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5 steps for a greener supply chain

November 26, 2009

Communicate the message – It all starts at the top. Communicate the green vision and actions plans to all in the organization.  Have a clear public relations agenda and don’t shy away from your critics. Work with all stakeholders.

Look at the whole supply chain – talk to your partners and suppliers and get an understanding of their processes and systems. What are they doing better or worse than you?  What can you learn from them and how can you help?

Understand the returns – have a look at packaging, equipment, waste, and product returns. What happens to all of this?  What can your organization do to make the reverse logistics greener?

Reward ideas – focus on employees, suppliers and other partners. Develop clear plans to implement and reward new initiatives.

Take action – when things go wrong take action. Remember it is a process and don’t expect immediate results. Don’t focus too much on short term gain and keep the bigger picture in mind.

Aquatabs – the Hybrid Social Distribution Model

November 13, 2009
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Aquatabs – the Hybrid Social Distribution Model

Last month I spoke to Michael Gately, Marketing Director of Medentech.  The company is well known for its Aquatabs brand of rapidly dissolving tablets. It is one of the best known and most respected names in point-of-use water purification globally and is used to disinfect billions of litres of water every year.

TN: What is the public private partnership?

MG: It is a collaborative model that involves WHO (World Health Organization), UNICEF (The United Nations Children’s Fund) and at country level it also includes central, local governments and NGOs (Non-Governmental Organizations).

TN: Your Route-to-market strategy revolves around a hybrid model. Can you elaborate on this?

MG: The hybrid model includes three legs:  Emergency preparedness, retail sales supported by above the line advertising and door to door social marketing.  At the retail level we normally work with local importers. However , in a number of countries, NGOs such as PSI (Population Services International) can also fulfill the role of importer and distributor at the retail level.

TN: Can you explain the door to door distribution?

MG: In some countries NGOs are organizing a door to door sales person. This person fulfills the role of a community based distributor and also an outreach worker. They derive their income from the sales of Aquatabs and other products. Door to door distribution is very important as the sales person finds himself right there where the child might be sick today. The sales person also has the opportunity to hand them a behaviour change message and handle any objections they might have. This is very hard to do with above the line advertising.

TN: What is your pricing strategy?

MG: We don’t arrive in a country with a price point and we normally work backwards to make sure everybody in the sales channel earns a livable wage. We also want to make sure that our prices are in line with what people are willing to pay for our products. The margins that people can earn are very attractive and Medentech has a long term commitment to keep their prices affordable.

TN: How do you forecast demand?

MG: Pre-positioning is a big part of what we do and we have stock pre-positioned all over the world. The businesses we are in have enormous search capacity. You don’t know when another Tsunami might happen.  We normally plan five years ahead and are currently constructing a new factory in India. Our capacity is way beyond what any urgent search might require. However, having products available in local shops is the ultimate in crisis preparedness.

TN: Do you provide any training to partners?

MG: We have developed a comprehensive training program for emergency water treatment. It is a day long training program that we provide to all of our distributors. The training program covers key issues such as water treatment options and what to do in an emergency.

TN: What does the future hold for water purification?

MG: The water sector is going to become more and more stressed and the need is growing.  There are 5,000 children a day dying due to diarrhea and we can have a substantial impact. Hybrid social marketing is still a relatively new science and we are learning all the time.  However, there are organizations with expertise in the area, in particular, PSI, AED and Path. The mood among our network is that we just need to get on with it and do it.

Tsukiji fish market

November 10, 2009

I recently visited the Tsukiji fish market in Tokyo. It is the biggest wholesale fish and seafood market in the world and is also one of the largest wholesale food markets of any kind. The market is located in Tsukiji in central Tokyo.

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The market handles more than 450 different types of seafood at the markets more than 1,500 stalls. The first market in Tokyo was established by Tokugawa Ieyasu during the Edo period to provide food for Edo castle (now Tokyo). Around $20m dollars of fish and other foodstuffs are bought and sold at the market on trading days. The tuna auctions are a particular attraction and are a series of auctions in various parts of the market. Traders can sometimes be seen closely examining the fish with torches prior to bidding.

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Vietnam’s intellectual property (IP) law

November 8, 2009

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I recently spoke to Patsy Day, an intellectual property attorney from Rouse Legal based in Ho Chi Minh City, Vietnam. Rouse is a leading global intellectual property firm, with offices in more than twenty countries. Rouse has been handling IP cases in Vietnam since 1997.

TN: Which sectors are most infringed?

PD: The sectors where we see most infringements are alcohol, clothing and pharmaceuticals. As the Vietnam market becomes more sophisticated, so do the infringements. Infringers have also become more IP savvy and we are seeing a move away from direct copying to “lookalikes”.

TN: What is important for companies entering the country?

PD: Vietnam has made considerable progress over the last couple of years with regards to intellectual property rights. However, there is still a gap between the law and the implementation of the law. This is important, as companies need to have confidence that their IP rights will be protected.  Franchising is essentially an IP driven business and franchisors are concerned that they won’t be able to control their franchisees or stop third parties from imitating their brands.

TN: What advice would you give to franchisors?

