Infrastructure – Anybody that has tried to move goods from point A to point B in Sub-Saharan Africa (bar South Africa) has realized the challenges associated with transportation and infrastructure. However, in many African countries (e.g. Tanzania & Ethiopia) there have been great improvements in infrastructure. However, reaching lower tier cities (not to mention rural markets) remains a challenge.

Distances – African commercial centers are often far apart, increasing cost and making economies of scale difficult to achieve. For example, many low cost distribution models piloted in Asia (e.g. India) and Latin America (e.g. Mexico) will likely fail, as distances are greater and the numbers of commercial clusters are not comparable with these continents.

Fragmented markets – Modern trade (e.g. Shoprite supermarkets) in African countries (with the exception of South Africa and Kenya) is still in the very early stages of development and the contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas, Sooks) is difficult and costly business.

Distributors – Finding the right distributors to reach the vast numbers of traditional outlets is difficult (if not impossible) and it requires enormous development and training. As with many emerging markets, the outlet base keeps evolving as outlets open and close. Keeping the outlet list up to date can be a difficult undertaking.

Access to capital – Finding a good distributor is just a start as sources of capital are limited. Many organizations need to support their distributors and partners during the start up phase and in many cases also provide loans or bridge capital to support their cash flows.

Risks – As recent events in Nigeria have demonstrated, there is still significant political risk in a number of African countries. Some of these countries, including Nigeria, hold significant potential in a number of sectors. However, companies need to have a good understanding of the political risk and potential impact on their business.

Technology – When navigating the business landscape in Africa, you realize that most companies operate on a combination of software (e.g. ERP), Excel, pen and paper. Mobile technology holds great potential, but few companies have viable commercial models. Finding the right solution for your company will take time, money and innovation.

Electricity challenges – In many countries electricity is in short supply and power cuts are common during peak periods. Even more advance economies such as South Africa are experiencing major challenges. In some countries (e.g. Guinea) the generator remains a major source of energy and energy cost can be a major consideration.

Lack of visibility – Poor information technology also leads to a lack of visibility in the supply chain with increased out of stocks (OOS). Increasing visibility can take time and might include a combination of technology and manual processes.

Lack of an organized Third party logistics (3PLs) and skills gaps – In many countries organized 3PLs revolve around independent transporters with limited number of vehicles.  Many 3PLs might also lack the required skills and professionalism. Normally, ongoing training and support are required. Due to poor remuneration, staff turnover is high, and this will also have a negative impact on cost.

Incentives – Many distributors and 3PLs also lack the required incentives schemes to motivate workers. Companies sometimes need to play an active part in setting incentives and rewarding partners.

Warehouse – Many warehouses for rent are also poorly designed, with poor yard management, ventilation and equipment. Finding a professional warehouse operator can be a daunting experience.

Counterfeit and parallel imports – For many organizations, counterfeit and parallel imports remain a major concern. African markets remain a dumping ground for many importers and exporters that buy expired (or close to expired products) from European retailers. Large trading groups, operating out of the Middle East (e.g. Dubai), are normally a great source for importers. Pharmaceutical companies are also fighting an uphill battle against counterfeit products on the continent.

However, even with all these challenges, Africa holds great potential and companies ignore the continent at their own (and shareholders) peril. A number of multinationals and large numbers of SMEs have overcome or mitigated these challenges. And as the saying goes, if it is easy to do business, it is probably too late for entry.

Advantages of Micro-distribution

Entrepreneurial spirit –A micro distribution system allows companies to tap into the entrepreneurial spirit that is so evident in many emerging markets. However, entrepreneurs must have a long term view to ensure the same consistent quality service is provided to customers.

Flexibility – Micro distributors tend to be more flexible in responding to customer needs. For example, they trade longer hours and can also provide weekend and night deliveries. They can act as a credit provider to low income customers. They “live and breathe the streets” of the communities they work in and are in a much better position to control accounts receivables.

Issues to consider prior to implementation 

Channel Focus – A micro distribution model is not a one size fits all solution for all channels. Micro distributors generally focus on selected channels in traditional trade e.g. mom & pop shops, Dukas (East Africa) and Spazas (South Africa).

Complexity - Due to the complexity of sale and distribution, micro distributors will likely struggle to service modern trade effectively. It is best to reduce the complexity (e.g. reduced stock keeping units) for the micro distributor, including expected tasks and activities. It is important to understand what the micro distributor can successfully take care of in the supply chain.

Role definition – Companies needs to determine which aspects of the business they would like to control. For example, the Coca-Cola model separates order generation from delivery. This allows the company sales person to focus on more value adding activities (e.g. meeting customers, getting orders) and the micro distributor to focus on warehousing (neighbourhood warehousing) and distribution.

Supply Chain impact – When implementing a micro distributors system, companies must assess what impact the distribution model will have on the rest of the supply chain. For example, compared to larger distributors, micro distributors will require smaller drops sizes that will impact the warehouse and transportation infrastructure and processes.

Shared infrastructure – Profit margin are normally thin and it is important to determine if there are any opportunities to share infrastructure (e.g. warehouse, transport) with other non competitive manufacturers and distributors. This can significantly reduce cost and make the distribution model viable.

Regulatory issues – Companies also need to assess the impact that regulatory issues will have on the micro distribution system. This could include business licenses, zoning and transport bands (e.g. restrictions on delivery trucks during peak hours).

Standardization – During the design phase, companies need to standardized processes and systems as it will reduce set-up and training costs. For micro distributors, distributor turnover (the number that close down) is high and it is important to evaluate how set-up and training costs could be reduced.

Support – Micro distributors also have limited resources (e.g. capital, employees) and normally require a bundled approach (e.g. training, finance, process design) to ensure their operations are sustainable and viable.

