logistics

Fast becoming the number one focus for development and economic growth opportunities, Africa needs to invest heavily in transport and logistical infrastructure to support and enable the economic growth that awaits the continent.

The focus on supply chain as a strategic competitive driver has received renewed attention during the past decade as globalisation and the advances in technology create new opportunities for the internationalisation of organisations. Africa, as a developing continent, offers some of the untapped opportunities globally and is favoured by numerous multi-nationals as they seek virgin markets to break into. This focus of the international business community places pressure on Africa to develop the necessary supply chain infrastructure in order to capitalise on it, and to ensure economic growth and social upliftment across the continent on a large scale.

But as much as Africa carries the potential for economic and social prosperity, it has numerous challenges that still need to be overcome. These challenges – related to supply chain infrastructure – in itself also holds huge opportunity though, especially for those organisations specialising in construction and related industries. At the same time, retail organisations in clothing and food are breaking ground on numerous African countries, with banking and mobile services also joining the race to market penetration.

The kind of challenges Africa faces is not that different from the rest of the international community when it comes to supply chain development.

These, amongst others, pertain to:

  • Increased risk
  • Globalisation and the impact of technology: e-commerce, e-deliveries and e-documentation
  • A shift to service supply chains as opposed to product-focussed supply chains
  • Cost containment pressures due to increased competition
  • Customer centricity

Let us elaborate on what is meant by these identified challenges:

  • Increased risk

The nature of the African business environment is constantly changing and fast developing. Whilst this can produce good opportunities, it often requires organisations to pursue these opportunities amidst a volatile, unstable and disrupted business landscape. The nature of this business landscape often requires organisations to rely on flexible and agile supply chain network designs, of which local suppliers is a key ingredient and contributor, something which is seldom abundant on the continent. Talk to most construction organisations in a country like Nigeria, for instance, and they will quickly tell you that they need to import between 70%-80% of the raw material and equipment that they need to execute their contracts. Whilst the theory recommends flexibility in organisational supply chain design, companies operating and expanding on the continent need to be a lot more innovative than most others. Transport options are limited most of the time and because of this, costs escalate exponentially, more than in developed parts of the world.

Theory dictates that a supply chain needs to deliver the right quantity at the right time at the right place at the right price. The assumption, however, of this theory in practice is that one has a choice of various transport modes, such as rail, road, freight and air. However, this is not always possible on the African continent. Supporting infrastructure such as cold storage for imports or general movement of perishables are also a challenge, making air travel the preferred choice, which all impacts very negatively on the cost and eventual price to the consumer.

A well-designed supply chain must take into consideration the risks that the business environment exposes an organisation to, as it is supply chain network designs that are most vulnerable and therefore require designs that will be able to mitigate risk.

 

  • Globalisation and the impact of technology: e-commerce, e-deliveries and e-documentation

Advances in technology have greatly favoured development on the continent with the advances made in mobile technology far surpassing conventional landline infrastructure. This makes cross-border trading on the continent and organisational expansion easier, if one thinks of electronic fund transfers as an example. At the same time, however, complexity due to inter-connectedness has also increased. Information systems need to talk to one another and general connectedness (network connectedness) is a pre-requisite for Africa to make use of the advances in technology. The latter is not always functioning optimally, creating challenges for organisations trading across the continent. There are, it must be said, e-commerce entities in countries such as in Nigeria, South Africa and Kenya, which are doing well. They are, however, dependent on road infrastructure for delivery. Both Kenya (and East Africa, for that matter) and Nigeria have their challenges as the roads are deteriorating and need to be fixed to support e-commerce. Rwanda is seriously contemplating using drones to deliver goods, given the poor conditions of its road infrastructure.

 

  • A shift to service supply chains as opposed to product-focussed supply chains

Probably one of the biggest impacts on supply chain network design and focus for most organisations, is the shift in the economy whereby services – as a contributor to GDP – are growing, and in some countries have outgrown former commodity-led economies.  It is one thing to design supply chain networks to cater for the movement of product, whilst the movement of services requires a different impetus. A reliance on the movement of information and the tracking of the movement of product becomes increasingly more important as the market places a high demand on the coinciding services that goes along with the distribution of products. On the continent there are two service elements that offer opportunities to organisations specialising in information management. One would be supporting services to commodity-based industries like mining, construction, oil and gas. The other would be pure service-driven products as in the financial and communications industries. Companies like Vodaphone, MTN, Barclays and Standard Bank are but some of the institutions that are leading the race in service-driven organisations. The market on the continent is huge and untapped. MTN, for example, generates more than 50% of its global income from Nigeria alone.

   

  • Cost containment pressures due to increased competition

As much as Africa provides for new market growth, it creates a kind of a “gold rush” phenomena whereby competition increases rapidly in some of the stronger and faster growing economies on the continent, albeit from a lower base. This places huge pressure on companies to reduce costs and create a cost advantage over their rivals. The supply chain, as an operational leg of any business, carries the pressure to ensure cost containment by not only reducing operational costs, but also by being more efficient in managing their inventories, more so in product-driven organisations.

Supply chains on the continent are seen to include the operational flows of movement of product and services, along with the movement (management) of information and funds, for purposes of better inventory management and operational costs. 

In order to orchestrate the increasing efficiency and effectiveness of supply chains, organisations invest heavily in systems optimisation technologies, processes, and other related activities. Invested in the right way, this can offset the increasing pressure supply chains face in both containing costs and increasing margins, ensuring a more competitive financial business model. This is why organisations operating and expanding on the African continent are heavily reliant on agility within the inventory component of the supply chain design. Enhanced materials requirement planning and a matching forecast accuracy from a demand perspective, is also required in order to achieve cost advantages for organisations to beat the competition.

 

  • Customer centricity

Africa cannot be viewed as a homogenous country or market segment (there are 54 countries), plus her customers are very well informed and particular in their needs and wants. This places pressure on supply chain network design on the continent to be very specific and diverse simultaneously. It is hardly ever possible when doing business on the continent for organisations to focus on delivery of one or two dominant attributes. Instead, they must deliver on more than one or two key differentiators. Supply chain design thus needs to consider the limitation of resources (people, funding, information, and infrastructure) as they address the challenge of multi-dimensional consumer-driven product and service deliveries. This places pressure on organisations that are cost driven to achieve this competitive edge through bulk purchases, as not all customers in different countries on the continent necessarily want the same product and/or service. Customisation becomes a key differentiator, but is difficult to achieve.

Concluding from these challenges and opportunities offered by the African continent, as highlighted above, supply chain and logistics managers and leaders need to deal with any number of these challenges simultaneously. There is a need to focus specifically on increasingly multi-dimensional operational flows of funds, as well as the information and products and services that are demanding the near-constant evolution of supply chain management skills. These skills are crucial for the optimisation of the opportunities presented by the African continent.

Successful supply chain management on the African continent requires a progression way beyond traditional thinking and needs to be embedded in the entire make-up of an organisation’s competitive ability. Challenging to supply chain managers is the need to create synergies between the operational flows of funds, information, and products and services. Sustainable competitiveness of organisations on the continent requires a shift from a conventional approach where strategy dictates the competitiveness of these organisations, to the competitiveness being created through much more flexible supply chain architectures. In short, supply chain network designs are increasing in strategic value, specifically on the continent, on account of an ability to maintain competitiveness in an otherwise disrupted and volatile business environment.

 

This article was written by Dr Steyn Heckroodt for the NTU-SBF Centre for African Studies.

 

 

 

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