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Pearson on Excellence: Cornerstones of an emerging market supply chain

By Mark Pearson
February 01, 2014

In previous centuries, international trade volumes typically flowed east to west, with more goods, materials, and components journeying from emerging markets­— largely in Asia—to mature economies in Europe and North America.

Now however, the global economy is more of a two-way street, with huge volumes of finished goods also heading east to burgeoning markets like China, Singapore, India, and Vietnam, as well as south to fast growing economies such as Venezuela, Colombia, Argentina, Uruguay, and Peru.

This new reality may be good for business, but it can be problematic for supply chain decision makers. That’s because many of supply chain management’s deeply held mantras—lean inventories, standardized operations, highly rationalized supplier bases—can work against global companies’ efforts to accommodate the diversity of emerging markets.

Take consumer needs: Tech-savvy young adults in Mumbai often have more in common with New Yorkers than with other young adults across India. Similarly, the purchase habits of affluent consumers in Shanghai may be more aligned with high income Parisians than with middle class or rural Chinese. Diversity—the traditional enemy of supply chain efficiency—is often the hallmark of emerging markets.

Emerging market infrastructures can also be inhospitable to lean supply chain approaches. According to a report in Indonesia-Investments, the ratio of logistics costs as a percentage of total GDP averages 9.9 percent in the U.S. In Malaysia, the average is 13 percent. In Thailand, Vietnam, and Indonesia, logistics-to-GDP ratios are 20 percent, 25 percent, and 27 percent respectively. In emerging markets, therefore, lean can be mean.

Emerging markets are also a hodgepodge of unclear and frequently contradictory regulations. This complicates companies’ ability to enact focused programs and policies. The 2012 Enabling Trade Index noted that Singapore is the world leader in developing “institutions, policies, and services facilitating the free flow of goods over borders and the destination.” Hong Kong ranked second. However, China ranked 56th, Indonesia 58th, South Africa 63rd, Brazil 84th, India 100th and Russia 112th.

The point is that heterogeneity is the overarching reality when it comes to emerging economies when you consider the geographically dispersed markets; diverse business and social culture; myriad stages of business maturity; varying work cadences; non-standardized taxation systems; and broad deviations in labor availability and efficiency.

So what are supply chain leaders doing to address emerging markets—places where one size fits none? Some organizations have chosen to excel at rapidly sensing, capturing, and analyzing external and internal data.

The idea is to overcome emerging market challenges such as growing to understand diverse, fragmented customer groups as well as maximizing visibility into far-flung supply chain operations.

Take Procter & Gamble for example, a company that built a supply network that includes near constant POS updates that quickly signal shifts in product consumption. Internal and external partners now use the company’s accumulated data to quickly create replenishment plans.
Another innovator, Nextel, developed a “control tower” approach to overseeing dozens of South American contractors, giving the company near real-time visibility into the progress of equipment installation, testing, and integration.

Complementing the rapid acquisition and assessment of information is the ability to quickly make supply chain changes. This is often a function of flexible, win-win relationships with supply chain partners.

Lenovo, the world leader in PC production, is a good example. The company’s hybrid supply chain model uses advanced segmentation and analytics to maximize transportation and distribution efficiency across captive and contract manufacturing facilities in Brazil, China, India, Mexico, and the U.S. The combination of in-house and external operations helps Lenovo ameliorate risks associated with volatile emerging markets.

Leaders also tend to agree that “rapid innovation” is as important as “rapid response” and that positioning emerging markets as dumping grounds for stripped-down versions of existing products is a ham-handed strategy.

Far more productive is redesigning products to meet the unique needs of emerging markets. In India, 60 percent of the population lives in poor rural areas without hospitals. As a result, hospitals must often go to consumers, which is why General Electric developed a fully portable ultrasound machine.

Also focused on Indian consumers’ financial and storage constraints, Novartis offers small, low priced medicine packets, with packaging information printed in local dialects.

Lastly, businesses may need more extensive, more flexible sales and distribution networks to connect with diverse, largely rural markets. Tata Motors solved this problem in an interesting way: Because its potential customers are often too dispersed to reach a dealership, Tata recruited local sales people who generate leads on a commission basis. To identify and feed prospects to Tata dealers, the company also developed a network of corporate partners with established presences in rural areas.

Some emerging markets may not be “emerging“ for long. But it’s unlikely that these new dogs will ever respond to old tricks. Which is why supply chain innovators are likely to remain successful far into the future.

About the Author

Mark Pearson

Mark Pearson is the managing director of the Accenture’s Supply Chain Management practice. He has worked in supply chain for more than 20 years and has extensive international experience, particularly in Europe, Asia and Russia. Based in Munich, Mark can be reached at .(JavaScript must be enabled to view this email address).


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