Resilience is important. Emergencies have been growing in scale. According to the Munich Reinsurance group, the real annual economic losses have been growing steadily, averaging US$75.5 billion in the 1960′s, US$138.4 billion in the 1970′s, US$213.9 billion in the 1980′s and in 2004, the World Bank estimated that the annual global economic costs related to disaster events average $629 billion per year, five times that of 20 years ago.

This is about local impact. There is something else; global impact – because of the nature of integrated, and stretched, global supply chains. This takes us to the third dimension or phase of any Humanitarian response – RECONSTRUCTION.

We are all familiar with the harrowing images of a devastated Haiti, a flooded Pakistan and less so with those quiet disasters – in terms of media exposure – like Niger. If humanitarian efforts are geared to put a country “back on its feet” then, arguably, these countries have never been on their feet in the first place. They suffer from croney governance; corrupt practices; huge inequalities between rich and poor but, the fact remains that markets are a crucial component of how people survive in these places. Then, there are those places hit by similar earthquakes or meterological disasters this past year such as Japan; Queensland, Australia and Thailand. These disasters, because of their part in any number of integrated global supply chains – have had a wider global impact. Again on markets.

• Queensland, Australia. The floods closed 34 coal mines; knocking out 75 per cent of Australia’s 120 million tonnes. Queensland coal is high quality with < 15 per cent ash. On the 29/10/04 price per tonne was $53.90. After the floods in Queensland, this shot to over $300 per tonne. Power stations in Japan and India were badly affected and from this a number of industries dependent on coal fired power.

• Fukushima, Japan.27,000 people were killed and over 202,000 homes wiped out. Damages have been estimated at up to $305 billion – Greece GDP is $330 billion. Companies like Sony Ericsson record losses as a direct consequence and global GDP drops by an estimated 0.5 per cent. For example, 25 per cent of global supply of silicon wafers used in semi-conductors collapsed.The cost to insurers well may rival the record $62 billion that followed Hurricane Katrina. The rebuilding efforts will create more fiscal strain on Japan, where the ratio of debt to GDP already is 200 per cent, compared to 90 per cent in the U.S. Japan is “chronically under insured and that means that the government will pick up the tab for a particularly large part of the recovery effort, pushing the level of public debt perhaps even higher. In supply chain terms, South Korea and places like Thailand – for a short time – benefited from Japan’s misfortune.

• Thailand. Over two-thirds of the country’s 77 provinces have been flooded during the four-month-long crisis. The floods have had an impact on the following companies: Honda; Toyota; Nissan; Isuzu; Nikon; Sony; Canon; Nidec; TDK and various food companies. Some have had production suspended and are actively looking for alternatives. This means that many will not return to Thailand.

Building back opens up a number of issues. Fundamentally, the mindset has to shift from making sure that humanitarian needs are met; that essential shelter, food and medical supplies are made available  to a bigger and more long term picture – survival to sustainable livelihoods. This means a clear view of what is possible within a global economy and, a commitment to improved resilience going forward.

At the Policy or macro-economic level, there has been a significant impact on the economy as a whole. This is where the opportunity to RE-THINK purpose , scope and approach matters. What can we do to recover and what can we do to build back a sustainable future? Disasters wipe the slate clean in more ways than one. Then, at the micro or operational level, we have businesses and the market. This is not just about MNCs; it is more about SMEs or micro firms. These are often in the informal sector and have no insurance; they do not have any assets and, yet are a vital part of reconstruction.

The issue that needs to be addressed in the third phase of the Humanitarian effort is how to bridge the gap between the macro and the micro levels. This is the transformational agenda; a focus on business models themselves. That has to move beyond MNCs and into the details of SMEs and micro firms; informal as well as formal business relationships.

Let’s look at the  core issues related to building back; starting with the neutrality of humanitarian efforts; the “second tsunami” and, moving to the need for logistics and supply chain thinking more adaptable to local context and, a transitional agenda.

1. Purpose. There are many interpretations of a humanitarian action but the principles of Humanity, Neutrality and Impartiality first developed by Henri Dunant after the battle of Solferino (1859) stand the test of time. See: Tomasini and Van Wassenhove (2009). The issue is to balance local, national and global priorities by respecting these key drivers and the challenge – as we move from Emergency Response to Post Emergency Reconstruction – is how can this be achieved and monitored?

Moving from Emergency to Reconstruction is not an easy transition.

Beware the power of the media to shape priorities. For example, International news and governments will not hesitate to allocate significant sums to rescue a loan yachtsman lost at sea but, the same sum is unlikely to be found for an improved weather forecasting system that could prevent future tragedies for many more sailors. This was very much the case with the Tsunami early warning system.

Then, as the transition from emergency to reconstruction and sustainable growth (or, better said, livelihoods) takes shape there is a need to ensure that the hard won neutrality and impartiality is maintained. This is a huge subject and important work has been done on Rwanda, Cambodia, Nicaragua, Iraq and Afghanistan. See: Terry (2002); Uvin (1998); Klein (2007) and much more. It does not remove the imperative – any place devastated by whatever needs to be helped to fend for itself and this is no short term fix. But by its very nature, what is done in the name of reconstruction is not the same as that effort to respond. It is the difference between a 100 metre sprint and a marathon.

2. Re-think & re-model. I recall a BBC Radio interview when the head of an NGO was asked what the goal was in Haiti. “To get Haiti back on its feet” came the reply. Paul Collier, the Oxford Economist, was in the studio and snapped back: “Haiti was never on its feet in the first place.” This is important. The word reconstruction implies building back to a model. No post emergency effort should be on automatic pilot. There is a real opportunity to RE-THINK the approach. Let’s not forget that after the Great Fire of London, Wren submitted a comprehensive plan to re-build London in a different way. Vested interests won and the City went back to what Le Corbusier would later describe as “the zig zag of donkeys”. Should we build back Port Au Prince or build a Port further along the coast? Should we bother with land line telephony? Is there an opportunity to challenge the energy mix? What industries will work? How can we ensure that we train and retain our people?  Above all, how can we balance the market in an inclusive way? This means a focus on more than better, cheaper and faster ways of exiting the country with commodities etc and more value added in country. And this does mean an effort to champion traditional as well modern; micro firms as well as MNCs.

