challenges & opportunities for high tech supply …€¦ · the sale of its mobile phone...

MARK MILLAR

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CHALLENGES &OPPORTUNITIES FOR HIGH TECH SUPPLY CHAINS

THE DYNAMICS OF THE HIGH TECH SECTOR INVARIABLY REPRESENT BOTH CHALLENGES AND OPPORTUNITIES FOR SUPPLY CHAIN PRACTITIONERS – ACROSS THE SPECTRUM OF BRANDS, MANUFACTURERS AND LOGISTICS SERVICE PROVIDERS.

/ Challenges & Opportunities for High Tech Supply Chains3

CLN EXCLUSIVE WHITEPAPER

MARK MILLAR

ROLLER COASTER RIDE IN THE HIGH TECH SECTOR

Smart Devices - the Chinese population now own 246 million smart devices, compared to 230 million smart devices in the USA.

Digital Cameras - global shipments declined by 42% in the first half of 2013, largely due to the proliferation of smartphones; across all digital devices, over 1.6 trillion digital photos are taken annually

China246 Million

1.6 Trillion / year

USA230 Miliion

Rapidly changing consumer behaviours coupled with

technological developments make the high tech sector a

rollercoaster ride,with plenty of winners and losers, and where

even the giants can become wounded:

SHIFTS IN TECHNOLOGY ADOPTION

/ Challenges & Opportunities for High Tech Supply Chains MARK MILLAR4


• Blackberry –once dominated the smart phone market, but in recent years the lustre has faded; following second quarter losses of USD 965 million, the latest recovery plan includes laying off several senior executives and cutting 4,500 jobs, some 40 per cent % of its workforce

• Nokia, once Europe’s technology superstar with a proud record of innovation and the global leader in mobile phones with a 40% share, recently announced the sale of its mobile phone business to Microsoft –

• Gartner identify 2013 as the year the $50 Smart Phone started appearing in emerging countries.

• Nigeria has 117 million mobile phone subscribers, with over 90 per cent using basic phones for just voice calls and text messages – creating massive opportunity for smartphone growth.

itself no longer the darling of the high tech space that is once was.Nokia however, continue to produce one million phones per day, the cheapest of which sells for just over 20 US dollars!

• Taiwanese smartphone maker HTC forecast its sixth consecutive decline in quarterly sales as they lose market share to mainland rivals.In 2013 they dropped out of the global top five smartphone producers as Samsung Electronics, Huawei Technologies and ZTE all gained market share.

• China’s Huawei has 68,000 employeesworking in R&D, 46 per cent of their total staff and more than Cisco’s total workforce of 66,000; they are on track to become one of the world’s top three smartphone vendors by 2018.

• Samsung and Apple continue to grow from strength to strength, whilst Lenovo and Hewlett-Packard fiercely battle each other for the number one position as the world’s largest personal computer maker.

CHALLENGES FOR LEADING BRANDS

ALSO PLENTIFUL OPPORTUNITIES

MARK MILLAR


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Risk Management, Regulatory Compliance and Security are key external aspects that have

significant impact on supply chain design and execution across the high tech sector.

EXTERNAL FACTORS IMPACT HIGH TECH SUPPLY CHAINS

On the regulatory front, companies expanding business activities in the emerging markets - which are forecast to account for almost 60%

of global GDP growth through to 2015 - will need to increase their emphasis on having the expertise to capitalise on free trade agreements, whilst deploying due diligence to ensure full regulatory compliance across all relevant jurisdictions, including their home base.

From the security perspective, rules and regulations are only going to get more stringent. Expanding requirements for cargo security screening at multiple hand-off points adds cost and time to the overall transportation cycle, whereas high-tech products inherently have the need-for-speed in order to optimise time-to-market whilst product life cycles continue to reduce. Seven months is now the typical life cycle for high tech consumer products, with over 50% of total sales being realised within the first 45 days after initial product launch. Supply chain practitioners need to remove bottlenecks whilst conforming to security screening requirements, and work on enhancing transit linkages in order to minimise unnecessary delays.

Within the context of an ever changing world, complex global supply chain ecosystems have become vulnerable to volatility, whereby unpredictable events can cause immediate and

massive disruption.

