Supply Chain in Emerging Markets

How DDRMP can be used to Mitigate Supply Chain Barriers in Africa

Introduction

Africa is one of the fastest growing economies globally, and as such is a rapidly becoming the focus of local and international interest as an emerging market [1], [2]. The opportunities to expand into Africa are many, varied and most importantly, potentially highly lucrative. Despite the benefits and potential for growth organizations are finding there are several barriers to entry into, and growth within, the emerging African market, particularly from a supply chain perspective [3], [4]. One of the largest supply chain challenges to overcome in any emerging market is that no two countries, or even regions within a country, are the same [5]. This requires organizations to devise innovative solutions to ensure their supply chains are efficient. Coca Colas’ unique transportation logistics solutions [6], and Twiga Foods’ innovative use of available technologies combined with market understanding [7], are just two examples of organizations successfully entering the market through novel Supply Chain solutions. While it is imperative that organizations thoroughly research the country they plan to enter to identify unique challenges that they might face [8], there are many common challenges to overcome from a Supply Chain perspective. Piotrowicz and Cuthbertson have identified and classified these from the literature [9], at the Macro, Market and Supply Chain levels, as listed below.

Macro

  • Geographic constraints in the form of access to multiple transportation modes (sea, inland waterway, rod and rail) and the physical location of the market base, including distances between these and established transportation routes.
  • Instability (economic, political, social, etc.) leading to high variability. This is often linked with high risks and a lack of security.
  • Political and regulatory barriers can come in many forms, including corruption, lack of legislation and/or transparency and sudden policy changes.

Market

  • Limited transport and logistics infrastructure which can be of poor quality where extant.
  • Lack of supply chain structure resulting from a fragmented supply chain and narrow supply base.
  • Market structure variability including customer disposable income and local competitors.

Supply Chain

  • Shortage of basic skills and/or knowledge specifically related to Supply Chain and logistics. This is often exacerbated by a lack of resources to address the skills gap.
  • Differences in culture (business and otherwise), language and trust in partnerships prevents inter-organizational growth and visibility.
  • Poor strategic Supply Chain planning.

From the lists above, three factors emerge as having a large impact on Supply Chains in Africa:

  1. Supply Chain Volatility/Variability: This can result from all the barriers listed at the Macro and Market Levels.
  1. Lack of Supply Chain Visibility: This can result from a lack of infrastructure, Supply Chain structure, and a paucity of skilled individuals.
  1. Lack of Supply Chain Skills: This is largely caused by those barriers listed in the Supply Chain level, however a lack of resources is a large contributor.
Addressing these overarching factors will place any company wishing to enter the African market in better position within that market. We address each of these factors with a focus on how Demand Drive Materials Requirements Planning (DDMRP) can be used to overcome the identified barriers.

DDMRP to Address Supply Chain Volatility/Variability

Supply chain volatility is a term that is often used interchangeably with supply chain variability [10]. It’s also a term that is being used more frequently as supply chains grow in size and complexity. But what exactly is ‘supply chain volatility’? This is a question that has been asked repeatedly by supply  chain professionals and academics, to the point where a conceptual framework has been developed to attempt to align all the different definitions out there [11]. Regardless of the definition used, the result of Supply Chain volatility is that organizations fail to get the right product, to the right place, at the right time, and for the right price. In the African Market sources of variability are extremely varied and can come from within an organization and from external sources [9]. With so many sources of variability in an emerging market it’s no wonder that growing an organizations’ presence in that market is a challenge [3], [12]. The best way for organizations to combat volatility, regardless of the source, is to start taking a proactive, rather than reactive, approach to supply chain planning. While it is impossible to plan for and guard against every perceivable source of volatility, there are methods which can be employed that can lessen the effect of variability on supply chain performance. One of the more common methodologies for reducing the impact of supply chain volatility is to shift from push driven supply chain planning to pull driven supply chain planning [10], [13], [14]. In the African market the need to adopt a more demand (pull) driven planning approach is evident as more organizations shift to a customer-centric operational model (Barloworld Logistics, 2015). This is seen in the pharmaceutical industry, where ensuring that the supply chain moves efficiently and can be a matter of life and death [18], [19]. Forecasting has long been used as a technique to anticipate customer demand and plan accordingly. This method has been shown to be inaccurate at best, and more often than not has a negative effect on inventory, as well as on customer service levels [20], [21]. The inherent inability of forecasting to predict demand has left the door open for the development of demand driven strategies which allow organizations to respond to actual demand fluctuations in real time [20], [22], [23]. A methodology which has garnered a significant amount of attention recently is that of Demand Driven Materials Requirements Planning, developed by Carol Ptak and Chad Smith [24], [25]. Demand Driven Materials Requirements Planning (DDMRP) uses the placement of strategic, dynamic inventory buffers to mitigate the negative effects of demand volatility. These buffers are NOT safety stock, rather they are defined by the average daily usage of an item, it’s lead time, variability in its’ supply and variability in its’ demand [25]. By capturing all the volatility data intrinsic in these parameters, strategic buffers are able to negate common effects of demand volatility, such as stock outs and conversely over-stock, which can be detrimental to customer service, profitability and the customer centric shift described above [18]. In emerging markets such as Africa, where supply chain volatility is far more prevalent than in established markets [3], organizations must take advantage of all methods of mitigating this volatility to successfully grow within the market. DDMRP offers an effective means of managing supply chain volatility in emerging markets, as can be seen in the success reported by ABE Construction Chemicals in South Africa. After implementation of DDMRP they have seen a significant reduction in stock outs and overstock situations and a corresponding increase in customer satisfaction [26].