PD: Protect your intellectual property.  Register your trademarks, domain name and any copyright. Do your due diligence and pick a partner that understands the importance of IP. Get a strong contract in place with your franchisee. Many international franchisors use their standard agreements which have been developed over the years. This is a good thing as it makes it easier for the in-house legal department to manage. However, it is important to run it by a local lawyer. For example, some standard agreements have very detailed insurance provisions. The insurance market in Vietnam is still developing and the franchisee may not be able to obtain the level of insurance you require. You could be putting an obligation on them that, from a practical point of view, they cannot adhere to.

TN: How can franchisors assist franchisees with regards to IP rights?

PD: Education is very important. Communicate to franchisees the key objectives you would like to achieve with your brand. Franchisees need to have clear guidelines on how to use your brand properly.

TN: How can you track your brand?

PD: Do regular audits and keep an eye on the use of your brand. Ensure that the standards are being maintained. For many companies, their brand is essentially their biggest asset. You want to have control over your brand.

TN: For many companies, parallel imports are also a big issue. What can they do?

PD: It is very difficult to stop parallel imports because it is not illegal. Products are just imported through a different channel. Some brand owners will identify the weak link in their supply chain by tracing back the parallel products and then rely on contractual obligations to control the flow. It is, however, critical that you register your own trademarks.  In the past a more relaxed attitude was to allow the distributor to register your trade marks in their name. However, when the relationship goes bad it is very difficult to recover your trademarks.

TN: The Danone and Wahaha trademark dispute in China was followed by many industry observers. What are the lessons for Vietnam?

PD: Do your due diligence carefully and deal with intellectual property disputes as they arise. Ensure your contracts have carefully drafted IP transfer clauses and that any intellectual property rights that are meant to be assigned, are in fact assigned and any licences registered, as appropriate. It is also important to look at the structure of your business in Vietnam and what role you will play in the company. In some cases a joint venture might not be the right option so companies should explore, for example, licensing agreements.

 

Two-tier distribution in emerging markets – telecom and electronics

October 23, 2009

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What is a two-tier distributor? They buy from manufacturers and sell to resellers.

What are their competitive advantages? Two-tier distributors can expand the retail footprint in emerging markets. They normally sell a diverse range of brands and control a large percentage of the local distribution in the telecom and the computer industry. Two-tier distributors understand local conditions and can negotiate much better lease terms with proprietors. In some cases they might even own their own buildings.

How can they add value? Smaller distributors understand the needs of retailer and have well established practices and systems to deal with local customers. Because they are closer to the customer, they are also a valuable source for customer feedback.

Do they provide additional services? They normally provide credit terms to small retailers. In a current credit tight market, this can be a big advantage.

How will it affect lead times? By making use of two-tier distributors, manufacturers can reduce lead times by moving goods closer to retailers.

How can manufacturers support two-tier distributors? Manufacturers can assist them with route planning and help them identify the potential outlet base. Training workshops can go a long way in developing the business and building relationships.

How can they avoid channel conflict with their own sales force? Manufacturers can restrict salesmen activities to certain channel, and avoid conflict with distributors.

Slums – Beyond the perception

October 19, 2009
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Personally, I am not very fond of the term, slums. I think it is loosely defined term for a type of informal market. However, with all their problems and challenges there is a lot to learn from slums from a business perspective.

Entrepreneurism – slum areas are highly entrepreneurial, with a high degree of business activity. Most houses also double as business premises. While this is often out of economic necessity, there are some interesting models coming out of these organic (and often unregulated) businesses. During my first visit to Lagos’ Makoko, I was impressed with the supply chain of Nollywood movies (Nigerian films). Nollywood hawkers were everywhere, with no shortage of supply (and demand). The lack of law enforcement also provides some advantages to entrepreneurs. Because the market is informal, most businesses trade without bothering to fill out any paper work, keeping start-up costs low and speeding up the notoriously slow process of starting a business in Nigeria.

Low cost distribution – slum area are normally densely populated. Because such areas often have poor infrastructure, a conventional route system is normally ineffective in these areas. However, with some ingenuity, high density can be converted into quick delivery and turnaround time. For example, in Dhaka’s Motijheel Thana there is a highly effective cold chain (ice) distribution system catering to fish mongers. Deliveries are made with pushcarts and completed before 11 am. In 1999, while working in the Coke system in Ethiopia, my team and I rolled out a low cost manual distribution system to cover our outlet base in an informal market area. The model was by no means unique to Ethiopia or Africa. However, what made it different was that it was a managed distribution system that required detailed planning and implementation. The distribution model also created a high number of jobs in this poor area, about which The Harvard Kennedy School wrote a case study. The distribution system has since been adopted by a number of companies operating in Africa.

Environmentalism – poverty inspires frugality as well as innovation. When walking around in slums, you notice the importance of waste recycling. From computers to packing material, nothing gets wasted. Soda cans are hammered and reshaped into toy airplanes to sell to tourists. Grain sacks become patches on frayed clothes. Individuals living in slums already understand fully the environmental call to “reduce – reuse – recycle”.