In recent years, headline grabbing, unpredictable events have caused massive-and-immediate disruption to supply chains - hurricanes, earthquakes, floods, accidents, social unrest and piracy – resulting in companies increasingly seeking to develop supply chain resilience. Such is the unpredictable nature of these events, in today’s volatile world ‘The Unknown’ has become the greatest risk for global supply chains.

A recent report found that 68% of companies surveyed had experienced disruption in their supply chain resulting in over 60 days of delays, with six figure USD losses. Consequently, supply chain risk is progressively more prevalent amongst the C-suite priorities, even becoming an agenda item at the World Economic Forum in Davos.

Leading companies will be adopting combinations of what-if scenario modelling to stress-test their existing supply chain ecosystems, and then develop strategies and tactics to build supply chain resilience and deploy sense-and-response mechanisms in order to be prepared for, and equipped to react to, the unknown unknowns.

Building supply chain resilience is rapidly becoming a key source of competitive advantage - where Resilience is ‘the ability to recover quickly from change or misfortune’ - and companies need to adopt a twin approach of ‘Be Prepared’ and ‘Expect the Unexpected!’



HIGH TECH SPECIFIC SUPPLY CHAIN STRATEGIES INCLUDE THE THREE P’S OF PRODUCT, PACKAGING AND POSTPONEMENT In the high tech sector, supply chain practitioners need to continually consider the balance between

seeking the optimum low cost production location whilst having a market presence closer to the

rapidly expanding consumer markets. The rapid development of new features and deployment

of the latest technology differentiates their products and shortens the product life cycles, whilst

speed-to-market drives competitive advantage.

In the high tech sector, supply chain practitioners need to continually consider the balance between seeking the optimum low cost production location

whilst having a market presence closer to the rapidly expanding consumer markets. The rapid development of new features and deployment of the latest technology differentiates their products and shortens the product life cycles, whilst speed-to-market drives competitive advantage.

Effective and efficient supply chain ecosystems are therefore critical for high tech companies to thrive in this massive and brutally competitive sector. Flexibility, agility and resilience are critical components of success.

In addition to companies seeking lower cost alternative modes of transportation, changes to the physical configuration of the product and packaging of high tech products are also impacting the air freight sector - by reducing the size, weight and volume of air cargo shipments.



Product – form-factor changes, whereby high tech products become smaller in size and weight even as they become bigger in features and functions, will continue to impact supply chains. Reflect on the ongoing changes to the shape, size and weight of your own digital devices – hand-phones, digital cameras, storage drives, music players, notebooks, tablets and laptop computers.

Packaging - environmental impact awareness is increasing consciousness and influencing decisions on packaging materials, shape and size. Creative packaging solutions can reduce waste and increase recycling opportunities, again shrinking the size and weight of digital products, thereby impacting the configuration and execution of high tech supply chains.

Postponement – as demand variability exacerbates forecast inaccuracies, and economic volatility increases risk of obsolescence, more high tech companies are adopting postponement strategies. This typically involves bulk shipment of generic versions of the product to in-region distribution centres, pending final configuration, which can then be done in response to actual end-user demand and destination configuration parameters. Consider for example the variety of combinations in the final product of country-specific power supplies, telecoms connectors, instructions, software, labeling and packaging.

Particularly relevant for the high tech sector, such postponement strategies also enable late-stage customisation options – for example loading the products with the latest release of software and/or firmware as the last step before final delivery, thus ensuring the customer is consistently receiving the latest version of the product.

Adopting these 3P’s into their supply chain strategies empower high tech companies to provide rapid response to customer demand, improve inventory utilisation, and lower their risk of obsolescence.



COMPLEXITY AND DIVERSITY ACROSS HIGH TECH SUPPLY CHAINS

This sector’s high-value goods and short product lifecycles typically necessitate flexible and agile supply chain ecosystems, with a focus on speed.

But as they navigate how best to serve the fast growing consumption markets in Asia, high tech companies have to revisit the structure and configuration of their supply chain ecosystems.

A key factor for businesses to consider – for their logistics and distribution activities – is whether they will be best served by a global 3PL or a local service provider. There is no one-size-fits-all solution. In making their decision, companies must evaluate a number of factors including local market knowledge, sector specific expertise, information technology systems, international best practices – and of course price.

However, in response to increasing labour costs in traditional low cost production markets, fluctuations in oil prices, and the trend towards regional free trade agreements, high tech companies are now seeking to rebalance their supply chain complexity by adopting a more regional approach, with many considering re-shoring, near-shoring or on-shoring strategies.

