Wednesday, September 25, 2013

Developping Countries' Urbanization and the Future Supply Chain

The supply chain change is driven by external factors     

In their report ‘Future Supply Chain 2016’, the Global Commerce Initiative (GGI) discusses the future shape of the supply chain. One of the key points of the report is about the forces and trends that will impact the future supply chain.

The GCI found that one of the external forces that drive the change is the demographic trend with the graying of developed countries and the increase in urban population[1].

The impact of developing countries urbanization in the logistics and transportation

As mention by the auteurs, this study was performed for developed countries and some of the findings are relevant to emerging countries that often follow the trends set by developed countries.
However, when it comes to developing countries, I think that Urbanization is THE trend driving change of the supply chain. The urban population is expected to increase from 47% in 2000 to 57% in 2050 and 90% of this increase is in large cities of developing countries. [2]
With around 80% of the population, thus the consumers and the business in one city of the country, logistics and transportation is certainly a challenge and a source of new spending for the supply chain.

Urbanization will drive more logistics spending

I experienced this first hand, few months ago when I was in Conakry, Guinea. Even though Conakry is a small city compared to Cairo or Lagos, 95% of the corporations are there. For instance, timber exporters have their main offices in Conakry and their plants or production units in a city located 620 miles away. They used to fill containers there and transport them directly to the terminal for immediate shipping. However, they will spend few hours to arrive in the suburbs of Conakry but will wait a day or two to reach the port terminal. This delay was due to the enormous traffic and the decision of the authorities to authorize trucks to circulate only for six hours per day, from midnight to 6:00 am. The big trucks were not adapted to the urban transportation and with that cut in time, most contracting transportation companies closed.

The timber exporters have tight delivery deadlines with their customers and they had no choice but to have their own fleet of trucks and change their logistics and transportation for their supply chain to be effective. However, they had to be innovative to gain in time and reduce their costs. Thus most of the companies had a warehouse just at the border of the city and another one close to the terminal.  The normal trucks would stop at the first warehouse and small vans would transport the timbers to the second warehouse where the containers would be filled and other traditional trucks could transport them to the terminal during the six hours windows time.

This is just a simple and small illustration of the logistics and transportation challenges faced by corporations operating in developing countries with fast rate of urbanization. We can clearly see how this introduced new steps in the process and required costly investments.

How to effectively address the problem of urbanization?

Nowadays the obvious answer to every ‘how’ question is technology and the use of RFID, GPS and other tracking technologies can be useful in some cases; but I think those are not definite and comprehensive solutions in this context. Nonetheless the rate of urbanization can be compared to the rate of mobile penetration and any technology based on mobile solution can be game-changing. The right approach might simply be to improve or change the existing communication and transportation network to take in account the pitfalls faced the SCM actors. While most of those changes can be done only by governments (eg high speed rail), a collaboration between the different actors is probably a better option. In the previous example of the timber exporters in Guinea, they could have a common transportation fleet that would operate constantly instead of individual costly ones that are idle most of the time.

Either way, the supply chain challenge raised by the high rate of urbanization in developing countries is still to be addressed.   

1-; accessed on September 25, 2013
2-, accessed on September 25, 2013

1 comment:

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