Earlier today, Rob Bell gave a talk on the International Logistics scene to Faculty and MBA students at AMET University and, moved to a discussion of Transformational Logistics and the Indian logistics and supply chain landscape.
The session opened with a review of the evolution of supply chains from the spice routes to today – via Napoleons military logistics; cowboys losing out to the railroad in the Wild West of 19th century America and on to containerisation revolution of the 1950’s. A key shift has been the integration of markets from globalisation and, the specialisation of the logistics function enabled by technology supporting this “new rocket science”. The segmentation of products (and ways to deliver them to the consumer) into Agile (those with high variability) and Lean (you can have any car as long as its black said Henry Ford) products was covered and the role of logistics as a differentiator was highlighted. As Professor Martin Christopher makes plain: “supply chains compete, not companies.” Logistics is part of any companies competitive edge.
Back to the cowboys! A thought that seemed to grab the attention was the evolution of the meat trade in 19th century USA. This industry was transformed, in simple terms, in three clear stages:
- The Cowboys moved the cattle a thousand miles to Chicago; the abattoir and the market. It made good movies! Along came the railroad and …
- The Cowboys lost their jobs; the cattle were sent to by rail to Chicago, the abattoir and then to the market. Then, along came the telegraph (the internet of the day) and,
- The telegraph was used to send the orders (demand) for cattle to the ranch. Then, cattle were sent to an abattoir close to the ranch; frozen and then, sent by rail to Chicago and the market.
This is an early example of a shift from push (supply driven) to pull (demand driven) supply chains. The idea here was to highlight how no supply chain stands still and there are always ways to operate them ever better, cheaper and faster.
Then, the second session turned to logistics in emerging, developing and devastated markets. Drucker, the management guru, had said that logistics is the “last Dark Continent” and would one of two key issues for the future. The other? Demography – the population issue. And with population rising from 6 to 9 billion by 2050 the pressure on supply chains will be immense. For starters this means increasing food production by 70% – at least!
We didn’t get time to cover this but ALL supply chains will then have the challenge of energy and waste. This is a huge issue. It is one thing running a supply chain on $125 per barrel; quite another at $300! There are many unresolved issues in this area. That’s for another day – the green supply chain.
Emerging and Frontier markets are different and there are three key factors to be considered that influence logistics and supply chain thinking and practice. Three words:
- Adaptable. Cavinkare, a Chennai based consumer goods company that started by making shampoo – in a single use sachet. This is clever. It is just-in-time for the consumer. Why should you buy a big bottle of shampoo when you are paid by the day? Buy what you use and your “inventory” at home is smaller and you don’t tie up your capital. There are so many examples of this. By the way, the rural market in India is much bigger than people think. So too the market in places like Dharavi; the Favelhas of Brazil and the Townships of South Africa.
- Affordable. The price point is key and the work of C K Prahlahad (The Fortune at the Bottom of the Pyramid) is a MUST READ. This communicates the HUGE opportunity beyond the shopping malls in places more interested in livelihoods than lifestyle. Better to focus value for MANY than value for money for the few.
- Accessible. TVS, a Chennai based company with global interests in the auto industry, used eChoupal to reach remote rural areas – and sold over 37,000 motorcyles in the process. ITC’s eChoupal is a computer terminal concept placed in rural villages. This is a personal opinion but smart phones will do this job even better going forward. Then, we have retail. Maybe the growth will NOT come rom big stores but a variation on the theme of the Kirana store. Just experience the traffic crossing cities. Better to shop in your neighbourhood than make shopping a real chore by turning it into a commute.
In short, we need to move away from value for money to value for the MANY. This is the real INCLUSIVE agenda.
A key emphasis was the Transformational Logistics agenda of responding to local context. A key factor across the globe is the challenge of the Informal market. This not to be demonised – as it often is in mature markets – it needs to be understood. This is the inclusive agenda whereby a supply chain designed to move things ever better, cheaper and faster back to the developed world lifestyles shifts to what Malcolm Harper – with his work on Orissa – has called the inclusive value chain. I prefer stream becasue it moves away from the idea of a neat symmetrical linearity from end-to-end. Logistics in these contexts is more like an eco-system.
The focus of Transformational Logistics is on asymmetrical supply chains – those that try to balance a traditional; low tech; low skill supplier with a modern; high tech; high skill player close to the consumer. That means a Kerala farmer growing strawberries for the UK market.
We need to explore a half way house between a traditional and modern market and drop any notion that this will end up being an either / or position. ALL markets will have their traditional players and the modern players at the same time. Why not? Maybe a recognition of the place for the traditional players will open up a shift from the “bottom line” that is purely measuring economic or monetary results to a TRIPLE bottom line of economics; social and environmental impacts.
