Key Supply Chain Issues in Asia

Supply chains are not just confined within national borders or markets. In an international supply chain, many state agencies and, in particular, customs agencies play a very important role in the efficiency and efficacy of the supply chain. There is also a heavy reliance on specialized logistics service providers, such as freight forwarders or customs brokers, that can facilitate the flows of goods across borders or even develop logistics systems for their clients. The biggest difference between domestic and international supply chains is the environment in which the chains operate.

The key role of a supply chain is to assist in the production, consumption, and distribution of goods and services. This means that goods must be produced and delivered to the market (or customer) in the right quantity, of the required quality (i.e., without defect), and at a competitive price. Integrated and seamless logistics systems can play an important role in facilitating global supply chain processes (Byrne and Markham 1991).

It is therefore important that the movement of goods can be done by combining several modes of transport from one point or port of origin, via one or more interface points, to a final point or port where one carrier or many carriers can organize the whole transport process. Integrated transport is an efficient transport system that provides physical door-to-door operations within the environment of a simple, streamlined documentation process with a single liability system. The objective of integrated transport is to provide a service that is completely reliable and predictable, and that fully meets the needs of the customer (Andersson and Hasson 1998).

However, the efficient operation of transport modes and nodal points is dependent on reduced barriers, fewer institutions, and a simplified legal regime in order to effectively implement integrated logistics operations. As trade is not possible without transport, support for integrated transport will facilitate national and international trade by ensuring an uninterrupted and smooth flow of cargo and by giving better control over the supply chain to manufacturers and traders.

2.1 Managing the Supply Chain for Enhanced Competitiveness

Asian countries are recognized for the high quality and low cost of their products. The competitiveness of internationally traded products is greatly influenced by various factors that add to the overall logistics cost within supply chains (Banomyong 2004). These factors need to be taken into account when considering Asian supply chains in order to sustain competitiveness. The main factors are:

The cost associated with the physical transfer of goods is an essential piece of information in the negotiation of an international trade transaction. To maintain a product's competitiveness, the seller must make sure that his cost is as low as possible. However, in any particular supply chain, this cost is made up of a number of cost elements corresponding to services that enable physical linkages between supply chain members. These elements cannot always be clearly quantified beforehand.

Some cost elements (i.e., direct costs) are directly related to the logistics service provided. In general, they are based on published tariffs that reflect the local market conditions, the quality of the service, and the management capacity of the service provider. These considerations depend on the state of the local infrastructure and equipment, and on the local infrastructure and/or equipment maintenance policy to provide reasonable transport services.

Other cost elements (i.e., indirect costs) are a consequence of the service provided. They build up as financial costs resulting from poor operations (e.g., low speed, unexpected delays), as additional costs (e.g., increased insurance premiums), or as “consequential costs” (e.g., sales opportunities lost because goods are not readily available). They reflect the efficiency of the service, the level of risk involved, and the capacity of the service providers to cope with administrative and operational problems.

Transit time is an important element as goods in transit cost money (Tyworth and Zeng 1998). Any reduction in transit time therefore reduces the overall cost of the delivered goods. Transit times can be improved by increasing transport speed while cargo is moving on any particular transport mode or by reducing idle time while cargo is waiting at some interface point for its next movement. A lack of proper coordination of transport operations or excessive administrative and documentary requirements can neutralize any effort or investment in increasing commercial speed.

To reduce the financial cost of their inventories, producers favor arrangements that supply the required input goods “just in time” (JIT), that is, within a short time of the item's anticipated use in production or sale (Christopher 1998). Under these conditions, time reliability is very important. Industries with tight schedule operations (i.e., JIT supply chains) cannot afford delays in delivery (Banomyong, Nair, and Beresford 1999).

Safety of goods is equally important. Any loss or damage—because of theft, mishandling, poor quality packaging, or physical damage caused by accident—will result in goods not being available at the expected time and place, or in the expected condition. The financial consequences of such non-availability, in addition to the cost of loss or damage, are similar to the time reliability consequences mentioned above.

Uncertainties related to issues such as schedules, breakages, loss, pilferage, and rules and regulations are faced by traders and may disadvantage exporters and importers.

