The right balance: 4 golden rules for supply chain resilience in 2020
Rajeev Sood, Senior Vice President ASEAN & Indian Subcontinent, talks through the four key supply chain strategies to build resilience in 2020 and take on the challenges of a new world.
No one was prepared for COVID-19. It was a harsh way to expose business vulnerabilities and put supply chain resilience back on the global agenda. Despite decades of fine-tuning supply chains, most companies struggled to meet their needs for raw materials or finished products and have been forced to think differently about their supply chain.
Rajeev Sood is uniquely placed to talk about supply chain challenges and opportunities in Southeast Asia. Based in Singapore, he looks after Toll Group’s Global Forwarding operations in seven countries across their ASEAN and Indian Subcontinent region. In 2020, Rajeev and his team are supporting clients to deal with business-critical supply chain decisions that weren't part of traditional risk management.
“There was no data to guide us through COVID-19, and many companies underestimated the turmoil it would cause,” he says.
“The disruption has been monumental; airfreight has borne the main impact as international flights (freighters and passenger) have declined by almost 30%.”
Helping lead Toll Group customers through COVID-19 challenges, Rajeev has seen four key strategies emerge on practical ways to build supply chain resilience.
“We’re facing the same challenges as the global business community—we’re finding solutions to new kinds of problems.”
1. China Plus One - diversify your manufacturing
The China Plus One strategy was on the agenda well before COVID-19. Adding another country to diversify your supply chain from China has been driven forward by the US-China trade wars, high import tariffs, and a growing economy with rising labour cost.
When the COVID-19 crisis shut China down, businesses had no backup plans for raw materials or finished goods. The evolving economic landscape has pushed even local companies in China to diversify their risk concentrations
“Recent research shows that more than half of our customers source and/or manufacture products in China,” says Rajeev.
More than one-quarter of survey participants have either moved or are planning to move some of their work out of China within the next 3 years; 32% are considering Vietnam and 30% India.
"Ultimately, most companies aren't getting out of China in a hurry—there's simply no other country that can match the manufacturing power and sheer scale of China. However, Southeast Asian production costs are around 50-60% lower than in China."
"It's about choices, Apple will start manufacturing in India, TTI a big US company in the Industrial space has announced a US$650 million investment in Vietnam to produce cordless appliances. As labour cost advantages start to disappear in China, companies are looking for lower-cost countries with access to stable supply chains.”
Finding your Plus One country depends on your vertical and where that industry is concentrated. Specialisations are developing in Southeast Asia. Vietnam is focusing on manufacturing footwear, apparel, and retail. Brands like Dell are calling Malaysia home for tech manufacturing, and Indonesia is building a reputation in the industrial sector.
Plus One countries can be challenging for companies used to China’s popular streamlined business approach; your new Plus One country may not come with the same approach.
2. Looking closer to home
Businesses looking for manufacturing alternatives shouldn’t write off what’s on their doorstep, despite perceptions that close to home means high cost.
In 2020, as supply chain security affects everything from personal protective equipment to toilet paper, Rajeev says businesses must be willing to rethink the cost of bringing manufacturing closer to home—or at least into the same time zone.
“Every company is asking these questions, whether it makes sense to have some supply chain capability within their country. This isn’t limited to Southeast Asia or the Indian subcontinent —European companies are looking at Eastern Europe, and North America will look to diversify into Mexico and Central America.”
While closer-to-home manufacturing can drive costs up, it balances overall supply chain risk. China remains the key provider, but businesses may look for a 70/30 balance between China and home-ground manufacturing to manage concentration and geopolitical risk.
3. Hybrid logistics solutions
With supply constraints and the need for speed even more in demand, logistics has needed to be agile like never before. Hybrid shipping choices at short notice across borders using road, air, sea, and rail is making it all happen, but end-to-end visibility is key.
Toll Group’s iCON tracking system has played its part in designing solutions as complex regulations and border closures forced new thinking. iCON kept customers connected with their product movements through a hybrid of traditional ocean and air freight — providing complete visibility from peer management into shipments.
Toll Group is also working with customers on cross-border solutions — with flights grounded in intra-Asia markets and ocean vessels cancelled, Toll offered cross-border trucking.
Rajeev describes the complex jigsaw of moving a large shipment of personal protective equipment (PPE) in Australia.
"We needed to get the PPE from Cambodia to Australia, but there were no international flights from Cambodia into Sydney. We moved the first leg through by road via cross-border trucking. From Ho Chi Minh, the PPE made it onto a flight to Sydney. The entire process was tracked through our systems for complete end-to-end visibility."
"We moved fast to offer our customers hybrid shipping choices at short notice across borders using road, air, sea, and rail. That's the advantage the customer gets when they deal with a 3PL company: we have choices and we have visibility."
4. Right-sizing inventory management
Inventory management has been turned on its head by supply chain disruption. Before COVID-19, retailers wanted the lowest inventory levels; a direct-to-store model that kept too much inventory from piling up in warehouses and leveraged working capital. In 2020, right-sizing your inventory means planning the level of inventory you need to manage another event that completely stops the supply chain.
Just-in-time inventory management is a model that couldn’t have anticipated the impacts of COVID-19 — a shortage of raw materials on the manufacturing side means no finished goods.
"When China closed down, nothing was coming into other markets. When China opened up, demand from the rest of the world was in decline."
“It’s forced a lot of businesses to think about their inventories. You can’t think three months ahead anymore if you’re putting all your eggs in the same supply chain basket.”
Building a resilient supply
Every business sector—whether labour or capital intensive—is sizing up how to invest in their supply chain resilience.
Talk to Toll Group about aligning your supply chain planning with a global logistics network.