Community projects – the extreme social and economic challenges faced by those living in slums has inspired innovative social programs and partnerships. In Nairobi’s Kibera there are a number of NGO projects focusing on how to convert waste recycling into stable income generation, as a means to lift individuals out of poverty. A number of organizations are also evaluating the potential of distributing “social products” such as condoms and vitamins to such areas. Simon Berry and his highly visible Cocalife campaign, is a great example. Escaping the slum is an unlikely reality for most and companies and NGOs need a fresh approach to operate in these areas.

Evolving Supplier Relationship Management (SRM)

October 14, 2009
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Managing supplier relationships used to be a zero sum game. Most companies focused on short terms goals where price was the main focus. Bullying suppliers were commonplace in some organizations. Employees took great pride in “facing down suppliers” and relationships were viewed on “how much money we will make”. However, with the increase in outsourcing and volatility in commodities, supplier relationship management (SRM) has moved to the forefront of organizational strategy. Companies are spending increased time on their selection criteria and determining clear best practices to manage partner relationships. However, few companies have mastered supplier management and SRM is in its infancy.

The question of quality

With the increase in outsourcing and the growth in world trade, product quality is increasingly an important factor. Many companies in the pet food, toy and dairy industry are still reeling from recent quality scandals in China and other parts of Asia. These scandals have put increased pressure on companies, as consumers are progressively more concerned about product quality. These quality scandals of late, as well of those in the apparel industry over the past decade, have highlighted the importance of managing relationships and the importance of supplier tracking and auditing. The days where companies could plead “we don’t have control over our suppliers” are gone. Environmental concerns and an increased scrutiny of labour practices also are demanding improved supplier relationships.

Outsourcing to the “unknown”

With outsourcing to Asian countries on the increase, companies need to understand culture issues. Many companies have been burned when outsourcing manufacturing to countries such as India and China. Management practices that worked in one country are not necessarily going to work in another country and companies need to change the way they think and work in other markets. Country values are also different. For example, cutting legal corners is seen as a survival technique and is much more tolerated in some countries. It is important to understand the value system of each country and it is important to assume nothing.

Outsourcing to emerging markets provides companies with unique challenges. Companies must develop contingency plans as delivery delays are normally more frequent. As one executive put it, “getting on time deliveries from our Asian suppliers, is one of our key challenges”. Working in the “unknown” also provides companies with unique legal challenges. Foreign companies trading in China and India have complained in the past about unfair legal practices. Companies must avoid disputes and ensure contracts are clear to all parties involved.  Do not assume all parties will read the fine print and try to avoid legal terms. Always aim to simplify matters for suppliers. Consult lawyers that not only understand local laws but also cultural issues. The interpretation of the law can differ from country to country and cultural issues need to be taken into consideration.

Technology

In recent years, companies have seen technological advances in managing supplier relationships. The day of managing suppliers with spreadsheets are gone, and SRM is increasingly complex. Companies are demanding increased visibility. The need for real time information is on the increase. Companies are investing significant resources in managing suppliers and the use of supplier relationship software is becoming more common place. Supply chain managers are increasingly using the web to collaborate and to communicate with supply chain partners.

Find the right partners

Previously, partner selection only focused on price, with value sometimes taking a backseat. Today, companies are spending increased time and resources to develop and implement a comprehensive supplier qualification process. Companies need to establish a strategic road map and clear selection criteria. For example, the selection criteria may include important components such as strategic vision, capability, capacity and environmental issues. Companies need to evaluate if potential suppliers meet their required standards. Furthermore, supplier selection is not just limited to procurement departments, and companies are increasingly making use of cross functional teams. Employing external agencies to monitor and track supplier relationships is also on the increase.

Building relationships

Companies must always act with the relationship in mind. Companies must have a clear relationship development plan for each partner with clear goals. Building trust is key in any relationship, and trust must be built at all levels of the organization, and not just at senior management level. For example, companies can introduce department induction programs and in some cases even embed suppliers in the organization. The more partners understand each others businesses, the better for all parties involved. With clear communication channels, partners will have the confidence to address problems head on.

Advantages of relationships

One of the key advantages of long term relationships is cost reduction. Companies work together to solve supply chain problems and learn from one another. Better collaboration and communication will lead to increased sales. Improved collaboration can also lead to better demand planning and route scheduling. For example, when Kellogg evaluated Tesco’s inventory levels it realized that most out of the stocks occurred in the middle of the week. Kellogg worked with Tesco and changed its delivering schedule to accommodate the retailer. By changing the delivery scheduled, Kellogg reduced stock outs, increased sales and improved both customer and consumer satisfaction. As the Kellogg example demonstrates, working with suppliers can provide mutual benefits to all parties involved.

In today’s world, companies require suppliers that are results orientated and are demanding increased speed from suppliers. Not all suppliers are equal and all suppliers need to be segmented. Segmentation is critical, as it will determine the importance of the partnership and how much time companies need to spend on building supplier relationships.  All members of the supply chain must have clear accountability and each member of the team must be aware of his or her duties. Companies need to monitor compliance and implement and communicate clear Key Performance Indicators (KPIs). In today’s high speed world, SRM is on the forefront of any successful company.  SRM has changed significantly over the last couple of years, and suppliers are now seen as an extension of the business.