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Kearney on Digital Supply Chains

Estimated reading time: 9 minutes

Varun Arora, Partner, Asia Pacific Lead, Digital, Kearney talks about digitalisation of supply chains that helps to lessen impact of COVID upon cross border trade.

EITN: It is interesting how the report introduces the idea it is finally possible to have much needed fundamental transformation of end-to-end commercial and logistical operations, due to maturing digital technologies – what are these technologies and what are the areas in commercial and logistical operations that they can benefit immediately?

Varun: Modern technologies like blockchain and Artificial Intelligence (AI) have enabled us to make huge strides to increase connectivity among different stakeholders in the logistics operations ecosystem. Blockchain advancements have enabled secure tracking of goods, documents and payments along the value chain. In the shipping industry, for example, blockchain technology has enabled the sharing of a single source of truth across companies, ports and 3PL companies, resulting in significant benefits on time and costs across the ecosystem.

On the country level, Singapore and Malaysia have been developing national AI strategies to balance ecosystem developments and regulatory approaches while relying on the private sector for input and risk understanding.

Similarly, AI has also seen extensive use in the region’s commercial and logistics operations. For instance, Thai and Indonesian consumer goods companies have been using this foundational technology to sharpen sales force operations. AI has assisted sales force recommend right products to retailers, even mom and pop shops, and make informed decisions on where to add and upgrade retailer presence. In logistics operations, AI has helped both up-and-coming tech companies and traditional supply chain players to plan efficient routes for operations to improve efficiency and productivity. AI has also been leveraged to sense real time market demand, based on external data points like weather changes, customer ratings and comments on e-commerce platforms, and launch of new competitor products in the market.

If retailers get a sense of real time demand by different locations, they can pivot and move their inventory to higher demand locations, thus maximizing sales potential. An example of this is Kearney’s development and operationalization of the “Sense and Pivot” tool that helps enterprises dynamically adjust their supply chain to meet demand.

Appropriately, governments in Southeast Asia have recognized this potential and extended support to the development and adoption of these nascent technologies. ASEAN, for instance, has embraced blockchain technologies in its Economic Community 2025 Strategic Action Plan for Financial Integration.  

On the country level, Singapore and Malaysia have been developing national AI strategies to balance ecosystem developments and regulatory approaches while relying on the private sector for input and risk understanding.

EITN: The report talked about computing power, Internet connectivity, sensor miniaturization, as the technologies (foundational IR4.0 tech) that can yield breakthrough data generation and analysis, human-machine interfaces, and integration of digital-physical activity. What would you say is the level of adoption for these foundation technologies? How ready are nations/organizations to implement such technologies?

Varun: Adoption of these foundational technologies can be observed through the exponential growth in the demand for local data generation capacities and increasing adoption of Internet of Things (IoT) technologies.

IoT adoption is another key trend that is observed in the region. Integration of IoT technologies into industrial value creation enables manufacturers to harness entirely digitalized, connected, smart and decentralized value chains.

Countries are seeing increased installation of local data center capacities, fuelled by few factors including data residency laws, which require data of citizens to be stored in servers located in-country. Adding to this, trends such as the adoption of cloud solutions in markets like Indonesia, and a vibrant gaming market in the Philippines, are making cloud companies store, access and process data locally.  Countries like Indonesia, Thailand and Malaysia are slated to be the next high growth markets for co-location data centers in ASEAN. Localization contributes to a myriad of benefits including low latency, computing power and connection speed and security. The presence of local data centers also spurs digital transformation in the country, enabling advanced use cases which require low latency.

IoT adoption is another key trend that is observed in the region. Integration of IoT technologies into industrial value creation enables manufacturers to harness entirely digitalized, connected, smart and decentralized value chains.

It also enables seamless, continuous multi-platform collaboration, driving up efficiency in fleet management.  Several countries in the region have shown commitment to investing in and building up the IoT industry.  

Most prominently, Thailand has been rapidly developing its IoT infrastructure as part of its ‘Thailand 4.0’ initiatives alongside efforts such as Smart Cities and Industry 4.0. The IoT market in the country is projected to grow, propelled mostly by consumer-related IoT, to up to US$2.19 billion by 2030. As 5G technology continues to advance beyond its nascent stage, IoT use cases in the region will continue to grow to establish industrial norms in the near future.

EITN: What are the main challenges of cross-border trade at the moment?

Varun: The uneven growth of digitalization in the Southeast Asian economy is a key concern that must be addressed. Despite an exponential increase in digital penetration in the region as part of the post-pandemic recovery, SMEs, accounting for 99% of all businesses in the region, continue to face significant barriers related to access and use of digital technologies. These are mainly a result of several factors including cost, knowledge, and awareness of technology. While we have seen numerous large e-commerce platforms emerge and gain popularity among consumers in the region, not all SMEs have the ability to effectively leverage them to connect with consumers and merchants from the broader region.  