3. The second tsunami. After every disaster there is a risk that “build back better” can be the trigger to a second tsunami – what Naomi Klein has called “blanking the beach”. This is when a disaster takes place where the poor live; a favelha, a shanty town or, in the case of the Indian Ocean tsunami of 2005, on the beaches where fishing communities had lived and worked for years. As Seth Mydans puts it: “The tsunami that cleared the shoreline like a giant bulldozer has presented developers with an undreamed of opportunity, and they have moved quickly to sieze it.” (IHT, March 10, 2005).

The Tsunami that struck on 26/12/04 took the lives of 250,000 people and left 2.5 million people homeless throughout the region. The relief effort was enormous. In Indonesia alone this meant a US$684-million Multi-Donor Fund for Aceh and Nias that has helped to build or rehabilitate 18,600 houses, to build 43 community health clinics, to build or repair 282 schools, to repair 975 bridges, to rebuild 2,881 km of village roads, and 199 km of urban roads, to finance 1,581 irrigation and drainage projects in rural areas, to rehabilitate 178 km of drainage in urban areas, to build 1,148 clean water systems, and to build 1,032 sanitation units.

In other places, the impact has not been so constructive. In Sri Lanka and elsewhere, hotel developers used the tsunami as a catalyst for their efforts to stake a claim for land that would be ideal for leisure facilities. Suddenly, the beaches were off limits for communities that had been there for years and, because of the fact that they had no title for the land, there was to be no compensation. In legal terms, they had lost what they did not own. Herman Kumara, the head of Sri Lanka’s National Fisheries Solidarity Movement, which represents small boats, referred to this reconstruction as a “second tsunami of corporate globalization”.

Let’s keep with the fishing communities around the Indian Ocean. Our work at Rushikonda, South India, illustrates the point that, generating over 1 per cent of Indian GDP, the traditional fishing industry has a role to play in the economy. We need to understand and explore how best to develop these traditional markets. It is unhelpful to assume that these are irrelevant to globalisation. As Mauro Guillen makes plain “globalisation … does not compel countries, industries and firms to converge toward a homogenous organisational pattern of “best practice” or “optimal efficiency” – those who fail to conform are doomed to fail”.

4. Transformational Logistics. As detailed on this Blog, we see the need to develop logistics and supply chain thinking and practice beyond the mainstream of the developed world to understand and reflect reality in emerging, developing AND devastated markets.

Rightly, the focus of any emergency response is on saving lives – ensuring that the local impact in terms of human suffering is assessed and, that vital food and medical supplies reach the needy as fast as possible. This is performance based logistics focussed on getting the job done. This is not about a better, cheaper and faster response to consumers in order to return greater dividends to shareholders; so much for an emergency response.

And yet, Logistics in the Developed world costs between 5 to 8 per cent of most products; this figure rises to over 13 per cent in India and, in the case of Humanitarian efforts can be as much as 50 per cent of total cost; 70 per cent in some cases. There has to be a way to reduce these costs after the Emergency or, consumer markets – not NGOs – will not be able to foot the bill.

We will not be able to move straight to a state-of-the-art approach in many markets post devastation and need to move from an obsession with better, cheaper and faster supply chain models to an agenda rooted in agility, adaptability and alignment – the three A’s. This means agility to respond to short term changes in demand or supply; adaptability to local context and, alignment with other operators or NGOs. All these factors in synchronisation can deliver improved performance. This means INCLUSIVITY – an effort to maximise job creation by building back and developing traditional markets as well as exploring global markets for more modern products and services.

Take agriculture. Few of these disaster hit markets have modern day agriculture but the opportunity is open for many in a world climbing from 7 to 9  billion by 2050 and needing to increase agricultural production by 70 per cent to achieve this.

Take infrastructure. In mature markets the ROI on infrastructure is $3 for every $1 invested. The impact figures after a disaster are significantly more. This is where, strategic decisions can be taken on urban layouts; affordable housing and connectivity. Above all, we need to move beyond hard infrastructure and explore “soft” – broadband etc; as well as “intermediate” – warehousing, truck fleets etc.

Take logistics. All too often Governments and International agencies fail to see “the multiplier effect” of this cross cutting theme. Governments will often have a Minister for Transport; another for Ports; another for Aviation; Agriculture etc. Post emergency, there is a real opportunity to build a Logistics and Supply Chain capability to combine with Infrastructure. This thinking needs to extend to the small players too. Don’t forget that truck fleets will be small and the effectiveness and efficiency of road transport will be critical. Warehousing is another area to focus.

Take retail. It is not all about the modern trade. The impact of building back small traditional outlets and serving them by cash and carry’s is considerable. Much more needs to be known about all sorts of supply chains from perishable to FMCG from source to consumer and back through waste and recycling.

Other sectors. This depends on local context. A Chemicals industry is useful to agriculture in developing fertilisers etc.

