??Earlier today, Rob Bell spoke at the University of Hull Logistics Institute Conference on Profitable, Sustainable and Ethical global logistics. Opening with highlights from the recent Three F’s Global crisis – Food; Fuel and Finance – he went on to quote Drucker; that demography will dictate the future. With population rising from 6 to 9 billion by 2050 – in 1804 it was 1 billion; it took 123 years to reach 2 billion but the last 4 billion have taken an average of 12 years each to reach – it is not climate that will hit hardest but the need to do more with far less of this worlds scarce resources. Profit can only be a function of dealing with these issues or, we are all bankrupt. So what does this all mean for global logistics?
As Martin Christopher has emphasised, companies no longer compete; supply chains do and, as globalisation forces the pace on sourcing ever cheaper raw materials and manufacturing these supply chains are starting to get squeezed from above – by shareholders looking for better returns – and below – by stakeholders such as the workers who are starting to react at working conditions and insecure livelihoods and, consumers who are starting to factor in ethical considerations to their buying decisions. Let’s not forget that the recent strikes in China’s booming coastal cities have forced a 30 per cent hike in wages in a country that is not soft on dissidents. And, let’s not forget that a video on You Tube of a Kit Kat made of Orang U Tang fingers brutally highlighted the plight of this endangered species and forced Nestle to rethink and act on their sourcing of Palm Oil from unsustainable forests. Activism is on the move for those who do not work their supply chains using sustainable and ethical principles.
Picking up the themes of the day, he started into the elusive quest of growth in mature markets. There is no evidence to support that shareholders can expect significant returns from companies that do not have clear insight and a presence in emerging and developing markets. This means a complete reworking of every business model. Starting with the emerging nature of global consumption, he then explored each of the three themes of the day: profitability, sustainability and ethical logistics.
- Consumption: The late CK Prahlahad, in his ground breaking Bottom of the Pyramid (2006) highlighted the fact that despite the billions living on less than $2 per day their basic needs could drive fresh market opportunities and generate viable business. Moving to a Demographic Diamond – a wealthy tip of half a billion on more than $20,000 per year; a fast growing middle of 5.5 billion on between $300 to $20,000 per year and, the very poor, some 1.5 billion in survival mode on under $300 per year; he highlighted specific product and service offerings tailor made and designed for each tranche. For example, the brilliant Indian entrepreneur with his single use shampoo sachet ideal for the favelhas and the slums of the Majority World; Nokias mobiles with multiple address books so that a single unit can be used by multiple users and, construction materials companies that allow for families building their homes room by room. As Paul Polak points out in Out of Poverty (2008), slums can be the incubator for new income opportunities. And these come from overwhelming needs in water, sanitation, housing, education and health. CK Prahalad, in The Fortune at the Bottom of the Pyramid (2006) puts this even more bluntly – “If we stop thinking of the poor as victims or as a burden and start thinking of them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”
- Profitability: First, the message for companies hoping to build sustainable and profitable growth in these markets is ADAPT to real needs – don’t just dump what worked back home. Second, make sure that the products are AFFORDABLE. The price point in a very value conscious environment is crucial. And third, work hard on MARKET ACCESS. TVS – a leading Indian motorcycle manufacturer and auto components distributor – sold over 37,000 motorcycles to remote rural areas using ITCs eChoupal internet connections – just like the Sears catalogue sold everything from Levis to Agricultural equipment back in the American Wild West.Another consideration is the nature of the approach to reaching the consumer. Kishore Biyani of India’s the Future Group sees their modern format stores – Big Bazaar – as being rooted in the Bazaar of India’s rural areas or, bustling cities. Not for these markets the almost clinically antiseptic aisles of the Developed world. In fact, there is a real sense in which the small Mom and Pop outlets that are all but dead in the mature markets will not go away so easily in the Majority World. Part of the reason that Kraft bought Cadbury is their strong presence in emerging markets – they have a 70 per cent market share for chocolate and much of this is generated in the kirana or, Mom and Pop stores.
