Photo: Marcia Zoet Bloomberg

Nestlé is planning to sail a supermarket barge down two Amazon River tributaries, namely Pará and Xingu rivers in Brazil. Nestlé wants to compete with Unilever in Brazil and aims to reach customers isolated from branded goods. Consumer goods companies are increasingly focusing on the one billion people in emerging markets estimated to exit poverty in the coming decade. These consumers will have the disposable income to afford packaged goods.

The distribution model – the barge will journey to 18 small cities for three weeks, docking one day in each city. From Belém, the vessel will sail to the region of Marajó Island to the city of Almeirim, into the Baixo Amazonas, or the Amazon Lowlands region, before returning to Belém.

The barge – Eleven people, including supermarket’s employees and crew members, will work on a daily basis on the 27.5m long boat housing three stock areas and 100m² store space.

Smaller package sizes – Nestlé has adapted its product portfolio by offering smaller, lower price point products including Alpino ice cream and Ninho milk powder.

Social Responsibility question

The distribution model is already ringing alarm bells in certain communities as Nestlé aims to penetrate deep in the Amazon forest. Nestlé’s product offering is unlikely to satisfy all, but how can Nestlé make their business model more inclusive and add value to communities?

Community development – Nestlé has the opportunity to include medicine, vaccines and other necessary products to their existing product range.

Micro-credit – Banco Bradesco SA in Brazil has already started to offer banking services in December via the Solimoes River, also in the Amazon. Nestlé can potentially tie-up with Banco Bradesco or other institutions to provide much needed micro-credit to potential entrepreneurs and distributors in the area.

Training and health information - Nestlé can provide training and development to local entrepreneurs and also include health and wellness education.

Pictures of the distribution model can be viewed here.

History is written by the winners and, similarly, many Retail and Logistics textbooks are written from the perspective of developed economies and, as the LPI highlights, key segments of the global logistics industry are dominated by no more than 25 large corporations – especially in the maritime, port and air freight segments. This contrasts starkly with the fact that 85% of jobs in the USA and 65% in the EU are generated by small to medium sized companies and in the majority world – that is 75% of world population – few jobs are even formal or covered by regulatory and welfare schemes. Few workplaces are even covered by legal title and health and safety is a pipedream. Conventional Logistics analysis just does not grasp the essential asymmetrical (informal / formal) nature of global sourcing, value addition, distribution and points of purchase. We see Transformational Logistics (and retail) being a better way to describe reality in the emerging and developing world.

Retail and logistics in the emerging and developing countries is largely fragmented, unorganized and dependent on traditional outlets such as mom & pop stores with an average footprint of under 100 square feet. Modern style retailing accounts for no more than 15% of the market across the BRIC countries with the top 5 retailers in each only accounting for 9% of the market. This compares to 80% across the developed countries.

In India, an estimated 90% of warehousing space is of low quality with manual handling and basic equipment being the norm. Moving cargo by road – which accounts for an estimated 36% of logistics costs – is a similar story. The transport industry is highly fragmented and informal in nature with 74% of operators owning a single vehicle. This fragmentation and inefficiency is compounded by India’s tax system. To avoid multiple taxation, companies typically have warehousing operations in every state. The result is a large number of small warehouses across the country that lack the latest warehousing processes and technologies and don’t offer economies of scale. National highways form only 2% of India’s road network, but they handle more than 40% of road freight traffic – which is 36% of total freight in all modes. This naturally leads to severe congestion and, as the Last Mile video depicts, this is most acute closest to Ports.

However, a World Bank Report highlights that despite all too visible inefficiencies in road infrastructure and smaller and less powerful vehicles – Indian trucks travel at an average of 20 mph versus 60 mph in the developed world – India’s surface transport sector is one of the lowest in the world. India’s average costs per tonne kilometre at $0.019 to $0.027 compares to China at $0.04 to $0.06. Ironically – given the state of the roads – this is an argument against modernisation in much the same way as the traditional sector’s ability to beat modern retail at home delivery. An Indian friend of mine in Mumbai cautioned me on the growth of modern retail by pointing out that local street traders offered his family virtual room service and, didn’t even expect immediate payment!

End-to-end supply chains in places like India, Africa and South America are not smoothly linear and many start out in the fields and move slowly through several pairs of hands until they reach a modern format store via a fully racked and intelligent warehouse – sometimes. Logistics, just like Retail outlets themselves, is not a zero sum game with the organized taking over from the informal all along the line. This is unrealistic and, transforming developing world logistics will depend more on hybrid models combining what works in different regions and, with different partners.

Transformational Logistics (and retail) is based on a hybrid view of the world. This is not even a transitional stage – since many markets will never evolve into a fully functioning and stable modern state across the board. Traditional outlets will not disappear and many will benefit greatly from the cash-and-carry model – acting as a virtual regional distribution centre for mom-and-pop outlets to grow their business without the capital investment. For example, the German owned Metro chain have worked hard to create incentives for rural traders to bypass the mundis, or local markets, and visit their outlets. In Bangalore, this has resulted in a 20% drop in tomato prices and 10% for cauliflower. Because sales were only to registered traders the impact has been far greater. There has been greater standardisation on products such as fresh foods and, greater transparency on revenues – meaning more taxes and less exposure to the informal market.

