supply Chains

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Growth in the domestic markets in China, businesses moving their manufacturing to other economies in the Asian region, the development of manufacturing hubs in Eastern Europe and South America – all point to the need for more agile supply chains.

I recently attended an engaging and insightful talk on why businesses need more agile supply chains in the Asian era. The topic was of interest because it’s not immediately obvious why – it’s clear that we are living in the Asian era but why agile supply chains?

The impact of China’s success on the region

The answer lies, unsurprisingly, with China. It is well documented that China is the manufacturer of the world. What is perhaps less well known is that decades of Chinese growth has resulted in an enormous middle class who can now afford to buy the goods they’re producing. More affluent workers are demanding better pay and conditions and it is becoming increasingly difficult to populate mega-factories with willing workers. Neighbouring countries such as Vietnam, Indonesia and Philippines are now being looked to as alternatives.

Asia is diverse and rapidly changing

Asia comprises mature trade markets such as Singapore and Japan, emerging markets such as Vietnam, Indonesia and the Philippines (referred to as VIP), trade minnows and basket cases such as Myanmar and Afghanistan, and that it’s difficult to analyse and respond to trends in the region as a whole. Countries have varying strengths and weaknesses and he emphasises the importance of understanding and monitoring macro and micro trends across the continent.

While China is expected to be the economic powerhouse of the region, less developed countries in the region will rapidly change and grow. Those with poor infrastructure will invest more heavily, as enterprises move further into the region in search of a cheaper labour. Businesses entering these less developed markets will need better trade practices, roads and ports for effective trade. Many countries have poor trade practices, and it is not known which of the developing nations will transform most over the coming years.

The cost of transportation will lead to local markets, rather than global

It is estimated that an iPhone sold in California will have travelled 45,000 air miles before it is used. As economic and environmental costs of oil for transportation increase, such unsustainable practices will also necessitate agile supply chains.

Increasingly, we will see manufacturing hubs developing closer to their end consumer markets. While Millar predicts that China will continue to be a dominant global ‘maker’, he believes that we will soon see Central and South American economies being the primary makers for the Americas and Eastern Europe for Europe. In short, local markets will prevail in the coming decades.

Agile supply chains are required to respond to the rapidly changing global marketplace

The growth in the domestic markets in China, businesses moving their manufacturing to other economies in the Asian region, the development of manufacturing hubs in Europe and the Americas – all of this adds up to the need for agile supply chains, and business that are able to respond to changes will be well placed to thrive.

References:

http://www.mckinsey.com/insights/urbanization/urban_world

http://info.worldbank.org/etools/wti/1a.asp

http://www.weforum.org/issues/connected-world-transforming-travel-transportation-and-supply-chains#latestreport

http://www.weforum.org/industry-partners/groups/supply-chain-transportation

https://www.cilta.com.au/event-nsw-the-asia-era-re