Retail, in the developed world, has long been the forcing house of logistics change. From the work of Walmart and P&G to explore mutually beneficial initiatives to the case studies of movements such as ECR, logistics has mined organised retail to build the toolkit that can deliver a better, cheaper and faster supply chain.
Some would point to logistics as the new rocket science and reach for analogies such as the flat world coined by Tom Friedman as an illustration of how connectivity and the congruence of technologies has brought us all together.
Transformational Logistics sees this as all too simplistic. As Mauro Guillen makes plain in The Limits of Convergence, countries and organisations do not gravitate toward a supposedly universal model of economic success and organisational form as theyattempt to cope with globalisation. Maybe it is time to ask three basic questions:
- Accessibility. Is the product or service available locally or, at the very least, with regional reach. Take fruit and vegetables sourced globally to maintain supply during the off season. This leads to local produce losing out even when the season is right. Flat world connectivity may be route one to a homogenous world. Is this what we want or, even need?
- Adaptability. Can the product or service adapt to local context? Why should the world be created in the same image? Is there scope to promote connectivity that serves local differences rather than seeks to flatten out the individuality of local culture. Such differentiation works well for brands so why not for development and logistics supply chains?
- Affordability. Why design high tech into the solution when less ambitious approach can deliver and, be more cost effective. We need to be aware that cost cutting can lead to a race to the bottom using connectivity to enable footloose Corporates to move to the next cheap location. Maybe we need to review this and factor in all costs – including the environmental impacts. And then, take out the features of a product (packaging and design) that are simply not needed. Again, it depends how we want to use connectivity – it could mean dumping products and this can kill local industries.
Indian Retail is a case in point. A combination of the demographic dividend; growth rates that have slowed but remain at 5%; and greater disposable income will all see modern retail grow to about 30% of the story in the next 5 years. However, Kirana (mom-and-pop) stores are far from over and, ways in which to reach them will see even more innovation than a developed world model allows. As Buckminster Fuller once said: “monological thinking looks for single answers – and there are none.”
Many see Logistics as the new rocket science and highlight the impact of information technology. Thomas Friedman, in his best selling book, the World is Flat champions the ‘connectivity’ resulting from the convergence of communications technology, computer technology and, the explosion of software has led to the leveling of the global playing field or, a ‘flat’ world. Globalisation 3.0, as Friedman puts it, is all about empowering individuals to act globally. He gets it right when he highlighte that 1.0 and 2.0 were European and American centirc and that 3.0 opens it up globally. However, being plugged in is only part of the story and, in terms of logistics, there remains a Global Logistics model that needs to adapt to a multi faceted reality that no amount of technology can level flat.
Friedman cites ‘supply chaining’ as one of the main flattening forces. And yet, what Friedman identifies as a flattened world is, in fact, a set of fat flat nodes connected by pipelines through vast deserts of remote rural areas or, second and third class cities and villages unable to compete on the global stage.
The transformative business agenda is about connecting more people in remote rural areas to the wider economy and yet, enabling this transformation to happen without losing the sense of community that binds. And the fresh markets that this represents. Perhaps the current recessionary climate will allow for this more than ever before.
Suddenly, more companies and commentators are starting to view the world from a wider stakeholder perspective rather than the narrow viewpoint of the shareholder. Witness the collapse of share prices worldwide and what that means for notions of value within the firm. This is reflected in the popular antagonism towards bonus culture and the more nuanced view that socially responsible business can mean good mainstream business. We are about to witness a growing awareness of the potential at the bottom-of-the-pyramid – amongst the Corporates.
An aside – The combined sales of the world’s top 20 Multinational Corporations equals nearly 30% of global GDP. Of the worlds 100 largest economies, 51 are internal to corporations. These same corporations employ less than 1% of the world’s labour force. The need for these Corporations to join the agenda that recent G-20 perspectives demand is crucial. We’ll pick up the G-20 debate in another Post. Meanwhile, to return to this one …
Previously, discussion of the bottom-of-the-pyramid agenda (C K Prahlahad or Paul Polak) was like discussiing vegetarian recipes over Sunday Lunch in Halifax c 1965. Things have changed. Martin Sorrell, CEO of WPP, writing in the Financial Times had this to say: “Countries previously viewed as suitable only for charity will become the new powerhouses. Africa, long seen as the continent of war, poverty and disease, will become a continent of opportunity.”