DDMRP to Increase Supply Chain Visibility

Since the early 1990s, when the concept of supply chain visibility was introduced as Supply Chain Event Management [27], the need for end to end supply chain visibility has been rising on the list of top supply chain improvements which organizations need to address. This is highlighted by a recent GEODIS survey which showed that improved supply chain visibility is considered the third most important strategic objective for organizations to achieve, up from sixth two years previously [28], [29]. This is particularly true in emerging markets, where modes of transport vary drastically, access to some geographic locations is limited at best, and resources are limited [3]. This makes gaining visibility across the supply chain a challenge [30]. Supply chain visibility, also known as supply chain transparency, can be defined as the ability of an organization to access data about any part of their supply chain (from production suppliers to customers) in real time [31]. The ability to have sight of all aspects of the supply chain provides businesses with the building blocks for increasing their agility, and ultimately can lead to massive inventory reductions without reduction in customer service [32]. Other benefits of increased supply chain visibility include [31]:
  • Enhanced end-to-end business process efficiency
  • Visibility to supply chain “blind spots”
  • Real-time visibility to customer requirements
  • Enhanced customer responsiveness
  • Superior handling and execution
  • Decreased material and labour costs
  • Better inventory management
  • Improved business metric monitoring and outcomes
  • Optimized logistics and transportation efficiency
The concept of supply chain visibility may seem straightforward, however with increasingly complex supply chains, and a shift to customer centric business plans [17], the attainment of this utopian goal is proving a more daunting task than ever. In emerging markets this task is made even more challenging due to the uniqueness of every region [5]. Many organizations are focused on creating visibility across their entire supply chain, however only 6% of organizations recently surveyed have achieved this [28]. This low success rate highlights the difficulty of creating end to end supply chain visibility, but also shows that it is not impossible. While supply chain visibility is of high strategic importance, organizations need to understand that visibility alone is not the ‘magic bullet’ to efficient, responsive supply chains. This is doubly true in emerging markets where access to resources needed to achieve full visibility are limited [3], [9]. In order to fully leverage the benefits of supply chain visibility, it needs to be combined with a move toward demand driven supply chain management  [33], [34]. A well-structured plan for the implementation of software that can provide visibility to demand and supply data is the first step in ensuring that organizations are able to improve their supply chains. This will allow them to ‘know sooner and act now’ [35]. A number of technologies exist which address both the need for increased supply chain visibility and the need to be able to respond to actual demand and supply fluctuations in real time [20], [22], [23], many of which have incorporated the increasingly popular Demand Driven Material Requirements Planning (DDMRP) methodology developed by Carol Ptak and Chad Smith [13], [25]. The DDMRP is underpinned by tenet that in order to achieve a demand driven process Flow must be maintained. Here Flow is defined as not only the movement of materials from suppliers to customers, but the flow of information to all parties about what is planned and required, what is happening, what has happened, and what should happen next [25]. This emphasis on information flow is what makes DDMRP a particularly well-suited tool to improve supply chain visibility. Having sight of all the moving parts in one place/system provides a level of visibility across the supply chain that is indispensable in an emerging market.

