Revisiting the supply chain – Opinion
Covid-19 has disrupted the supply chain! Time for a revisit.
In the 1960s, it was called the “purchasing department”. In the 1980s, it was renamed the ”Procurement Department”. Later, a fanciful nomenclature emerged: “Supply Chain”. The Japanese introduced the “just in time” inventory. Advanced Corporates warehouses kept only a week’s inventory. Saved on working capital and warehousing costs. Big business has failed to take nature into account – pandemics, floods, typhoons, earthquakes, etc.
The supply chain has been an essential military element. From the time of the Neo-Babylonian Empire. Much later, Napoleon declared: “An army marches on its stomach. Many wars have been lost due to weak supply links. Hitler’s Northern War movement failed due to supply problems. Otherwise, the results of World War II would have been different. In the 1980 Falklands War between the United Kingdom and Argentina, the United Kingdom emerged victorious. Surprising, considering the UK had to reckon with a 4,000 mile supply chain. In the Pakistan Army, the Quartermaster General (QMG) is the head of the supply chain. The “Big Daddy” of supply chains in the 1980s was Lieutenant General Saeed Qadir. He was QMG, federal minister of production and president of the national logistics unit. You don’t get more “Supply Chain” than that. To say the least, nothing has moved in Pakistan without the command of General Sahib.
The Silk Road at the beginning of history was the original supply chain. World trade, indeed the civilized world, was centered on the Silk Road. When Alexander the Great of Macedonia looked up into the distance, to plan his conquests, he decided to ignore Europe. It was a poor and unorganized desert. All the riches were found along the Silk Road. So it is with Julius Caesar. The current Chinese BRI (Belt and Road Initiative) is an attempt to re-inaugurate the Silk Road. The BRI also bypasses maritime choke points controlled by other powers – Hormuz, Malacca, Suez, etc.
In the 1970s, the Japanese industrial juggernaut was booming. Raw materials of all kinds were needed. The big companies have sown theirs. Japanese trading companies like Mitsui, Mitsubishi, Marubeni, Sumitomo also scoured the world for industrial inputs. The supply chain has been organized, refined and elevated to the next level. Around this time, American multinationals felt the need to be more competitive. They couldn’t, given salary levels and unionization. The obvious move was ‘offshoring’, ie moving component production to low-wage countries. The components were ultimately assembled in the United States. This has elevated logistics and supply chain management to an art. In 2000, American and some European multinationals managed only certain critical aspects such as R&D, innovation, marketing and branding. Lower quality production was “delocalised”.
The Covid-19 pandemic and other nature-induced issues have disrupted supply chains and JITs (just in time). Everything is delayed – cars, fresh food, processed food, energy supplies, medicine, textiles, electronics, basic necessities. Supply chains have become the problem, not the solution. Back to the drawing board. A radical overhaul is underway. The new procurement platform, when it emerges, will have to integrate national security, enterprise security, ecological security, blockchain, cybersecurity and other unusual factors.
In an earlier era, around 1500, the first European supply chains emerged. It was the slave trade. Spanish and Portuguese traders ventured into the Americas (the New World) and extracted unimaginable wealth. Soon, Spain was the master of Europe, closely followed by Portugal. European traders profited from the slave trade. The ships would sail from European ports south along the West African coast. Ships would stop at various destinations and capture or purchase slaves. Then they would sail to their colonies in the Americas. The trip was a step below Hell. Slaves were only allowed a space of 5 feet by 3 feet. One meal a day. Sick or infirm were thrown overboard. Slaves were landed in Brazil, Guyana and the Caribbean. Later, in the southern states of America where cotton is grown. After unloading its cargo of slaves, the ships loaded silver, gold, tobacco and sailed to Europe. This triangular trade enriched Europe beyond measure and made European states the superpowers of their time. The Silk Road has been relegated to a lower rank. The slave trade still abounds.
The overhaul of the supply chain is also going to have a major impact on the most lucrative and deadly business – narcotics. Narcotics have shaped the history of the world. The Opium Wars, China, Hong Kong, etc. Naturally extracted drugs are central in some regions – Afghanistan, Colombia, Golden Triangle in Myanmar/Thailand. For centuries, drug traffickers have used ingenuity, corruption, force and technology to shape their supply chains to lucrative consumer markets. They stayed one step ahead of law enforcement. It’s an ever-evolving game. VVIP aircraft now land at destinations in Europe. Not checked by customs or DEA. Each trip brings in over $10 million. In 20 years, all that will change. Synthetics will take over. Synthetics have a distinct advantage: labs can be located close to consumer markets. Long and dangerous supply chains will mostly disappear or operate locally. Ice, Meth, Rainbow and other drugs have already taken significant market share. Thanks to the Sacker family (from the USA) and cooperative doctors (from the USA), opioids are surely replacing traditional drugs.
(The author is a former executive director of the Pakistan Management Association)
Copyright Business Recorder, 2022