Speech by Mrs Josephine Teo, Minister of State For Finance And Transport At The Centre Of Innovation For Supply Chain Management (COI-SCM) Grand Opening Ceremony

Prof Chan Eng Soon, Director of the RP Board of Governors
Mr Yeo Li Pheow, Principal / CEO, Republic Polytechnic,
Colleagues from SPRING Singapore, EDB, WDA
Distinguished Guests, Ladies and Gentlemen,

1. Good morning and I am very happy to join you for the official launch of the COI-SCM. First, let me thank Republic Polytechnic for inviting me and also to Mr Dennis Quek for his very enthusiastic presentation. It is good to see that there are many participants in today’s launch, particularly from the industry. I understand that representatives from various sectors including logistics, food manufacturing, F&B and retail and also businesses and industry associations are also here.

2. Last week, I met a group of Finnish parliamentarians. Now Finland, as you know, has a population size which is about the same as Singapore’s (5.3 million). They enjoy a very high standard of living and it also has an outstanding education system, from which we ought to learn from. It is generally considered a highly competitive economy, and yet it is also competition that has forced the closure of its factories, including world-class brand names like Nokia.

3. So Finland is looking at an unemployment rate of 8.7%. To spur investment, they plan to cut corporate interest rate from 24.7% to 20% and yet at the same time, increase personal tax coverage and also reduce government spending. The parliamentarians were of course, interested in how we manage our finances, and at the same time, very curious about our economic strategies because we ourselves are quite a developed economy.

4. As you know, one key strategy we have identified in Singapore is the shift towards productivity-driven growth. This is not just to reduce reliance on foreign manpower, it is simply to reduce our reliance on manpower. Our workforce growth is slowing. It is likely to remain low at 1-2% for the rest of the decade and beyond 2020, it will slow down further to about 1% per year as the population ages and the Singapore workforce starts to shrink. We need economic growth to support wage growth and we need productivity-driven growth to sustain wage growth in longer term.

Learn from advanced economies to raise productivity

5. Singapore’s record in productivity growth is actually not a bad one. If you look at our performance thirty years ago (i.e. 1980s), our productivity levels was about one third of the most advanced economies then. If you fast forward and look at productivity levels today, we have caught up and are about 70% of productivity levels of today’s advanced economies – the US, Japan, Switzerland and Sweden. So it was a big gap, but we have closed it. But at 70%, there is still scope for improvement. And so we are often asked the question “How can we raise productivity further?”

6. In the short- to medium-term, there is still a lot to learn from advanced economies in each sector e.g. the construction sector in Japan and retail sector in Hong Kong. Take the construction sector for example. Our productivity levels are just one-third that of Japan. Part of the reason is that labour-saving construction techniques are much more common in Japan - for example, the use of drywalls, which can be built about 2.5 times as fast as brick walls. Today, if you look at all the condominium projects in Singapore, just about 35% to 40% use drywall, the rest of them use brick walls. Whereas in Japan, while it is a norm in Japan to use drywalls.

7. There is something else that is also very interesting. If you go to Japan and you visit commercial buildings, hotels or even residences, you will find the bathrooms and the lavatories all look very much alike. That is because they are prefabricated and fitted into buildings. All of this is done off-site, saving a lot of manpower that needs to be deployed onsite.

8. In the retail and F&B sectors, our average level of productivity is about one-fifth behind Hong Kong’s. The turnover per table tends to be higher in Hong Kong due to a combination of factors, e.g how customers’ orders are fulfilled and staff who multi-task.

9. So, learning from other advanced economies will take us up a few notches.  But more fundamentally and for the longer-term, we have to grow our own capabilities in raising productivity. This means a supportive policy environment, the right orientation among businesses and very importantly, knowledge and expertise. Let me say a little bit more.

Make productivity a vital part of the business DNA in Singapore

10. The Government has taken major steps to create a supportive environment for businesses to take up productivity efforts. We introduced the Productivity and Innovation Credit (PIC) scheme from 2011 and made enhancements to the cash payouts to support businesses in their cash flow needs, when they make such investments. We did that in 2012. This year, we put together the PIC Bonus to further spur productivity and innovation efforts.