DDMRP to Bridge the Supply Chain Skills Gap

The field of supply chain management is facing a skills crisis in both established and emerging markets, with demand for skilled supply chain professionals exceeding supply six to one [36]. This crisis is occurring at the same time as the field needs skilled professionals more than ever, as it is becoming one of the most critical areas for overall business success in all markets [37]. This situation has occurred because supply chains have become increasingly complex and customer centric [17], the roles  of supply chain managers are changing [38], [39], and a large proportion of the expertise in this field being contained in supply chain  personnel at or past retirement age [40]. This skills gap has been felt at all levels of the supply chain, from picker/ packers to senior management [41]. In emerging markets this skills gap is exacerbated by lower literacy levels and limited access to education [9], [42]. In addition, those individuals who do receive supply chain specific education often gain the knowledge needed to understand the supply chain, but not the skills required to be effective supply chain personnel [39]. These have been addressed to some extent by both government and private upskilling initiatives, however the success of these has been limited due ineffective inter-departmental collaboration and bureaucratic delays [43]. In order to address the skills gap a succinct definition of the skills required at all levels of the supply chain is needed. he definition of skills has proved difficult in that many regions have different definitions of what a skill is, and in emerging markets the understanding of a ‘skill’ is further hampered by the fact that the word may not exist and/or be defined in languages other than English [9], [44]. To address this Kotzab et. al. (2018) undertook a study to identify the specific qualifications and competencies required in the field of supply chain management [44]. They identified five main skill types:
  1. Generic: Tasks performed in a wide range of occupations.
  2. Specific: Tasks performed in one or a few occupation types (cannot be defined generically).
  3. Cognitive: Tasks requiring thinking activities such as problem solving.
  4. Interactive: Tasks requiring all types of communication and/or cooperation.
  5. Physical: Tasks requiring dexterity or stamina.
Supply chain professionals are now expected to be able to perform tasks within all of the above skill types, regardless of their role in the supply chain, and without access to the training required to learn them, particularly in emerging markets [9], [37]. The upskilling process is one in which leading organizations are investing heavily in to address the skills gaps within their supply chains [36], but this process takes time to provide a return on investment. Many organizations have not taken any measures to ensure the supply of skilled supply chain professionals within their organizations [36]. Those organizations which have taken no action to address their supply chain skills gaps can be considered to be at a significant competitive disadvantage, particularly given the scarcity of skilled supply chain professionals in the hiring pool [36], [39], [45]. In Africa a supply chain role which has a very large skills gap is that of the Planner, where higher education and managerial skills are required, but the available employment pool consists largely of administrative personnel [46]. This results in the function of Planner being executed with far less proficiency than necessary, and ultimately in inefficient supply chains with either excessive inventory levels, frequent stock outs or both. The bimodal inventory distribution described above is far more common than many industries would like to admit. Many supply chain methodologies exist to mitigate this effect, all of which have achieved success when correctly applied. The one caveat with these methodologies is that they either focus on pushing or pulling inventory through the supply chain [13], [20], [24].  This can lead to either demand or supply data being marginalized. DDRMP incorporates both push and pull [25]. One of the major benefits of DDMRP is that the concepts that drive the methodology can be easily learned, regardless of the skill level of supply chain staff. DDMRP buffers are split into three colour zones; Green, Yellow and Red [25]. This color system makes it extremely easy for Planners to identify inventory items for which inventory levels may become too low to address demand within the supply chain. Green is great, yellow you should look at your supply of the item, red you need to attend to the supply of the item immediately. Simple as that. Additionally, the instructive nature of this tool, where planners are prompted to order to the ‘Top of Green’ should the inventory level for a buffered item fall below a specific calculated level, makes using it even simpler than learning its’ tenets.

iSimPlan for DDMRP as a Tool for Competing in the Emerging African Market

As can be seen from the above analyses, DDMRP provides a means to address the three largest barriers to entry and success in an emerging African Market; high volatility, poor visibility and lack of skills. This is achieved using dynamic stock buffers to absorb volatility, a focus on flow to improve visibility and an easy to use and understand methodology to address the skills gap. With supply chain management becoming one the most important functions in any business [47], it is imperative that organizations find effective solutions which are easy to implement in the short term, but are also sustainable in the long term. DDMRP is such a solution. A number of technologies exist to assist organizations in becoming demand driven, although most have been designed in and around established markets. iSimPlan, the first Demand Driven Institute Certified DDMRP software developed in Africa, is a web-based DDMRP software solution specifically designed to be able to address the challenges of supply chain efficiency in an emerging African Market. iSimPlan addresses the innate volatility of the emerging African market by strictly adhering to the DDMRP tenets of Position, Protect, Pull. This is achieved through our emphasis on the coaching of Planners in the strategic selection of buffered item and the correct construction of the buffer for buffered items. From a visibility perspective iSimPlan has been proven to pinpoint data inaccuracies within an organizations’ ERP through our unique connector. This connector integrates directly to the ERP, making sure that one source of data is used for all supply chain functions within your organization. This provides your organization with the ability to view the stock levels of buffered items across all echelons at a glance. This can be customized to suit any business’ needs, from high level overview to detailed reports, using our Dashboard and Reports functionalities. iSimPlan has specifically been designed to be understood by all users, regardless of their skill level. With any system implementation project, some people will need a more in-depth knowledge of DDMRP, while others will simply need to understand basic tenets and the use of the system. As a part of our implementation process, we coach your organization in identifying the skill levels and placement of those involved in the project. We also provide access to different courses which would supplement the knowledge of DDMRP and iSimPlan. Would you like to leverage DDMRP to improve your success in an emerging African market?

Contact us to find out more about a Proof of Concept trial for your organization.

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