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I recently spoke to Rasmus Buskov, Managing Director at Penta Business Solutions, a seasoned professional in the Enterprise Resource Planning (ERP) industry in Vietnam.
TN: What is Penta Business Solutions?
RB: We are a team of experienced business consultants focused on providing affordable yet sophisticated open source ERP solutions, namely Openbravo, to businesses in Vietnam. One of our focus industries is medium size manufacturers, for example the textile industry.
TN: What are the advantages of open source ERP?
RB: In short, open source gives you access to the source code and you are free to use, change or distribute the software. With open source you are also not tied to a specific vendor and if you are not satisfied with the service you receive, you can go to a third party. Proprietary software is not that flexible and it does not allow you the same freedom. The open source community also attracts a large group of software developers that are always searching for challenges and looking to overcome technical difficulties. With open source you are part of a much bigger community, because you are not tied to restrictive licensing fees and there are no hidden costs. With proprietary software, normally half the cost of the ERP system is the license fee and the other half is the implementation cost.
TN: What advice would you give to a company when implementing an ERP system?
RB: It is important not to try to do too much. Manage scope creep and focus first on the basics when implementing an ERP system. Extreme customization is likely to land in trouble. It is also important to have a serious look at your business processes. For example, the basics would include knowing your inventory levels and having a clear understanding of the value and cost associated with them. It is also important to establish clear terms with your vendor and assign detailed responsibility. A successful implementation of an ERP system is normally also based on a good partnership with you service provider.
TN: What advice would you give companies when training staff with regards to ERP?
RB: I would focus on one-on-one training or small groups. From experience I can tell you, putting a large group of people in a training room just does not work.
TN: How has the ERP market changed the last 5 years?
RB: ERP has moved to the forefront and a lot of companies have implemented ERP or are seriously looking at ERP solutions. WTO entry has a lot to do with that, as local companies look to compete with foreign entries.
In a competitive environment, Consumer Packaged Goods (CPG) companies are increasingly forced to get within arms’ reach of the retailer and consumer. CPG companies that have a Route-to-Market strategy that includes a direct focus on mom-and-pop stores are the most successful in reaching the “base of the pyramid”.
The buy-in-bulk mentality is unlikely to have a major impact in developing markets, as transport limitations, poor cash flow and infrastructure will restrict purchasing options. Nielsen’s research has indicated that modern trade is on the increase in a large number of emerging markets. However, even with the increase in Modern Trade, mom-and-pop stores will continue to command a major share of the retailing environment.
Some of the advantages of well designed Route-to-Market strategy dealing with mom-and-pop retailers are:
Increased outlet penetration – the Route-to-Market strategy is designed to penetrate small, high frequency retailers, and increase availability within such outlets. The strategy allows “trial” SKUs entry and assists companies in controlling the SKU range in their identified strategic channels.
Improved merchandising – even though merchandising space in quite limited in these outlets, companies will find it easier to negotiate merchandising space compared to modern trade retailers. Multi-nationals have more leverage with mom-and-pop retailers, and can negotiate better space allocation and control the message in these outlets. Innovative merchandising designs (e.g. hanging shampoo racks) will further support this strategy.
Improved retail and consumer Insights – by removing the supply chain layers, CPG companies gain a better understanding of retailers and ultimately the end consumer. This grassroots approach will improve communication between the various parties and provide the company with valuable insight about their consumer base.
Improved profitability – a well designed Route-to-Market strategy will yield improved margins and reduce incentive and retailer discounts being paid to Modern Trade retailers.
However it is important to highlight some of the challenges that companies will face with such a strategy:
Increased Route-to-Market complexity – increasing the outlet base to include mom-and-pop outlets adds complexity to the Route-to-Market and the business. Drop sizes will be much smaller and the increased outlet base could put additional pressure on resources.
Information flow dilemma – penetrating smaller retailer distribution networks is unlikely to justify investment in information technology. e.g. mobile devices to support Enterprise Resource Planning (ERP) systems. CPG companies will be forced to reevaluate sales data processing and information gathering.