The LPI can be used to characterize the relative status of each country, or region within, as follows:

-

We have not specified the specific numerical thresholds for the above classification – more research is required – though the modern contingent seems to be the first 25 countries in the LPI sample seeing  Spain at 3.63 with the lowest LPI score of this group. Spain is 88% of the leading LPI performer, Germany. Here’s a comparison of the BRIC economies compiled from the Report.

World Bank Logistics Performance Index: 2010

-

The need for greater understanding of transformational realities is even more acute when we take account of the nature of supply chains worldwide. As Martin Christopher makes plain; supply chains, not companies compete and, the fact is that in a world increasingly dependent on outsourcing of non-core activities many companies are part of a complex eco-system of demand, supply and aggregation that draws from both informal and formal enterprise models. The emerging auto industry model will see far less vertical integration and more dependence on suppliers way beyond a primary tier. The informal economy is not going to fade away and, as long as it remains the need for clarity on the true nature of logistics in the global economy persists. After all, modern retail and modern logistics are not the promised land and, as green supply chain perspectives assume greater significance; manual distribution on adapted bamboo bikes will not be dismissed as a better yesterday. Modern and traditional; organised and disorganised are words that come from a binary perspective and, in an asymetrical world this view of logistics is not fit for purpose.

The Retail and Logistics sectors have played a major role in shaping the economies of the developed world. Now, as the LPI demonstrates, there are significant variations from top to bottom of the near 130 sample and such measurement can catalyse change. For those obsessed by unit costs, the LPI is a timely reminder that any advantage on production costs will be wrecked by the high costs of shipment and market access. Whilst well functioning market economies have a measureable logistics cost of under 10% the sale price of manufactured goods; places like Afghanistan exceed 25% on packaged goods and even 50% on commodities such as grains and cement. India stands at over 13% and this will impact any export initiative versus competition. We advance the case for Transformational Logistics as a means to sharpen the focus of research and shared practice across the fast growing and developing world is strong.

Article by: Rob Bell, Transformational Logistics Blog

Vietnam’s textile industry has increased significantly since normalizing relationships with the United States in the 1990’s. Vietnam was granted most favoured nation status (MFN) in December 2001, which led to a dramatic reduction in import tariffs in the US market. Vietnam’s induction to the World Trade Organization (WTO) in 2007 and the Vietnamese government’s strong support of the textile and garment sector, have provided strong incentives to attract foreign investors.  The textile industry is now the second biggest exporter in Vietnam and is expected to become the biggest in 2009. However the financial crisis has had a severe affect on Vietnam’s textile industry, which has suffered from a slump in demand from key export markets in the US, Europe and Japan.

Labour cost advantage

In the textile industry, companies are increasingly looking for lower cost countries that can provide outsourcing opportunities. The rising cost of land and labour are diminishing China’s labour cost advantage and Vietnam is increasingly seen as a low cost sourcing alternative to China. Estimates are that wage levels in Vietnam are about one third of those in China’s coastal region.  Companies that are chasing lower labour costs are increasingly moving production to Vietnam. In a 2008 Booz Allen Hamilton survey 88 percent of companies originally chose China for its lower labour costs. Of the companies surveyed, 55 percent believe China is losing its competitive edge to countries such as Vietnam. The survey also indicated that 63 percent named Vietnam as their top low cost sourcing alternative to China. However, costs may be rising.  The Navigos Group, a leading recruitment solutions provider in Vietnam, announced early in the year that there had been a 16.47 percent increase in Vietnamese workers’ average gross salaries between April 2008 and March 2009.

Low cost location

However, low cost labour is hardly a competitive advantage in the long term. Labour cost keeps changing and today’s low cost location is not necessarily tomorrow’s viable outsourcing location. If it is not China or Vietnam, it could be Bangladesh or Cambodia. Ig Hortsmann, a professor of business economics at the University of Toronto’s Rotman School of Management notes that Nike originally off shored manufacturing to Japan.  As labour costs increased, manufacturing was later moved to South Korea and Taiwan. When labour cost increased in South Korea and Taiwan, it was moved to China and later also to Vietnam.  Justin Wood, a Director of the Economist Intelligence Unit Corporate Network in Singapore makes the point that in the last 15 years Vietnam has moved from a low to a middle income country. The move towards a middle income will likely put additional pressure on Vietnam’s low cost labour status.

The Vietnam advantage

Elisabeth Rolskov, founder of ER-Couture in Vietnam, notes that manufacturing advantages in Vietnam go beyond labour cost and the country has some competitive advantages compared to China. “Vietnam has very good embroidery skills and needle work”, says Rolskov. “A lot of designers and manufacturers need embroidery skills and Vietnam has kept in touch with its traditional roots,” she adds.

