SIMTech-NTU Joint Lab on Complex Systems
Block N4, B1a-01 | School of Computer Engineering, Nanyang Technological University | Singapore 639798


Services sector becoming more crucial: MAS, published on Today Newspaper Singapore
30 April 2014 - 4:12am

"The services sector - the main engine of economic growth in Singapore - will gain momentum as its contribution to gross domestic product (GDP) continues to increase while manufacturing's share declines, the Monetary Authority of Singapore (MAS) said in its latest Macroeconomic Review report released yesterday." "Within manufacturing, multinational companies are also realigning their business operations to focus on delivering services complementary to the goods they produce," the central bank added. "The shift ... is likely to accelerate in the coming years due to the higher profit potential of such activities." "A competitive manufacturing sector has a lot of positive spillovers to support services.... But to thrive in our economy - one with cost and manpower constraints - manufacturers here must restructure for higher-value-add activities...." "Services-driven activities will continue to be the bulk of our growth driver, riding on Singapore's status as one of Asia-Pacific's hubs and leveraging on the region's growing wealth and demand for various personalised services."

Market Drivers

The market drivers for Complex Systems research in manufacturing operations and supply chain networks are primarily driven by the increasing complexities propelled by new trends, challenges and demands of today's data and information-driven economy. A complex system is composed of inter-connected subsystems or entities that as a whole exhibits potential (or emergent) properties that may not exist as individuals. Stemming from a bottom-up paradigm, complex system modeling and analyses enable the possible understandings of how local changes at individual or micro-levels could lead to emergent behaviors at the macro level. Some of key market drivers are discussed in this section.

Economic Globalisation and Consequently Supply Chain Globalization

With economic globalisation, companies are adopting globalised outsourcing strategies across multiple locations, time zones and capabilities, for the purpose of reducing costs and gaining competitive advantages. Consequently, the footprints of supply chains have also become global. This means that the supply chains are growing in scale, connectivity and speed. At the same time, companies have introduced more lean supply chain practices, which reduce the number of suppliers, whilst consolidating production at focused factories and distributions at centralised logistics centres around the world. This helps in cutting costs but also reduced the robustness of the supply chains to unexpected disruptions or variations. In addition, with the implementation of various supply chain management technologies enabled by the latest IT capabilities, processes and transactions that were manual are today largely automated. Such implementations increase the connectivity and speed of interactions amongst the trading partners in a supply chain. Any unexpected variation thus can be expected to be amplified upwards and downwards the supply chain quickly. These increases in scale, connectivity and speed make managing the complex dynamics in supply chains and manufacturing systems, such as bullwhip effect and changes in demands to the factories (such as natural disasters and man-made disruptions like terrorist attacks and political uprisings), very difficult.

Rapid Urbanisation, Increased and Diversified Online Consumer Demands

Urbanisation is a complex process in which a country's organised communities become larger, more specialised and more inter-dependent. According to the CIA World Factbook, by 2008, the urbanisation rate of 35 countries is more than 80 percent, and more than 115 countries are 50 percent urbanised. The rate is ever increasing. With rapid urbanisation, the footprints of stores in and around the metropolitans are also growing smaller, giving fresh challenges to SCM. For example, sophisticated inventory management capabilities are required to ensure minimal inventory levels whilst preventing or minimizing stock outs. These inventory management capabilities need to take into account supply and logistics constraints, security risks and also the costs associated with less than optimal delivery load and frequencies. Traditional operation research methods are not capable of providing tractable solutions.

Exponential growth and adoption of consumer technologies drives new levels of service demands. For example, the web-based service economy demands 24/7 services. In addition, the 21st Century customer is more open to shopping online. A report by Forrester stated that online sales in the U.S. grew by 12.6 percent in 2010, reaching $176.2 billion and predicted a 10 percent compound annual growth rate until 2015. Furthermore, According to estimates by eMarketer, mobile-commerce in the United States were expected to reach around $6.7 billion in 2011, a noteworthy 91.4 percent increase over 2010 and $11.6 billion in 2012.

All these mean that companies' supply chains and operations must be able to cater to the diversified and dynamic needs of Web savvy demanding consumers. New service models have to be created to handle the complexities in this more and more connected world. Consequently, accompanying will be the need to be able to configure the manufacturing shopfloor to be more autonomous and able to respond to these dynamic changes rapidly.

Increased Vulnerability of the Value Chains

Today's marketplace is characterised by instabilities and uncertainties, increasing the vulnerability of value chains to unexpected variations in demand and supply. Value chains represent the entire eco-system of the manufacturing and logistics infrastructure connected to deliver value to the customer; from supply level down to the shopfloor level of individual manufacturing plants. There are a number of reasons why today's value chains are more vulnerable. Natural disasters' frequencies and intensity have increased over the last decade. Examples like droughts, floods, hurricanes, earthquakes or tsunamis are striking more often and have substantial economic impact due to the connected nature of today's SCs, and consequently the entire value chain. In addition, with the globalisation of supply and value chains, the motivation for offshore sourcing and manufacturing is often cost reduction. However, long and complex global supply chains are usually slow to respond to dynamic changes and the definition of cost should not be limited to just the costs of purchasing and manufacturing but also factoring in the costs of disruptions.

Rapid development and adoption of new IT technologies

Companies leverage strongly on IT technologies to enable Business-to-Business collaboration in their supply chains for competitive advantages through improved value chain visibility, traceability and synchronisation to name a few. However, the life cycles of IT technologies and related products are getting ever shorter. On one hand, the rapid IT technology development greatly improves capabilities to manage complexities and efficiencies of operations. On the other hand, it also increases the complexities and vulnerability of a system. For example, any disruption at a single node in the SC is amplified very quickly throughout the value chain by IT technologies. In addition, shorter life cycles demand faster speed to market - the time taken from design, through procurement, manufacturing and assembly to the end market. These mean that the capabilities to manage complexities in shorter make-span are critical.

With the above major trends, today's business and system managers have to make decisions in complex circumstances - with rapidly changing conditions, uncertain goals, system dynamics, divergent or conflicting information, tight deadlines, multi-faceted constraints, diversified stakeholders, difficult relations with other organizations, political considerations, inherent uncertainty, varied opinions, limited resources and a whole range of other complications. And this means the traditional methods of analysis and decision-making are not tractable in dealing with all the complexities. So the increasing interests in complex systems is being driven pre-dominantly by new challenges and demands in the real world. Industry needs to know how to design, manage, build and control (or facilitate) systems as they increase in scale and connectivity. They want to be able to build systems that are scalable, robust and adaptive by using properties such as self-organization, self-adaptation, and manage abnormalities timely in their systems. Complexity science is in a good position to bring together deep scientific questions with application-driven goals across many interesting domains including supply chain management that are designed for facilitation rather than pure centralised control.