5. The flows. As with mainstream logistics, we need to consider the flows: physical; information; cash and skills.

• Physical movement of goods. Coca-Cola have opened up their distribution networks for medical supplies and more companies need to explore the win-win of such initiatives. Nestle are using a floating supermarket, Nestle Ate Vocee (Nestle comes to you), to take products to remote areas of the amazon; Unilever use small armies of door-to-door vendors in several markets and Nestle has set up a network of over 7,500 resellers and 220 micro-distributors to reach people in the favelhas of Rio and Sao Paulo and many other Brazilian cities. Many companies are using manual handling systems in urban areas as a means to reach consumers in crowded places. More needs to be done to reduce empty trucks by sharing distribution systems – a dramatic shift to 3 PL and the growth of consolidation hubs.  Then, there are a number of simply modal options from adapted bikes to the South African street trader stalls made up of water carriers. the integration of packaging thinking into this will help enormously. Shelf ready packaging designed around motor rickshaws for example.
• Information flows. From wireless technology to cloud computing, more can be done to enable populations after a disaster. For example, mobile phones are being used increasingly to aggregate demand and supply in all sorts of contexts. Then, we have ideas like eChoupal – computer terminals deployed in villages to offer information, advice and on-line sales to rural communities. TVS have used this to sell motrocycles to rural areas – 37,000 in 2009.
• Cash flows. Not many ATMs – let alone bank branches – survived any of the disasters from Pakistan to Chile; Fukushima to Thailand and, many disaster zones are populated by what conventional banking would describe as the un-bankable. More needs to be done to explore mobile banking. In Haiti, companies like yellow pepper have developed the subscriber base and this improves the dispersal of monies. In contrast, look at what happened in Libya after the fall of Gaddaffi – a massive operation to print banknotes followed by a dubious effort to distribute the notes. It is like scrap metal dealers in the UK – keep it at cash and there is no traceability. Surely, more can be done to develop mobile cash options.
• Labour mobility and skills. All the very best equipment can be donated but someone locally has to be able to operate it – buy a man a fish and feed him for a day; teach him how to fish and feed him for a life time. We need to be realistic. Everyone in micro firms and SMEs is a key employee – there is little or no slack or, in the jargon, redundant equipment or resource. We need to take a view on training – standards; content and the use of technology for delivery. This is a huge area. Ironically, the developed world persists in selling legacy systems into markets that can’t absorb them and don’t need them. We need to respond to context.
• Energy and Utilities. Intermittent supply of electricity is hugely significant and every effort has to be made in the transition to look closely at the mix of energy available, developed and used. This is the oppotunity to explore “leap frog” technologies and green supply chains.
• Water. This is increasingly scarce and there is a need to focus beyond source and to include use. For example, embedded water. It is estimated that the average Briton drinks between 2 and 5 litres of water per day and will use about 145 litres for cooking, cleaning, washing and flushing. If the embedded water used in the production of the goods people consume is also taken into account however the daily use per person in the UK may be nearer 3400 litres (Source: Waterwise). So, encouraging a given location to produce and sell something that does not reflect an understanding of real water use is foolhardy.
• Feedback loops. What are we learning? Over the summer, we worked on seven traditional supply chains and since then we have opened this up. There are more to follow. I have been struck by how weak developed world process mapping skills are in these traditional contexts. Procedures don’t exist and, due to financial constraints, improvisation is key and a constant feature. It is like asking a concert pianist to play in a jazz quartet with no notes written down. Few can do this.
• Innovation. As Paul Polak maintains, 90% of design resources serve 10% of the population. His point is that more needs to be done to serve needs and livelihood rather than feed expectations and lifestyle. This means a shift in emphasis from product to process innovation. And this may mean more jugaad (a hindi word meaning make do and mend) than on an obsession with blue sky and “new to the world” invention. It may mean championing second hand equipment for supply chains. And it may mean developing a comprehensive maintenance programme to maximise life-time value of assets. And this brings us back to skills and a need for huge innovation in learning and knowledge transfer. For example, the work that Pearson Group are doing in Africa or, Airtel are doing with mobile phones.
• Firms. The developed world needs to wake up to the fact that the Public Sector and Multi Nationals do not employ the majority world. The informal economy generates over 1.8 billion jobs worldwide and far more than this depend on what is earned in this way. We need to explore ways in which we regulate and develop employment across all types of firm – one regulation does not fit all circumstances.
• Transition. Any shift from Emergency to Reconstruction will take an enormous effort and, as we have noted, it is not an area well served by academic research or analysis of actual cases. As we have noted elsewhere in this T L Blog, there is a case building to extend the World Bank LPI to open up more the transition between the Modern and fully developed mature market and, the Traditional ones at the opposite end of the spectrum.Equally, there is a need to dis-aggregate large geographies into their constituent parts – logistically speaking. For example, we cannot compare Shanghai with a Western Province within China in much the same way that it is not helpful to aggregate logistics capacity, capability and delivery of a Region within a larger unit. We need greater granularity and, a recognition that micro firm capability needs to be tracked as well as bigger operators.This should explore ways in which a wider geographical radar can be of real benefit to accelerate reconstruction efforts. For example, Haiti being able to avail itself of adjacent Santo Domingo. This is especially significant when we factor in conflict hotspots in Africa where 15 countries are landlocked and 20 states have more than 4 neighbours. Tanzania and Zambia have 8. Try borrowing milk from a next door neighbour whose house has just burned down or, whose inhabitants are being dealt with by social services. An expanded LPI could provide a vital insight into this area and place an emphasis on external contingency as well as internal structures, performance and monitoring. Witness the implementation of a Tsunami early warning system in the Indian Ocean post tsunami – ignored by the Junta in Myanmar as if to prove the point.
• Inclusivity. Low growth in mature markets is driving MNCs to look to emerging and developing markets for growth. In 2010 39 per cent of acquisition deals by consumer companies were in emerging markets, compared with just 1 per cent in 2008 according to the Grocer’s OC&C Global 50 league table. There needs to be some way in which recovering regions can be re-built in the best interests of local people. We need to look at how Singapore, Taiwan and more significantly South Korea could be transformed over time. In logistics terms, we need to shift the emphasis from supply chains to what Malcolm Harper (2009) has called Inclusive Value Chains – a focus on linking small growers and producers to modern markets. This is the route to sustainable livelihoods and not just sustained growth for the developed world. As recent events demonstrate closing rather than widening the gap between rich and poor makes commercial sense.

….

All of the above merits a renewed effort to develop a research agenda to underpin global policy. The Humanitarian effort is underserved in any case but, what happens after the Emergency is most certainly the Cinderella at even that rather badly served table.

