Risk issue trumps green in Asia: Summit

Managing risk comes ahead of greening the supply chain this year’s Supply Chain and Logistics Summit Asia in Singapore has found

Risk issue trumps green in Asia: Summit
Risk issue trumps green in Asia: Summit

By Darren Baguley | January 23, 2012

Managing risk in the wake of disaster came ahead of greening the supply chain at this year’s Supply Chain and Logistics Summit Asia in Singapore.

Summit speaker Pari Annamalai from supply chain solutions giant
JDA Software Asia told the industry carbon pricing won’t have much impact when it comes to sourcing out of Asia, even in the wake of success at the recent Durban round of talks.

"A few years back I sent out material about green supply chains to thousands of companies and I only got one reply back from a multinational supply chain company," he says.

"I do read articles about green supply chains in the press but in Asia we’re still not seeing much work in that area in actual practice.

"We’re seeing some interest from larger companies but we’re still somewhat behind European, and even North American companies.

"It’s a very much a case of if a company is profitable, then it will think about its carbon footprint."

Annamalai told this year’s SCL Asia conference, held January 10-11 in Singapore about a CIO in Taiwan whose view reflects that of the general business populace in Asia; that carbon footprint is important but being profitable is more important.

"The reality is that it probably won’t be until some sort of carbon tax or emissions trading is put in place that Asian companies will start thinking about carbon footprint," Annamalai says.

"That will force them to consider it at the same level as service, get them to think, ‘how do I optimise my service, my margins and minimise my carbon footprint’."

When it comes to overall sourcing trends for 2012, Asian experts say risk will be the main concern particularly given recent natural disasters which shut down whole manufacturing districts.

Annamalai confirms just recently JDA Software Asia has seen a lot of interest in risk mitigation.

"A lot of our customers are asking how do we mitigate or manage the risk of natural disasters, currency rates and rogue employees," Annamalai says.

"Risk has different meanings to different people but procurement professionals need to be looking at risk."

While he acknowledges that low margin businesses such as automotive and computer parts manufacturers may not be able to afford to build excess capacity, he told the industry it’s vital there’s an increase in geographic diversity.

"Too many companies have taken the campus approach and built all their factories in the one city," he says.
Annamalai believes risk is reduced by having manufacturing facilities in a few different places.

"Such a strategy also makes it easier to find staff as the company may only need to find thousands of workers in each of a few different cities rather than tens of thousands in one city," he says.

Companies also have to think more deeply about risk. "Top of mind across whole region, India, Japan, Australia, China and others is how we manage natural disasters and a big part of that is considering all the risks.

"Many of those companies which have been hit by shortages because of the Thailand floods were surprised and they really should not have been.

"All those plants have been built on a flood plain and it’s well known that urban environments have more problems with runoff than agricultural land."

Annamalai also says procurement professionals can learn from other industries such as aerospace.

"They need to be looking at their supply chains, identifying where redundancy should be in place and even if you can’t afford to build in that redundancy, you should still be thinking about the risks involved. The classic example is the hard drive shortage.

"The motors and other sub-assemblies underneath that are causing the issue but no one at Western Digital, Seagate or others ever considered that those components all come from the same manufacturer."

Meanwhile lowest cost and outsourcing are no longer dominant paradigms in Asia.

"Anything being manufactured with highly volatile demand or high logistics cost is moving towards more of a configurable or a postponement strategy," Annamalai says.

"Alternatively, manufacturers are moving final assembly closer to where the demand is whether it’s in North America or other parts of Asia."

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