Increased personnel count – managing, controlling and monitoring an increased outlet base will require additional human resources. Employee turnover tends to be higher for employees dealing directly with mom-and-pop outlets. Market conditions are tougher and increased and specialized training will be required.
Companies can benefit immensely by expanding their retail base and penetrating smaller retail outlets. For companies to succeed, market development and training activities must be on the forefront of Route-to-Market strategy. Such strategies will require a major rethink and redesign. Changing to a Route-to-Market strategy that includes smaller mom-and-pop outlets will affect all aspects of the business, including supply chain, sales, marketing and human resources. A strategic shift should not be taken on lightly. However, for the winners, the rewards will be large.
Article fist published in 17th of July 2007 for the Gerson Lehrman Group Councils website
I made a stop last week in Surabaya, Indonesia’s second largest city. The city is also home to Sampoerna, the well known Indonesian tobacco and cloves company. The company was founded in 1913 and was the first publicly listed kretek cigarette company on the Jakarta Stock Exchange. The visit included a stop at the House of Sampoerna that comprises a museum, restaurant, auditorium and a still functioning production plant. Indonesia is the world’s 5th largest cigarette market.
For many Chinese and Vietnamese consumers, frozen food is still a foreign concept. Large retailers in China and Vietnam continue to focus on fresh food options such as live chickens and in-store fish tanks. However, consumer shopping and buying patterns are changing. Chilled products, including juice and frozen foods are increasingly becoming popular in emerging markets such as China, Vietnam, and India. Young people, in particular, are driving consumer demand. This is true especially in cities that are undergoing rapid urbanization. The growth is fueled also by new legislation in the retail environment that gives foreign investors and retail chains greater access to these markets. In all this retail frenzy, the cold chain is becoming a hot topic.
One of the key challenges in emerging markets is a dysfunctional supply chain that is highly fragmented in the retail section. In a fragmented retail segment, companies struggles to achieve economies of scale on both the retail and supply sides. With the projected growth in these key emerging markets, even given the current financial crisis, there are great opportunities for both local and foreign investors. Unfortunately, a lack of cold chain facilities is hampering expansion into these markets, especially in second and third tier cities. Even in first tier cities, such as Shanghai, Ho Chi Minh City, and Mumbai, multinationals struggle to find the right cold chain partners and facilities. Foreign investors currently view the lack of an established cold chain as one of the major barriers to market entry.
How does the traditional system work?
Agricultural produce typically travels from farmer to trader to agent to wholesaler to retailer. In some countries local administrators add extra distribution layers. In some cases, state-owned companies will distribute products to provincial distributors before reaching local markets. Each step in the process adds additional handling and cost. Often products are transported without boxes and with limited or no refrigeration. Products are exposed to the elements and, consequentially, many products end up as waste. Quality suffers as products travel down the chain with limited cold storage and frequent processing delays. China currently accounts for 13 percent of global fruit production and 40 percent of the world’s vegetable output. However, it is estimated that around 30 percent of the total production of fruit and vegetables are wasted due to an inefficient cold chain. In India it is estimated that about 60 percent of the value of agricultural output is lost between the farm and market. An A.T. Kearney report on China estimates that only 15 percent of products that require chilled handling are currently handled that way. This compared to 85 percent in Europe.
What is required?
For any company, it is critical to evaluate and understand the cold chain system. Temperature control is important as it is a key requirement to keep products within a specific temperature range throughout the supply chain. This can be particularly challenging in emerging markets. One solution is investing in packaging that can protect products against temperature variations and improve product quality at the final destination. Companies also need to have a clear understand of the product flow and routing dynamics, including the transportation modes and refrigeration capability. Delays in delivery and processing can have severe effects on the quality. Companies should have a back-up plan as transportation normally takes longer than expected in emerging markets.
The key to any cold chain is driving end to end processes and efficiency. It requires direct delivery with temperature cold trucks, warehousing and advance technology tracking and traceability for food safety. Companies need to account for geographical aspects as they truck products for one end of a country to the other. Distribution centers (DCs) can play a key role in a company’s cold chain strategy. DCs have the ability to service several layers of the distribution system. This can further improve distribution and supply efficiencies.
