Opening Remarks on the 2nd IMPEC on Nov 8, 2019 by He Liming

Distinguished fellow guests, colleagues, ladies and gentlemen,


It gives me great pleasure to meet all of you in Jakarta, Indonesia. On behalf of the International Federation for Purchasing and Supply Management, I wish to thank our host, IAPI, for their meticulous preparations and thoughtful arrangements for the successful holding of this conference. I also wish to thank all of you for coming to this beautiful and historic city to share your ideas and experiences on procurement and supply chain.


The IFPSM is the main international cooperation and communication platform for procurement and supply chain professionals from 45 countries. As a pioneer and advocate in the field of procurement and supply chain expertise, we are committed to setting the right direction for the development of the global economy and supply chain, enhancing market confidence and providing impetus for economic development.


Since its establishment 46 years ago, the IFPSM has been keeping abreast of the trend of the times and committing itself to promoting cross-national communication and cooperation. It has achieved some highly effective work, such as establishing global standard certification system (GS), building the IFPSM communication platform, holding the IFPSM World Summit, setting up series of professional award in the field of supply chain, to promoting the training and exchange of professional talents, etc..


Dear colleagues,


Procurement and supply chains have become increasingly important over the past decade or two. Thanks to the sustained and stable growth of the global economy and the vigorous development of international trade, enterprises' purchasing and supply chain capabilities have been greatly improved. Firms generally pay more attention to this area, and actively invest in developing procurement and supply chain management departments, accumulating rich practical experience, and achieving excellent outcomes in cost reduction, efficiency improvement, connectivity and collaborative integration.


At the macro level, procurement and supply chain has changed from the third source of profits for enterprises to the important instrumentality of corporate social responsibility and industrial development, and is also an important part of the economic security and development strategies of many countries.


In the next few years, procurement and supply chain development will enter a new stage. In the new round of major development, transformation and adjustment in the world, procurement and supply chain organizations will face changes in various aspects, such as the decline of the competitive advantage of low-cost labor, the rapid development of the digital economy, and the rise of de-globalization wave. These changes are both challenges and opportunities. At this turning point, as procurement and supply chain practitioners, we should grasp the trend, layout ahead of time, respond quickly, and then we can go further.


I'd like to discuss three major directions and trends of procurement and supply chain industry in the coming years:


Firstly, the center of the global procurement and supply chain is shifting towards Asia.


This is not only due to the economic base of Asia, but also the inevitable result of the ongoing supply chain transformation within Asia.


To begin with, Asian countries have been maintaining sound and steady economic and social development. In recent decades, with the continuous progress of industrialization and urbanization in Asia, many Asian countries and regions have become middle-income economies or even reached the level of developed economies. Asia is expected to account for more than half of global GDP and 40 per cent of world consumption by 2040. At the social level, the average life expectancy and literacy rates of the Asian population have steadily increased. Hundreds of millions of people have been lifted out of extreme poverty, with dramatically improved living standards.


Asia is also one of the most important consumer markets on the demand side of the global supply chain. Asia's growing middle class will soon top 3 billion, and Indonesia will have tens of millions of well-to-do consumers, with a large number of Asian households contributing to growing consumer demand. Asia is expected to drive half of global consumption growth over the next decade. By 2030, it is expected to account for more than half of global consumption growth.


At the same time, Asian companies are rising to take a bigger place on the supply side of the global supply chain. In the 2018 Fortune Global 500 list, 210 of the world's top 500 companies by revenue are Asian. Over the past two decades, Asian companies have also risen from 19 per cent to 30 per cent of the world's best-performing companies. From a regional perspective, the number of large enterprises in China, India and southeast Asia has increased significantly in the past two decades. These regions also contribute to the majority of innovative enterprises in Asia which has 119 ‘unicorn companies’, with 91 in China, 13 in India and 4 in Indonesia.


In addition to the promising economic data, it is worth noting that the supply chain landscape in Asia is undergoing major structural changes.


Supply chains in Asian economies are becoming more local. In the decade from 2007 to 2017, China's output of labor-intensive goods almost tripled, from $3.1 trillion to $8.8 trillion. At the same time, China's share of export output fell sharply, from 15.5 per cent to 8.3 per cent, a pattern echoed by India. This suggests that Asian goods are starting to be sold more locally rather than exported to the west, and that the growth of intra-regional trade is squeezing the space for long-distance trans-regional trade.


The supply chain system of Asian countries has also become more complex and resilient. In terms of industrial structure, the number of Asian companies in infrastructure and financial services has increased significantly over the past two decades, while the proportion of traditionally dominant automotive and industrial goods companies has declined. Thanks to a more diversified, balanced and integrated industrial structure, Asia's emerging economies have cultivated self-sufficient regional supply chain systems and started to provide high-tech products and services to the Asia-pacific market, gradually getting rid of dependence on foreign intermediates and final products.


