Article

COVID-19 is highlighting why supply chains need better data

Companies are looking to AI, automation to better tackle periods of disruption

May 21, 2020

(Photo: STR/AFP via Getty Images)

During the coronavirus pandemic, supply chains of multi-national companies have had to contend with challenges like clogged ports and overflowing warehouses. The task has highlighted a common pain point: incomplete and unreliable data.

While a handful of global companies have spent the past decade building up complex digital processes to track goods from factories to warehouses and eventually the end buyer, many have not. This is particularly true in parts of Asia, where markets tend to be less mature than North America or Europe.

Supply chains still can be intensely manual. In 2018, around 46 percent of companies were using Microsoft Excel to predict, monitor, record, measure, and report on performance-affecting supply chain disruptions, according to The Business Continuity Institute. While functional, such systems can prove ill-equipped in the face of significant disruption like a global pandemic.

“The pandemic has been a wake-up call for digital transformation of supply chains,” says Michael Ignatiadis, Head of Supply Chain & Logistics Solutions APAC at JLL.

Artificial intelligence, dedicated technology teams and warehouse automation are increasingly prioritized because “if you have good data, you can better predict what the supply chain will look like next week, next month,” Ignatiadis says. “If you don’t, you can find yourself in the dark.”

How we got here

Over the last few decades, manufacturers have enjoyed a relatively barrier-free trade environment. This allowed them to build complex global supply chains. Periodic disruptions typically impacted only specific markets, and the length of time was relatively easy to predict.

Those times are over, Ignatiadis says.

“What we’ve seen in the last few months is a crisis that combined a long-awaited global economic downturn with an unexpected pandemic,” he says.

In Asia, prior to the pandemic, the move to digitalize supply chains had been moving at a slower pace. Part of this was due to the complexity of distribution networks. For instance, Indonesia and the Philippines are made up of thousands of islands, and home to millions of mom-and-pop shops. These factors, along with a shortage of talent, has slowed decision-making at companies and limited growth, Ignatiadis says.

But change is on the horizon. A willingness to embrace innovation and adopt new technologies is already evident in Asia, with China’s internet giants raising the bar for digital fulfilment.

Alibaba has rolled out its new Hema stores, omni-channel supermarkets that services both online and offline orders with ease. While JD.com’s automated warehouse outside Shanghai can handle 200,000 orders a day with just four people – whose main job is to service the robots.

“Other companies in the region know where they need to be,” Ignatiadis says. “How to get there is the challenge.”

Teething problems

But it’s not all smooth sailing, even for companies with more digitally advanced supply chains.

A recent example was a consumer packaged goods manufacturer in Asia which outsourced its supply chain to third parties who manufacture, ship, store and sell its products. A supply chain expert at the company told JLL that during the coronavirus outbreak, orchestrating a response to the disruption had been challenging, with most of the data managed in silos and not even within the company.

Data alone isn’t sufficient, Ignatiadis says, pointing to a major oil and gas manufacturer that has been unable to use their global inventory optimization tool in Singapore during the crisis due to lack of clean data (i.e., without duplicates or obsolete entries).

And even with good data, there is no guarantee that disruption won’t hit a business.

“You can try and prepare your supply chain network with multiple what-if scenarios, but it means nothing if you are not ready to execute against these because you have not invested to create the necessary flexibility in the past,” says the VP, Supply Chain APAC for a large Japan-based global tire manufacturer. “On the other hand, you can’t plan for all scenarios because the required CAPEX investment will be unsustainable and hard to justify. So when it comes to investing in business continuity the key is to be a) selective and strategic based on your competitive strengths and vulnerabilities and b) to be in there for the long haul.”

Many multinationals in Asia still struggle to get the fundamentals of their supply chains right, such as complete, clean and accurate data; integrating different systems across the network; and collaboration and trust with third parties.

But the momentum for change has started.

“Being ahead in your digital transformation doesn’t necessarily mean you will do well during the pandemic,” Ignatiadis says. “If the demand is not there and you can’t reallocate your supply, you will lose sales and face higher working capital costs.”

“But those with digitally-enabled supply chains were certainly in a better position to optimize their decisions with speed,” he says. “I think people are starting to understand how supply chains are no longer a cost-centre but can serve as a basis for competitive advantage.”

 
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