25 Jul 2002
Ladies and Gentlemen
A much tougher global environment to begin with?
It is my pleasure to be here this morning at the Asia Pacific Students' Entrepreneurship Forum (APSEF) 2002.
My talk today will focus on the potential and opportunities in the logistics sector.
IMPORTANT DEVELOPMENTS IN THE GLOBAL LOGISTICS SCENE
Demand for supply chain services spiraling in global market
The importance of logistics cannot be underestimated. It accounts for 15% - 20% of product costs in developed countries, even higher in developing countries.
Further, the demand for supply chain services is expected to grow in tandem with the outsourcing trend in the Asia-Pacific. It is estimated that about 70% of the world's high technology contract manufacturing activities is currently located within the region [Source - Asian SCM, Strategic Intelligence 2001]. International Data Corp (in 2001) predicted the Asia-Pacific logistics outsourcing marketing to grow 42 per cent annually by 2005, reaching US$29 billion. According to China's State Economic and Trade Commission, within the next 3-6 years, the country is expected to open up its vast supply chain market valued at US$12.08 billion. Clearly, there is abundant potential and opportunities in the world market.
Why? Competitive tool for companies in global marketplace
Supply chain services are gaining popularity because manufacturers and businesses look to logistics providers for innovative supply chain solutions to help them gain competitive edge. Supply Chain Management, or SCM in short, is rapidly becoming one of the most important competitive business tools for the simple reason of COST. As supplier relationships, communication flows and ways of creating value in the global economy get increasingly complex, supply chains can account for up to 60% to 70% of product cost. Any savings along the supply chain can translate to a huge competitive advantage for companies.
Mitsubishi America, for instance, managed to shave off substantial costs from its supply chain by re-engineering its processes. The company not only moved away from keeping inventory but in order to ensure accuracy in forecasting, provided dealers with relevant information and customised forecasting tools. This led to a reduction in inventory to virtually zero and cost savings of US$100 million a year. Sales were up by 69% in 3 years, from 190,000 vehicles in 1998 to more than 320,000 in 2001.
IT and partnerships for effective SCM
We are also seeing the globalisation of supply chains. International division of labour has advanced a great deal today. Few countries now make entire end-products: production is split into many small components, each carried out in the country offering highest efficiency and lowest cost. Skilled workers, strong supporting industries and a business-friendly environment have become key components of international competitiveness. Thus globalisation has made supply chain management even more important. Companies have to ensure that their supply chain is tightly integrated at every stage. This necessitates strategies such as exploiting e-business technologies, connecting to a global Internet infrastructure, and forging new partnerships.
Global terrorism - a new challenge for SCM
Global terrorism has created a more volatile and complicated international operating environment. It has created uncertainties, disruptions and delays in the daily course of business. With this new development, we now have to consider issues linked to sustainability and cost of logistics across supply chains. Companies and logistics professionals must consider the cost of accommodating such uncertainties, which can be highly significant. Having said this, does being prepared necessitate inventory buildup? Or could the use of IT systems and optimising supply chains that could accommodate crisis situations requiring flexibility be the best bets in the new context of terrorist reality? Can this new reality be perceived as an opportunity or a threat?
e-logistics for greater profits and competitive advantage
In light of these developments, an important value-add by logistics outsourcing firms could well be to offer expertise in managing an organisation's supply chain through the use of a variety of communications technology, including the Internet. In fact, established players such as FedEx and DHL have managed to retain the edge in Internet-enabled services.
Electronic supply chain management (or e-SCM, in short) is fast becoming a "must have" in the global logistics industry. It goes beyond the application of Internet technologies (the common interpretation today), to the use of electronically-processed information to facilitate the planning and execution of supply chains. This allows companies to monitor, plan and execute their supply chain more effectively.
