Digitalizing to create next generation supply chains in Asia

February 15, 2019 16:51
A garment factory in Tiruppur, India. China's move up the value chain meant the relocation of low-end manufacturing into other Asian countries like Bangladesh, India and Vietnam. Photo: Bloomberg

At the vFORUM event in Hong Kong, I had the chance to discuss the topic “Good Technologists Solve Problems, Great Innovators Create Opportunities” with Iman Mak, Senior Vice President of Information Technology at multinational supply chain company, Li & Fung.

Back then, the company, known for supplying consumer goods to Walmart and Macy’s, among others, was embarking on a three-year plan to create the supply chain of the future. The strategy called for every aspect to be digitized and data gathered to make better business decisions and reduce time-to-market. I’ve been following Li & Fung’s transformation journey very closely ever since.

That conversation gave me insight into how a digital foundation is essential for innovation and business growth in the supply chain industry. It prompted me to then explore the state of Asia’s supply chain industry around low-end manufacturing and the opportunities that could come with the sub-sector’s digital transformation.

The opportunity for 'lift and shift' to end in Asia

Companies traditionally favored Asia for its low-cost labor, expanding or migrating manufacturing bases to our part of the world to maintain low operating and production costs.

It started with a “lift and shift” into China, which now produces:
• 80 percent of the world’s air-conditioners
• 70 percent of our mobile phones
• 60 percent of our shoes

China's move up the value chain meant the relocation of low-end manufacturing into other Asian countries like Bangladesh, India, Indonesia, Malaysia, Thailand and Vietnam. As the sum of all these parts, “Factory Asia” now makes and exports nearly half of the world’s goods.

Productivity in Asia’s low-end manufacturing, however, remains low. Compared to China, for example, Vietnam and Thailand are 87 percent and 48 percent less productive in daily output per daily wage.

To remain attractive to multinational companies and bolster supply chain economies, the region’s low-end manufacturers cannot compete on low wages alone. Asian companies must also focus on improving productivity, which, along with making the region more attractive to foreign investment, can support domestic improvements in wages and living standards.

Rather than wait for companies to lift and shift to the next low-cost manufacturing destination, low-end manufacturers in Asia have the opportunity to evolve into next-generation supply chains. This model is more efficient, thereby future-proofing and retaining the region’s position as the “factory of the world.” It also relieves workers of drudgeries, improves product quality and delivers further cost savings.

IoT helps build smarter factories

With online and digital services pervading every walk of life, we see a clear shift from labor-intensive and low-end mass manufacturing toward on-demand production and faster delivery through automation and smart supply chains.

Frontrunners in supply chain transformation in Asia are already investing in IoT sensors to monitor productivity, work progress, raw materials scheduling and capacity planning across factories. Autonomous robots, for example, are allowing a single human operator to produce a T-shirt every 22 seconds – twice as fast as manual sewing.

Enabled with edge computing, IoT essentially allows us to get the right information at the right time to make the right decisions, whether in low-end or advanced manufacturing environments. Smart sensors can convert data into different units of measurement, communicate with other machines, record statistics and feedback, and shut off devices if a safety or performance issue arises.

Bosch Automotive, for instance, set up an industrial IoT framework connecting newly-installed machine-condition sensors to gather information on its factories’ utilization of cutting tools. This approach not only led to double-digit improvements in cost from tools. It also inspired the organization to implement predictive maintenance and bottleneck analysis. Over the past two years, during a critical high-demand situation, these activities contributed to more than 10 percent output increase in selected areas, thereby playing a key role in ensuring delivery and customer satisfaction.

Cloud: The digital foundation for intelligent supply chains

“Software is eating the world,” as the age-old saying goes, and supply chains are already on the menu.

Virtual design and costing analysis software are shortening entire product development timelines from 40 weeks to just 16. 3D design software, for example, is allowing the experimentation of different colors and patterns in product or apparel development. Software also helps with the integration and analysis of datasets from different governments, shipping companies, financial services providers and weather observatories to automate and optimize daily product delivery routes and schedules.

To enable all of this, companies along the supply chain must first transform their enterprise IT architectures from on-premise and siloed to hybrid cloud-based and modular. Combined with IoT, a hybrid-cloud approach enables companies to extract and analyze information about:
• Production line and end-to-end supply chain operations;
• Forecasting and planning;
• Logistics, and more

Data from cloud-connected augmented and virtual reality applications, partners along the supply chain and increased customer feedback can then have a significant impact on R&D. This feedback loop helps businesses give consumers more of what they want, while getting it to them faster and cheaper.

Ushering in the next generation of supply chains in Asia

IoT and data analytics – with edge and cloud computing as digital foundations – could drive a US$387 billion increase in the region’s GDP by 2021. These technological advancements are giving Asia’s manufacturers the inspiration and impetus to accelerate business transformation.

Already strategically placed as the “factory of the world,” I’m excited to see how Asia can evolve and become home to the next generation of leaders in smart manufacturing, as well as the agile, efficient and connected supply chains of tomorrow.

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President, Greater China, VMware