However, for local designers, Vietnam has limitations as a sourcing location. “Sourcing material, buttons and zippers from Guangzhou is much better,” says Rolskov.  In Guangzhou you can find everything in air-conditioned shopping areas and the shopping experience is less hectic.” This can have a negative impact on a designer’s creativity as the designer is restricted by what is on offer in the local market.

Rolskov thinks Vietnam is currently a great location for smaller manufacturers as the market is more flexible. “China is more volume focused”, adds Rolskov, a view supported by Rebecca Lebold, director of apparel product and technical development at Lilly Pulitzer. “Vietnam has higher production minimums than many other countries. Lower minimums would allow smaller companies to source their product in Vietnam”, Lebold notes.

Intellectual property threat

For many companies outsourcing to Vietnam, intellectual property (IP) remains a concern. Within the fashion industry, IP is not as enforced as it is within the film and music industries. Designers can “take inspiration” and it is seen as a major driver for setting trends in the industry.   The World Intellectual Property Organization (WIPO) has called for stricter intellectual property enforcement within the fashion industry to better protect companies and promote competitiveness within the textile and clothing industries. “It is a hard thing to take care of and you just have to be faster than everybody else”, says Rolskov.  For smaller designers and labels it is much easier to switch manufacturing.  However to prevent the copying of designs is a challenging undertaking.

Infrastructure development

For Vietnam to advance as an outsourcing location, the textile industry supply chain needs to be considered.  Local logistics are influenced by direct and indirect cost.  In Vietnam’s textile industry raw materials are often imported, which increases cost compared with those countries able to source locally. Managing reverse logistics can also be a challenging undertaking in Vietnam.  Procedures, processes and infrastructure are sometimes not in place to manage repairs, returns and warranties.

According to a new market research report from Transport Intelligence (Ti) entitled Vietnam Logistics 2009, the high cost of logistics remains one of the biggest stumbling blocks in Vietnam. According to TI analyst John Manners Bell, logistics costs are estimated at 25 percent of Vietnam’s GDP. Even with cheap labour cost, poor infrastructure remains a major barrier for entry.   This is largely due to Vietnam being in the early stages of infrastructure development.

Many experts believe that China’s advanced infrastructure gives it a major competitive advantage. Electricity and transportation costs will likely come down even further and and  this will have a significant impact on the total cost, even if their labour is more costly. The Vietnamese government is aware of this dynamic and has invested billions of dollars in the country’s infrastructure.  The government is actively encouraging foreign direct investment in the country’s infrastructure. This is visible with projects such as the Cai Mep Container Port in the Mekong River Delta and the new Long Thanh airport that’s projected to be completed by 2015.

Through assessing the overall supply chain, rather than a singular focus on labour costs, it is easier to identify where Vietnam’s opportunities and challenges lie in the textile industry.  While small scale designers and manufacturers take advantage of a flexible environment, infrastructure and logistics processes will need further investment to make Vietnam an outsourcing destination and source for tomorrow’s fashionista wardrobes.

Like the private sector, many not-for-profit organizations are involved in supply chain logistics, aiming to get needed products to their clients as efficiently as possible.  In emerging markets such as Tanzania, streamlining in-country supply chain can be a complicated undertaking. Many not-for profit organizations are acknowledging that their supply chain capability and capacity, while a key undertaking for their operations, is not where it should be.   In February and March I spent six weeks on the ground in Tanzania assessing supply chains in the not-for-profit sector, ranging from medical supplies to social products (e.g. water tablets and condoms). I was trying to answer the key questions:  Where are the key supply chain challenges and how can the private sector assists?

The “last mile of logistics” – In the emerging markets where I work, I often hear the central excuse of poor infrastructure to describe sub-optimal performance. In reality the situation is far more complex. Far too often a lack of systems and routines are the main culprits for programs failing to deliver.  Systems are visible up to certain level (e.g. distribution to a district warehouse) with the “last mile of logistics” not clear or often ad hoc. Effective distribution of medical supplies to dispensaries and health clinics, for example, requires detailed planning, territory design and mapping. Too often, distribution to service points (e.g. dispensaries) is plagued by bottlenecks and poor product and information flow. The private sector is by no means perfect, but it can play a major part in assisting organizations in the design and implementation of the required systems in this “last mile of logistics”.

Transportation challenges – working with Third Party (3PL) and Fourth Party (4PL) logistics companies are increasingly becoming an important business strategy for success. Many public sector companies are still in the early stages of 3PL and some are ignoring 3PL and 4PL completely, to their peril. The private sector can play an important part in this regard. During my visit it became apparent that some organizations need to look “beyond the Landcruiser” as a delivery vehicle. Vehicle configuration is critical part of cost effective distribution and the increased availability of other more cost effective means of distribution (e.g. motorbikes) in Africa makes alternatives a viable option.