Traditional markets have their place and Rob Bell went through examples of honey; carpets made in the home; the Kerala fishermen using mobile phones to transform the catch – all sorts of traditional supply chains that can teach us a lot. Using an example from Andra Pradesh, he went through the artisanal fishing industry – 1% of Indian GDP! From the landing stage to the market at Vizag.
The talk was followed by a series of questions hugely pertinent to the debate on how best to approach sustainable growth in India. Three key questions were asked. These are followed by Rob Bells answers …
- 1. What are the key issues facing the logistics industry in India over the next few years?
First, I would argue that there IS an India Way to answer this and the text book from the USA and the EU will not have the answers. Any solution has to be adaptable to local context; affordable – or it won’t be bought and accessible. Any product or service has to reach the customer.
Sticking to the classic supply chain and logistics “flows” (physical movement of goods; information flow and cash flow) there are issues on them all; equally, progress IS being made too:
- Jugaad. I am impressed by the way Indians can deal with difficulties. Here, you learn that the most expensive solution does not guarantee success and, even the best quality machinery is often as good as the maintenance that keeps it in tip top condition.
- Physical movement of goods. Infrastructure is a well-known issue. Just look at what China has managed to do – and a lot of this is down to excellent Ports (the top ten ports have over 20 m TEU capacity; India has 8 to 9 m – Tangiers, Morrocco has about the same!); terrific roads and general connectivity. Mind you, this is on the coast. The Western Provinces of China is virtually another country with bad infrastructure and poor connectivity.Perhaps the big issue is to really understand the dynamics of cities and see what can be done with manual handling systems; smaller delivery vehicles AND more companies SHARING their transport. Have a look in the back of a truck. How many are running have empty? A lot!
- Packaging. This is a key area. I visited a Mumbai warehouse and looked at goods from China. The products were fine BUT, the packaging was so weak that the damage done to the products was significant.Go to the harvest and follow a product from source to market. Are they using “shelf ready” packaging? That is a carton or box that will move through the supply chain and land on a shelf. This reduces the movements and, damage to fruit and vegetables.Recently, we looked closely at fish being landed in Andra Pradesh – artisan fishermen using traditional boats. We followed the fish off the boat; watched them being sorted and then, down to the Fish market at Vizag. Once there, the fish were taken from the thatas and put in some polystyrene boxes – former Red Cross boxes left over from the Tsunami in 2004! This was the first packaging in the supply chain to deal with keeping the fish fresh.Then, there is the flat pack approach pioneered by the Swedish home based products company. This means tables, chairs etc are bought in kit form and final assembly is in the home and not in a factory. This approach will revolutionise … the auto industry. Components will be made all over the world and final assembly will be close to the customer. Hypothetically, that could mean – following the logic that there will be 50 City Regions with 75% of global population generating over 65% of GDP by 2050 … that could mean 50 “assembly points” just like that table being assembled in your home! That’s less Detroit and more Chennai!
- Information flow. The biggest single issue characterising Globalisation is integration and this is enabled by information technology. I used the example of Li & Fung. They run over 7,500 factories – they own none. They do this with powerful information. In fact, information has replaced inventory as the key success driver.
- Cash flow. There are 630,000 villages in India; 95% of which do not have a bank branch and over 40% of Indians do not have access to the simplest form of financial services. Go to micro firms and SMEs and the system is wide open for loan sharks or, micro-finance. In Andra Pradesh, the micro finance story is not good and, if we are looking for this as a key to improving supply chain transactions we will wait a long time. It may help you buy a sewing machine but it won’t help you buy enough to run a small company.Now, the mobile phone can leap-frog many of these problems and, it has proved itself in some difficult circumstances. In Libya when the revolution broke out, the International Powers shipped in plane loads of notes to pay the citizens. In Haiti, some enterprising individuals did it through the mobile phone. Safer and more secure. More can be done with the mobile phone and companies like Airtel are on the case.
- 2. What will be the impact of the recent decision by the Indian Government to reverse a decision on Retail FDI?
This is a HUGE question. In my view, it was hugely disappointing that the Government went back on its initial decision. Let’s not rehearse all of that here. Let me go another way.
Big International Retailers like Walmart; Carrefour and Tesco are not having a good time at present. All three have returned their worst results in years. Carrefour are losing money – in France (which is where they were born!). And Tesco are withdrawing from Japan – because they can’t manage their stores in a big city if they don’t have a critical mass of stores relatively close together. If they are – they can deliver to them frequently and, if they are not – they go out of stock.
Here in India, they will have a tough time. First, because all of the prime land in the Metros is gone. Future Group have a lot of them and the other Indian players have the rest! The International players will be forced into Tier 2,3 and possibly 4 towns. This brings them into contact with the real India – which they don’t understand anything like as well as Kishore Biyani!
