The days of “just-in-time” supply chain management will end in 2022 with FinTech start-ups perfectly poised to tap this space as global trade is reset amid the Ukraine war, Covid-19 and climate change demands.
David Hansom, partner, global procurement at law firm Clyde & Co, told delegates at the Trade & FinTech forum hosted by the Arab-British Chamber of Commerce in London, that supply chain models as we know them will change from this year.
“From a geopolitical perspective, there are very real threats to the just-in-time supply chain,” Mr Hansom said. And this year will mark the end of businesses ordering goods that arrive days later to fulfil an order, he said.
This is not simply because of the Russian invasion of Ukraine but also the increasing physical, financial and non-financial barriers creeping into the market from sanctions, to the fallout from the Covid-19 pandemic, soaring shipping costs, tighter regulation and the complications of Brexit, he said.
“There are obviously a range of new sanctions. Those sanctions, whether we like it or not, impact on the trade we all do. There's the risk of blocked trade routes and the risk of deliveries being delayed,” Mr Hansom said.
However, Brexit and the imposition of financial barriers to trade are also having an effect, he said, despite new trade deals being introduced in the UK, many of which are a “copy and paste” of the exiting deals the EU has in place.
“In the absence of a trade agreement, new barriers are imposed [with] limitations on how much can be imported; limitations on when it can be imported and through what channels and the taxes that apply,” Mr Hansom said.
As a result, the just-in-time model, first adopted by goods and services producers across globe in the 1950s, could be coming to an end.
The concept came into play when Toyota engineer Taachi Ohno saw the model as a way of eliminating “waste” in the production and movement of goods.
Instead of wasting time, labour and money by storing key components in warehouses or next to assembly lines, Ohno’s idea required suppliers to only deliver what was needed – reducing the need for businesses to spend on maintaining inventories.
Fast forward to the modern day and every supplier is expected to deliver products promptly to the next buyer in the supply chain – an increasingly challenging prospect over the past two years after the Covid-19 pandemic hammered the global economy and closed factories and businesses.
While consumers are continuing to spend, shrugging off rising inflation, the just-in-time world is becoming increasingly prone to crisis as businesses grapple with the Ukraine war, rising fuel prices and escalating shipping rates.
As a result, retailers, anxious to ensure they are not again caught up in delays, are building up inventories to meet expected spells of peak demand, juggling "just in time” and “just in case” inventory management.
Add the heightened scrutiny on the environmental effects of supply chains, as well as ethical sourcing, and it is easy to see why the supply chain models of today will have to change.
“So, is it sustainable to fly beef from Australia? Is it sustainable to produce 80 per cent of the world's lithium from one country, against the backdrop of the electric vehicle?” Mr Hansom said.
'Bright future for FinTech'
With rising inflation – set to hit double digits in the UK this year – also posing a challenge, companies will increasingly need to adopt FinTech as a way of revolutionising the supply chain.
“Supply chains should be robust, sustainable and set up for success,” Mr Hansom said.
“That means that you've got people working together to drive change to deal with global problems head on ... and FinTech in all of its many guises is perfectly placed to tick all three of those boxes.”
With about 26,000 FinTech businesses operating globally employing 500,000 people, and 30 per cent of retail customers in banking using at least one service from a non-traditional bank provider, the future for FinTech is bright, said Mr Hansom.
Clyde & Co’s blockchain consultancy, for example, is already writing contracts for the shipping industry that are automated, a move that stops people making decisions about when payments are due or when an insurance premium charge can be refunded.
An example of this is the insurance premiums for cargo ships travelling to more dangerous waters where they are at risk of piracy.
Internet of Things' sensors report back to the insurer and the premium goes up for the duration of that part of the journey in which danger lurks, rather than for the entire crossing.
With more scrutiny on corporate social responsibility, and improvements needed in the audit trail and accountability of supply chains, Mr Hansom predicts “a real growth market in ethical contracting”.
“In the next five to 10 years, I see the trust that can build into supply chains through blockchain, through the use of distributed ledger technology," he said.
"This has been absolutely transformational, in the context of driving up trust, driving up security, speeding up supply chains and derisking transactions.”
With customers looking at how a business approaches technology and its compliance with best practices globally, as well as decarbonisation, Mr Hansom said there is so much scope to use technology to drive down carbon production and to improve supply chain flows.
"The market is ready for those bright ideas, ready for those seed funders, ready for those start-ups, ready for those investors to have a good idea and to run with it," he said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Spending an excessive amount of time on the phone.
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French Touch
Carla Bruni
(Verve)
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COMPANY PROFILE
Name: Lamsa
Founder: Badr Ward
Launched: 2014
Employees: 60
Based: Abu Dhabi
Sector: EdTech
Funding to date: $15 million
The Bio
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Virtual banks explained
What is a virtual bank?
The Hong Kong Monetary Authority defines it as a bank that delivers services through the internet or other electronic channels instead of physical branches. That means not only facilitating payments but accepting deposits and making loans, just like traditional ones. Other terms used interchangeably include digital or digital-only banks or neobanks. By contrast, so-called digital wallets or e-wallets such as Apple Pay, PayPal or Google Pay usually serve as intermediaries between a consumer’s traditional account or credit card and a merchant, usually via a smartphone or computer.
What’s the draw in Asia?
Hundreds of millions of people under-served by traditional institutions, for one thing. In China, India and elsewhere, digital wallets such as Alipay, WeChat Pay and Paytm have already become ubiquitous, offering millions of people an easy way to store and spend their money via mobile phone. Indonesia, Vietnam and the Philippines are also among the world’s biggest under-banked countries; together they have almost half a billion people.
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Best XI: Samir Handanovic (Inter); Aleksandar Kolarov (Roma), Giorgio Chiellini (Juventus), Kalidou Koulibaly (Napoli), Joao Cancelo (Juventus*); Miralem Pjanic (Juventus), Josip Ilicic (Atalanta), Nicolo Barella (Cagliari*); Fabio Quagliarella (Sampdoria), Cristiano Ronaldo (Juventus), Duvan Zapata (Atalanta)
Serie B Best Young Player: Sandro Tonali (Brescia)
Best Women’s Goal: Thaisa (Milan vs Juventus)
Best Women’s Player: Manuela Giugliano (Milan)
Best Women’s XI: Laura Giuliani (Milan); Alia Guagni (Fiorentina), Sara Gama (Juventus), Cecilia Salvai (Juventus), Elisa Bartoli (Roma); Aurora Galli (Juventus), Manuela Giugliano (Roma), Valentina Cernoia (Juventus); Valentina Giacinti (Milan), Ilaria Mauro (Fiorentina), Barbara Bonansea (Juventus)
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Founders: Joe Franklin and Milos Savic
Launched: February 2020
Size: 10,000 users by the end of July and a goal of 200,000 users by the end of the year
Employees: Five
Based: Jumeirah Lakes Towers, Dubai
Financing stage: Two seed rounds – the first sourced from angel investors and the founders' personal savings
Second round raised Dh720,000 from silent investors in June this year
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