Each disaster area has a unique challenge – its own ground zero; and, a set of options that need to be understood; prioritised and delivered. Citizens need to be given the security of a job and a home; International business protected from corruption large and petty and, small business from government corruption and big business exploitation alike. Enabling strategies need to be developed and implemented to build the platform for sustainable growth and this does mean a long term vision far from the bottom line of quarterly shareholder reports.

We need to develop strategies to witness, understand and explore transitions from emergency to reconstruction. This is vital and so many governments; major international corporations; international agencies and specific trade associations can only benefit from this effort. At the very least it will improve value for money and result in wider impacts.

Article by: Rob Bell, Transformational Logistics Blog

The Economic Intelligence Unit coined the term Civets (Columbia; Indonesia; Vietnam; Egypt; Turkey and South Africa) in 2009 to refer to a second division of developing markets which will grow three times as fast as mature markets this year. The EIU predicts growth rates of .9 per cent for Civets countries over the next 20 years compared with 1.8 per cent for the G7 countries.  Although it was only established in 2007, the S&P CIVETS 60 index is ahead of the S&P BRIC 40 and S&P Emerging BMI over one and three years.

CIVETS countries all have large, young populations, with an average age of 27. This, or so the theory goes, they will benefit from fast-rising domestic consumption. CIVETS are also all fast-growing, relatively diverse economies, which means, unlike the BRICs, they should be less heavily dependent on external demand. This is a sketch and more details will follow in other blog posts on each CIVETS economy and, another group centred on Jim O’Neill of Goldman Sachs concept of the Second 11; the next eleven economies after the BRICs.  Meanwhile, here are some quick notes…

• Colombia. Once the basket case of the drug barons it is fast becoming the poster child for growth. Using significant oil revenues 9third largest supplier to the USA) to fund infrastructure improvements (more Norway than Nigeria); there is a real drive to diversify the economy. Its population of almost 45 million is made up of 27% 0-14 year-olds and 67% 15-64 year-olds, giving it a median age of 28, compared with 40 for the US and UK.  Textiles, food processing, textiles and FMCG categories are building momentum with the consumer and, export potential. Otherwise, cement and aggregates; gold and emeralds offer heavier industry opportunities to match.
• Indonesia. At 245.6 million, this is the largest Muslim country and, fourth most populous in the world with an average age of 28 years. Income has reached $3,464 per capita – up 15% from 2010. Business Monitor International predict that GDP growth will average 6.1 % through to 2015. Surprisingly, the modern retail sector is strong in populous areas with 37% market share – versus  6 to 10 % in India. Mobile phone penetration reached 48% in urban areas by 2009.
• Vietnam.According to the World Bank’s in 2009 Vietnam’s GDP will growth 5.5% only, much lower than the expected 7.5%. By 1987, the private sector virtually did not exist in Vietnam. After 20 years of reform, Vietnam has put in place the fundamentals of a market economy and opened up the economy to international flow of capital and trades in goods and services. The emergence of the market-based economy with appropriate institutions, stable macroeconomic environment and the support of the government for business development have allowed Vietnam to unlock the potential of the agriculture sector, turning Vietnam from a food-hunger country to the world third largest rice exporter.By 1987, the private sector virtually did not exist in Vietnam. After 20 years of reform, Vietnam has put in place the fundamentals of a market economy and opened up the economy to international flow of capital and trades in goods and services. The emergence of the market-based economy with appropriate institutions, stable macroeconomic environment and the support of the government for business development have allowed Vietnam to unlock the potential of the agriculture sector, turning Vietnam from a food-hunger country to the world third largest rice exporter. Largely due to the War in the 1960s and 70s, this is a young country. Vietnam has however slowly begun to make inroads into regional Chinese dominance of low end manufacturing of items such as shoes and garments where low labor, welfare and operational costs are attracting foreign investors away from the rising costs in China. A study by the Japan External Trade Organization found that a Vietnamese manufacturing worker earned US$101 a month against US$217 in China.
• Egypt. Has a big, young population—82 million strong and with a median age of 25. The Arab Spring has put a brake on progress but the legitimate protests have opened up interest in the wider marketplace. For example, Retail. However, political turmoil needs to settle and upcoming elections should put a perspective on the military role. As things stand, military control risks spilling over into a stifling of hard won freedoms as a means to protect vested interests. This will impact FDI and slow potential to a standstill. The prize remains: Egypt can play an increasingly crucial role as a bridge between East and West. Meanwhile, this morning, a BBC reporter asked a street trader: “How’s business?” “On one leg” came the reply. [BBC Radio 4, World At One, 22/11/11] The issue right now is the Army – who have been in a key role since 1952 and control an estimated 40 per cent of the economy.
• Turkey.The bridge between east and west, the Turks have been at the edge of the EU debate and, must be thinking hard as Greece and the Euro Zone go deeper into crisis.Turkey’s business sector has achieved high growth over the past few years. However, Turkey has relatively few natural resources of its own, but it has a diversified economy as well as major natural gas pipeline projects which make it an important energy corridor between Europe and Central Asia. Some labour-intensive sectors lost competitiveness prior to the currency depreciation in mid-2006 and faced employment losses, raising political pressure for interventionist policies.Overcoming the duality between the formal and informal sectors should be a key concern and could be instructive for other Civets economies.
• South Africa.The mantle of most developed country in Africa matters. And yet, it had the slowest growth of all Civets markets in 2010 and unemployment stands at around 25%.The latest World Economic Outlook from the International Monetary Fund noted: ‘A surge in unemployment, high household debt, low capacity utilisation, the slowdown in advanced economies, and substantial real exchange-rate appreciation are making for a hesitant recovery.’The IMF is forecasting growth of 3.4% in 2011 and 3.6% in 2012. Still, that compares favourably with the IMF’s 2012 outlook for US growth, put at 1.8%, and the UK, at 1.6%. South Africa’s fast-growing middle class makes domestic consumption a major opportunity – the retailer Walmart bought 51% of Massmart earlier this year

A common framework on Civets would look something like this.

