Why the evolution of supply chains is picking up speed in Asia-Pacific

02 December 2020

The existing supply chain model is facing increasing challenges, forcing businesses to rethink their supply chains and diversify their operations across the Asia-Pacific region. The global supply chain has been undergoing major changes since the 1960s with increased computerisation, trucking and containerisation. These changes created significant improvements in cost, quality and delivery of goods around the world. China had also supercharged the global supply chain by becoming the “factory to the world” from 2001. However, these supply chains are now being disrupted due to the rising trade tension between China and the US, as well as by the global pandemic. There are also two changing forces in Asia Pacific which will have a profound effect on the global supply chains. Firstly, the middle class population in Asia-Pacific is expected to grow and comprise 66% of world’s middle class by 2030. Secondly, there is increasing implementation of policies such as stiff tariffs, balkanization of trade blocs and an increasing possibility of currency wars.

These factors are creating friction and tension when it comes to cross border trading and the movement of goods. Due to these factors, and the rising labour costs in China, many multinational businesses are starting to diversify their supply chain operations and adopt a “China plus one” model of supply chain management. This means that low value and labour-intensive products are now being produced in other locations, such as fabrics in Cambodia, Pakistan and Bangladesh, electronics in Vietnam, and toys in Indonesia and Thailand. At the same time, factories in China are increasingly using automation, AI and digital transformation to maintain productivity and reduce costs. These rapid changes in supply chain operations and increasing demand for immediacy mean that future supply chains will need to be redesigned with responsiveness, reconfiguration and resilience in mind.

Read the full article on the Ernst & Young website

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