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.

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.

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.

Aquatabs – the Hybrid Social Distribution Model

Last month I spoke to Michael Gately, Marketing Director of Medentech.  The company is well known for its Aquatabs brand of rapidly dissolving tablets. It is one of the best known and most respected names in point-of-use water purification globally and is used to disinfect billions of litres of water every year.

TN: What is the public private partnership?

MG: It is a collaborative model that involves WHO (World Health Organization), UNICEF (The United Nations Children’s Fund) and at country level it also includes central, local governments and NGOs (Non-Governmental Organizations).

TN: Your Route-to-market strategy revolves around a hybrid model. Can you elaborate on this?

MG: The hybrid model includes three legs:  Emergency preparedness, retail sales supported by above the line advertising and door to door social marketing.  At the retail level we normally work with local importers. However , in a number of countries, NGOs such as PSI (Population Services International) can also fulfill the role of importer and distributor at the retail level.

TN: Can you explain the door to door distribution?

MG: In some countries NGOs are organizing a door to door sales person. This person fulfills the role of a community based distributor and also an outreach worker. They derive their income from the sales of Aquatabs and other products. Door to door distribution is very important as the sales person finds himself right there where the child might be sick today. The sales person also has the opportunity to hand them a behaviour change message and handle any objections they might have. This is very hard to do with above the line advertising.

TN: What is your pricing strategy?

MG: We don’t arrive in a country with a price point and we normally work backwards to make sure everybody in the sales channel earns a livable wage. We also want to make sure that our prices are in line with what people are willing to pay for our products. The margins that people can earn are very attractive and Medentech has a long term commitment to keep their prices affordable.

TN: How do you forecast demand?

MG: Pre-positioning is a big part of what we do and we have stock pre-positioned all over the world. The businesses we are in have enormous search capacity. You don’t know when another Tsunami might happen.  We normally plan five years ahead and are currently constructing a new factory in India. Our capacity is way beyond what any urgent search might require. However, having products available in local shops is the ultimate in crisis preparedness.

TN: Do you provide any training to partners?

MG: We have developed a comprehensive training program for emergency water treatment. It is a day long training program that we provide to all of our distributors. The training program covers key issues such as water treatment options and what to do in an emergency.

TN: What does the future hold for water purification?

MG: The water sector is going to become more and more stressed and the need is growing.  There are 5,000 children a day dying due to diarrhea and we can have a substantial impact. Hybrid social marketing is still a relatively new science and we are learning all the time.  However, there are organizations with expertise in the area, in particular, PSI, AED and Path. The mood among our network is that we just need to get on with it and do it.

TN: Who is GiG?
GiG is a horticultural sales and marketing business conceived as a partnership between Haygrove (a private UK business) and Concern Universal (an international NGO)

TN: How does GiG tap into Gambia’s important tourist sector?
GiG supplies high quality locally grown produce to Gambia’s hotels and restaurants.

TN: How does it work?
GiG contracts local farmers to grow vegetables and enables farmers to move from subsistence to commercial farming. GiG has worked with over 1000 Gambian producers (indirectly benefiting 5000 people), 90 percent of whom are women. GiG also provides assistance to  farmers to compete in the market place through increased marketing and business skills training and development.

• In Ethiopia 75% of owners are new business owners
• 80% of the owners rely on the MDC for their sole income
• 80% of the staff and 95% of the owners indicate they make more money now
• On average, 3.9 people are employed by each MDC
• 19% of owners and 8% of staff are female
• 80% of owners and 90% of pushcart operators report receiving training

Kudos to the Ethiopian team for making it such a success!