Security measures are necessary to guarantee the protection of global supply chains against acts of terrorism or other unexpected threats. Beyond the loss of human life and material destruction, a terrorist attack will disrupt the flow of goods within a global supply chain.

The above-mentioned considerations indicate that trading opportunities can benefit from better-organized supply chain services. To increase the competitiveness of existing supply chains, sellers and buyers must adapt their commercial practices to meet customers' supply chain requirements, and governments must provide logistics service providers with institutional, regulatory, and operational environments that can stimulate and guarantee the level of service needed for the efficient movement and storage of goods, services, and information.

Logistical activities have traditionally been among the largest costs in global supply chains. However, the most significant advances in modern logistics have not been in cost reduction, but in improved processes to move goods and materials between nations in a timely and seamless manner (Sinha and Babu 1998). Distance is critical in global supply chains, as international marketers require systems designed to handle the challenges of distance in a manner that is timely and transparent to customers (Sharma, Sahay, and Sachan 2004).

Distance in global supply chains equates to transportation speed and dependency. As a general rule, the longer the average distance of transport, the greater is the total cost of transportation. This increased transportation cost results from firms seeking to maintain flexibility while reducing or avoiding extensive inventory commitment. Improved flexibility and lower average inventories translate into an increased number of small shipments moving under positively controlled logistical operations. The distances involved and the specialized nature of international requirements have created a dependence by supply chain members on third-party providers, such as logistics service providers, capable of providing a broad range of value-added services to assure logistical continuity and supply chain integration.

A supply chain approach must encompass not only the economic, commercial, and operational aspects of the international movement of goods, but also all issues related to the facilitation of trade and the responsibility for the goods while in transit (Childerhouse et al. 2008).

To take into account all interests involved in the development of a supply chain, especially in Asia, the relationships between traders, services providers, and governments must be clearly identified and proper coordination in the implementation of security measures must be established. The development of supply chains will also create a need for properly regulated logistics providers. This can result in an increased level of competitiveness for all key supply chain stakeholders.

Asian traders and manufacturers can expect the following economic and financial benefits from integrating their supply chains:

• Reduced transit time, increased time reliability, and increased security of cargo, particularly at interface points.
• Reduced transport costs (resulting from the use of modern transport-related technologies, such as ocean going containers and electronic data interchange [EDI]).
• Closer commercial relationships with services providers.
• Greater awareness and understanding of supply chain and logistics related issues influencing their trade.

Asia-based service providers can expect the following benefits:

• Increased importance of international logistics service providers and supply chain solution developers. This will be particularly useful in the development of relationships with and for recognition by governmental agencies.
• Commercial incentives to adopt new technologies, such as the internet, EDI, and radio frequency identification.
• Opportunities to further refine their marketing strategies; for example, for logistics service providers can concentrate their activities in niche operations to serve specific commodities on specific trade routes.

Asian governments will, in theory, benefit from better-integrated supply chains, as they offer an opportunity to update trade and transport related administrative procedures and regulations. An efficient and effective national supply chain will facilitate commerce with other trading partners.

2.2 Supply Chain Security

Supply chain security can be perceived as being inconsistent with the objective of facilitating international trade (Dulbecco and Laporte 2003). However, security has now become very much a part of the mainstream supply chain paradigm and can also become a trade facilitation driver.

If all firms involved in a particular supply chain were to optimize their logistical systems independently of other firms in that chain, the management of product flow across the whole chain or pipeline would likely be suboptimal. Attempts to overcome this problem have resulted in the creation of supply chain management. Supply chain management extends the principles of logistics management to customers and suppliers, crossing geographical and organizational boundaries (Banomyong et al. 2005).

Supply chain management leads to stricter requirements on the level of service related to frequency, reliability, lead time, information provision, risk of damage to cargo, security of cargo, complexity of administrative procedures, and the number of smaller consignments.