Having said this, market sentiment against dotcoms did not put a stop to technology innovation and the Internet revolution. The concept of e-SCM has already kicked-off in the West. Over the past two decades, logistics cost in the US measured as a percentage of GDP, decreased from 16.1% in 1980 to 9.5% in 2001. This remarkable productivity and performance improvement was attributed largely to the use of IT and integrated supply chain management practices.
Asia-Pacific lags behind the West in adoption of e-SCM
Asia Pacific, in comparison, is only starting to embrace the e-SCM concept. This time gap can be attributed to two main constraints. Firstly, transparency of information is one key criteria in the use of supply chain management system. However, businesses in Asia tend to be cautious about sharing information. Many feel uncomfortable about opening up their system and sharing information with supply chain partners. This lack of visibility means that companies are unable to synchronise their processes with customers and suppliers, which leads to poor management of inventory and affects demand forecast.
Secondly, the Asia-Pacific market is currently in varying stages of e-SCM development, ranging from state-of-the-art electronic modules to homegrown solution and manual systems. The basic need for Internet access can be a luxury in some countries. This disparity in technology and infrastructure creates tremendous integration difficulties. Substantial efforts are needed to overcome the problems caused by incompatible software systems, language, document formats and IT infrastructures.
Despite these constraints, Asia-Pacific economies are gearing up and embracing new concepts and technologies to catch up with the West. Companies in the region understand that e- SCM not only offers the tools they need to rationalise cost and improve bottom-line results, but most importantly, also delivers them. The current constraints on the deployment of e-SCM solutions in Asia will soon be alleviated by the growing Internet penetration, high IT proficiency and a broader choice of SCM solutions.
REGIONAL EFFORTS TO PROMOTE e-SCM
According to the Gartner Group, business-to-business (B2B) e-commerce in Asia Pacific (excluding Japan) is set to grow by 150% yearly to reach US$910 billion by 2004. In recent years, the importance and growth of Internet technology, including e-SCM, within Asia-Pacific received much attention from regional governments. Countries understand that Internet technologies play an integral role in economic development and modernising supply chains will be crucial to boosting exports and fostering closer ties with the global economy.
As a result, several countries have launched initiatives to promote the standardisation of SCM and at the same time promote the B2B environment. Taiwan, for instance, has enlisted Sun Microsystems, IBM and BroadVision to establish the Taiwan Information Market Place (TMI) to facilitate e-commerce for Taiwanese products. Malaysia, has also formed an Internet supply chain initiative for the retail sector whose founding partners include Microsoft and Tradenex. These projects aim to encourage companies, especially the local players to embrace innovation.
Closer to home, Singapore is also actively promoting the development of e-SCM. One of the programmes launched to upgrade industry-wide IT capabilities is the IT Action Plan. Jointly launched in 2000 by IE Singapore and Infocomm Development Authority (IDA), together with several government agencies, the Plan aims to improve intra-company integration, inter-company connectivity and international linkages of the logistics industry. To date, 6 companies have successfully implemented solutions to facilitate inter-company information flows under the Plan. More projects are in the pipeline.
To conclude, the need for supply chains that deliver the Internet economy's original promises of greater efficiency and cost savings has become more urgent. All SCM participants, ranging from solution vendors, logistics companies and manufacturers, share a common priority, that is to contribute to a functional, efficient and transparent supply chain that benefits all participants.
I am pleased to note that the Asia-Pacific Students' Entrepreneurship Forum 2002 would address issues pertaining to e-logistics and supply chain management. The new era of supply chain integration, the advancement of IT and Internet, and the more challenging global operating environment will certainly open a vast array of opportunities for our would-be entrepreneurs. I encourage all of you to be the new generation of movers and shakers. Go against the grain, take bold steps, make a difference to the global logistics industry. Instead of making a living, why not make history? I am confident that you will benefit from the exchange of ideas and would like to wish you the best of luck in presenting your e-logistics solutions. To our overseas guests, I wish you a pleasant and memorable stay in Singapore.