Q&A Executive Insight Series ™© : Supply Chain Management and Logistics

Douglas Boateng, Dr

Can Ghana and West Africa's Senior Executives continue to relatively underrate the strategic importance of the multi- billion dollar Supply Chain management (SCM) and Logistics sector in today's rapidly changing business world? – Part-1

Introduction
Much continues to be written about the potential impact and benefits of the above average economic growth enjoyed by selected African and Asian countries. In addition, the proliferation of new products coupled with the rise in international consumerism is fundamentally changing the way companies operate and compete, offering both major business opportunities and challenges. As companies seek newer markets, there is the ever increasing search for lower-cost sources of production, raw materials, human capital etc. The emergence of new markets and supply sources are driving African organizations with international ambitions to find innovative and cost effective ways to extend their networks never before experienced.

So what is supply chain management (SCM)?
Supply chain management (SCM) is the seamless management of all the interlinked value adding activities that goods and services encounter whilst it moves through a value chain route to the ultimate customer. In a broader context, a supply chain encompasses not only the internal value adding processes but also the various tangible and intangible inputs from external suppliers and customers.

What is the difference between supply chain (SCM) management and logistics?
Although many practitioners still consider the terms to be interchangeable, various academics and seasoned industry professionals have over the last twenty years succinctly distinguished between Supply Chain Management and logistics.

Based on extensive consultation within Europe America and Africa, one supports the view that provides a clear distinction between supply chain and logistics management.
Supply chain management involves the management of all the inter-linked activities within a value adding chain. These include but not limited to planning, procurement, manufacturing/production distribution and customer service. Also included are all value adding linkages outside an organization.

Logistics management on the other hand is one of the elements within a supply chain primarily focusing on the actual movement and storage within the supply value chain. In line with the views of the CILT and CSCMP, I describe logistics as one of the mega processes within a supply chain that plans, implements and controls the efficient, effective inward and outward flows and storage of goods, services and related information between a point of origin and a point of need.

What about customer service management?
Customer service is also one of the key processes within supply chain management that focuses on ensuring that the needs of the customer are constantly satisfied.

Can you place a figure on the total global expenditure on supply chain management (SCM)?
All organizations irrespective of size, family owned or a listed entity invariably makes use of some elements of supply chain management in their day-to-day business activities. To this end, it is difficult to put an actual figure on the total global supply chain expenditure. However in 1996 the global expenditure for logistics according Frazelle, was well in excess of $3.5 trillion USD. This represented nearly 20% of the world's GDP. Over the last thirty years most companies have on average spent between 5% and 20% of total revenues on logistics and supply chain related activities. Extrapolating with a 10% percentage baseline, one can confidently postulate that in 2006 global logistics expenditure was in excess of $4.8 trillion USD. Note that innovative supply chain and logistics principles is what has made countries like Singapore, Japan, UAE( Dubai) China, India, Denmark, Holland, USA etc into economic powerhouses!. These countries are able undertake value add locally and move the resultant products (tangible and intangible) to various local and international points of need. Conversely, they are also able to import raw materials, intermediates and even finished products at relatively lower cost than their competitors.

What about Africa's logistics spend?
In Africa, the percentage logistics spend is relatively higher due to amongst others, limited infrastructure and continental wide service providers. In 2006 Africa's GDP according to the IMF was in excess of $1 trillion USD with South Africa accounting for about 25%. Using 9% as a baseline percentage spend; one can confidently and conservatively estimate that the total African logistics expenditure is worth well in excess of $90 billion USD. Currently South Africa is the only country in sub Saharan Africa that can relatively undertake the inbound and outbound aspects of its value added products to various local and international points of need and consumption.

Conservatively can you place a figure on Ghana's and the ECOWAS sub regional expenditure on logistics?

In the last four years selected countries in the sub region have managed to achieve some of the fastest economic growth rates in the world.

In May 2008, the President of ECOWAS commented that sub regional GDP grew from $141.9 billion in 2005 to $170.1 in 2006, $199.7 in 2007. In 2008 it is projected to increase to $232.7 billion. Using a 9% spend as the benchmark the sub regional logistics expenditure is conservatively worth well in excess of $20 BILLION per annum

According to the World Bank and the International Monetary Fund Ghana's GDP in 2006 was in excess of 12 BILLION USD Again prudently using 5% as the estimated benchmark, one can confidently value the total logistics expenditure in Ghana to be currently worth well in excess of $500 million USD per annum!. It is for this reason why a number of the major logistics companies like Mares, FEDEX, Bax Schenker, Hellman, Panalpina, UPS Cosco DHL, K&N Pharmaceutical Health Care Distributors (Phd) etc are relatively expanding their presence in Ghana and the region. Without doubt, GDP growth could dramatically increase if there is a coherent effort by both Government and the private sector vis-à-vis the application of innovative supply chain management strategies and techniques in the region.

Can The Effective Application Of Supply Chain Management (SCM) And Logistics Lead To Sustainable Job Creation In The Region?

Without doubt yes!.....Over the last century the SCM sector has continued to be one of the largest employers in the world….Put it simply, all products have to move from a point of origin to a point of need….As the product moves along the value chain, it goes through a lot of processes including storage and handling, transportation further processing etc…It is an accepted fact that India, USA, Singapore, UAE parts of Europe, China, etc have successfully applied supply chain and logistics principles to create and sustain jobs!

Can an effective and efficient supply chain profitably assist a company to extend its market reach?
Numerous publications over the last 30 years have provided clear evidence that SCM can assist a company to profitably extend its market reach well beyond their borders. Toyota, Cargill, Shell, HP, Coca Cola, Merck & Co Nike, MacDonald's SAB, Honda, Nissan, Barclays Bank, PEPSI, SASOL, BHP(mining) Tata Group, Pearson(book publishing), Shoprite, Game , Shell, Vodafone, Tesco, Liberty Group, Harvard Business School, Wal-Mart, Netcare(hospital group) PPC( cement group) are all classic examples of companies that have benefited from the direct and indirect use of the effective use of supply chain strategies to reach out to their global customers plus improve bottom line results.

Sector specific companies like Pharmaceutical Healthcare distributors (aka Phd; a division within the Fuel Logistics Group) have made major inroads in assisting selected Pharmaceutical companies and international agencies like PEPFAR to extend their product and market reach (worth millions of USD dollars) into ECOWAS, COMESA and SADC regions.

For all these organizations, the challenge is to maintain customer service across rapidly changing markets, supply chain partners, distribution channels whilst keeping costs at a minimum.
The Q&A Executive insight™© series, is a publication that hopes to disseminate via leading edge publications, simple but strategically relevant business viewpoints to industry Executives and Business Leaders. More details about this article can be found on www.panavest.com. Alternatively if you wish to comment on the Q&A Executive insight™©series, Dr Boateng can be reached at [email protected]

About Dr Douglas Boateng
Dr Douglas Boateng is President and CEO of PanAvest International, a boutique advisory company that focuses on assisting companies to sustainably and profitably extend their market reach using innovative business development, logistics and supply chain management techniques. He is also the founder and author/editor of the Q&A Executive insight™© series, a publication that hopes to disseminate via leading edge publications, simple but strategically relevant business viewpoints to industry Executives and Business Leaders. Dr Boateng is an affiliate of the following professional Institutions:-

a) Institute of Directors. Fellow-UK*
b) Chartered Institute of Logistics and Transport.. Chartered Fellow-UK
c) Institute of Directors S. Africa. Fellow-South Africa
d) The Chartered Management Institute. Chartered Fellow -UK
e) Institute of Business Consulting. Fellow -UK
f) Institute of Operations Management..Fellow-UK