The security of the supply chain, like the efficiency of the chain, concerns both the physical flow of goods and the flow of information from origin to customer (Banomyong 2005). In a supply chain, there is no benefit if certain links or stakeholders are operating efficiently while others are not. It is the total performance of the supply chain from origin to final consumption that is relevant. Each link in the supply chain is dependent on the previous link in order to achieve continuity, synchronization, and enhanced final customer service level. The security issue is directly related to the performance measurement of any supply chain. This means that all security conditions must be met and guaranteed in order for goods to move unhindered within supply chains.

The supply chain in Asia has experienced important changes during the last 25 years and several ports in the region have come to specialize in the concentration of transshipment activities. Oceangoing containers ensure flexibility of shipments. Several Asian ports are dedicated to this technology and are, as a consequence, consolidating their status as supply chain hub centers. Economic growth and development have restructured the nature and pattern of supply chains, introducing new demands within the main trading regions in Asia.

Hub centers thus require a specialized, high-capacity transshipment infrastructure. However, infrastructure is not the only dimension in nodal restructuring. Supply chain development also requires the integration of value-added services and transshipment functions at key nodal links. These key nodal links will not only further supply chain integration, but will also support the efficient distribution of manufacturers' and traders' goods and services. The security of these hub centers as nodal links in the supply chain is of critical importance.

The world has become a system of linkages in which individual nodal links are connected in intricate patterns of dependency in hub-feeder relationships, as well as in end-to-end connections that reflect the increasing trade dependencies among regions. This trade dependency is derived within a broader competitive regional environment, with the development of supply chains underlining the need for efficiency as well as security. These conditions have had, and will continue to have, an impact on the management strategies of supply chain nodes around the world (Robinson 1998).

Security has now become, along with reliability, time compression, and cost reduction, one of the necessary preconditions for high-performance supply chain management capable of guaranteeing high economic performance. The quest to achieve global supply chain efficiency and efficacy is currently leading toward the development of techniques that allow a wide variety of unforeseen events to be overcome through the use of prevention measures. This is made even more evident by the JIT paradigm and door-to-door service, which require a high level of security, low inventory levels, and efficient movements between several points of origin and destinations.

However, security comes at a cost. Supply chain security leads to an increase in logistics costs and exerts a relatively negative pressure on economic growth, especially for the Asian countries involved. Even though the cost of security is universal, much of the burden has been shifted to Asian countries by the main importing countries in the West (such as the US), whose security programs have been targeted at Asian exporters (Banomyong 2005).

The short-term effect of an increase in supply chain security is relatively negative, but the medium- to long-term impact is likely to be beneficial to certified and recognized operators. This permits the creation of dedicated secure supply chains, where supply chain processes are considered to be more efficient and controlled. More security could, therefore, mean greater trade facilitation and possible expansion (e.g., as a supply chain becomes more secure, goods that are physically moved within the system benefit from greater ease of access to importing countries).

It must also not be forgotten that the cost of delays and procedures linked to the trade of goods is estimated to be between 5% and 13% of the value of goods traded (Banomyong, Cook, and Kent 2008). Security issues, if not dealt with properly, can also become a major cause of delays. Table 1 [ PDF 11.9KB | 1 page ] describes the main players involved in the security of the global supply chain.

Stakeholders are diverse, with often-conflicting objectives, but it is in the interest of all parties to improve the reliability of global supply chains by increasing security in order to avoid disruption of the system. It is important to guarantee the protection of global supply chains and their capacity to serve international markets. If a nodal link is considered secure, it is likely to benefit from increased goods traffic. However, only a uniform level of security in all supply chain nodal links will reduce the risk of disruption to global supply chains, as a supply chain is only as strong as its weakest link (Banomyong and Sopadang 2009). It is not enough to have a number of selected secure supply chain nodes if other nodes within the supply chain are not held to the same standard.

Box 1: Secure Supply Chains [ PDF 20.1KB | 2 page ]

In order for traders and manufacturers to integrate into efficient and effective global supply chains, security related activities must be completely synchronized in their requirements relating to global supply chain management. Security initiatives are now considered key logistical activities, but are also very problematic, especially in an international context where the institutional framework is confusing. If a security activity fails, it will have an impact on the competitiveness of global supply chains. This is a challenge that Asian countries must overcome.

Download this Paper [ PDF 195.2KB| 24 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.