11. In addition, the National Productivity and Continuing Education Council has coordinated productivity efforts in 16 priority sectors, each backed by significant fiscal commitment. To spur productivity improvements at the industry level, we have also enhanced programmes such as PACT (Partnerships for Capability Transformation) and introduced CIP (Collaborative Industry Projects).

12. An example of how industry players can come together to develop solutions is the First Transport Alliance. It is a consortium of 5 logistics SMEs which have developed a platform to better plan and share logistics resources.  More than 180 prime movers and 1,270 trailers are involved in this collaboration. Through their shared platform of First Transport Alliance, the consortium members expect to increase their worker productivity by 20% to 30% over the next 3 years.

13. This example illustrates the point that generous incentives and Government efforts, while useful, can at best facilitate productivity transformations.  It cannot replace what businesses must themselves do. Real change must take place within businesses – in the way work is organised, in the way transactions are done, in the way value is created. 

14. Each industry is different and businesses will have to decide what to do, on their own or together with partners in the same industry, to shave costs to boost the bottom line or to grow the top-line with the same resources, or both.  Having a productivity orientation cannot be a nice-to-have.  It must become an integral part of business success, and a vital part of the business DNA in Singapore. 

15. At the same time, we must recognise the challenge businesses face, especially our SMEs.  Even when they have a strong desire and motivation to raise productivity, knowledge and expertise on how to do so may be lacking. 

Build productivity expertise, focus help on SMEs

16. This is why I was excited about the Centre of Innovation for Supply Chain Management.  This Centre, and indeed several others that are already being developed and put into operations, represent the core of the productivity expertise that we must build up in Singapore for the long-term. 

17. Singapore must become a place where businesses find it easy to get advice and help on raising productivity .  We need to have a core pool of productivity ‘experts’ who can share productivity experiences in their own or other sectors, develop new ways of understanding problems and offer new ideas and opportunities to uplift productivity.

18. The COI-SCM is one reservoir of expertise that is helping businesses, especially SMEs, to realise productivity improvements in tangible ways.  Let me add to the few examples that Mr Dennis Quek has shared earlier.

19. Corlison Pte Ltd, a SME distributor of personal care products and brand owner of PearlieWhite oral care products approached COI-SCM to address their over-stocking issue, which resulted in high storage and warehousing costs. Through diagnosis, COI-SCM developed a forecasting model for Corlison to improve their stock management to achieve cost-savings.

20. The Corlison example shows that the right form of external expertise bridges the competency gap faced by many SMEs. The COI-SCM team, made up of industry practitioners, approaches the challenges from a problem-solving standpoint. Backed by multi-disciplinary expertise, the team conducted deeper analysis and provided more holistic and better organised solutions to the businesses.

21. There are also occasions where solutions go beyond logistics service providers themselves and require close collaboration with industry partners and customers.

22. I understand the Seafood Industries Association of Singapore has helped a group of food manufacturers like Hock Lian Huat to pool resources and improve efficiency.
23. All the member companies, most of whom are SMEs and have delivery needs, are just like Hock Lian Huat and their competitors.  The COI-SCM conducted a feasibility study to adapt workflows for consolidated deliveries.  By integrating work processes between a group of members and logistics providers, an outsourced logistics model was implemented, allowing for resource-pooling and cost-savings.

Conclusion

24. These cases demonstrate what productivity improvements look like not just in theory, but in action. Let me commend Republic Polytechnic and the management team of the COI-SCM for your enthusiasm in providing SMEs assistance, as well as the good work and the traction that you have gained since starting operations in Jan 2012.

25. I understand that the Centre has engaged over 400 companies (that’s about more than one every day) and has been involved 33 projects. I would like to encourage you to step up your outreach, in particular, to SMEs, which are an integral part of our economy. 99% of all enterprises in Singapore are SMEs. They employ seven out of every 10 persons in our workforce, and contribute nearly half of GDP.  Our move towards a productivity-driven economy would be incomplete without SMEs coming along.

26. Therefore, I urge the Centre to help more SMEs enhance the supply chain management and to use it as a competitive advantage.  In doing so, you can help more businesses make the transition to be part of an economy driven by productivity and innovation. 

27. On that note, my best wishes to all in the Centre in the journey ahead.