Assessments –The not-for-profit sector sometimes lacks the require resources, capacity and capability required to conduct detailed assessments of their operations.  Companies often use internal assessments and audits that could be adapted with little effort to evaluate the public sector’s route-to-market and supply chain systems.  Such a technical exchange need not just be viewed as corporate social responsibility.  Private sector project teams can gain valuable insight and learnings from the market that can be used in their operations and industry.

Technology challenges – The private sector can also be a vital technology partner. A good example in Tanzania is the “SMS for Life” project. Novartis has teamed up with Roll Back Malaria, Vodafone and IBM to design and implement a system focused on everyday SMS technology.  The system aims to eliminate stock-outs, improve ordering and to increase visibility in the supply chain.

Procurement challenges – Large multinationals have the required expertise in the system to draw on when it comes to equipment (e.g. forklift) purchases.  Not-for-profit organizations are often isolated from such knowledge and sometimes procure the wrong equipment for the job.  During my site visits I noted such challenges (e.g. the need for narrow aisle forklifts) and a number of interviewees stated that they would like to receive input from the private sector regarding the procurement of operational equipment.

Channel & dealer insights –Deciding on the right distribution strategy for social products such as condoms can be a challenging undertaking. For instance, not all distributors will distribute to all channels (e.g. nightclubs) and some might make use of a multi-channel strategy (purchasing from more than one channel or distributor) because of relationship and category mix (e.g. other products).  For not-for-profit organizations, conducting detailed research can be an expensive undertaking and often their operations are more geared for social marketing than logistics and Route-to-Market. In such cases, some consumer goods companies that already conduct detailed consumer and dealer research might assist with vital channel and market insight using data that are already available in their system.

Capability training – Consumer goods companies have invested heavily in business skills training for their distributors and outlet base. The same business skills training can benefit the public sector’s partners such as health clinic and dispensary workers who also require basic business skills to conduct their business effectively.

Supply chain council– The private sector can also take a leading role in establishing an in-country supply chain council. Councils are great ways to share knowledge and learn from fellow council members. Council events can includes site visits, workshops and key note speakers from industry leaders. During my visit in Tanzania a number of private and public partners expressed an interest in a supply chain council.

The role of public-private partnerships is evolving and there are a number of areas where companies can contribute, make an impact and at the same time gain valuable market and operational insight for their own operations.

In today’s high velocity supply chain world, companies are increasingly focusing on distribution methods that will drive efficiency and increase customer satisfaction. Gone are the days where customer service was merely a buzz word. With the focus on customer service, companies have moved away for a supply driven business towards a demand driven business.  Companies are also constantly searching for ways to reduce inventory and holding cost. The increase in speed has forced companies to search for ways to reduce product cycle time and move product quickly and cost effectively.

Over the years, companies have seen a dramatic increase in the number of stock keeping units (SKU). The increase in the number of SKUs has added complexity to the business and also has increased the cost and time needed to manage the business. Department heads face additional pressure as they are required to stock shelves with the right products and ensure that customer demand is met all times. In today’s high speed world, shipping windows are changing rapidly, as retail clients demand increased speed to meet store requirements. To achieve these goals, cross-docking has been pushed to the frontline of the distribution strategy.

What is cross-docking?

Cross-docking is a system that relies on speed and agility and is normally used in hub-and-spoke operations. Cross-docking, in short, is the shipment and receiving of goods by bypassing the storage facility. In the process of cutting out the need for a storage facility, inventory can move quickly from one end of the supply chain to the other. Cross-docking is a fairly simplistic way of handling inventory that involves loading and unloading inventory from an incoming truck onto an outboard truck. During cross-docking storage time varies. However, most experts would agree that anything less than two days can be considered as cross-docking. In some cases staging also takes place.

For all of its simplicity, cross-docking requires detailed planning and collaboration with partners. Companies require advance knowledge of product shipment and final destination of goods. Setting up the required infrastructure and systems can take time and capital. Logistic managers are increasingly making use of technology such as Warehouse Management Systems (WMS) and automated processes. It is important to note that technology is not the key to success.  However, the right system can smooth out problems and increase visibility in the chain. Companies now have the ability to send products on a Friday night, receive them on Saturday, and sell the products later in the day.

How is it used?

Cross-docking is used in a variety of strategies that include consolidating loads of less-that-truck load (LTL) carriers, consolidate loads from multiple suppliers and/or plants, deconsolidating orders, and preparing for shipping. Cross-docking can be divided into different complexity levels including one-touch, two-touch and multiple-touch. One-touch is considered the highest productivity as products are not loaded on the dock, but is loaded directly on the truck. During two-touch the focus is on load optimization and driving efficiencies. Inventory is received and staged on the dock, without making use of a storage facility. During multiple-touch, products are received and staged for reconfiguration and customization.