- Sustainability: The Green agenda is huge in the Majority world. And curiously, there is lots of good news. Throw away consumers are not living at the margin – though they may well be living on credit beyond their means – they live in the so-called developed world. He mentioned Moscow in the days before the boom when remont (repair) stores were everywhere. Jugaad is Hindi for make do and mend. It is a state of mind. Favelhas and slums recycle where we just throw away – in the UK we throw away 30 per cent of the fod we buy! Think of the panel beaters working 1950s Cadillacs in downtown Havana – they are still moving. It is a state of mind and behavioural as much as it is procedural.In terms of the supply chain, there is considerable scope to address crazy empty loading all over the world – especially in the highly fragmented pharmaceutical industry. There is an opportunity to develop our lexicon of movement beyond multi modal – air, road, rail and sea – into simply modal. This means initiatives like Coke in Africa with Manual Distribution Centres and shelf ready packaging for farmers post-harvest the world over. Take the example of the adapted bicycles in Zambia that are made of bamboo and have an extended rear wheel axle to carry more loads of anything from sacks of cement to water. Elsewhere, shelf ready packaging to be used by small holding farmers and right through to the stores can be part of educating and supporting farmers on effective and efficient market access.
So too the need to design and produce simple and inexpensive chill chains for food. The Godrej fridge that cost $55; is made of no more than 20 parts instead of 200 has no compressor and uses a chip mechanism like the cooling system for PCs. Then, there is the Chinese white goods manufacturer Haier who noticed that many washing machines were being returned from warranty for repair – full of mud. Remote rural farmers were using them to wash vegetables for market. So, Haier used the complaint to design a rugged washing machine that could answer this clear need. The developed world has to understand this mindset – increasingly, it is having an impact on thinking in the developed world too. This is reverse innovation – using the findings from developing markets to rethink design in mature markets.
Sustainability also means sustainable growth and this will not come from supply chains without the skills to make them function. Vocational education worldwide is simply not fit for purpose. Over 5 million of the UK workforce is functionally illiterate; India’s CII estimates that 500 million workers will have to be trained to deliver the potential by 2022. If not, the skills deficit will turn the demographic dividend of the Young Republic into a hotbed of social unrest. And this extends to the safety and welfare of workers themselves. We have seen in the Developed world how safety at work means improved productivity. It is imperative that Lets not forget that Dubai Construction sites were only recently subject to Human Rights investigations.
Just consider for a moment the plight of truck drivers worldwide – without them the world would ground to a halt. In India truck drivers represent over 7 per cent of HIV carriers in the population. Alcoholism is rife and corruption and crime make this a precarious existence throughout the developing world.On the 22nd July the Logistics Institute will host an important Event. This is the launch of the Logistics Training Technologies unit. This superb facility is now home to simulators for all types of materials handling equipment from Ports to Construction; Trucking to Airfield and also, supply chains at the macro level. L-3 MPRI and SIMLOG have sponsored the equipment in the unit and there are ambitious plans to link with CILT and other bodies to offer industry and the Yorkshire and Humber Region the opportunity to improve performance and future proof the workforce. These technlogies have local significance but could play a role in linking local expertise to the sustainability agenda in these Emerging and Developing markets. Skills is the constraint on sustainable growth. The invite for the 22nd is pen to all SMEs; Corporates and Trade Associations to explore ways on how to harness this breakthrough technology.
Moving on – more local produce is a must. The impact of how stretched supply chains have become was cruelly illustrated when the Icelandic volcano that grounded aviation all over the EU collapsed the Kenyan cut-flower industry as their produce could not reach the market.
