Asia’s Supply Chain Revolution

It is hard to believe, but just 15 years ago Asia’s supply chain had barely any standardisation at all. As global multinationals come to the region and influence trade, the modernisation of Asia's supply chain is evident, and the concepts of standardisation and supply chain management are beginning to take hold.

As multinational manufacturers and retailers continue to focus on the potential of Asia’s markets and expand their businesses into the region, so modern distribution networks, retail stores and western business best practices are brought along with them and implemented across the continent's domestic and regional markets.

It isn’t just the overseas influences that are bringing the changes however, tasked with the challenge of competing with multinational market entrants, domestic retailers are raising their game in response, increasing the size, scale and organisation of their business and supply chain.

So how exactly do the dynamics of modern business in Asia affect the development and sophistications of the region’s supply chain?

The influence of western culture, such as eating and leisure habits, combined with the emergence of business opportunities from Asia’s vast population have led to a strong rate of increase in the amount of fast moving consumer goods (FMCG) traded across the region. As the primary method for distributing such goods, pallets have become an essential part of transportation, storage and other supply chain processes.

Pallet Standardisation

The move towards the standardisation of pallet size is growing as surrounding logistics components, such as transport and storage, are typically designed in accordance with the characteristics and dimensions of chosen conveyance methods. For example, warehouse layouts are designed to fit standard pallets, whilst delivery vehicles are designed to industry standards to maximise the use of space and thus efficiency of loads.

With labour costs in the region continuing to increase, particularly amongst supply chain personnel, the need to invest in or hire more capital intensive efficiency measures grows greater too. Introducing pallets to supply chains is one such solution.

In order to attract foreign investment, governments and trade bodies continue to work towards improving technology and knowledge in domestic markets, with the aim of creating an easy entry environment for potential new business entrants.

With the arrival of international business, an acknowledged driver of competition, improved standards and greater efficiency, standard practices and new techniques, are finding their way into Asia’s logistics management and gaining significant market traction.

For example, the increase of international third party logistics (3PL) companies are demonstrating how greatly improved load efficiency can leverage more efficient uses of storage, generate cost savings, and even enhance green credentials, down the supply chain. As more companies using 3PL’s emerge and more domestic firms adopt the approach, so its usage and benefits become more prevalent in Asia.

Returnable Packaging Hire

Returnable packaging hire (RPH) is another distinctly modern process making considerable strides modernising Asia’s supply chain through increased efficiency, cost savings and flexibility. In essence, it is all about simple pallet management and consumption solutions.

A key advantage of the pool approach is the removal of the customer’s need to invest significant funds on purchasing and developing its own RPH product set. This, in turn, frees up capital which can be invested in its core business.

Moreover, capital savings are further enhanced as the RPH provider supplies pallets on an ‘as needed’ basis, allowing the customer to manage seasonal fluctuations in product demand without the need to maintain excess pallet capacity.  

The system is particularly beneficial for businesses in retail supply end markets, given that many manufacturers and distributors must increase stock in the months leading up to festive seasons, such as Christmas, to ensure they have sufficient supply for their anticipated retail demand.

The ad-hoc nature of RPH usage and its pool system alleviate the need for the customer to invest capital in managing or maintaining the products, as RPH equipment is shared between multiple users. Pooled RPH products are transferred from one hirer to another with the only requirements being that the RPH provider is advised of the transfer and each new hirer is authorised as a user.

Transferring RPH products between hirers in this manner enables an efficient and cost-effective transfer of goods through supply chains, providing customers with increased productivity and flexibility in their distribution operations, whilst creating reductions in one trip packaging, resulting in efficiency savings. These benefits are further increased for customers when new participants in the supply chain join the RPH pool.

Key Drivers

A range of different factors are driving businesses in Asia towards RPH solutions instead of more tradition or self-managed alternatives. The significant growth of the retail market, the economic growth of the businesses involved in retail markets, and the general modernisation of the supply chain are key drivers of change. Coupled with the increasing awareness of the benefits of the RPH model and, particularly for business in Asia, the expansion of cross-border trade are all driving supply chain management towards an RPH solution.

At Loscom, we are seeing our customers in the consumer goods supply chain, experience strong sales and earnings growth after adopting RPH solutions, this includes manufacturers, distributors and retailers. A particular increase in the number of malls, hypermarkets, supermarkets and other retail developments is translating to significant mass grocery retail (MGR) growth across the Asian region, a trend we expect to continue to grow for some time.

The increase of mass grocery retail, the organisation of retail within a network of modern grocery stores and distribution networks, is directly influenced by multinational business entrants in Asia who bring with them sophisticated, modern supply chain management. These new entrants’ business practices are being adopted by local supply chains, from both multinationals and local players alike, with the latter seeking to compete with the new competition.

Potential Market Growth

Accordingly, the level of retail maturity (or modern retail penetration) and the associated use of RPH pooling is typically driven by the penetration of large scale, modern trade formats among multinational and local retailers. Manufacturers are also a key source of demand for RPH solutions, requiring supply chain solutions to receive raw materials as well as to store and distribute manufactured products.

While there is a low level of retail maturity in less developed countries like Vietnam, the emergence of the Philippines and Indonesia reflect a significant, long-term growth potential for modern retailers entering these markets, which are comparatively developed from a large scale retail perspective. The relatively immature use of pooling is a further indication of their potential for significant long-term growth which will develop as RPH gains momentum.

Raising Standards

Loscam is committed to growing modern logistics solutions to encourage Asian markets to embrace new strategies and, in doing so, improve standards for domestic business and increase market sophistication, making them attractive to new business entrants and the benefits they bring.

Our focus centres on educating customers of the business benefits of new solutions, such as RPH, and through dialogue with governments and industry bodies we work to develop the standardisation of pallets and key industry pillars. We are proud of our service which we believe provides a superior customer experience and cultivates strong relationships with customers and businesses partners.

We’re passionate about modernising Asia’s logistics, which we see as bringing the benefits of raised standards of practice to businesses, who are then in a position to pass these positives across their supply chain and to their customer base. Who’d have thought it all comes down to pallets?

www.loscam.com