1. Base Case. Ever investor wants to know what are the chances of doing viable and sustainable business in a given market.

• Political stability. Egypt illustrates a point and all countries have to be closely monitored. The message has to hit home, corruption does not just protected vested interests; it deters FDI and sustainable growth.
• Demography. These are all big populations but what is the youth factor and, how is gender handled.
• Governance. Corruption and how this is handled is key.
• Ease of doing business and visibility. International standards are needed to ensure that end-to-end global supply chains conform.
• Informal / Formal mix. Few countries from mature markets understand this well but the informal market is responsible for 1.8 billion jobs worldwide. It is not all about crime and excessive official corruption from a formal Public Sector and Legal system often plays a far greater role in marginalising what could be legitimate activity.  The role of land title is crucial here. As a percentage of GDP, the Civets informal market size in 2009 was: Colombia, 39.4%; Indonesia, 19.1%; Vietnam, 15.7%; Egypt, 35%; Turkey, 40% and South Africa, 28.5%. This compares with the BRICs: Brazil, 39.8%; Russian Federation, 46.6%; India, 23.7% and China, 13.2%. See: Schneider & Buehn (2009). These are not small numbers.

2. Infrastructure. This is the Achilles heal of many emerging and developing markets. The impact is huge in mature markets – it is estimated that the ROI on every £1 spent on infrastructure is £3 – imagine what it can be elsewhere.

• Hard. In India, and in Colombia the Economist noted: “the monumental backwardness of Colombia’s transport network is the biggest obstacle to economic growth.” The same applies in Vietnam whose textile industry has long suffered against Malaysian competition – due to a relative logistics weakness that nullifies low cost manufacturing on the route to market. While China remains significantly ahead of its neighbor in terms of supply-chain infrastructure, Vietnam is moving to address its weaknesses and the future growth of the nation will be dependent on how the government is able to address this key challenge.
• Soft. Broadband is key to enabling rural as well as urban markets. In 2005, Indonesias nine largest cities had 8% internet connections- this has quadrupled. In 2009, three per cent of consumers said that they would buy on line. Now, this has risen to over 80 per cent.
• Intermediate. This is the warehousing and truck fleets on the ground. More information is needed on this.

3. Modern and traditional market mix. All Civets have to respect the mix of traditional and modern. The nature of the appeal to youth markets is instructive. For example, advertising spend is up 39% YOY in Indonesia and this applies equally to modern and traditional outlets.

4. Logistics flows. These are the physical movement of goods; information and, cash flows.

• Physical movement of goods. This is not all about state-of-the-art solutions. Where modern firms source from an eco-system of micro or SMEs, supply chains will be characterised by hybrid solutions from end-to-end.
• Information flow. Cash flow. Places like Turkey have fewer than 40 per cent with bank accounts and so the potential to develop mobile solutions is significant.

5. Sector potential. Infrastructure; power; logistics and retail provide a useful platform for sustainable growth in all markets.

• Infrastrutcure.The Pearl River Delta experience is instructive here. Today, this is the … Back at the time of the 1997 Hong Kong handover nothing could be further from reality. The plan was to create a cluster of construction companies that could serve the huge investments in infrastructure and pave the way for light manufacturing companies and electronics to follow – benefiting from critical mass; improved connectivity and market access beyond the Pearl River itself.
• Chemicals. A key enabler of economic growth, as it is an integral part of heavy industries. The chemicals industry broadly covers the sectors of petrochemicals, fertilizers, basic chemicals, pesticides, industrial chemicals, pharmaco chemicals and consumer chemicals.
• Retail. The key here is the nature and scale of the traditional trade. The mistake would be to see this as no more than a drive towards the modern. India proves that there is considerable potential in the traditional sectors.
• Dairy. The Civets economies have more domestic than export potential. As such, dairy products will grow significantly. For example, Vietnam Dairy (Vinamilk), is well positioned to benefit from Vietnam’s 10% a year growth in demand for dairy products.
• Skills and knowledge transfer. This is a key localisation strategy; a means to ensure that sustainable growth can be delivered by local actors and not just bought in migrant labour.

We then come to the agenda for logistics and supply chain thinking and practice in these markets. Each of the above Civets economies has a unique story. Above all, there is no homogenous solution to all at the same time. This is why we need to develop a research agenda on these markets to develop a more robust approach that can cope with an emerging modern sector; developing (not dying) traditional sector and a convergent set of needs to enable inclusive and sustainable growth.

This agenda will be of great use to multinationals seeking sustainable growth and not just short term sales boosts in these markets. Equally, for those countries ravaged by disease or natural disasters, a clear understanding of the dynamics of post emergency markets will play a major role in value for money on humanitarian efforts and, the ability to open up local markets to global opportunities.

This is a transformational agenda that is vital to international private enterprise as well as international funds supporting specific initiatives. It is not about the export of legacy “best practice” thinking from mature markets. It is all about fresh thinking where it is needed.

Article by: Rob Bell, Transformational Logistics Blog

South Sudan – questions to ask prior to entry

I recently visited South Sudan as part of a Public Private Partnership project. For any private partnership, alliance or investment, entering an unknown country with limited or no experience can be a daunting undertaking. For example, in South Sudan the infrastructure is weak and there are less than 200km of paved road in the country.  But, even after considering all of the challenges, emerging markets such as South Sudan hold enormous potential. An entry done in the right way, can be rewarding . Here are some questions to consider prior to entry, either through an investment, partnership or an alliance:

Partners

• Who are the partners that we would be working with?
• What are their strengths and weaknesses?
• Are there certain areas that we could support them and are there areas that they are more capable and we could learn from them?

Management

• What do we know about their management and the supervision on the ground?
• Where the areas that we would need to strengthen?