- Ethical: Reminding the delegates that the Conference was taking place in the birthplace of William Wilberforce, the leader of the 19th century Anti-Slavery Campaign, he used the example of how, back then, companies like Wedgwood produced products to support the cause – a set of crockery emblazoned with Anti Slavery slogans at a time when the UK – and the Western Economy – was built on the Slave Trade. Now is the time to lead another Campaign on this same theme and this has to go beyond CSR and beyond the firm. It has to move to the supply chain end-to-end. C3 is a useful departure whereby …This means a shift in vocabulary from ever better, cheaper and faster supply chains to more inclusive value chains – where added value is spread more evenly. Using the example of coffee, he highlighted the breakdown of value added from the early 1980s to now. Back then, about 20 per cent of the consumer price went to the farmer. Today, this has fallen to under 7 per cent. Meanwhile, the value add in the consumer market has climbed to over 70 per cent. Looking elsewhere, he highlighted the woman up the mountain making carpets to a traditional design with an agent; then a distributor; then a Retailer on the High Street taking the largest slice of the cake.And then, he pointed out that mobile phones – not computers – were opening this up to greater transparency. Kerala fishermen have used mobiles to auction their catch from out at sea; Farmers are getting alerts on weather, pesticides and wholesale prices. It is estimated that Indian States with higher mobile penetration can be expected to grow faster – with a growth rate 1.2 per cent higher for every 10 per cent increase in mobile penetration rate.
A key consideration in all of this is the way the developed world views the Informal nature of the Majority World. For the first time in human history more people live in urban areas than rural and, 75 per cent of global population live in slums, favehas or other self made homes. Building cities by pretending that the informal shadow economy does not exist is a madness. 300 people a day move from village to City in India and, by 2050 India will need 400 new cities and towns – just to cope. Will designers grab the opportunity or, just let the chaos rule? It is not just about architects – the fact is that all too often the legal title upon which the edifice of the Developed world is built – people owning property – is often a function – in the developing world – of a bureaucratic and corrupt Legal system that is just not fit for purpose.
This fresh perspective builds the case for the triple bottom line and the push to measure much more than financial return. Other speakers picked up this theme and the need to balance the Economic, Social and Environmental aspects of all products and services.
Finally, Rob Bell highlighted how this all challenges Logistics orthodoxy in an equally fundamental way. Striking a parallel with Economics, he highlighted the moment in 2000 when Economics students at the Paris, Sorbonne challenged the neo liberal economics they were being taught. Characterising it as autistic and only interested in one approach to every problem they launched the Post Autistic Economics Journal to open debate up to a wider field. Elsewhere, other Economists, such as Joe Stiglitz once of the World Bank, challenged the wisdom of the shock therapy for the Soviet economies contrasting this with the more gradualist, and successful, market transition in China. As Mauro Guillen has made plain, Globalisation – and here, Economics – is not about convergence to one model. There is no one best way.
Logistics, the Cinderella of the business world for so long, does not come from such a one-size-fits all tradition. Each sector manages different variables. However, at this Conference, Rob Bell championed a move to embrace the sustainable and ethical agenda through Transformational Logistics – an umbrella term for Logistics in the Emerging and Developing world. As a term, Transformational Logistics emerged from work with the CII (Confederation of Indian Industry) and emphasises the point that Developed World logistics is – in large measure – not fit for purpose in the Majority World. There is a need to build a research and fresh practice tool kit to serve this emerging purpose. T L is characterised by asymetrical – as opposed to smooth end-to-end linearity – supply chains with low tech and low asset base players at one end and high tech and highly leveraged actors at the other. This is a journey from those whose focus is Livelihood serving those with a passion for Lifestyle.
Transformational Logistics is starting out. Over the past year over 45,000 people have visited this Blog and the feedback from various Conferences and e mail contact has been excellent. The idea is to take it to the next level; set up a research group linking academics and students into specific areas and, a number of major companies have started to express an interest. The bottom line is that understanding emerging and developing markets is good for business; the environment and, all stakeholders. A deeper understanding of asymmetrical supply chains and, the added inclusivity from greater transparency will be a major benefit and, more effective and efficient flows of goods; information and cash can only improve the quality of life in the majority world. As Paul Polak has said – 90 per cent of the designers work for 10 per cent of the population. They work on the next wave of iPods or, a one inch bigger TV screen. Imagine what could be achieved if the effort was reversed and the effort turned to those places with the greatest need. It is time to transform logistics and respond to pressing real needs and significant business opportunities beyond the developed world. This means more cross fertilisation of ideas from dynamic markets (the BRICs); innovation from the developing world and organisational thinking from Military and Humanitarian Logistics. Transformational Logistics can be a useful catalyst of a number of areas raised. After all, growth in the Developed World doesn’t look too good these days but, do we know enough about elsewhere?