An increasing number of companies are starting to use cross-docking in their operations. In a 2008 cross-docking trends report in the US, 52 percent of respondents stated that use cross-docking with a further 13 percent planning to start cross-docking in the next 24 months. A number of companies are outsourcing cross-docking.  By doing so, they avoid the challenges of setting up and running a cross-docking operation. Many companies start small and pilot projects are common as they explore the configuration that best fits their needs. For cross-docking to succeed it needs to be a coordinated effort that relies on close partnership and collaboration.

What are the advantages?

One of the key advantages of cross-docking is that companies are reducing their need for warehousing space, which reduces inventory holding cost. Cross-docking facilities are much cheaper to set up and run than warehouses and companies can save on the capital investment in warehouses. In some cases, companies can reduce warehouse floor space and sell off or lease out underutilized facilities. Companies like Toyota have designed and built their own cross-docking facilities. Normally these facilities are strategically located to reduce distance and maximize support.

Some of the biggest advantages for companies are transport related. Companies can achieve significant cost savings, by consolidating loads of LTL carriers. Pallets that are heading for the same destination are consolidated and staged by order sequence. By doing this, companies can reduce the distribution cost of the total supply chain and pass the savings on to the consumer. By making use of cross-docking, companies can furthermore reduce the impact of rising energy cost. Companies like Toyota have used this strategy to great effect. With the increased reliance on Just-in-Time (JIT), parts are being shipped at higher frequency and lower quantity. By making use of cross-docking, Toyota has reduced distribution cost by consolidating smaller part supplies into consolidated loads. Cross-docking has allowed companies to increase JIT and remove waster or muda in the organization.

The increased speed in the supply chain helps companies to reduce product cycle time and move product quickly and efficiently down or up the chain. In Toyota’s case, this has allowed them to increase delivery frequency and in some cases even double delivery cycles. Cross-docking also have some major benefits where inventory is limited. As inventory is not kept in storage, companies require less stock.  The reduction in inventory will reduce holding cost and at the same time satisfy demand. One of the major benefits of cross-docking is also the reduction of labour cost. With the downturn in the economy, companies will increasingly look at cross-docking as a possibility. Cross-docking can reduce staff numbers and their associated labour cost and also gives the organization greater flexibility during an economic downturn.

Many companies, however, do not start cross-docking primarily for cost reasons.  They start to improve customer service. Today’s customers require greater speed and are also more demanding. Companies should establish clear goals and be willing to test different options. For companies that want to streamline operations and increase the supply chain velocity, cross-docking may be the right solution.

A long and winding road

Globalisation has forced companies to develop better, cheaper and faster routes to market – continuosuly. This has generated huge pressures on companies to shorten lead times; place smaller orders with few longer term commitments and, become footloose in search of lowest cost operators. We have seen the growth of Corporate power – many of the majors bigger than the countries they source from and, the move to outsource non core operations creates layers of suppliers that add capacity to Tier 1 but reduce any chance of transparency and challenge ethical consistency down through the tiers.

In the 90s consumers started to question working conditions; then, environmental concerns challenged process, products and packaging design and generated a clear sustainability edge to consumer behaviour. Fair Trade initiatives started to open peoples eyes to the options available such that today, despite the Recession, an estimated 60% of UK consumers think it is right for supermarkets to withdraw non sustainable branded products.

Being an Ethical company is no longer enough. Brands have become aware that consumers want more information on the goods they buy and a failure to respond can trigger serious business risks. Amartya Sen’s On Ethics and Economics (1987) raised the idea that economics can be made more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour. These days, supply chains and not companies compete so, in terms of business, what happens from end-to-end (source to consumer) matters way beyond price.

Globalisation, as Mauro Guillen’s important work – The Limits of Convergence – elaborates, can suffer from what Habermas has called the “project of modernity” or, what Guillen has termed the “revolt against the normalising functions of tradition”. In other words, the remorseless surge for growth in developing and emerging economies can steamroll diversity; blindly imposing conformity to global standards. Remote rural districts empty as magnetic urbanisation accelerates and a whole raft of ethical questions emerge. Does globalisation impose one best way or, allow for diversity based on ethical considerations?

So, what is ethical trade or, ethical sourcing all about? As with TL, some see it as an umbrella term to cover all types of business practice that use or promote more socially and, increasingly, environmentally responsible trade. The Ethical Trade Initiative highlights the responsibility of buying companies for the rights of the workers in their supply chain such as a living wage; to be able to join a trade union and, to be free from harassment or discrimination. Gender considerations are of key importance here. The work of WIEGO is a superb source of realities, desired outcomes and procedures.

Unethical stuff happens:

Toshiba were fined when it was discovered that inflamable batteries had been used in their laptops; Del Monte had to recall all the petfood that was discovered to have poisonous wheat gluten in the recipe and when, in 2007, Mattel were fined for toys they sold being contaminated with lead; the damage to their brand was devastating. After all, consumers would find it impossible to boycott the products of Yip Sing – the invisible supplier responsible for the paint job in the first place.

The media has covered a number of high profile supply chain exposures such as Primark. The discount retailer owned by Associated British Foods were discovered to be buying from suppliers who had subcontracted work to home workers who had employed children. A survey covered for Drapers after the June 2008 BBC Panorama programme that exposed this practice highlights that 44% of Primark customers were likely to switch to other retailers.

