COVID-19 and the US-China trade war have combined to accelerate a split of the global supply chain in two - namely a "G2" pattern with one serving China and the other the rest of the world. Such a scenario has also highlighted Taiwan's importance.
Digitimes recently interviewed Frank Yeh, vice chairman of WPG Holdings - a leading IC distributor - as the world entered 2021 with coronavirus still wreaking havoc and the trade tensions between the superpowers raging on. Yeh talked about the future of supply chains and changes to the world.
Q: What upgrades to the supply chain will smartization bring?
A: I can say that all manufacturing industires are customers of WPG Holdings, but I do not understand manufacturing. I have read Digitimes president Colley Hwang's book "Disconnected ICT Supply Chains" at least three times.
The broken supply chains, the US-China trade war that started two years ago, and the COVID-19 pandemic that began in early 2020 - they have combined to deal an enormous blow to the world. All the supply chains are changing. In 2019, everyone was busy running to Southeast Asia, and in 2020 they were not even able to reach there. The situation about broken supply chains will be more serious. Is this a crisis or an opportunity? Depending on how you look at it, it may be a great opportunity.
What I want to do is to train myself, to train my mentality and way of thinking. What is really happening when we say the supply chains are broken? It is clear that the world's factory no longer exists. In the past, massive resources concentrated in China, from which products were delievered globally. This is changing. The G2 pattern resulted from the US-China trade war has gradually become the new normal, and the pandemic still seems to be raging on.
In the traditional upstream-downstream communincation model, A may pass information directly to B, who then paases it to C. But in platform-style management, everyone shares information with each other, and nowadays with regionalization becoming the trend, digital platform management is becoming more and more important.
Q: What are the changes in human lifestyles and industries that are worthy of attention in 2021?
A: The concepts of remote work and co-presence will continues to be relevant. For example, online concerts and online inventors conferences. This echoes what I've mentioned before about getting "digital tools" ready to do these things. Taiwan's success in containing the epidemic has allowed study, work and social activities to remain normal without having to switch to the remote mode. But that has ironically limited their awareness of the fact that remote work and co-presence will be the new normal in the future.
For companies, it is very important for managers to learn one thing, that is, managing without seeing employees. Do we pay for employees' time or employees' work results? Under the former model, employees might be late for work and get pay deducted. But if they can work from any places, what companies want are the results of their employees' work. This is the biggest change.
For example, WPG's operations in the US have yet to allow employees to go into the offices. Of course the warehouses have to remain open, but offices of sales departments remain closed to employees. After the outbreak began, about 2000 WPG employees in China were unable to go into their offices starting February 1, 2020 until the end of March. And we have take note of the demographic changes - both qualitative and quantitative changes.
Q: How do you see the impact of demographic changes on the industry?
A: In the first half of 2020, Taiwan finally came to the point where the birth rate was lower than the death rate. According to the Ministry of the Interior, if there is no change in Taiwan's future birth plan, it is estimated that by 2049, Taiwan's total population will be less than 17 million. In light of these trends, when we talk about the issue of talent cultivation, the population size is not big enough with the people continuing aging and the number of children shrinking.
These so-called digital natives have been accustomed to various digital devices since childhood and are familiar with the digital environment. Do they want to work in the same company for a long time? Or do they want to keep working for themselves? This is what is often referred to as the "slashie life" where one can get any information to do anything through digital platforms.
If business leaders realize the importance of results, rather than the time employees spend on work, it is not necessary for employees to travel to Taipei (in nothern Taiwan) if they are in Hualien (in eastern Taiwan), and it is even possible for one person to serve multiple companies, and even for one company to serve multiple companies. As these global demographic changes continue to develop, we need to look at it not just for tomorrow, but for the next 10, 20 or 30 years.
Q: What kind of changes will the industry face in the next 30 years and how should we deal with them?
A: Since we are not just looking at tomorrow, but the longer-term future, we should also think about what we should do today at this point in time.
In the past, industry competition only focused on the opponent, and all we thought about every day was the opponent's "A," and that I could respond with "A+B." But we might be able to defeat the opponent and yet end up a loser in the bigger perspective of an entire era. There have been too many such cases, such as companies focusing too much on dealing with opponents and forgetting the needs of customers. Is the future really all about competition? Are there any opportunities for cooperation? What areas should we compete in and what areas should we cooperate in? The future will be an era of coopetition. It is impossible for every company to be the industry leader, but there are still ways for others.
