How Asian companies are making use of supply chain technology
China is aggressively promoting innovation and digital transformation through a new government age...
What inspired SAP Ariba to make the move into China?
China is aggressively promoting innovation and digital transformation through a new government agenda. The ‘Internet Plus’ initiative, for instance, is driving heavy investment in the building blocks of the internet economy including new digital platforms and cloud-based technologies, which is helping fuel procurement and supply chain growth. The ‘Made in China 2025’ effort looks to promote innovation and transformation empowered by smart manufacturing, which is closely aligned with smart procurement. And the One Belt One Road focuses on driving significant growth in overseas trade. All of this aligns well with our strategy to help companies digitise their business and commerce, and thus will create solid opportunities for us to grow.
What challenges have there been?
There are always challenges when entering new markets. You need to be aware of government regulations, product localisation requirements and appropriate license approvals, etc. To be successful, you really need to work with local partners who understand the lay of the land and have connections that can help you effectively build your brand. And this is the approach we are taking in China. We will, for instance, make our source-to-pay applications available locally through a facility in Shanghai hosted by GDS. And as we go to market, we will employ both a direct and indirect sales model, leveraging the scale and capability of our own sales and consulting organisations along with those of local partners so that we can quickly deliver our solutions to large private companies and mid-tier small and medium enterprises alike.
What are your objectives for your operations in China?
Companies across China are increasingly placing digital processes at the core of their business and are looking for cloud-based solutions that can help them to better manage their operations and connect with trading partners. Much like the networks and applications Chinese consumers use to manage their personal business, our procurement solutions give Chinese companies a fast and easy way to manage everything from contracts to payments all in one place. And by making them available in China, we can help speed their digital transformation and open a significant new market.
What other parts of Asia does SAP Ariba operate in?
We operate in 50 countries across the region. To give you an idea or our size and reach, there are more than 500,000 Asian buyers and sellers connected to the Ariba Network, including:
- 300,000 in India
- 100,000 in Australia
- 70,000 in China
- 60,000 in Singapore
- 45,000 in Malaysia
And in the twelve months ended September 30 2016, these companies used our solutions to:
- Source more than $29 billion in goods and services
- Exchange over 1.6 million purchase orders worth an estimated $9.5 billion
- Process nearly one million invoices worth close to half a million USD
- Share nearly $1 billion in new business opportunities
What areas of Asia are the most successful for you?
From the statistics above, you can see that we are well represented and successful across Asia. Australia, which operates more as a western market than an Asian market, is the most mature market we operate in. China, Japan and Korea are huge economies with strong manufacturing bases in which we are investing, and our growth rates in these markets are very high as our solutions for direct materials sourcing and collaborative supply chain are particularly relevant. India and South East Asia contain a diverse mix of industries. Many companies in these markets are often are family-owned and looking for us to provide world class technology they can use to drive international growth, so we are seeing a lot of growth in our network and the use of services like Ariba Discovery.
Why do you view Asia as one of the most important areas for increased investment and new business?
Asia is in the midst of a significant transformation. Digital technologies are enabling innovation that is fueling disruption and redefining entire industries. You don’t need to look much further than companies like Singapore’s nuTonomy, Xero and Atlassian from Australia and New Zealand; Huawei, Didi and Baidu in China; or Line in Japan, for proof of this.
In addition, Asia is home to the largest population of internet users - accounting for half of the world’s total 2.8 billion internet users - and has the largest regional e-commerce market. By 2018, there will be 1.14 billion connected Asians on business and social networks. And by 2020, the Asia Pacific region will account for 44% of all connections and devices worldwide.
Now is clearly Asia’s moment for digital. And the opportunity for us to help them to make the most of it is huge.
How do Asian companies compare when it comes to digitalisation within the supply chain?
Just like everything else in Asia, supply chain practices are maturing. More companies have introduced the role of a CPO and are setting up procurement as a shared service. I see this in many of my customer interactions. And they are making investments in platforms to digitise the core procurement operations and want to be the first to innovate in areas like supplier risk and supply chain collaboration.
And these investments are critical, because without Asia, there is no global high tech supply chain. Or retail supply chain. Or natural resource chain.
Can you give us an example of a company you are working with in Asia, and how it is using SAP Ariba?
There are more than half a million buyers and suppliers across Asia using SAP Ariba solutions to digitize their supply chains. And they’re doing some pretty innovative things. Take AIA Group Ltd. - the largest independent, publicly listed pan-Asian life insurance company.
In 2010, it was spun off from parent company, AIG. It was operating in 18 markets across Asia Pacific, and suddenly had all the infrastructure ripped out from underneath. So it not only needed a standard, transparent process through which it could source goods and services, but a system to fuel it.
It started by creating a centralised operating model for sourcing and procurement that would allow them to leverage collective buying power and drive collaboration among key stakeholders. Then it moved to digitise things. It already had SAP ERP in place and began adding solutions from SAP Ariba to drive its source-to-pay process.
And it has since seen improved cross-functional and market collaboration and adoption, along significant sourcing savings and process efficiencies.
In Thailand, PTT Global Chemical Public Company Limited (PTTGC) is using the Ariba Network to completely automate its procure-to-order cycle. In going digital, it is not only able to do things faster, but simpler. And it has improved its relationship with suppliers by providing greater visibility into the status of invoices and payments so it knows when they will be paid and, along with access to technology, that improves efficiency and productivity.
Then you have sellers like Malaysia-based Alphamatic Systems who moved to digitise things when manual, paper-based processes began to hamper its operations. It started out like many suppliers do, by collaborating on purchase orders and invoices electronically with customers through the Ariba Network. Then they set up an online catalogue through which it could use to sell products and services. As a result of these efforts, the company has seen revenue from its largest customer increase by 40 percent and its payment cycles cut in half.
And Japan-based MiSUMi Group, Inc. is using the Ariba Network and Ariba Discovery – a service delivered on the network that automatically matches buyers who need goods and services with sellers who can deliver them – to more efficiently connect with customers and increase sales. Since joining the Ariba Network, MiSUMi has landed several new customers globally and seen its revenue rise 30 percent because of the process efficiencies and savings the network helps them to create.
And there are plenty more examples like this that we can provide.
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NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”