Within Asia, companies are responding to labour cost and availability challenges in coastal China by exploring alternative locations (re-shoring) including inland China. Chong Qing and Chengdu have successfully attracted many global high tech brands to establish inland operations, offering attractive incentive packages for inbound investment and employment creation. Alternative locations in Asia include Vietnam, Indonesia and Philippines - seen as the VIP rising stars of ASEAN, with Myanmar the latest new entrant on the menu of low-cost labour-intensive sourcing options.

Some production will also migrate closer-to-home(near-shoring) to low(er) cost labour environments in Eastern Europe or Latin America. This will not however be a mass

exodus from Asia manufacturing – largely because of the well-established supply chain ecosystems that service the Asia-Europe and Asia-America trades, but also because the consumer market potential within the Asian domestic economies is so enormous.

The Asia region is home to an extremely diverse range of economies - comprising the full spectrum of emerging, developing and developed markets - with widely varying levels of sophistication and maturity in their supply chain and logistics landscapes, infrastructures and capabilities.This regional diversity throughout Asia is demonstrated in the Enabling Trade Index compiled by the World Economic Forum (WEF). This report assesses multiple factors that enable trade and measures economies across four broad categories: Market Access, Border Administration, Transport & Communications Infrastructure and Business Environment - each with various sub-dimensions that impact trade facilitation and therefore enable or inhibit a nation’s ability to benefit from trade.

The resulting Enabling Trade Index ranks 132 economies from around the world. Countries from Asia span the whole range of the index - with Singapore and Hong Kong being ranked globally as number one and number two, but with several Asian economies also being ranked outside the top 100. This wide range of rankings just confirms and reflects the massive diversity across the Asia region, thus reinforcing the supply chain challenges for high tech companies in servicing these diverse and complex markets.However, the Emerging Markets within Asia will be the fastest growing of all the world’s emerging markets. Asia will become home to 66% of the world’s middle class by 2030 and the region as a whole will account for 50% of global GDP growth through 2050. So we are firmly in The Asia Era – this is the place to be for growth and prosperity through the foreseeable future.

In line with economic challenges in developed Western markets, the high-tech sector is

experiencing a slowdown in growth of exports from emerging market production sources, and

hence high-tech companies are relying on Asia for business growth opportunities.



CONCLUSIONThrough globalisation, high tech supply chains have developed, evolved and morphed into complex ecosystems featuring numerous multi-layered inter-dependencies, spanning the globe, crossing time zones, borders, cultures and languages.

All of these factors combine to exponentially increase supply chain complexity, with resulting challenges in embracing B2B collaboration whilst further driving the need for improved visibility. By harnessing the power of technology, businesses can enable sense-and-response mechanisms that will empower efficient and effective supply chain execution.

High tech companies therefore need to embrace the complexity and engage the knowledge and networks required to overcome the supply chain challenges in order to capitalise on the smorgasbord of potential new business opportunities.

Mark Millar / MBA, FCILT, FCIM, GAICD

Mark Millar leverages 25 years global business experience to provide value for clients with informed and independent perspectives on their supply chain strategies in Asia. His ‘Asia Supply Chain Insights’ series of presentations, consultations, whitepapers, corporate briefings and seminars help companies navigate the complex landscapes in China and ASEAN,make better informed business decisions and improve the efficiency of their supply chain ecosystems. Acknowledged as an engaging and energetic presenter, clients have engaged Mark as Speaker, Moderator, MC or Conference Chairman at more than 300 events in 22 countries.

Mark is a Visiting Lecturer at Hong Kong Polytechnic University and has delivered Guest Lectures at Georgia Tech (Atlanta and Hong Kong), RMIT (Ho Chi Minh City) and SP Jain (Singapore & Dubai). His industry contributions have been recognised with a number of accolades, including being named in the “Who’s Who of Power Players in Supply Chain Management in China”, the “Pro’s-to-Know Thought Leaders in Supply Chain” and as “One of the most Progressive People in World Logistics”. London based business publisher Kogan Page have recently commissioned Mark to write the book entitled “Global Supply Chain Ecosystems”, due for publication in 2015. [email protected]



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challenges & opportunities for high tech supply …€¦ · the sale of its mobile phone...

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