In my opinion, companies should think about the vertical and horizontal aspects. For example, business and manufacturing areas are considered matters of vertical aspects. What is the horizontal aspects? We can think about the future era of big data. If a company hosts the main server on its own premises, then 10,000 companies means employing 10,000 server engineers? This is the horizontal aspect. I think for future logistics, we may consider the "sharing" approach, undergoing transformation to digital platforms.
With the advent of the era of coopetition, coupled with the future demographic changes and new thinking, we must change in order to keep up with the times. A company is only a particular point; we must look at the bigger picture, namely how to operate an industry. WPG Holdings has been undergoing digital transformation for five years. I also think I am operating an industry.
Q: How can we proceed from the perspective of electronics-related sectors?
A: As an IC distributor, I have been thinking about how to help customer succeed. The core is the supply chain. There are four groups and 53 companies under WPG Holdings, and under the digital transformation strategy, we have been carrying out group optimization. We embrace the collective optimization of the value chain, all for the sake of the success of customers.
Take the notebook industry as an example. There are at least 400-500 suppliers, and only through collective optimization can we have the opportunity to become a worldwide ecosystem. Through the collective optimization of the notebook industry, all relevant supply chains in Taiwan can have a grasp of the global notenook market. Just like the machinery tool industry: through multiple "lines" of several sectors the "surface" will be formed and eventually become an "ecosystem". In my opinion, underlying co-production, co-prosperity and co-creation is sharing.
In the past, people sacrificed their holidays for work, or some people chose to sacrifice their jobs in order to retire early. Work and life were opposites. But if co-presence is enacted in the future, life and work can be mixed flexibly through the digital platform management. This is the so-called "workation." Even if we are in a beautiful mountain, we can still work as long as we have connection to the Internet. With networks and the clouds, everyone could work till 85 years old.
Q: How can IC distributors face issues concerning regionalized supply chains and how can LaaS (logistics as a service) bring new values into play?
A: The smart manufacturing supply chain is concerned with only one thing, that is, the cost resulting from time. If the time required is close to zero, the cost is also close to zero. For example, if the days of inventory are 30, they must be kept in the warehouse, and this is the cost. The semiconductor industry is committed to introducing intelligent factory automation to reduce time. These have gradually emerged as successful cases.
But whether we can be of further help in the future, we always have to zero in on whether we can bring the successful experience to the next 30 years, and boldly dream about the next 30 years. For example, my personal dream is to continue working at 85, so what do I have to learn? This includes maintaining health and embracing the concept of workation.
In 2020, for example, despite the challenges of the pandemic, many industries were still doing very well. For WPG, business has bene robust despite the pandemic, so what else do you need to think about? Of course, if we just look at tomorrow, it seems that we do not need to think much. But if it is 2030 or 2040 we are looking at, there will be surprisingly a lot.
With the new business model of LaaS proposed by WPG, we can think of two things: first, whether the cost of transaction time can be close to zero; second, what the channel operators have to do, so that customers' transaction time can be close to zero, which may further be translated into energy savings and carbon reductions. In terms of transportation, materials are sent from WPG's warehouses to customers' warehouses, which is the traditional way. But in the future, they will be sent directly from WPG's warehouses to customers' assembly lines. Even blockchain and other technologies can be introduced.
WPG distributes products from about 250 companies. Its warehouses receive shipments from around the world every day. They have to check the items and label them before storing them. After receiving orders, the warehouses need to prepare the items and ship them to clients, who, after receiving the shipments, will have to spend three days unloading and checking them. They will have to spend another three days moving the items to the assembly lines, where the items have to be checked and confirmed again.
The warehouses and production lines belong to different departments, and every time you place an order, it necessarily involves time costs. It doesn't matter whether you employ manual labor or automated assembly lines; it's the same. It's particularly difficult to do inventory accounting for ICs that are so small. This is the current situation.
But if the transaction time is shortened to zero, customers can reduce costs. IC distributors will not need to carry out the process of putting items into cartons and so on; they can send the items directly to the assembly lines. Are there big customers doing so? So far, we've only reached "particular points," so to speak. The key is how we can convince others to come on board, so we will continue promote the concept of coopetition.
The chief operating officer of a client company pointed out that the LaaS model seems "too crazy to be possible." It is a very difficult approach, but the clients admits that it could be beneficial for clients.
WPG Holdings vice chairman Frank Yeh
Photo: Michael Lee, Digitimes, January 2021
