For almost two years now, the world has been living in supply chain hell. The disruption caused to the distribution of consumer goods is widespread and set to persist far beyond the Covid-19 pandemic.
It’s a major factor behind the growing problems we face with food security and nutrition – described by the UN as a ‘humbling reality’. And it’s a problem that demands better answers.
In recent months we’ve been presented with a vast array of different excuses for the world’s supply chain woes. The HGV driver shortage, lockdown, problems at the ports, in the canals, political disputes and, lest we forget, the weather. Doubtless some new, unexpected external challenge is already waiting in the wings, ready to make headlines.
And this is the crux of the matter. External supply chain hindrances have always existed and will continue to exist for as long as there is global trade. Even the pandemic doesn’t fully explain how things have gone so wrong.
This is because the problems with the flow of consumer goods run far deeper. There are underlying structural concerns that continue to inflate the price of food, drink and other staple FMCG products, irrespective of inclement weather, grounded container ships, or Brexit.
It’s time to stop looking for convenient excuses and acknowledge that our supply chains are no longer fit for purpose – how can they be, when they consistently keel over at the first hint of external pressure?
Problems at home and abroad
Wherever you go in the world, the core problem is the same. The process of getting products from the factory into merchants’ stores is broken.
There are issues at every stage in the distribution journey – too many intermediaries adding complexity and muddying the relationship between brands and distributors; too much reliance on expensive, cumbersome cash rather than digital payments; and too little sales data.
FMCG brands don’t know who they’re selling to. Distributors are trapped in a world of antiquated manual trading processes. And as for merchants, they are finding it increasingly hard to get the products they need onto their shelves at a price their customers can afford.
To illustrate this point, in the past 12 months, FMCG brands lost $1.8 trillion in sales because their inventory didn’t make it onto merchants’ shelves in the first place. $19 trillion of non-digitised payments between merchants and distributors are adding at least 10% to the cost of the goods being bought and sold. Such levels of inefficiency are totally unsustainable.
While rising prices may be a mere inconvenience in western markets, in emerging economies – where billions of consumers still buy and pay for products locally – there’s a potential crisis in the offing. The consumer goods we’re talking about are everyday items like pasta, nappies, and coffee, which low-income consumers cannot afford to go without.
Supply chain inadequacies make it hugely difficult for brands to sell into these markets. The local infrastructure is inadequate or too hard to access, meaning that a typical FMCG brand will only ever reach a tiny fraction of prospective merchants. Unless steps are taken to transform the efficiency of the world’s supply chains, prices will continue to rise, and product availability will get worse. The impact will be devastating, both for individual households across large parts of Latin America, Africa and Asia, and for millions of local merchants unable to grow their businesses as a consequence.
The answer is clear: we must digitise B2B supply chains, cutting cash out of the equation and restoring visibility and transparency to a murky, convoluted and wasteful trading environment.
In pursuit of a ‘sell anywhere’ economy
FMCG brands and manufacturers are not deaf to this issue. Far from it – many of the world’s biggest companies have invested small fortunes attempting to digitise their merchant bases, only to be greeted by the understandable riposte: ‘What’s in it for me?’
Merchants don’t want to be locked into walled gardens or forced to adopt technology that makes their lives more onerous and complex. Of course, they too want to digitise. However, what they seek is the tech that will allow them to engage in open, frictionless commerce. This means gaining access to more products, improved visibility into what is locally available, the opportunity to build up a digital trading profile for the first time (bearing in mind that many of these merchants are unbanked).
Hence, a different approach to supply chain digitisation is needed, one that provides a holistic solution rather than addressing only the brand side of the equation. The goal should be the creation of a ‘sell anywhere’ economy in which any brand can access any local merchant via any distributor.
This is not some fanciful utopia. Local distribution networks already exist everywhere. It is simply a question of access. Digital technology can enable this access, but only if the technology architects adopt a merchant-first mindset. As any good economist will attest to, when local merchants flourish, global FMCG brands also prosper.
With prices rising and supply chain excuses wearing thin, it’s time we changed how consumer goods are bought, sold and shipped. Bringing local merchants into the digital ecosystem may not speed up the ships between ports, but by championing open, digital commerce, we can greatly improve every other aspect of the distribution journey to the benefit of brands and consumers the world over.
By Justin Floyd, CEO and co-founder of open commerce platform RedCloud