Much is made of the International players stores – Hypermarkets; Supermarkets and Metro Convenience Stores. When you look closely at their success it is down to logistics more than anything else. Walmart’s success came from two things: IT which enabled integration of their operations across the stores and, linking this to the logistics function. Tesco is exactly the same. My local Tesco Store has hardly any warehouse at the back of the store and deliveries are arriving all the time. Now, here in India, it is far from certain that they will be able to repeat this formula. You have to have real in-depth experience to achieve what Anshuman Singh at Future Group Supply Chain Solutions has achieved. And their experience in 3 PL will consolidate their learnings around another set of supply chains. They are formidable in textiles; getting better in food and perishables; extremely good in white goods – and are learning fats in REVERSE logistics. And they do all of this with a distinct Indian “jugaad like” sense of reality and local context. This is a powerful formula.
This is the point. Logistics is key to Retail success BUT, this will be no “plug and play” for the International players BUT, it could be “pick and mix” for Indian Retailers to learn from them in some aspects – not all – of their back end operations.
However, contrary to what some are saying, the International players may turn out to be good news … for the Kirana stores. Already Bharti Walmart Cash and Carry outlets act as the Regional Distribution Centres for the Kirana Stores and this can expand. Let’s not forget that the Kirana stores are unique in several ways – they offer credit to people who don’t have bank accounts; they offer home delivery when modern retailers will struggle to achieve this. And this is because they work in VERY tight neighbourhoods. No retaler could serve a city on home delivery. They’d fill the truck with the shopping and never arrive!
Perhaps the biggest threat to Kirana stores is NOT the International Retailers but the jobs that will entice the children of the kirana store owners away. This is what happened elsewhere. Right now, the modern trade in Indian Retail amounts to about 10% of the market. I do not see this going above 30% for a long time. BUT, I do see room for both and room for the traditional outlet to improve as well.
Again, I can see a real improvement in Indian Retail … the Indian way. Mind you, all that said, we should not let the Government off the hook. They way they have bowed down to special interest groups on retail should send shivers down the spine of any other FDI investors in other sectors. If you reverse a decision once – you will do it again. That is just compounding the issue of bad governance in this country and that … is another story.
3. What can India learn from other places – as a means to improve logistics performance?
Contrary to what I have just said, there are many things that India can and MUST learn from elsewhere. Back to the three infrastructure elements and three flows:
- Singapore. Lee Kuan Yew called his Autobiography From Third World to First and much of this success is down to logistics. The Port is a marvel and the rest followed. You can’t export if you don’t have the Ports – it doesn’t matter how cheap you are!
- Pearl River Delta, China. This Region started by creating a cluster of construction firms – to build the infrastructure and then, the rest followed.
- Chile, Argentina and Australia. Very good at harvests and can teach the Indian wine industry a few things. The same goes for the Leather industry – learn from Italy.
- Brazil. This is a country that processes (adds value) to over 70% of the harvest; India only 3 (THREE)%. They have to be doing something right.
- Brazil again. Look at how products are sold and distributed into the Favelhas (slums).
- Israel. Excellent at anything to do with IT.
Notice that I have yet to mention the USA or any country from the EU! In fact, I would look at the Indian diaspora. Look at Lord Billimoria in the UK – Cobra Beer. Look at how this is changing the way Bihar looks at crops and could become a major brewing centre. Look at how many Indians in the UK run the food industry; the 40% of companies in S|ilicon Valley owned by Indians; the over 70% of SMEs in East Africa owned by Indians. I could go on. There IS an Indian Way.
Finally, Rob Bell asked himself a question. What part can the Maritime sector play in all of this? Huge! Fundamentally, the Maritime Sector must stop thinking in silos – Ports take care of Ports; Ships take care of ships and so on. The Maritime sector has to think in terms of logistics and supply chains end-to-end. Then, we will be as concerned about the last mile INTO AND OUT OF the Port as we have been about dredging the quay!
Some of the biggest contributions to logistics thinking and practice have come from the Maritime sector. Go back to antiquity and look at the amphoras that carried the spices – the first containerisation revolution which took a couple of thousand years to catch up on! Think of how Li & Fung worked with Levis to reduce inventory in warehouses in Europe and carry the stock in transit – the sea journey from Asia to the EU takes 6 weeks sailing. That’s enough stock.
And then, the skills that are learned at sea are the very problem solving skills that all industries so desperately need – right now.
It was a fascinating opportunity to interact with the Faculty and students and another opportunity to get the message across. Mainstream logistics and supply chain solutions from the developed world are NOT the only way. There needs to be more thought and attention paid to the Transformational Logistics agenda. Well, I would say that wouldn’t I! By the way, Peter Cappelli and others from Wharton Business School have already coined the term in their seminal business book called The India Way.
Many thanks to Dr Ramachandran, the Chairman and Captain Bhardwaj, the VC of AMET Maritime University for providing this platform for Transformational Logistics ideas to be raised.