Strengthening supply chains for economic development

08Jan 2019
Correpondent
Dar es Salaam
The Guardian
Strengthening supply chains for economic development

The concept of logistics and supply chain evolved during the 20th century. Up to 40 years ago, logistics and supply chain simply meant transporting and moving goods from Point A to Point B. Ten years later, people began talking about supply chain management, but the main purpose was reducing cost.

Head of Supply Chain with the World Food Programme in Tanzania, Riaz Lodhi

Recently, it has become more and more obvious that supply chain management is much more than cost reduction – that it is about delivering value to the consumer.

Today, the world has realised that the supply chain is an important factor for businesses and for the economic development of nations. This is an enormous evolution.

For sustainable development, one must look beyond economic growth, which is limited in scope and only considers factors like the gross domestic product (GDP).

Instead, it is important to look at human development aspects such as equality, gender, health, nutrition, food security, etc., which can be masked by high GDPs, as is the case in many countries in Latin America.

By investing in people, we enable growth and empower the people to pursue different life paths, build resilience and limit the impact on the environment.

According to a study conducted in Bangladesh in 2016 by Professor Siddiq ur Rahman Osmani of Ulster University in Northern Ireland, entitled Strategic Review of Food Security and Nutrition in Bangladesh, “undernutrition costs Bangladesh more than 1 billion dollars in lost productivity every year and even more in health costs”.

“No country can expect to build a thriving economy on the backs of hungry and undernourished people,” the study notes.

Supply chain costs comprise 40–80 per cent of commodity costs for the consumers. In some cases, these costs are even more than the commodity cost itself.

For instance, the cost of maize in the southern highlands of Tanzania (where the crop is produced) may be $90 per tonne, whereas it costs between $90 and $100 per tonne to deliver it to the northern Tanzania (where it is consumed).

Any reduction in supply chain costs would spare poor households extra resources for food, health and education alongside helping the people in question improve the quality of their lives.

Many developing countries in Africa and Asia have agriculture-based economies. Food is primarily produced by smallholder farmers and they often use traditional ways of cultivation and post-harvest crop management.

The farmers lack access to proper drying, handling, packaging and storage techniques. Access to markets and pricing information is limited and, as a result, the farmers can be exploited.

A well-developed supply chain can support farmers with improved storage such as community warehouses, shared transport to markets, access to market information to help them better understand demand and supply and technologies to help reduce post-harvest losses.

Many farmers sell their crops at very low prices simply because they fear to lose them because they cannot adequately store the food.

In many countries, a common reason for communities to suffer from chronic malnutrition is a lack of diversified foods in their diet. This causes an inter-generational cycle of food insecurity.

Local diets often contain only what people produce, disproportional consumption of carbohydrates such as rice, potatoes, wheat or maize, etc.

To diversify their diet, rural populations often need to transport out the foods they produce and transport others in, which leads to high costs and losses. However, by shortening their supply chains by diversifying food production (weather and climate permitting) they will avoid high transport costs and improve their nutrition and income.

Citizens are the units of an economy because having healthy citizens is almost by definition a prosperous economy! A nation cannot develop if its citizens do not have access to reliable healthcare.

However, this can be a big challenge for countries where a majority of the population lives in remote rural areas with lack of timely access to healthcare products.

A common problem is that medicines expire in regional or central warehouses because they cannot be transported adequately to remote areas, with some receiving too much and others too little or too late.

A well-established supply chain with proper upstream and downstream demand/supply management and stock control can save money for a country and can even mean the difference between life and death in some cases.

Many developing countries are positioning themselves to reach middle-income country status by the end of 2030. They are increasingly investing in industrialization, while economic activity depends heavily on the transport infrastructure and the optimum utilisation of its logistics resources.

Countries where transport systems are inefficient have high logistics costs and are less likely to attract investment than those where the means of transport such as rail, roads, and waterways offer competitive costs, and where governments facilitate trade and supply chains.

In Tanzania, the World Food Programme (WFP) reduced its transport costs by 40 per cent in 2017/2018 and increased the corridor throughput from 60,000 tonnes in 2016 to 200,000 tonnes in 2017, surpassing 280,000 tonnes in 2018.

This has improved the economic activity in the country and, by using the Tanzania corridor for six neighbouring countries, WFP has managed to inject over $280 million into the national economy since 2010.

Furthermore, by introducing the Global Commodity Management Facility (GCMF) in 2011, WFP is now able to purchase food locally and regionally at a time when food is available at lower costs and is closer to the intended consumers. By doing so, WFP gained over 15 per cent in cost-efficiency while delivery times were reduced by 60 per cent.

Not all countries have access to railway transport. However, in those that do, this is seen as being in competition with road transport.

That’s not always the case, though, as both have their advantages and disadvantages in that railway transport is cheaper for long distances, while road transport is much more widespread and is often necessary for last mile delivery. This makes a multimodal solution ideal.

This type of transport arrangement can save money, improve efficiency and encourage public-private partnership. For example, since the opening of the Lake Victoria Corridor in Tanzania, the cost of transport in the entire corridor has gone down, attracting more investment and new trade opportunities.

The world has been debating whether to prioritise investment in poverty to reduce food insecurity or vice versa; prioritise health or nutrition; environment, education or trade.

Governments have also been debating whether it is better to improve their economy by increasing tariffs or fostering more efficient supply chains.

But if you look at economic and human development, particularly through the sustainable development lens, almost all these can be better achieved by investing in supply chains.

This, perhaps, calls for a separate Sustainable Development Goal on strengthening supply chains to contribute to economic development, improve the environment, food security and poverty, provide quality education and health, and even contribute to a lasting peace!