Disruption, Digitisation, Resilience

16 DISRUPTION, DIGITISATION, RESILIENCE : The future of Asia-Pacific supply chains He provides the example of much clothing manufacturing moving to either Bangladesh or the Mekong region from China, but not more sophisticated machinery and equipment. At the other end of the spectrum is the automotive sector, where almost half the supply-chain managers (48%) say they have either conducted or are conducting a complete overhaul of their supply-chain strategies, compared with just 3% who say they are not making any material changes. This could well be owing to the lack of chips referred to earlier, which resulted in some of the world’s largest automakers such as Fiat, Ford, Nissan and Toyota cutting production. 12 Given demand for personal computers and other consumer electronics, the chip shortage is not likely to dissipate any time soon, and with increasing demand from the rapidly growing electric vehicle industry, auto manufacturers are compelled to consider an overhaul of their supply chains to keep up with production requirements. In the broader manufacturing sector, “China plus one” emerges as the primary supply-chain strategy for managers based in China, with 47.4% of them choosing this option. This is to reduce reliance on suppliers in a single country in the event there is another disruption of the kind witnessed early last year in China. Locating supply Differences between strategies adopted by supply-chain managers based in Asia and those based elsewhere also manifest in the locations they have either invested in over the past 12 months or are planning to in the next year. While and 33.3% in both the food and beverage and the healthcare and pharma sectors. In fact, the IT and electronics sector has seen less change in supply-chain strategy than other sectors in the past 18 months. Forty percent of supply-chain managers in the sector said they have not made or are not planning to make any material changes to their supply-chain strategies (compared with the average of 22.9% and higher than in all other sectors). This is to be expected, given manufacturing in this sector is highly specialised, often requiring specialised production facilities, and the co- location suppliers, for example. 11 In other words, specialised tech manufacturing supply chains cannot shift easily because of their sophistication relative to other industries, which necessitates a completely new production ecosystem be established in a new location. While some diversification of the supply-chain in this space has happened in the past 18 months or so, the pandemic-induced lockdowns and production slowdowns brought the supply of components down to a trickle, complicating matters further. According to Mr Menon, whether or not supply chains can shift easily or not is also a function of the share of sunk versus variable costs and how divisible the technology is. “In clothing, footwear, textiles, technology is highly divisible and sunk costs are low; but in say, precision machinery or some other heavy machinery, where sunk costs are high, technology is not that divisible, the shifting of supply chains is that much more difficult.” 11 “Electronics supply chains are stuck between a pandemic and a trade war. Where do they go from here?” Supply Chain Dive . 23 July 2020. Available online at https://www.supplychaindive.com/news/electronics-supply-chains-coronavirus-pandemic-trade-war-tariffs/582130/ 12 “Semiconductor Shortage Causes Major Automakers to Cut Production.” Industry Europe. 11 January 2021. Available online at https://industryeurope.com/sectors/transportation/semiconductor-shortage-causes-major-automakers-to-cut-production/