[BLOG] Greasing the supply chain
In the majority of economic transactions, physical goods change ownership and more than often its location. In developed economies this phenomenon, which I call for the purpose of this article supply chain, works well with a predictable outcome. In Africa, the supply chain is often hindered by a number of factors, which makes every transaction unpredictable and as a result more costly for the end customer; unnecessary and avoidable - if only a few important factors were improved.
I will highlight the following factors:
- Clearing on importation
- Road infrastructure
- Theft and breaches in security
To increase the efficiency in a supply chain it is important that goods arrive in time. Whether they are needed for production, repair or sale. Goods that arrive too late often cause a big loss in delays in production or missing the selling opportunity. Goods that arrive too early also cause avoidable cost. They need to be stored safely.
Just in Time is the key expression. Thorough planning is an important factor. Starting with the date at which the goods need to be at a certain place, the planner needs to trace all steps in the transportation process, arrange the individual actions and have plans ready at hand in case the stages of the transport chain take longer than expected. Some companies are really good at planning and deviations between planned and actual delivery time at the end point are minimized. In the majority of the African companies, planning is unfortunately under developed. The modus operandi is more one of trouble shouting (shooting?). This is a shame. Good planning by professionals can eliminate a lot of unnecessary additional costs and minimize lost opportunities.
Clearing on importation
Clearing of goods in harbours and at borders in Africa is still more difficult than in other parts of the world. Too often special clearance is used, which normally means that some civil servant have made it possible for an importer to circumvent normal regulations. It is not difficult to imagine why this favour is granted. I would like to point out that both the American Foreign Corrupt Practices Act (FCPA) and the UK’s Antibribery Act stipulate very clearly that bribes to government officials are prohibited. Grease money is allowed but that is limited to a few $100’s to get a shipment through checkpoints, etc.
I would recommend every importer not to succumb to “gift”-requests from any government official. The more normality and rule of law is introduced, the more predictable the supply chain becomes.
I mentioned in my last blog that a sound road infrastructure is important for economic development. From a supply chain point of view it is equally important that the road system connects the major population centers of a country, and that everyone using the road can estimate how long it will take in average for a shipment to arrive. Moreover it is important that all shipments do arrive. In some countries there are too many trucks that never arrive at destination.
In developed economies almost every B2B customer enjoys supplier credit as part of the transaction. A functioning system of supplier credit from the beginning to the end of the supply chain (often retail) facilitates the number and volume of transactions that are executed. In large parts of Africa giving credit to your customer is an unknown phenomenon. One element is the lack of judicial infrastructure for suppliers to collect overdue debts. Another element is the high level of distrust between business partners. My experience though is that if you deliver to a customer who needs your product for his own manufacturing process and who needs to come back to you in regular intervals, you will have no difficulty collecting monies outstanding. Lack of credit stifles economic activity and is preventive in unlocking existing but cash starved markets.
Theft and breaches in security
The last sad element, which hampers a solid supply chain is the incidence of theft and breaches in security. In a continent with so many poor people, the temptation of instant wealth crime will be a part of society. One can only reduce crime by involving as many as possible people in the economic process. The more you have to lose the less likely you are going to earn your living through crime. The other aspect is of course stiff fines and sentences for those who are caught, coupled with a high likelihood of being caught.
Regional Chief Financial Officer,
Dangote Industries Limited
Dick Borsboom is a columnist on Africa Business Communities