By Amit Ghosh, Head of Asia Pacific at R3,
Global supply chains are facing pressure like never before. As a result of border restrictions caused by the Covid-19 pandemic, coupled with geopolitical trade tensions, the world has witnessed international trade slow down to a crawl. Even before today’s economic volatility, a multitude of factors weighed down the notoriously convoluted supply chain industry—with its long settlement processes, outdated paper-based procedures, and slow operating models exacerbated by the sheer number of players involved across end-to-end value chains.
Businesses are now at a major crossroad where they need to implement agile, resilient, and cost-effective solutions to future-proof supply chains and ensure business sustainability—or risk falling behind competitors.
As both Malaysia and Singapore rely heavily on global trade to ensure national prosperity, major disruptions in global trade have contributed to the steepest GDP decline on record for both countries—16.5% and 13.1% respectively in Q2, placing both countries in a technical recession.
Today’s economic situation has made it clear that the vulnerabilities of traditional supply chains need to be addressed—and need to be addressed now.
Fixing the cracks in global supply chains with blockchain
Businesses in Malaysia and Singapore are exploring emerging technologies to tackle issues in their supply chains, as they reinvent and reposition themselves for survival and success in the “new normal”. There has been a sizable number of businesses, including HSBC Malaysia and DBS Singapore, that have begun implementing blockchain technologies, as it has the ability to dramatically reduce operational costs, streamline operations, and improve information sharing and visibility along the supply chain.
Blockchain is, in a way, “built” to take the complexity out of supply chains. Records are made encrypted and immutable—without the need for an intermediary providing assurance, or a need to reconcile data afterwards. This enables parties along the supply chain to track, monitor, and exchange assets in real-time—offering a more visible, cost-efficient, and secure way to manage supply chains with multiple parties.
To illustrate, both HSBC and DBS have already implemented blockchain technology to digitise cross border finance deals—including the creation, exchange, approval, and issuance of letter of credits (LoCs). LoCs are typically issued as a form of guarantee that the payment of goods and services will be fulfilled by the receiving party. However, traditional LoC processes remain largely paper-based, and with global border restrictions put in place, the already lengthy process will continue to be delayed as cross-border LoCs are unable to be approved.
To solve this, both banks leveraged Contour’s network, built on R3’s open-source blockchain platform, Corda, to establish a fully digital end-to-end LoC process that is more efficient, transparent, and secure than more traditional ones.
Early adopters of blockchain technology such as Siam Cement Group (SCG), the largest and oldest building material company in Southeast Asia, are similarly seeing tangible benefits from blockchain adoption—such as the drastic reduction in procurement processing time from 70 minutes to 35 minutes, and a synchronous drop in associated costs by up to 70%.
While the benefits of blockchain for global supply chains seem revolutionary, its effects can be further amplified through a combination with other transformative technologies. Indeed, certain blockchain platforms are interoperable and complementary to other technology stacks—for example, the use of smart IoT devices can automate tracking in warehousing, and subsequently nudge data onto the blockchain platform, creating an ecosystem that integrates real-time and immutable data.
Building resilient supply chains through education
Despite the numerous benefits of blockchain, many businesses have been slow to adopt the technology as overhauling established systems can be an arduous and costly process. For real change to occur, decision makers must start by placing organisational resilience as a top priority. With COVID-19 necessitating digitisation and resilience in supply chains, businesses might find themselves more motivated to adopt the technology when they find themselves in survival mode.
At present, many institutions in Singapore and Malaysia still lack awareness and are slow to adopt new technologies. To pave the way for the transformation of enterprise, much more remains to be done in terms of advocacy and education around emerging technologies for business leaders.
But it is not all bad news. Malaysia has already made significant headway in its economic recovery, with the technology cluster in Penang drawing in RM6.8 billion in foreign direct investment amid the decimation of supply chains worldwide—a sign of the country’s potential for growth. Across the Johor Strait, Singaporean regulators have reiterated their support for digitisation and their commitment to ensuring that digitisation is accessible for local businesses by launching accelerators and offering grants and training.
The conditions for restructuring and reimaging supply chain processes through technological solutions are favourable—with the presence of strong government support and the demonstrable impact of emerging technologies such as blockchain. All that is left, is for businesses to understand how technology can help solve inefficiencies in their operating models and leave them better positioned to tackle the “new normal”.