By: Ritoban Sengupta & Jayant Mukherjee -- Principal Analyst, Indirect Services & Client Success Lead
26 July, 2020
With the rapid pace of globalization, the significance of supply chain management has increased manifold. The vast diversity in economics, legislations, regulations, and standards lead to difficulties in managing supply chains. Participation in these supply chains, fueled by low value-added manufacturing activities have contributed to high rates of economic growth in many developing countries in LATAM, the Caribbean, and Asia Pacific regions.
The performance of supply chains is driven by various stakeholders like, manufacturers, logistics service providers, and technology suppliers. The interconnectivity between these stakeholders at various levels of the supply chain includes in-sourcing, outsourcing, off-shoring, product customization, and so on. In order to move up the value chain, it is imperative that developing countries focus on acquiring state-of-the-art technologies while building human capital.
A high level of visibility is required across different levels of the supply chain for effective performance. To achieve this, an efficient mechanism that integrates coordination among the different supply chain stakeholders and accurate sharing of data across the supply chain is required. New-gen technologies, such as Internet of Things, advanced robotics, 3D printing, machine learning, and artificial intelligence can take supply chain performance, coordination, and visibility to new levels.
New-gen technologies can lead to enhanced visibility, better inventory control, fewer barriers, and more efficient utilization of resources. Some of these technologies are:
Some of the typical barriers and risks to the supply chain are:
However, just digitizing the inefficient business processes will not be of any help. The internal business process has to be transformed so that it is in sync with state-of-the-art digital technologies. SMEs also face difficulties, such as limited technology availability as IT solutions focus primarily on large manufacturers’ needs, lack of adequate resources like human capital and internal resources, and inadequate finance in adopting these technologies.
State of Supply Chains in Latin American region
Evolution is at a rudimentary stage
The 4IR Transformation of the supply chain is still at a rudimentary stage in the Latin American and Caribbean regions. MNCs and large “multilatinas” have a higher level of implementation compared to the other enterprises.
A survey conducted by the National Confederation of Industries of Brazil in 2017 indicates a deep understanding of Industry 4.0, including the 4IR transformation of the supply chain. 4IR technologies are expected to improve relationships with suppliers using real-time monitoring of orders and logistics via web services.
Automotive supply chain leading the way
The automotive supply chain in Latin American countries is the industry leader when it comes to streamlining or transformation of supply chains. Mexico leads the way (due to its geographic proximity to the U.S. original equipment manufacturers), followed by Brazil, Argentina (low-scale implementation due to adverse economic context), and Colombia (owing to the country’s smaller market size).
The textile supply chain is at the bottom among all the industries in the supply chain transformation process. However, Mexico and the Dominican Republic lead owing to the economic importance of the “maquiladora” sector14 in both the countries.
Upgrading of supply chains
Developing countries perform low-value, low skilled labor-intensive tasks owing to an optimum supply of unskilled labor.
Many developed countries have a comparative advantage, which is often man-made.
For example, the UK had a comparative advantage in textile manufacturing in the post-Industrial Revolution period, which later shifted to the south of U.S. and is now possessed by China and other low-wage developing economies.
Beginning in the 1970s, several renowned firms in Japan offshored their unskilled labor-intensive manufacturing tasks to South Korea, Chinese Taipei, Hong Kong, and Singapore. Consequently, these countries entered the global supply chains by specializing in component manufacturing and product assembly. With the growth in this industrialization phase, these countries started manufacturing sophisticated intermediate units, which they earlier imported from developed countries. Later, they expanded into the distribution and design of goods, hence, upgrading their supply chain structures even more.
The rapid advancement of technology further helped many developing economies (earlier) to upgrade their supply chains. The offshoring of a firm’s technical knowhow in foreign countries through establishment of subsidiaries also helped in further upgrading supply chains. So, it can be inferred that investment in human capital and the consequent ability to integrate technology into their systems has contributed significantly towards the upgrading of supply chains of several countries.
Transfer of technology and the aforementioned processes helped developing countries, like South Korea, Hong Kong, Singapore, and Chinese Taipei upgrade their supply chains significantly. The transition of developing countries into becoming significant contributors of value-added tasks could lead to a better balance in power between the developing and developed economies.
Learnings from other companies
Overcoming region-specific barriers
Lending support to the SME sector
Facilitating supply chain enablers
Integration of infrastructure frameworks
Establishing a coordination mechanism
Sustainability Assessment Model
New–gen technologies, like Internet of Things, robotics, and 3D printing have gone a long way in transforming supply chains, as seen from the enhanced, streamlined, and lean supply chains in most of the developed countries. However, their adoption is still at a rudimentary stage in most of the developing nations across the LATAM and Caribbean regions. Though the supply chains of certain industries, like automotives has managed to successfully integrate the 4IR technology into its structure and transform its supply chain, other industries still lag. It is imperative that the government, private sector. and the civil society closely collaborate to develop a system that can successfully facilitate the integration of technology to upgrade their supply chains.
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