EY Interview: U.S.-China Trade Disputes and Supply Chain Digitalization

Given the uncertainty in U.S. trade policy, making plans for doing business in the Asia Pacific region has been daunting lately for supply chain managers. In this first installment of a two-part interview with Nathan Roost, EY Asia-Pacific Supply Chain Solutions & Manufacturing Practice Leader, we try to provide a few transactional tips.

Supply Chain Management Review: Can you briefly outline the impact of US-China trade disputes on supply chains in China, Southeast Asia, and Asia?

Nathan Roost: The economic uncertainty the U.S.-China trade disputes have generated is prompting companies to reassess making major investment decisions in their Asian supply chain networks. EY has noticed a trend that trade disputes causing uncertainty has refocused plans of multinational companies (MNCs) potentially investing more in their supply chains in Southeast Asia. This has been an ongoing trend over several years due to rising labor & operating costs in China in addition to more indirect tax incentives in Southeast Asian jurisdictions.

SCMR: Any other details?

Roost: Yes. A survey conducted by the American Chamber of Commerce in China highlighted that tariffs imposed by the U.S .could lead to higher production costs and lower profits for businesses on the mainland. Should the tariffs on steel and aluminum stay in place for a long period of time and should the Trump administration step up its trade war with other nations, then the costs of price increases, sales decreases and general trade disruption would be more severe and more expansive. In comparison, the corporate tax incentives in Southeast Asia countries make them more attractive to companies looking to shift their supply chain away from China.

SCMR: What other advice do you have for maintaining a digitalized supply?

Roost: It is important to note that the supply chain digitalization should not slow down due to political or economic uncertainty as companies need to keep up with competitors from around world. Those who will succeed in Asia will have resilient supply chain that can withstand geopolitical or trade disruptions.

Supply chain digitalization can take place with front end, customer facing e-commerce platforms, as well as internal manufacturing and planning processes by applying emerging technologies such as automation, artificial intelligence, augmented reality and blockchain to drive better decision making across the supply chain. The proliferation of data from digitization efforts has provided supply chain and operations professionals with greater access to insight amid the aforementioned trade disputes and economic uncertainties.

Competitors that our clients face today aren't necessarily going to be those that they will be competing against tomorrow, or even next year. Similarly, in the face of trade disputes and global economic uncertainties, digitalizing supply chains should be considered a prudent, long-term investment to address short term business challenges in addition to fending off new and varied competitive threats over the intermediate term.

SCMR: What is the role of digitalized supply chain in boosting manufacturing PMI in Asia?

Roost: Given the clear shift from labor-intensive and low-end mass manufacturing toward on-demand production and faster delivery through automation and smart supply chains in Asia, digital supply chains are needed to combat issues in manufacturing in Asia, namely scarcity of qualified supply chain professionals, rising operating costs to reach key markets, quickly changing consumer preferences and managing omni-channel supply chains.

SCMR: What about Artificial Intelligence?

Roost: The use of AI and robotic process automation can help solve these problems and boost PMI by providing superior customer service, enhance differentiated profit on products and services and help create a more engaged and productive workforce. The secret to boosting manufacturing performance is to digitalize supply chains in a right way now - digital is not a strategy, but an approach to execution of a deliberate strategy.

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