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PETALING JAYA, 8 March 2022 — The pandemic, climate change and geopolitics are driving global manufacturing executives to focus even more than before on a twin transformation: smart digitization and a focus on environmental, social and governance (ESG) goals.

According to KPMG’s Global Manufacturing Prospects 2022 report, supply chain risk is seen as the greatest threat to the organization’s growth. More than two thirds (68 percent) of CEOs say they aim to ensure their supply chain is resilient in the event of a major global disruption at some point in the future. The top way to mitigate stress on the supply chain is to extend their company's monitoring deeper into the supply chain to anticipate changes before they have a severe impact.

“The need for resilience is forcing companies to be more agile and make better decisions faster. Digitization plays a vital contribution to this,” says Alvin Gan, Head of Technology Consulting, KPMG in Malaysia.

The implications for manufacturers in Malaysia are clear:

Transformation 1: Smart Digitization

Out of this pandemic and existence of ongoing geopolitical tensions, CEOs at manufacturers have learned the need to invest in new technologies to strengthen supply chain resilience, by both avoiding business disruptions—and taking advantage of them.

Manufacturers have to adjust their operations according to the demand of the moment, and may be forced to “shutdown, retool, resupply, restart” with little notice. This emphasizes the importance of starting the intelligent manufacturing journey by tackling supply chain unpredictability and inflexibility in order to enhance essential factors such as safety, quality, productivity, cost, delivery, and morale.

This would also require a journey to data visualization, integration with advanced analytics (predictive and prescriptive) as well as symbiotic operations, all of which would improve overall resilience. Investment in digitization and digitalization of all functional areas within a company, if properly integrated, has the potential to boost agility and accelerate innovation.

Gan advised, “Digital transformation can be executed on a ‘lighthouse’ phased approach. Choose a pilot plant or production line and digitalize completely. Then a full-scale roll-out to other factories or the entire plant can be performed once the benefits are proven and realized.”

Transformation 2: ESG

Of the three letters in ESG, global CEOs say that they are focusing more on social issues than environmental and governance matters. In Malaysia, forced labor issues have affected local companies particularly in the electronics, rubber glove manufacturing and palm oil plantation sectors.

Phang Oy Cheng, Head of Sustainability Advisory Services at KPMG in Malaysia, added, “Companies are expected to be more proactive in conducting open discussions and take actions to improve labor welfare following this conundrum.”

KPMG’s survey also revealed more than half (55 percent) of global CEOs say they will invest between 1-5% of revenue to become more sustainable. Improving the efficiency of industrial energy usage and the urgent need to mitigate scope 3 emissions[1] throughout the supply chain are the top two areas of focus, i.e., all indirect emissions, other than indirect emissions that come from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.

Phang observed, “Malaysia has a carbon neutral goal by 2050 and the 12th Malaysia Plan highlights carbon tax credits, and taxing companies burning fossil fuels by volume or weight of emissions. Manufacturing companies with high energy consumptions are expected to be impacted and should leverage sustainable practices to avoid or minimize these costs.”