The Supply Chain Of The Future Is In China

    As the COVID-19 pandemic continues to expand, retailers are discovering that modern supply chains must now be optimized and managed remotely.
    As the COVID-19 pandemic continues to expand, retailers are discovering that modern supply chains must now be optimized and managed remotely. Photo: Shutterstock.
    Adina-Laura AchimAuthor
      Published   in Macro

    As the COVID-19 pandemic continues to expand, retailers are learning a valuable lesson: modern supply chains must now be optimized and managed remotely. But few businesses — or even countries — are currently moving in this direction. China, however, is a proactive digital country that enables businesses to experiment with digitally-run supply chains.

    Since manufacturing is no longer cheap in China, many foreign companies left the market and moved to other Asian destinations like Vietnam and Cambodia. Given this, China was forced to both design and adopt emerging technologies to cut labor costs and shorten production cycles. These approaches have helped maintain the country's international attractiveness.

    In fact, even prior to the COVID-19 crisis, leading retailers like the Alibaba Group were using analytics, 3-D animation, and augmented reality to stimulate consumers’ sensory experiences while making faster and more sustainable decisions for their clients.

    As a rule, traditional retail supply chains are famous for their deep backlogs, extensive and complex sample cycles, and high coordinating costs. But if you add stressful business conditions to this mix, then the buyer-supplier relationship becomes adversarial and further delays the production cycle. These difficulties all too often translate into longer lead times for product releases, and issues become even more challenging during a crisis like the COVID-19 outbreak, which exacerbates disagreements and disputes.

    Now, let’s have a look at the disruptive technologies revolutionizing China’s digitized supply chain model:

    3-D product design#

    According to the National Retail Federation, Hong-Kong-based Li & Fung Limited has become one of the world’s most tech-forward businesses by transforming the traditional supply chain model through 3-D product design. It involves using digital prototypes, which help brands eliminate physical samples and reduce markdowns — while also saving time and money.

    “As our industry continues to be disrupted by global economic headwinds, Li & Fung's goal to create the supply chain of the future remains more relevant than ever,” said Spencer Fung, Chief Executive Officer at Li & Fung, to Jing Daily. “The COVID-19 pandemic is causing millions of retailers, factories, and transportation networks to be at a complete standstill, making it almost impossible to produce physical samples the traditional way. 3-D digital images can be instantly shared and altered over and over again without designers, sample makers, or buyers needing to create an array of physical samples, and you can also do the fitting using 3-D software and go straight into production. Not only does this cut weeks off the supply chain digital product development, but it can also be done remotely, from a home office — a timely example of why digital supply chains are more important than ever in mitigating disruption.”

    Furthermore, 3-D modeling also eliminates the need for fitting models. It’s worth mentioning that the automotive industry has been utilizing 3-D modeling for years, but the Sourcing Journal has highlighted how the issue is far more complex in the clothing sector, where fabric characteristics are harder to replicate. “The challenges with the technology, until 2015, were that it was difficult to render fabric characteristics,” said Ed Gribbin, president of the apparel innovations company Alvanon. “Appearance and textures were good, but stretch, drape, and gravity hanging on the body all weren't very accurate.”

    Cloud computing, artificial intelligence, and Big Data#

    The most recent Gartner forecast predicts that AI will create 5 trillion of business value by the year 2025, and Michael Burkett, the VP Analyst at Gartner, said that “AI’s ability to derive insights and make recommendations from vast amounts of big data will have dramatic implications for how supply chains operate in 10 years.”

    Supply chains around the world are already becoming increasingly digitized, but it’s China that is powering this change as one of the world’s leading adopters of new technologies. “China's logistics industry is becoming more tech-savvy,” said Feng Gengzhong, deputy head of the China Society of Logistics. Meanwhile, Orange Business Services highlights how Chinese supply chain companies are incorporating groundbreaking technologies like cloud-based systems, data analytics, and artificial intelligence (AI) and using them to redesign supply chain operations. The northwestern Chinese province of Shaanxi, for instance, has been using drones for its local logistics network for years.

    According to Orange, Chinese logistics companies use AI-based routing algorithms to increase productivity and performance and reduce annual operating costs. In 2018, the Alibaba Group announced an investment of over 100 billion yuan “to build the technical backbone for a smart logistics network aimed at improving delivery reach and efficiency, as well as sharply driving down logistics costs," said Jack Ma.

    Through Cainiao Network, the Alibaba Group seeks to achieve 24-hour delivery across China and 72-hour delivery to the rest of the world. This will knock down logistics costs to less than 5% of China’s gross domestic product from around 15% at present. “Today, the industry can process 100 million packages a day. In the future, we will need to process 1 billion packages a day. The logistics industry needs to get prepared for that with a robust infrastructure,” Ma said.

    Furthermore, Alibaba launched A100, a strategic partnership program that offers enterprises an integrated single-stop solution that could help them accelerate their digital transformation. The A100 program, powered by the “Alibaba Operating System,” furnishes support for sales, logistics, supply chain optimization, payments, marketing and other support services powered by cloud technologies.

    According to Orange, is also leveraging the power of smart logistics while investing in smart supply chain technology. And Digital Initiative highlights that is focused on the “Three Arrows” — smart warehouses equipped with robots, last-mile delivery by automated drones, and cloud computing.

    Virtual reality#

    According to the South China Morning Post, China’s VR market is predicted to reach US 7.9 billion by 2021, and the “Don’t Touch” supply chain of the future requires VR to drive innovation. Deloitte mentions that VR enables product engineers, architects, and designers to analyze multiple designs and evaluate them on the spot. Furthermore, VR technology connects employees from around the world, allowing them to interact through virtual avatars.

    All in all, a crisis like the COVID-19 outbreak shows that traditional businesses can no longer thrive in a dynamic age when digitalization is rewriting the rules of engagement. Let’s be clear, the old-school way will bring a wave of bankruptcies and only innovative enterprises might survive and bloom during this trying time.

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