Collaboration is important
Cold chains are expensive to operate and in many cases a coordinated effort is missing. Local companies that try to establish their own facilities often lack capital and expertise. For such companies, a key first step to developing a cold chain is to seek out or create a consortium. The consortium will be responsible for creating industry standards with government authorities. As standards are set, more companies will join the consortium. It is critical to include all key stakeholders in the process. Effective cold chain consortiums will include logistics providers, cold chain equipment suppliers, multinational and local companies within their membership. Stakeholders can collaborate during various projects and at the same time share risks. The entry of foreign retailers such as Mal-Mart, Carrefour and Tesco can add cold chain expertise and help to reduce margins and improve efficiency in the overall system.
Technology investment is a key element of establishing a cold chain. Companies need to have a long term perspective in relation to technology investments. In many cases the technology and equipment are available, but companies find the investment too substantial and lack the economies of scale to make it a viable option. Finding companies to make the investment can be one of the key challenges during market entry. In emerging markets, companies seek simple and cost effective solutions to problems. For example, some companies now are using pressure-sensitive labels. Once the label is exposed to specific conditions, the label changes colour and alerts the supply chain of a disruption in the cold chain.
Focus on education
Education is also key to creating a cold chain. Trainings and workshops can be used to educate and inform partners about challenges and how to overcome them. For example, A.T. Kearney has run a series of conferences in China the UK and the US to improve China’s cold chain distribution systems. The conferences bring parties together that are interested to enter or expand their cold chain distribution in China. Such conferences and workshop are great venues to inform companies and authorities about the health and safety risks, an increasingly important topic.
The cold chain is critical to global trade in almost all commodities. With a growing demand among emerging market consumers for chilled products, the cold chain is becoming an increasingly important part of the supply chain strategy. One of the key requirements will be to reduce waste and improve quality. Recent food shares in China and the rest of Asia have highlighted the importance of food safety and health during the process. With all this attention on the cold chain in emerging markets, the cold chain will likely heat up even further.
Mobile phone networks have proven to be a vital piece of technology for Africa. The technology is playing an important part in bridging the infrastructure divide and assisting entrepreneurs and businesses to improve efficiency. The mobile revolution is still in its infancy and organizations are slowly adopting new tools and technology to conduct business. The not-for-profit sector has been on the forefront of adopting and piloting a number of projects and there are some interesting learnings for the business world.
Communication for the mobile age
One of the major challenges for any operation is keeping customers informed. When conducting customer service surveys in Africa, outlets often complain about the lack of communication about product offerings and promotions. Many customers are also frustrated about a lack of timely information. As one retailer put it to me in Guinea, “by the time we get to understand the mechanics of the promotion, the promotion has ended.” Most managers and supervisors are using SMS extensively to communicate with customers and increasingly companies are adopting it as an enterprise application strategy. FrontlineSMS created a text messaging system for not-for-profit organizations to address poor communication, which is seen as a major barrier for many organizations. The system leverages tools already available to most organizations, namely computers and mobile phones. The same system is being adopted by companies. For example, companies can use the system to send out mass SMS messages. Companies can categorize their databases and tailor messages according to trade channels and profiles. Companies can also use the system to collaborate more effectively with trade partners and share information.
In Africa, as in many parts of the world, people are spending more time reading text on mobile phones and mobile learning has seen some interesting developments. Projects such as the Imfundo Yami/Imfundo Yethu in South Africa is currently piloting a project to teach kids mathematics on the mobile phone. The Shuttleworth Foundation in South Africa has also taken the initiative with the M4lit (Mobiles for literacy) project to get children to read. In Africa, where corporate training budgets are often overstretched, mlearning can be viable blended learning option.
