Companies must strategise to minimise the impact to their operations during the current chaotic supply chain situation, largely due to the unavailability of raw materials.
C K Tan, Vice President of NationGate Solution, Penang, was speaking at the WOU webinar titled “Supply Chain issues & Development” organised by the School of Science & Technology (SST) on 30 September 2022, and attended by about 50 manufacturing students.
He explained the multifaceted disruptive factors in the supply chain, the tactics to adopt in risk mitigation, and the adaptive recovery plan strategy. He said besides knowing the problem, what is important is mitigating the impact in order to survive until the disruption subsides.
He highlighted the influence of PESTLE – political, economical, social, technological, legal and environmental– and the emergence of the Regional Comprehensive Economic Partnership (RCEP), of which Malaysia is a part, on industrial competitiveness.
He said the RCEP, the world’s biggest free trade agreement area, comprises 30% of the world GDP and the world population. Malaysia is also a member of the Comprehensive & Progressive Trans-Pacific Partnership (CPTTP)alliance that makes up about 15% of the world GDP, and the One-Belt-One-Road Initiative (BRI) which encompasses 40% of the world GDP.
“These expanded marketplaces provide a higher competitive edge for Malaysia compared to other ASEAN countries,” he added.
He said the electronic manufacturing industries in Malaysia require massive raw materials, signifying the importance of the supply chain. He said many advanced manufacturers have adopted digitalisation in their supply chain management framework – e.g. ERP, big data, inventory management, and smart procurement – but their production is still threatened by the unavailability of materials.
Tan listed out the dominant global PESTLE factors that are disrupting the global supply chain since the pandemic. “We have geopolitics confrontational alliances of West (G7) against East (G20) and US-China tensions, while economical issues are global recession, local currency depreciation, countries having ballooning national debt, rising inflation, interest rate hike, and de-globalisation where industries relocate operations to their own region or country.”
Other PESTLE causes are the Covid-19 pandemic, riots, and unrest, labour shortages, suppliers going bankrupt, sanctions, wars, extreme climate, earthquakes, floods, drought, tsunami, Europe energy crisis, congested ports, along with insufficient containers or sea fleets that put SMEs at a disadvantage as they cannot afford high shipping costs.
He urged companies to adapt to the current unpredictability if they are to “survive to compete” later. He continued, “Establish a mechanism for tell-tale signals to detect potential delay, defective products or something out-of-norm from suppliers. If you can define and track the tell-tale signals earlier, then you can go to an alternative supplier to avoid being hit with a short supply, and hence lessen the negative impact.”
Tan reiterated that the main source of the disruption today comes from the supplier, and therefore suggested companies forge a good supplier relationship management, similar to customer relationship management. “Build a good relationship with all your raw materials suppliers so that they can reasonably support you well, and also have focused communication with them and monitor for tell-tale signals.”
He also called on companies to overstock with buffers to minimise impact during disruptive supply chain periods and to adopt an ‘edge strategy’, where you make use of existing but irrelevant company resources to your current customer, to serve other related customers or industries, so as to generate revenue.
He also suggested an unconventional practice to collaborate with competitors to weather the crisis for mutual survival. Companies today need to focus on collaboration rather than competition.