Expertise

• What are the current capability gaps in the organization/operation?
• Which areas of capability building are a priority?

Culture

• What is the current culture in the organization/operation?
• How does this differ from our current organizational culture?

Security

• What is the current security situation?
• Where are the no-go areas?

Infrastructure

• What are the infrastructure challenges?
• How long will it take to import goods in the country?

Regulations

• Are there any regulatory issues we need to be aware of?
• How will this impact the supply chain?

Alignment

• Could we align with the organization/operation?
• Which areas need attention?

Visibility

• How much visibility is there in the existing supply chain?
• What technology is in place to help to create visibility?

Facilities

• What is the state of the current facilities?
• Do we understand the investment required to get the facility up to standard?

Technology

• What software are they using?
• Would we have any integration challenges?

Processes

• How aligned are our processes?

Cost

• Do we understand the cost to serve and total cost?
• Do we understand the investment that is required?

Efficiency

• Where could we improve efficiency in the supply chain?
• Which areas are of highest priority?

Flexible

• How flexible is the supply chain system?
• How quickly can the organization/operation respond to changes?

Implementation Risk

• How long would it take to become fully operational?
• What are the guarantees that we have?

Barriers

• What challenges and risks will we encounter?
• How do we plan to mitigate the risk?

Quality

• How will we maintain or improve quality standards?

Trust relationship

• Do we trust the organization/operation?
• What can we do to create a trust relationship?

There is a lot to learn from the Coca-Cola system. However,  it is also important to take into consideration some of the challenges and differences. Here are a few points to consider:

Material handing – The Coca-Cola System (TCCS) generally use standardized containers and pallet size in their local operations. This simplifies material handling and improves distribution speed.  In Africa, most sales come from returnable glass bottles and crates and material handling is mainly manual labour, handled with less care than what you would require for medicine.

Stock Keeping Unit (SKU) complexity – TCCS in emerging markets manages a limited number of SKUs (20-60), dominated by a handful of SKUs.  For example, in some markets, Coca-Cola 300ml contributes a large percentage of their sales. The situation is far more complex for medicine.

Reverse logistics – TCCS’s reverse logistics in emerging markets mainly focuses on returning glass bottles and limited expired products. For medicines, expired products are a far bigger risk and there are normally detailed processes (or there should be) in place to deal with the reverse logistics and destroying of expired products.

Product flow – For medicine supply chain, service points (e.g. heath clinics, hospitals) are well defined and there is limited growth, with clear product flow. The TCCS outlet base is constantly changing with new shops opening and closing. Seasonality also plays an important part, especially in the sub continent (e.g. Bangladesh) where a large number of outlets close during the rainy season.  In many cases TCCS has limited control (and even knowledge) of products flow from distributors, sub-distributors, wholesalers and other stock points to retailers and eventually consumers, especially in peri-urban and rural areas. The product flow is driven by the brand, margins and incentives.

Here are some additional links, including our own articles on this topic:

Johns Hopkins Bloomberg School of Public Health. Improving Access to Essential Medicines Through Public-Private Partnerships. By Kyla Hayford, Lois Privor-Dumm and Orin Levinev.

The Coca-Cola Company. Facing up to an epidemic. Coca-Cola is using it’s distribution expertise to help the Medical Stores Department (MSD) of Tanzania, which coordinates the cross-country delivery of key medicines and HIV anti-retroviral drugs.

INSEAD. Always Cola, Rarely Essential Medicines: Comparing Medicine and Consumer Product Supply Chains in the Developing World. A working paper by Prashant Yadav, Orla Stapleton and Luk N. Van Wassenhove.

The Supply Chain Lab. The last Mile of Logistics for medicine supply chains.

The Supply Chain Lab.  Public-private partnerships- Where can companies contribute?

Financial management – A few years back we ran a project in for a consumer packaged goods company in Sri Lanka. During our assessments it became apparent that most of the distributors were going out of business due to poor cash flow and working capital management.  Many distributors provided credit to smaller outlets to expand their business. The distributors struggled to keep track of debtors and when a few customers failed to pay, it had a severe negative effect on the already limited cash flow available.  Cash is the life blood of any businesses but even more so in emerging markets where it is hard to access capital.

Distribution cost– Often, new management fails to understand the true cost to serve. On a recent project in East Africa, I was struck by the fact that distributors are expected to cover a large territory, but nobody in the organization took the time to determine the true cost to serve the total customer base.  In the end, service levels dropped off and the distributor only focused on the profitable segment of the market. As one distributor put it, “we can go but where is the margin?”. Putting pressure on distribution partners to reduce cost is one thing, but when service partners fail, it can have a severe effect on the whole supply chain.

Design – Poor model design can severely affect productivity. In 2010 we ran a distribution benchmarking assessment in South and East Africa for a beverage company. We conducted time studies to get a better understanding of value adding and non-value adding activities. We also wanted to get a better understanding of which activities and processes needed to be streamlined or eliminated to reduce time and costs. During our assessment, the time studies indicated long travel time for peri-urban entrepreneurs to and from bank branches. The supplier required money upfront, prior to delivery. Unfortunately due to limited bank branches, entrepreneurs spent excessive time on banking activities. A simple rethink of the payment system eliminated a lot of travel time that was normally wasted.

Development – Finding the right distribution partners with the right skills is challenging. However, in many cases, distribution roll-outs are bundled together with support in terms of training, account development and business modeling. Without the necessary support and development, many distributors will fail.

Rethink the business strategy

The company clearly had to rethink its business strategy in order to compete. Voltic realized that transporting water from centralized bottling facilities to the respective markets and high traffic areas was costly. Furthermore, with smaller package sizes the transportation cost per liter would increase, as sachets (or pouches) are not really known for stowability. Poor infrastructure and transport utilization in emerging markets likely compounded the problem. So, Voltic took a radical step to decentralize its bottling through more than a dozen franchisees and in the process, brought their water product closer to the market.