With limited cash flow, many retailers run out of stock on a regular basis and delivery frequency does not always satisfy demand. With low drop sizes (low purchases) increasing delivery frequency is not always a viable option. Outlets are sometimes unaware where to purchase stock when they run out. Mobile search, such as applied by Google’s Application Laboratory (AppLab) in partnership with the Grameen Foundation, models interesting possibilities for business. AppLab builds on the success of another earlier project, Village Phone, in which local entrepreneurs rent cell phone use to villagers. AppLab includes Farmer’s Friend, a searchable database with agricultural advice and weather forecasts, Clinic Finder, to locate nearby health clinics, and Google Trader, which matches buyers and sellers of agricultural produce, commodities and other products. Companies can adopt mobile search to provide important information regarding location and product offering to consumers. It can also be used to assist shop owners in locating the nearest supply point. Users can text a query to a short code and the service will text back the result.
Most companies in Africa will tell you that visibility in the supply chain is one of the biggest challenges they face. With a lack of IT infrastructure it is difficult to keep track of stock levels and sales data; real time data is just a dream for most. However, organizations are increasingly starting to use mobile phones for data collection. Stopstockouts.org currently uses the Ushahidi website mashup, online mapping technology, to track stock-outs of medical supplies with text messages in Kenya, Malawi, Uganda and Zambia, all in near real time. Ushahidi was initially developed to map reports of violence in Kenya after the post-election fallout in 2008. Text messages are connected with mashups, and create a picture of medical out of stocks. Businesses can use the same technology to track sales and stock levels and identify problem areas and regions. Online mapping can also be used to collect outlet base information and create route maps for distributors and salesmen.
SMS for counterfeit
Most African consumers can testify that purchasing medication can be a risky undertaking. International Medical Products Anti-Counterfeiting Taskforce (IMPACT) estimates counterfeits comprise around 1% of sales in developed countries and more than 10% in developing countries. However, in parts of Africa, more that 30% of the medicines on sale can be counterfeit. MPedigree, a non-profit based in Ghana fights counterfeiting with SMS technology. Consumers can SMS a scratch off panel code to determine if medicine is counterfeit. The same technology can also be used by companies in the textile and beverage sectors, where counterfeit is rampant and a major barrier for market entry.
Banking for the unbanked
With very low banking penetration in Africa, mobile banking provides great opportunities for organizations. Many distributors run out of stock because, as one distributor explained in Zambia, “to go to the bank is half a day out of my trading day. But no cash, no delivery”. Mobile banking (M-Banking) schemes such as M-PESA in Kenya and Wizzit in South Africa are receiving increased attention. As most mobile phone users make use of prepaid cards, prepaid calling credit has emerged as a viable mobile paying system in some countries, notably Kenya. Customers can use M-Banking to pay bills and transfer money. M-PESA is also being used as a savings account even though the scheme does not pay interest. Olga Morawszynski’s excellent research on M-Pesa found that it saves people time that they would otherwise spend traveling between their home and city to deliver money. M-banking holds real potential for organizations in Africa where cash flow and a reliable banking infrastructure remains a constant headache.
Mobile phones have had an enormous impact on peoples’ lives in Africa and can be counted an unparalleled success when compared to any other technology. As a cheap available technology, mobile technology presents a great opportunity and companies should seize the opportunity.
- Speed – move goods at great velocity along the chain
- Cross-docking – best-in-class warehouses cross-dock an estimated 50 percent of incoming goods
- Greener – green technology such as natural light and renewable energy
- Size – smaller and narrower, making better use of allocated space
- Additional services and functions – customer services such as customization and in some cases even light manufacturing
- Outsourcing – highly specialized field and companies are increasingly looking at 3PLs to own and manage warehousing operations
- Real time data – technology is improving visibility in the supply chain and allowing greater opportunity for collaboration
- Vast data – vast amounts of data and companies are demanding increased accuracy
- Increased complexity – increased SKUs and warehouses require advanced technology to deal with the increased complexity
- Internet age – small parcels and increased customization is commonplace
- Agility – solutions that can adapt to the modern supply chain
- Productivity – increased productivity and multi skilled employees
- Leaner operations – non-value adding activities are identified and corrective actions are taken
- Product and information flow – better understanding of the flow of information and products to reduce bottlenecks in the system
- Compliance – compliance such as labeling and documentation is increasingly important