Transnational supply chains among Asian economies are gradually being reconstructed, with deepening synergies and integration, and closer regional ties and cooperation. In the last round of globalization, developed countries built trans-regional long-distance supply chains across half the world to take advantage of cheap labor in Asia. As wages rose, the demographic dividend began to diminish in some Asian countries, but the spontaneous restructuring of regional supply chains keeps opportunities in Asia. For example, China is moving up along the value chain, which provides space and opportunities in the supply chain for other Asian countries. From 2014 to 2017, China's share of global exports of labor-intensive products fell by 3%, but India and southeast Asia's share of global exports rose by 3.5% in total. Consequently, a number of emerging manufacturing hubs is now emerging in Asia, such as Haiphong and Ho Chi Minh city in Vietnam and Bekasi in Indonesia, laying a solid foundation for an Asia-centric global supply chain.


Secondly, digital technology will lead the future of procurement and supply chain.


I will start with procurement. Digital procurement will be the key to value growth. Among the supply chain processes, the digital reconstruction of procurement has huge space and broad prospects. With the rise of consumer Internet, the advertising marketing and sales segments closer to consumers in the supply chain have gradually achieved a relatively complete Internet transformation, while the R & D, procurement and manufacturing segments far away from consumers have not received enough attention and investment, and the digitalization is relatively insufficient. As a weak segment in efficiency, the front end of supply chain will be paid more and more attention by enterprises and has great potential for transformation and upgrading.


Digital procurement is the key to improve the efficiency of the front end of the supply chain. A McKinsey survey of global chief procurement officers found that companies could save about a quarter of their annual costs, cut the time required for transactional purchases by 30 per cent and reduce value losses by 50 per cent by adopting end-to-end digital procurement. It can be seen that digital procurement will be the main starting point for enterprises to cut costs and improve efficiency, which is of increasing significance to enterprises.


In the coming years, big data analytics, process automation, and new collaborative models will significantly improve the efficiency of purchasing organizations, significantly reduce costs, and enable faster, more transparent, and sustainable purchasing activities. Procurement personnel should keep the attention and learning of digital technology, stay ahead of the trend, and develop their own digital procurement solutions and implementation roadmap.


Now let me talk about supply chain. Digital technology will bring revolutionary influence to supply chain. In early 2019, Gartner listed eight trends in supply chain technology, namely artificial intelligence, advanced analysis, Internet of things, robot process automation, autonomous devices, digital twinning, immersive experience and blockchain, all of which are innovative tools for digital transformation without exception.


New digital technologies will significantly improve planning, procurement, manufacturing and delivery processes and methods, improve predictability, transparency and delivery speed of the supply chain, and make the supply chain smarter. According to an annual survey by KPMG, artificial intelligence and advanced analytics are currently ranked as the technologies with the greatest potential impact on the supply chain. McKinsey estimates that the use of AI in supply chain management and manufacturing could create $2 trillion in value, saving 3% to 10% a year in procurement costs.


Economies attach great importance to digital technology, particularly those in the field of supply chain. China, Japan, South Korea and Singapore are among the world's top digitizers thanks to their massive online population, while Indonesia and India have led the world in the promotion of digital technologies in recent years. It is noteworthy that many countries have begun to shift their focus from the digitization in consumer market to the digitization in supply chain. China, South Korea and Singapore are all facilitating AI practices in traditional industries. Japan plans to cultivate 250,000 AI graduates a year. India has integrated more than 10 million companies into one digital platform by administrative means. This will give them a first-mover advantage in the digital transformation of future procurement and supply chain.


Thirdly, the security of supply chain is of increasing significance.


By supply chain security, I mean the ability of an enterprise to cope with a broken chain. In the past, the threat of chain disruption came mainly from damage caused by natural disasters. Nowadays, the security threats faced by enterprises are more likely caused by political turmoil and struggle, such as the chaotic Brexit and China-U.S. trade issues. In march, the U.S. National Bureau of Economic Research reported that Caterpillar expects the tariff war to cost it between $250 million and $350 million this year, and Cummins expects to lose $150 million.


New threats challenge the resilience of supply chain organizations and potentially tear apart existing supply chain systems, leading to a shift from efficient, complex, organically connected to shorter, more localized and costly. The Credit Suisse survey shows that the current trade disputes have had a permanent impact, with European companies increasingly reluctant to invest in companies outside Europe and multinationals no longer putting cost-saving at the top of their supply chain strategies.


Supply chain security has become an unavoidable problem and will get more attention and research. The theoretical framework and system design of the traditional global supply chain is based on globalization and free trade, with countries around the world maintaining low tariffs and providing a relatively stable environment. This golden era has passed. Supply chain needs to keep pace with the times. The reflection brought by supply chain security may lead to theoretical innovation, and guide enterprises to redesign supply chain in this era, so that they can deal with the risk of broken chain faster and deploy sufficient buffering approaches in advance. Even if the good times return, supply chain organizations can still face the next crisis with confidence.


Dear colleagues,


At present, the world economy is in a period of transformation and adjustment. Uncertainties are obviously on the rise. The new technological and industrial revolutions have brought unprecedented development opportunities. In the highly uncertain post-globalization era, it is certain that, driven by digital technology and industrial Internet, procurement and supply chain will become increasingly important and inject new vitality into the development of globalization.


In conclusion, I wish this conference a complete success.


Thank you very much!

31 views

IFPSM The International Federation of Purchasing and Supply Management (IFPSM) is the union of 44 National and Regional Purchasing Associations worldwide. Within this circle, about 250,000 Purchasing Professionals can be reached.

>
>
>
>
>
>
>
>

©2020 by IFPSM.