Mitigating supply chain disruptions with digitalisation

Sriram Muthukrishnan, Group Head of Trade Product Management at DBS Global Transaction Services.

Banks need to enhance their digital capabilities so that firms can quickly receive trade financing support, without the need for physical interaction.

The Covid-19 pandemic is expected to have a prolonged impact on our lives.

According to the World Trade Organization, the year 2020 could see the worst collapse in international trade since the Great Depression, with a decline of between 13 and 32 per cent. Sectors such as automotive, construction, retail and logistics have faced the brunt of the impact so far, as cities around the globe entered into varying degrees of lockdown. Though some of the measures have since been rolled back, many businesses continue to remain deeply impacted by continued disruptions to supply chains and less active trade corridors.

 

Supportive policy responses from global governments in the form of fiscal relief and grants have provided a lifeline. But the prolonged nature of this crisis continues to threaten the survival of businesses and the industries they operate in. Those with the financial muscle to weather the storm have in turn been brought to a critical decision point to transform in order to survive.

Navigating supply chain disruptions and new trade tariffs amid an environment with movement restrictions brings about a multitude of challenges.

Transparency, for one, is important, but often gets taken for granted. Many supply chains are highly complex, comprising networks of stakeholders including shipping, customs, freight forwarders and couriers across various geographies. And the need for transparency has become even more critical amid global supply chain disruptions, as many businesses' cash flows hang in the balance. However, with much of trade in Asia still done manually, transparency is still a work in progress for many supply chains in the region. The lack of transparency also means there is less trust among the various participants, which impedes the flow of financing and liquidity to the most vulnerable parts of the supply chain.

MULTI-TIERED CHAINS

Next, supply chains are multi-tiered. When a customer places an order from a particular supplier, the customer may not have full oversight of where the suppliers get their production materials from. In today's environment, businesses need to understand the intricacies of the supply chain layers at a more granular level than ever before. This would enable them to make more informed assessments of their procurement processes to streamline operations and costs, manage associated risks and re-evaluate how each part should fit to operate optimally in the new landscape.

There remains much uncertainty as to the full impact and duration of the pandemic. But we can be certain of two things. First, there will be some semblance of a recovery over the next few quarters. Second, those who adapt ahead and make themselves business-relevant to the post-pandemic world will have a greater chance of success.

Across all parts of the supply chain, from businesses to the end consumer, there has been an acceleration towards a "digital-physical reset" as the global population becomes more comfortable with getting their jobs and daily errands done digitally in a contact-free manner.

In banking, businesses used to be more sanguine about going entirely digital especially in the trade space. Yes, businesses have signed up for digital tools such as online banking, host to host and so on. But due to entrenched practices and inertia, there was always the backstop of couriers and fax machines. This has now changed dramatically.

For example, in trade finance, there are procedures that require physical documents to be signed off with wet signatures, couriered and examined before a transaction can be completed. However, with government-imposed lockdowns regionally, manual processes were no longer feasible as businesses shut, leaving many companies that once relied on paper-based methods at a roadblock.

As a purpose-driven bank with a strong digital backbone, we made a decisive move to help companies during the crisis. We accelerated the enhancement and implementation of our digital workflow capabilities to provide prompt relief to businesses in a contactless manner across Asia. In Singapore, we took the lead among banks to launch a suite of digital contactless trade financing solutions, enabling our clients to bank with us virtually, minimising business disruption caused by the circuit-breaker. In fact, our clients are able to digitally onboard themselves on to our supply chain programmes in less than 30 minutes today.

The adoption of DBS APIs, which connect the operating systems of our clients to their counterparties and partner bank, also enabled us to streamline and automate workflows for businesses, while providing real-time visibility of information on procurement and settlement processes. With transaction data and behavioural patterns captured across the entire supply chain ecosystem digitally, we are also able to help our clients get financing quicker so that supply chains continue to chug along undisrupted.

Industries with complex supply chains such as automotive, electronics and technology will need to constantly pivot to take advantage of the latest digital initiatives and regulations that offer the best growth, cost and operational benefits.

MORE EFFICIENT BUSINESSES

Businesses which survive the fallout will likely be more efficient, resulting from comprehensive digital transformation strategies taking root. Data analytics will play an increasingly integral role in predicting and developing products that are expected to become relevant, and to help businesses obtain trade approvals and financing in real time.

Governments also continue to ramp up efforts to enable digital trade frameworks, while enhancing governance controls to provide a safe environment for trade.

To support the revival of global economies, banks need to continue enhancing their digital capabilities so that corporates, both big and small in markets across the world, can receive trade financing support quickly and without the need for physical interaction. As transacting digitally becomes the norm in the developed and developing worlds, banks also need to continually enhance controls to mitigate against cyber risks.

The common narrative across is that change is the only constant. What will set the winners apart from the losers is an open mind and the agility to change to stay relevant for what may come tomorrow.

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This article was first published in The Business Times in July 2020.

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