Selecting the right partners & sharing cost

Franchisees are local entrepreneurs with the ability to invest and grow the business. This includes bottling (including quality control) and distribution. In this partnership, Voltic pays for just over half the capital cost, with the rest of the costs covered by the entrepreneur. Voltic and the franchisees split the operating margin.

Branding & Pricing

Voltic introduced a new brand called Cool Pac and priced it at a slight premium above the numerous informal competitors. In the BoP segment where water functions more as a commodity, Voltic changed all of that with a strong emphasis on the brand and quality. Even though Voltic outsourced bottling and distribution, the company maintains close control over all brand building activities.

Route-to-Market

The sachets are distributed using a network of informal street hawkers. Sachets (500ml) are sold to consumers for $0.03 per sachet  on a cash and carry basis. Today more than 10,000 street hawkers sell nearly 480,000 Cool Pac sachets daily.  Following Voltic’s success, in 2009 Voltic was acquired by SABMiller.

For more information on Voltic, download the the Montor Group’s report; Promise and Progress: Market-Based Solutions to Poverty in Africa.

Managing supplier relationships used to be a zero sum game. Most companies focused on short terms goals where price was the main focus. Bullying suppliers were commonplace in some organizations. Employees took great pride in “facing down suppliers” and relationships were viewed on “how much money we will make”. However, with the increase in outsourcing and volatility in commodities, supplier relationship management (SRM) has moved to the forefront of organizational strategy. Companies are spending increased time on their selection criteria and determining clear best practices to manage partner relationships. However, few companies have mastered supplier management and SRM is in its infancy.

The question of quality

With the increase in outsourcing and the growth in world trade, product quality is increasingly an important factor. Many companies in the pet food, toy and dairy industry are still reeling from recent quality scandals in China and other parts of Asia. These scandals have put increased pressure on companies, as consumers are progressively more concerned about product quality. These quality scandals of late, as well of those in the apparel industry over the past decade, have highlighted the importance of managing relationships and the importance of supplier tracking and auditing. The days where companies could plead “we don’t have control over our suppliers” are gone. Environmental concerns and an increased scrutiny of labour practices also are demanding improved supplier relationships.

Outsourcing to the “unknown”

With outsourcing to Asian countries on the increase, companies need to understand culture issues. Many companies have been burned when outsourcing manufacturing to countries such as India and China. Management practices that worked in one country are not necessarily going to work in another country and companies need to change the way they think and work in other markets. Country values are also different. For example, cutting legal corners is seen as a survival technique and is much more tolerated in some countries. It is important to understand the value system of each country and it is important to assume nothing.

Outsourcing to emerging markets provides companies with unique challenges. Companies must develop contingency plans as delivery delays are normally more frequent. As one executive put it, “getting on time deliveries from our Asian suppliers, is one of our key challenges”. Working in the “unknown” also provides companies with unique legal challenges. Foreign companies trading in China and India have complained in the past about unfair legal practices. Companies must avoid disputes and ensure contracts are clear to all parties involved.  Do not assume all parties will read the fine print and try to avoid legal terms. Always aim to simplify matters for suppliers. Consult lawyers that not only understand local laws but also cultural issues. The interpretation of the law can differ from country to country and cultural issues need to be taken into consideration.

Technology

In recent years, companies have seen technological advances in managing supplier relationships. The day of managing suppliers with spreadsheets are gone, and SRM is increasingly complex. Companies are demanding increased visibility. The need for real time information is on the increase. Companies are investing significant resources in managing suppliers and the use of supplier relationship software is becoming more common place. Supply chain managers are increasingly using the web to collaborate and to communicate with supply chain partners.

Find the right partners

Previously, partner selection only focused on price, with value sometimes taking a backseat. Today, companies are spending increased time and resources to develop and implement a comprehensive supplier qualification process. Companies need to establish a strategic road map and clear selection criteria. For example, the selection criteria may include important components such as strategic vision, capability, capacity and environmental issues. Companies need to evaluate if potential suppliers meet their required standards. Furthermore, supplier selection is not just limited to procurement departments, and companies are increasingly making use of cross functional teams. Employing external agencies to monitor and track supplier relationships is also on the increase.

Building relationships

Companies must always act with the relationship in mind. Companies must have a clear relationship development plan for each partner with clear goals. Building trust is key in any relationship, and trust must be built at all levels of the organization, and not just at senior management level. For example, companies can introduce department induction programs and in some cases even embed suppliers in the organization. The more partners understand each others businesses, the better for all parties involved. With clear communication channels, partners will have the confidence to address problems head on.

Advantages of relationships

One of the key advantages of long term relationships is cost reduction. Companies work together to solve supply chain problems and learn from one another. Better collaboration and communication will lead to increased sales. Improved collaboration can also lead to better demand planning and route scheduling. For example, when Kellogg evaluated Tesco’s inventory levels it realized that most out of the stocks occurred in the middle of the week. Kellogg worked with Tesco and changed its delivering schedule to accommodate the retailer. By changing the delivery scheduled, Kellogg reduced stock outs, increased sales and improved both customer and consumer satisfaction. As the Kellogg example demonstrates, working with suppliers can provide mutual benefits to all parties involved.

In today’s world, companies require suppliers that are results orientated and are demanding increased speed from suppliers. Not all suppliers are equal and all suppliers need to be segmented. Segmentation is critical, as it will determine the importance of the partnership and how much time companies need to spend on building supplier relationships.  All members of the supply chain must have clear accountability and each member of the team must be aware of his or her duties. Companies need to monitor compliance and implement and communicate clear Key Performance Indicators (KPIs). In today’s high speed world, SRM is on the forefront of any successful company.  SRM has changed significantly over the last couple of years, and suppliers are now seen as an extension of the business.

You can also download (PDF) our SRM white paper here.