We are moving fast from a “trust me” to a “show me” world where business practice has to be open to scrutiny and this generates the need for better statistics and insight into the end-to-end process as a means to focus action needed.

We cannot ignore the reality on the ground where some of the actors have to deal with barriers to ethical decision making:

* Cost oriented Ethical and Environmental management. Decision makers see any regulations or best practice as being a prohibitive cost of doing business. For example, equitable rather than survival wages; safety procedures in the workplace or using forced or slave labour to deliver products to market and reach unrealistic price points. The responsibility here is to ensure that the benefits of ethical and sustainable business practice improves ROI and not the reverse.
* Crisis oriented Ethical and Environmental management: Actors play a wait-and-see game doing nothing until a crisis hits. Take the lack of preventive procedures in place all around the Indian Ocean prior to the Tsunami; a cavalier attitude to any process or service to a customer.

Much work has been done to develop Ethical approaches and prescriptions. The following is not an exhaustive list. Here goes:

1. Purpose: What are we seeking to achieve? Ethical considerations MUST not be seen as a cost to business but a means of levelling the playing field and, opening allcomers to global markets.

2. Triple bottom line expectations: John Elkington’s work on extending the spectrum of corporate values to People (Human Capital); Planet (Natural Capital) and, Profit should be developed to emphasise an ethical dimension – Corporate Social Responsibility. And then, with C3 – the challenge becomes to move byond one company to cross company CSR.

3. Mapping: Process. We need to understand the route to market from end-to end:

- Source to Consumer. This needs to be laid out from end-to-end. This resembles early history writing – what happened next. Then, comes the Hegelian twist – why? In my experience Archomai’s Kipling covers the ground best. Have a look!

- The Green Supply Chain. Professors Lenny Koh and Lynne Frostick are leading important work on Low Carbon futures. There can be no doubt that energy outcomes have an ethical dimension. Of this more later.

- Managing waste. This is an ever more crucial element to any supply chain. Given the skill with which the informal market deals with waste and recycling – it makes sense to explore more inclusive strategies from which Major Corporates may even learn!

- Reverse Logistics. Product recovery is big business and sets a challenging ethical agenda. Professor John Cullen’s work at the University of Sheffield highlights that up to 30% of products can be returned by customers with UK retail returns worth an estimated £5.75 billion. For example, internet clothing and footwear purchases that “don’t fit” as well as defective products. Managing these returns generates signficant costs through inventory and disposal. What happens when customers return a product to a company that sourced from a supply chain built on several tiers of supplier – each characterised by varying degrees of formality / informality.

- Security: We live in a world challenged by those who make it their business to dislocate, or destroy, other lives. Security needs to protect us but, if it is not integrated into end-to-end movements it will destroy business continuity and, with it ruin any chance of the small player reaching global markets. At worst, corrupt regimes use terror to their own cynical advantage. Security is not axiomatically an ethical consideration. It can only be so if administered with proportion and fairness to all.

- Ethical behaviours: This is where ethical considerations need to explore relationships at every point along the chain of events. For example: Buyer and Seller; Provider and User. Years ago, I worked in Sweden and marvelled at the coherence of the work of Jan Carllson at Airline SAS. Rooting out shoddy performance he concentrated on every moment of contact between customer and SAS. each “event” or “contact” was monitored closely and best outcome sought. T L suggests an Ethical approach inspired by this idea.

- Ethical consistency: Corporate Social Responsibility has become, for some, a brand imperative triggered less by ethical considerations and more by pragmatism. In any case a single company initiative is rarely enough to sustain ethical behaviours. The C3 approach recognises the need to explore ways to sustain CSR between companies. See Post.

4. Security. This could be an unlikley source of impetus as US and EU regulations force stringent cargo security procedures on ALL Ports – without exception. These measures will force greater transparency in the supply chain facilitating many of the above Ethical Considerations.

5. Back to an Ethical campaign. From the tectonic four-hour speech given to the House of Commons by William Wilberforce on 12 May 1789 to the imaginative and remorseless campaign that it triggered and the legislative victories it achieved the Anti Slavery Movement has much to offer a drive to deliver ethical and inclusive movement of goods and services to market.

In recent years, many companies such as Lehman Brothers; JP Morgan, New York Life, Freshfields and Rothschilds have admitted involvement in the Atlantic Slave Trade. As Niall Ferguson of Harvard University has emphasised: “slavery was pervasive in the structure of British wealth in 1830″. The campaign and, public opinion were instrumental in undermining an industry built on slavery and, the same momentum can be built in relation to Ethical Supply Chains.

Recently, Professor David Richardson of the University of Hull’s WISE (Wilberforce Institute for the Study of Slavery & Emancipation) and Dr Joel Quirk led a fascinating Conference bringing together historical slavery and modern forms of human bondage. Take this further and there are clear insights that can assist an understanding of ethical supply chain issues. Here are three thoughts drawn from the literature on slavery.