In fact, according to a Credit Suisse report late last year, about a quarter of ASEAN’s unicorns are in the fintech space and 20% are in e-commerce.

SMEs must therefore overcome the barriers to digitalization, in order to fully leverage the digital capabilities on offer in the market to capture business opportunities and enhance their operational and cost efficiency.  

Low awareness of technology also deters SMEs from harnessing the full potential of cross border payments, which are also becoming more digitalized.

In fact, according to a Credit Suisse report late last year, about a quarter of ASEAN’s unicorns are in the fintech space and 20% are in e-commerce. SMEs must therefore overcome the barriers to digitalization, in order to fully leverage the digital capabilities on offer in the market to capture business opportunities and enhance their operational and cost efficiency.  

Given that SMEs serve as the backbone of the ASEAN economy, it is imperative that governments aid businesses in their digital transformation journeys. Governments can establish public-private partnerships to build a robust fintech infrastructure that can cater to the historically underbanked SME sector.

EITN: Has there ever been an occasion when bilateral agreements trump public policy?

Varun: Bilateral agreements help foster knowledge sharing, spark innovative ideas, and allow countries to tap on each other’s unique capabilities. As digitalization will continue to evolve rapidly, such agreements will play a key role in harnessing the momentum and ensuring the region can remain at the forefront of digital trade and economy.

An example of a step in the right direction in securing bilateral wins in the digital space is Singapore’s active pursuit of Digital Economy Agreements with its allies. DEAs are treaties that establish digital trade rules and collaboration to develop an international framework to foster interoperability of standards and systems. By ensuring interoperability and cross-border data flows, cooperation across borders can also be encouraged in nascent areas such as digital identities, AI and data innovation.

EITN: There are so many things that Nations have to get on the same page on about, from infra, tech, and reform aspects. A single nation may do it for themselves, but it’s only when a handful (or ten) do it together that there can be benefits. What are the quick wins ASEAN needs to score to be motivated to come onboard and make it a collective effort?

Varun: Helping the promising start-up business community gain access to the broader market can be a quick win for ASEAN. To do this, we need to ensure start-ups have the opportunity to connect with stakeholders throughout the ecosystem to gain valuable knowledge, share ideas and receive support. One example is the Infocomm Media Development Authority (IMDA) SPARK program which aims to build a vibrant infocomm media community and support the growth of promising start-ups. In fact, Kearney has also partnered with IMDA to launch cross-ASEAN showcase events, whereby start-ups in the fintech and digital manufacturing sectors can connect with other industry players and highlight their own solutions and capabilities.

In the long term, the region can also look at regionalizing supply chains to enhance resilience and allow countries to mitigate potential disruptions. This promotes a shared understanding of reserves, and resource allocation among different countries, which could come in especially useful in times of crisis.

Conversations about a regionalized supply chain become increasingly apt as businesses are moving away from overseas partners in favor of reliability, moving workers and production facilities closer to home and relocating plants closer to suppliers.

For example, the regionalization of supply chains can be seen in the field of semiconductors in ASEAN. While Singapore continues to be the key manufacturing hub in the region, Malaysia, for instance, continues to make headways in building a strong electrical and electronics (E&E) sector, with E&E products accounting for around 39% of manufactured goods exported in 2020.

EITN: Could you share comments about resources allocated by governments to support businesses during COVID, towards teh digitalization of trade services?

Varun: Amid the pandemic, several governments in the region have provided temporary support to SMEs on their digital journeys and help them enhance resilience. For instance, the Malaysia Digital Economy Corporation (MDEC), launched the SME Digital Guidebook and Quick Guide as part of its “100 Go Digital” initiative to help local traditional businesses start and accelerate their digital transformation plans and seize new growth opportunities. The MDEC also provides digital transformation grants including the SME Business Digitalisation Grant to directly support SMEs undertake digital solutions.  Across Asia, SMEs can also tap on a myriad of digital services and advice offered by various agencies, to advance their digital presence and maintain a competitive advantage.

Conversations about a regionalized supply chain become increasingly apt as businesses are moving away from overseas partners in favor of reliability, moving workers and production facilities closer to home and relocating plants closer to suppliers.

The pandemic has also notably spurred the digitalization of various e-services in ASEAN markets. The registration of businesses and notarization of documents are just some examples. Alongside these, countries have also introduced digital assets, such as mobile health apps that track the vaccination status of individuals, and ramped up digital capabilities in cross-border verification of vaccination certificates.

These advances are not only beneficial for consumers, but also add value to trade services. Service providers can mirror the examples across supply chains, and introduce new digital solutions and services to efficiently connect with stakeholders and consumers.