The scale and scope of this change is massive. No longer will it be enough to attempt to create consumers in the image of the developed world. Given the re-think of economic assumptions prompted by the current recesssion the opportunity is to consider products within the context of the Majority World. Sorrel again: “Conspicuous consumption will be frowned upon. Women will no longer buy a handbag as a mere badge of affluence. Men may be more self-conscious about extremely expensive cars. Luxury goods will still be with us but they will be judged by their authenticity and craftsmanship, not price tag.”
If this means that the needs of consumers will change in the developed world – less built-in-obsolesence and more sustainability in product design AND buying patterns – this will have a signficant impact upon logistics too.
Take for example three of the industries that we have covered in this Blog: Leather, Carpets and Diamonds. Each of these industires demands a rethink of the homogenous end-to-end view of classic logistics. In fact, the idea of an “integrated” supply chain loses all meaning when we try to fit a jig saw puzzle of formal and informal relationships; the high tech modalities and then the last mile bike or pot holed roads. This is not a supply chain with an end-to-end conveyor belt logic.
- Carpets. High end rugs start out in mountain areas in remote areas of Iran, Pakistan and Afghanistan. The USA market is worth well over $3 billion a year. There are other places to buy from but added value to a developed world consumer is all about an authentic traditional source. Now, fit that into a simple end-to-end supply chain.
- Leather. Again, production capacity is more often than not aggregated from a set of informal suppliers from remote regions. Added value comes from bringing in design and accessories from elsewhere. Time to recognise the challenge of hybrid models.
- Diamonds/ Jewellery. Diamonds used to be a girls best friend but, more likely than not, are the best friend of an aspiring dictator.
- Dairy. As countries like China and India “emerge” the market for dairy products explodes. Suddenly, the logistics of aggregating capacity from a highly fragmented farmer base becomes the difference between success or, failure.
In this context, a neat end-to-end supply chain is about as accurate a representation of reality as the notion of a nuclear family in modern day Europe. Instead of a supply chain, we are witnessing the emergence of a consumer (demand / supply) eco system characterised by a wide range of actors operating to different scripts and very different audiences.
There’s more. We are seeing the disintegration of logistics models based on the nation state. Have a look at satellite pictures of the EU by night and then plot the political map. It would be virtually impossible to delineate Holland / Belgium / Germany and Northern France. Zoom in further and explore the close-in regional politic map. Impossible. A friend of mine … lives in one municipal district; works in another; the children go to school in a third and the family shops one hour away where the big brands are located. And then, at the macro level, none of the connectivity (hard / soft infrastructure) can be afforded by any one single municipal authorities involved in this particular equation. In fact, 40% of people in the UK work in a municipal are different from where they live. The position in Africa is worse. Aid agencies focus on nation state projects when a more regional logistics perspective may be of more use. Are our nation states and regional political maps fit for purpose? Can they deliver the connectivity that the Flat World implies?
In the 1990’s I worked on a project exploring ways in which a well-known brand of cameras could be sold across Eastern Europe. Very quickly, it became clear that the capital cities of Czech(oslovakia); Poland; Hungary; Latvia and so on had more in common than any of them with the rest of the country’s they were the capital of. One size will not fit all and in logistics – this is far from being a flat world.
And the population growth from 6 to 9 billion by 2050 is a logistics earthquake not even waiting to happen. We need the tools to make sure that we respond to this context and, transform logistics for this demographic explosion and re-configuration of the business world.
As Einstein once said – to do the same thing and expect a different result is a sign of madness. Leaving sanity to one side, Logistics cannot rest on the laurels of developed world supply chains for what we now face. Segment the markets and then, segment the resources used in the response. As Martin Sorrel, CEO of WPP makes clear – this is a new world; and, in terms of logistics we need practical, affordable and locally adaptable hybrid models not just a homogenous high tech end-to-end vision.