Saturday, August 19, 2006

the supply chain, China & water

Ove at the ABC, the is a Water Forum, dealing with current water issues.

I just posted to it, talking about why we must fo for best practice.

There is a post limit of 3K, this post went to 3.1, so I've posted the 'long' version here.

Speaking of supply chains...

The rumours of the last fortnight have been confirmed, looks like Coles is in play! And the first suitor to get a guernsey is the father of the modern supply chain Wal-mart.

What is the power of the supply chain? To illustrate let me use Wal-mart. How did Wal-mart get from 6 stores to the largest retailer in the world. Supply chain reform!

Back when Wal-mart was little, the way a shop (or individual stores in a chain) got it goods was from a wholesaler, who got it from the manufacturer. The wholesaler's role was distribution.

At the time Wal-mart for a fraction of a percent of the size of the big retailers. A sardine with sharks. Sam Walton ask himself, how do I get big and avoid being eaten?

Sam's answer. Build his own distribution centre and buy straight from the manufacturers. What happened to Sam's cost? The cost of the distribution centre etc increased costs by 2 to 3 percent. The reduction in costs from bulk buying from the manufacturer, 5 percent!

What did Sam do with the extra 2% to 3% of cost saving. Reduced prices to buy market share & reinvest for expansion, especially supply chain reform!

This I why I think the fact that Wal-mart is the hunter is very poignant.

What do I think of the supply chain. Well is a love-hate relation ship.

As a customer, I love the supply chain, for the constraint down would pressure it has on prices.

As a producer of service & the son/brother of primary producer, I hate the supply chain, for the constraint down would pressure it has on prices of both good & services. Even as a producer of services, it has a downward effect of my prices. It reduces the input costs of my direct competitors and it reduces the costs of other products/services (especially those where goods are a higher percentage of total cost) that could be substituted for mine.

What's at the other end of the global supply chain these days. China...and the other developing countries like India, Brazil etc (who must follow China or be left behind).

What does China want, in the end. China started just as the physical maker of the products. China wants for end up doing the lot, from concept, to design to production. China is aiming for the top of the food chain.

With it's population, China should be able (with set backs) to get there in any product or service (remember the Internet, if the output of a service can be digitized, the service can be done at a distance) that has a high labour content!

How do wheat growers control the supply chain, off farm? By owning one of the major player and the bigger that player the better. Most farmer see this. Two groups think they would be better of without AWB. The biggest growers (who think they are big enough to bargain and win) and niche producers. It will be interesting to see what happens. There are pros & cons to breaking the single desk.

If we are going to keep any wealth production (besides the hole in the ground stuff, this include oil & gas) here, we need to aim for the top too. This especially includeds water, one of our more limiting resources.