Kevin Bales work on Contemporary Slavery is an inspiration. In Understanding Global Slavery ((2005) he highlights the big shift in the nature of political action over the last fifty years; away from established political parties to nonstate, issue-based campaigning groups, and away from nation state politics to global politics. In terms of the ethical supply chain this perspective allows us to explore the real challenge of the legal polarities between the formal and informal market. Conventional governments are not sympathetic to those who don’t on land and pay taxes. Does this place the majority world beyond the pale of ethical consideration?

Joel Quirk’s recent book Unfinished Business (UNESCO 2009) surveys historical and contemporary slavery. For me, his conclusions contain a chilling observation on release, rehabilitation and restitution that extend into thoughts on the ethical supply chain. He writes: “Historically, escape from slavery has been confined to release with slaves receiving little assistance beyond a formal change in legal status”; and then, the challenge. He continues: “When slaves do come to official notice, they regularily end up being detained, returned, deported or hastily discharged, with little or no concern for their overall welfare of past history.”

For example, where there have been instances of the use of child labour; the test for an ethical supply chain is not so much that the company stamps it out but whether ethical sourcing creates an environment within which the supply chain and producers that will support an equitable and sustainable industry. Close down a factory full of children and you may close down a village with disastrous consequences. More needs to be done to ensure that this is not perpetuated. This is ethical sustainability.

This perspective raises the caveat of Hernando de Soto when championing the value of the informal market – the issue of legal title. In his various books, de Soto highlights the problem of the Majority World and those who live in favelhas or slums. They do not own their land. Simply put – this means that no enterprise can raise funds from conventional banking and, this consigns them to the margins of society. However, even if they could afford to buy the property the arthritic and too often corrupt Legal system renders any transaction slow and opaque. A reform of the Legal system is as long overdue as that of the Banks. I make the point but wil have to develop it later.

Finally, the Anti-Slavery Movement taught the world some significant lessons on the strategies of protest and, the mechanics of campaigning in the modern world. Mobilising with the use of pamplets; engineering Corporate endorsement – Wedgwoods famous tableware with Anti Slavery themes – and, the ability to mobilise support around an issue beyond self interest.

Article by: Rob Bell, Transformational Logistics Blog

Personally, I am not very fond of the term, slums. I think it is loosely defined term for a type of informal market. However, with all their problems and challenges there is a lot to learn from slums from a business perspective.

Entrepreneurism – slum areas are highly entrepreneurial, with a high degree of business activity. Most houses also double as business premises. While this is often out of economic necessity, there are some interesting models coming out of these organic (and often unregulated) businesses. During my first visit to Lagos’ Makoko, I was impressed with the supply chain of Nollywood movies (Nigerian films). Nollywood hawkers were everywhere, with no shortage of supply (and demand). The lack of law enforcement also provides some advantages to entrepreneurs. Because the market is informal, most businesses trade without bothering to fill out any paper work, keeping start-up costs low and speeding up the notoriously slow process of starting a business in Nigeria.

Low cost distribution – slum area are normally densely populated. Because such areas often have poor infrastructure, a conventional route system is normally ineffective in these areas. However, with some ingenuity, high density can be converted into quick delivery and turnaround time. For example, in Dhaka’s Motijheel Thana there is a highly effective cold chain (ice) distribution system catering to fish mongers. Deliveries are made with pushcarts and completed before 11 am. In 1999, while working in the Coke system in Ethiopia, my team and I rolled out a low cost manual distribution system to cover our outlet base in an informal market area. The model was by no means unique to Ethiopia or Africa. However, what made it different was that it was a managed distribution system that required detailed planning and implementation. The distribution model also created a high number of jobs in this poor area, about which The Harvard Kennedy School wrote a case study. The distribution system has since been adopted by a number of companies operating in Africa.

Environmentalism – poverty inspires frugality as well as innovation. When walking around in slums, you notice the importance of waste recycling. From computers to packing material, nothing gets wasted. Soda cans are hammered and reshaped into toy airplanes to sell to tourists. Grain sacks become patches on frayed clothes. Individuals living in slums already understand fully the environmental call to “reduce – reuse – recycle”.

Community projects – the extreme social and economic challenges faced by those living in slums has inspired innovative social programs and partnerships. In Nairobi’s Kibera there are a number of NGO projects focusing on how to convert waste recycling into stable income generation, as a means to lift individuals out of poverty. A number of organizations are also evaluating the potential of distributing “social products” such as condoms and vitamins to such areas. Simon Berry and his highly visible Cocalife campaign, is a great example. Escaping the slum is an unlikely reality for most and companies and NGOs need a fresh approach to operate in these areas.

I guess that it will be clear how important the public sector is for health logistics in developing countries. But how about the public sector? What could be its role?

