In some parts of the world it is almost possible to forget that we have just lived through the most disruptive pandemic in living memory. However, despite moves by China last week to dismantle elements of its zero-Covid policy, the manufacturing sector across Asia is a long way from a return to normal.
A recent report from Coalition Greenwich noted that two-thirds of corporates have experienced supply chain disruptions in the region over the past 12 months. In an interview with CNBC earlier this month, Joe Monaghan, CEO of Worldwide Logistics Group observed that declining container freight rates from Asia were compelling carriers to reduce services to balance supply with falling demand as recession fears increase.
Shipping firm HLS has warned clients that container capacity could fall by 5% or more next year.
However, the Coalition Greenwich report also noted that corporate treasury departments have been implementing adjustments to their supply chains that will have long-term ramifications for businesses, economies and the trade finance industry that supports commerce across the region.
The most common approach has been to diversify the supply chain by adding new domestic and regional raw material sources and alleviating reliance on individual suppliers. Corporates are also working to make supply chains more agile – investing time and capital to enhance their ability to accurately forecast demand and supply – as well as shifting to longer-term contracts with suppliers and shipping companies, increasing inventory levels, and hedging FX and interest rate risk with financial contracts.
Nigel Cole is Product Manager at Golledge, a UK-based supplier of frequency products that exports to more than 50 countries representing more than 60% of its revenue. He suggests that one of the best strategies for countering ongoing logistics and supply chain disruption in Asia is doubling down on supplier relationships, which means “learning to love long haul flights” and investing in regular face-to-face meetings.
“These meetings should be used to understand what is important to the supplier in terms of logistics and production efficiency – using them to communicate only your own needs is a mistake,” he says.
Golledge’s primary partnerships span 20 years. “There is an obvious temptation to change based on factors such as price, but this will not build loyalty and deliver stability during times of disruption,” says Cole. “Building long-term relationships will also help you to understand the correct escalation path and who to turn to when a critical favour is required.”
Another useful strategy is dual and triple sourcing. In a move away from the vendor reduction programmes of the past, having more than two suppliers for each item on the bill of materials has become more important than ever, although Cole cautions that companies should avoid spreading business too thinly over multiple suppliers.
“Stocks are of vital importance (it is not just about running lean anymore) and understanding longer-term demand is vital,” he adds. “Orders cannot simply cover initial lead times – companies should share forecasts, ramp-up schedules and project lifetimes. If you have invested in the right partner and built a relationship, they will order, take risks with you and commit to reserve or place long-term orders months or even years in advance.”
Cole observes that lead times have increased more than fourfold from 12 to 50 weeks. “While they are recovering slowly, companies should keep in regular contact with their partners to understand local issues and updating manufacturing resource planning systems regularly is vital,” he says. “Finally, a recent trend gathering momentum is physical investment in key partners. This effectively means buying capacity and this will help to build all-important supplier relationship further.”