Supply chain diversification, technology seen key to manufacturing survival

MANUFACTURING FIRMS will need to diversify supply chains and leverage technology to survive and thrive during and after the pandemic, according to a supplier of industrial components and tools.

“The pandemic highlighted the importance of diverse supply chains and strong relationships and cooperation to improve the region’s supply chain capabilities,” RS Components Corp. Philippine Country General Manager George R. Santiago told BusinessWorld via e-mail.

“We’ve seen these past months that manufacturers and businesses who equipped themselves with the right technologies and digital capabilities were able to react more quickly to handle disruption and shift ways of working,” he added.

The pandemic has muted global economic activity, forcing businesses to fast-track their technology and digitalization plans as physical distancing is enforced to curb the spread of the virus. This led to stringent measures imposed by governments such as lockdowns starting in the first quarter of 2020.

The manufacturing sector was among the most affected by these restrictions. According to Philippine Statistics Authority (PSA) data, the sector declined 11.5% in the first nine months of 2020, after a year-earlier expansion of 2.8%.

Gross domestic product declined 10% in the first nine months, with manufacturing accounting for 2.1 percentage points of the decline, according to calculations performed by BusinessWorld.

The PSA also estimated that the volume of production at factories declined for a ninth straight month in November, coming in at minus 10.8%. Capacity utilization has consistently averaged under 80% since March.

Exports of manufactured goods were down 12% as of November, the PSA’s trade data showed. Electronics, which accounted for 70.1% of manufactured goods and 58% of exported goods during the period, declined 8.8%.

With a tech-savvy and English-speaking workforce, manufacturing continues to be robust and plays a key role in the economy, Mr. Santiago said.

“The Philippines continues to be an attractive location for manufacturing and aftermarket services in Asia-Pacific and is equipped to handle increasing demand for export with an auto supply chain involving over 380 parts manufacturers. However, to create more value and remain competitive, investing in infrastructure and facilities must be a priority,” he said.

The pandemic has also underscored the importance of strong inter-country relationships, Mr. Santiago said, citing the interest of Japan to strengthen cooperation with Southeast Asia to make its own supply chain more resilient.

Notwithstanding these setbacks, net inflows of foreign direct investment (FDI) in the sector grew to $610.9 million from $215.96 million as of October, even as overall FDI net inflows declined 10.2% during the period.

“The low factory output we’ve witnessed in the past months resulted from low consumer demand and mobility restrictions. The recovery was not as smooth but as these figures stabilize, we’re optimistic about the manufacturing industry’s performance in the coming year,” Mr. Santiago said.

“The manufacturing sector has the potential to compete on a global scale, provided businesses take steps to develop a digital strategy and have the support in terms of establishing the right infrastructure and upskilling people,” he added. — Marissa Mae M. Ramos