Businesses are aware that they need to take action to digitise their supply chains, but knowing which technologies to use is a separate issue. The pandemic has brought simultaneous shocks to global supply chains; it's unprecedented, but this will happen again, so organisations need to get prepared now. Yet recent research exposes a knowledge gap among business leaders when it comes to supply-chain digitisation.
Fragility calling for investment
In just a few months Covid-19 has bought about years' worth of change and accelerated digital trends. Simultaneously, supply chains have suffered shock waves never seen before, revealing their fragility. The result is that businesses have been forced to adapt, and technology is driving the changes.
Businesses in Australia are turning their focus on trade connectivity to weather the economic storm and are investing in their supply chains. According to HSBC's latest Navigator survey, 63 per cent of firms are prioritising the implementation of technology within their supply chains in 2021.
Yet a separate survey conducted in July this year among treasurers in Asia revealed a significant concern around how to digitise supply chains, and treasurers are looking for support on systems integration and automation tools.
On the one hand, we have recognition that action needs to be taken; on the other, we have prevailing uncertainty on how to go about making that change.
So how can the transition be smooth?
The truth is that the world has not suddenly skipped ahead in the type of technology available; the tools remain the same as they were pre-pandemic. The determiner of success lies in how business leaders can adapt to using what they have now, and follow this up quickly with emerging technologies. With this in mind, they will be able to plug the immediate gaps; over time, they create more visibility and resilience - thereby reshaping, not restricting, supply chains.
Accelerating the pace of change
Let us take a step back to understand where this knowledge gap comes from. Three key trends that were already in motion have accelerated at pace as a result of the pandemic. Asia is at the pointy head of these trends, and as businesses pivot their supply chains towards Asia - and, in particular, Southeast Asia - the structure of their supply chains need to evolve to keep pace.
Firstly, consumers have moved to online channels - and companies have responded in turn. This has meant that, at a speed not seen before, those who did not have a digital presence have created it - or enhanced it.
Secondly, business' core internal processes are being overhauled. Across all our clients, there has been an acceleration to shift processes to digital - from R&D to treasury and to trade.
Thirdly, data has become king - the realisation of its use and value has suddenly hit home. The result has been that digital has become the go-to word - businesses know they need it, but the real value of technology is becoming diluted by so much information.
Future-proofing supply chains
With this in mind, let us now revisit the need to reshape supply chains - and how businesses can do so.
Technology has the ability to create significant change in supply chains, but let us be clear; these changes are not going to be driven by one technology - it will take a combination - bringing together Artificial Intelligence, analytics, the Internet of Things, 5G and Distributed Ledger Technology.
When businesses look at this digital revamp of their supply chains, they need to do so holistically, by keeping in mind four key benefits that innovation can bring:
- Transparency and visibility: Using data to truly understand what is happening within the supply chain from end to end, where goods are coming from and where dependencies lie.
- Integrated planning, forecasting and monitoring: Moving from a silo-approach, the winners will be those who harness technology by pulling information from across multiple departments, internally and externally. This will enable the use of data to track flows and complete the feedback loop as businesses execute plans - both in terms of monitoring and forecasting.
- Combining efficiency and resilience: Keeping in mind the mantra of "just in time versus just in case". Supply chain tools in finance and logistics have, for years, focused on optimising efficiency; however, this is now evolving with far more layers. For instance, we are now seeing finance being pushed down the supply chain to ensure stability, continuity and diversity of supply and not just lower costs. Separately, data is being used not only to track goods on their journey, but also to see where they came from and who suppliers are - important both for resilience and sustainability.
- Better supply-chain execution - technology has the potential to make automated decisions in supply chains to predict outcomes, to use data to learn and analytics to form predictions.
Case Study: A smarter industrial sector
This all sounds beneficial, but what does it look like in practice?
Applying digitisation to reality helps us to understand exactly how transparency and efficiencies can be made.
We recently met with business leaders from the industrial sector to discuss the challenges they faced during 2020 as well as how they are navigating the new normal.
In this instance, we heard about the disruption caused to factories, which revealed weaknesses across the industrial supply chain. Producers now know that they must be ready for fluctuations, that they need to operate production even if they cannot physically be on site, and that they need to manage cash and working capital - no matter where or when.
Thus the pandemic has accelerated the need for "smart factories" - a great example of how a sector is utilising the power of digital to reshape supply chains.
Smart factories involve a process of transformation in which industrial players are creating transparent, flexible and efficient supply chains. This enables them to meet future shocks head on, for example by implementing consistent programmes to mitigate delays and challenges on the spot, or tracking and monitoring shipments, showing precisely where and when delays will be and planning in advance of arrivals.
This process is nothing new - it was happening pre-pandemic. Yet the shock from Covid-19 has caused business leaders in the industrials sector to sit up and focus their attention on smart factories to build a future defence system.
Supply Chain Finance
- Covers a wide range of tradable curriences including RMB
- Early payments to suppliers are extended on buyer-approved invoices
Knowledge, the best 'innovation elixir'
Technology has been the buzzword for businesses in the last year; it has enabled continuity, defined winners and losers, and will shape the future of resilient businesses. In a globalised world, the fragility of supply chains has become worryingly evident. While there is no "innovation elixir" which can bring together one, simple solution to cast over these complex and intertwined supply chains, the tools are out there for the taking. Knowledge is the best route to understanding how, why and where digitisation can make meaningful changes to supply chains - and this will be the great determining factor in creating resilience for the future.
A contribution piece by Iain Morrison, Head of Global Trade & Receivables Finance at HSBC Singapore, was first published in The Business Times on 3 December 2020.
The commentary piece was first published in The Business Times on 3rd December 2020.
This article was prepared by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch.
Issued by HSBC Bank Australia Limited ABN 48 006 434 162 AFSL 232595. This information does not take into account your objectives, financial situation or needs. The information in this document has not been independently verified by HSBC. No reliance should be placed on, any projections, estimates, forecasts or targets contained herein.