Combine the words “logistics” and “private sector” in one sentence, and obviously third party logistics (or 3PL) will jump immediately to mind. However, there are very few logistics companies (or, for that matter, health ministries or health NGOs) in developing countries who would be able to implement the necessary visibility; so I am afraid 3PL lies rather further in the future than one might wish.

An existing example of more or less successful inclusion of the private sector in the health system, are the private retail pharmacies you can find almost everywhere in developing and middle-income countries. In many of those countries, it would be (almost) impossible to get the necessary medical supplies to the patients without this private initiative.

For example:

* There are serious questions about the quality of the supplied medications by private retail pharmacies in developing countries. Not only can this be extremely harmful for the patients themselves, but it can also contribute to the further spread of resistant strains of viruses, bacteria, and parasites.
* Likewise, the quality of advice given by private pharmacists is not always the best. Research shows that not only is this advice not always up to par due to a lack of knowledge, but there is the obvious problem that the pharmacist wants to sell items on which he can make a (larger) profit; and so they would be clearly tempted to advice e.g. anti-diarrheals instead of ORS.
* Private pharmacies will go where there is profit to make. This means that sparsely populated areas or especially poor populations are more likely not be served by any pharmacy.
* Likewise, private pharmacies will not give away their goods to their poorest customers either. This would mean that the poorest parts of a population that is served exclusively by private pharmacies might not be able to access the necessary medicines.

None of these issues are insurmountable; e.g., quality of supplies and advice can be increased by better supervision and training, incentives can be given to pharmacies to establish themselves in sparsely populated areas, and a voucher system can be instituted to safeguard the needs of the poorest. However, all this costs money too, and in the end it might actually be more effective to have a public (government-owned or sponsored) pharmacy than a public one. This is not something that can be decided on a system-wide level; more likely, the most effective and efficient solution is a mix of private and public pharmacies, supplemented with adequate supervision, training, and financial incentives. Finding the right mix is not an easy task, and probably finding this right mix will include a number of painful mistakes. Don’t forget that the most successful systems in developed countries are the result of many years (and sometimes centuries) of ‘tinkering’.

Robert Neuwirth writes about the informal economy in Lagos, Nigeria, and its importance to the local economy. Local governments mostly view these informal markets in a negative way, even though they contribute significantly to the economy.

Some interesting points:

The demand for economic activities takes over everything as bridges are transformed into informal markets. The informal sector is the most dynamic and fastest growing segment of the economy. With very high unemployment, it is the informal sector that holds the country together. Cities need to be designed to accommodate street traders. This works a lot better that expecting traders to obey some sort of government rules.

Channel strategy – companies must map out a clear channel strategy and identify which channel the selected distributor will service. A poorly defined channel strategy can severely damage any distributor roll-out. It is critical that companies understand how channels function and operate. One size does not fit all.

Selection criteria – companies need to understand the key components of a successful distribution partnership. Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organizational structure.

Management – do we have management buy-in and is the distributor fitting in with our strategic goals? A distributor roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.

Territory – is the territory well defined and does the distributor have the ability to service the territory? Companies must build distributor capability and schedule joined training sessions. Companies must also ensure they have detailed territory maps and a clear understanding of the outlet density.

Outlet base – are traditional and non-traditional channels well defined? in most emerging market, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base. A well defined every dealer survey (EDS) is a key component of any successful distributor roll-out.

Customer service frequency – Are they over or under servicing their customers? Companies must have a clear understanding of the service frequency that both the distributor and the customers require.

Role definition – do we have a clear understanding what the company and the distributor are responsible for? What does the organizational structure look like and how will the company support the distributor? Does each profile (e.g. salesperson) have a clear understanding of his or her role?

Account development – account development is a critical component of any distributor operation. Not all accounts are equal. In most cases companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.

Cost to serve – the true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in emerging markets, financial cost centers provide limited data and financial modeling is essential to determine the true cost to serve . Many distributors also fail because the remuneration is set too low and not adjusted for inflation on a periodic basis.

Transportation – is the distributor making use of low cost distribution? For example pushcarts or motorbikes. Is the vehicle or cart load configuration inline with our requirements?

Warehouse – the warehouse function is sometimes overlooked when a company implements a new route-to-market system. Companies need to understand how the new system will impact the warehouse function and what changes need to take place.

Key Performance Indicators – focus on the key performance drivers of your business and don’t overextend yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point it tracking something just for the sake of tracking.

Flow- are the processes and systems well defined and do we have a clear understanding of the product, cash and information flow? Are processes and systems standardized?  Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations. Emerging market operations often lack critical skills and don’t make any assumptions what people can and can not do.

Complexity – can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs to all channels fail. Always aim to reduce the complexity in the business.

Collaboration – how will the distributor share information with the company? Too often critical information is only available at distrbutor level and not shared with the company. What role can technology play in all of this?

Take note of the evolution – too often supply chains in emerging markets just evolve without any strategic intend. Modern trade and retailing are expanding and middle class consumers shopping patterns are changing. How will these changes in the market affect your business and are you taking the necessary steps to adapt to these changes?