There is more to any Humanitarian disaster than an immediate RESPONSE. It is not earthquakes that kill people – it is buildings; and so, many countries make themselves more RESILIENT to disaster ensuring that building standards can withstand geo-meterological threats and, that logistics procedures are in place to deal with worst case scenarios and facilitate rapid response.
Resilience is important. Emergencies have been growing in scale. According to the Munich Reinsurance group, the real annual economic losses have been growing steadily, averaging US$75.5 billion in the 1960′s, US$138.4 billion in the 1970′s, US$213.9 billion in the 1980′s and in 2004, the World Bank estimated that the annual global economic costs related to disaster events average $629 billion per year, five times that of 20 years ago.
This is about local impact. There is something else; global impact – because of the nature of integrated, and stretched, global supply chains. This takes us to the third dimension or phase of any Humanitarian response – RECONSTRUCTION.
We are all familiar with the harrowing images of a devastated Haiti, a flooded Pakistan and less so with those quiet disasters – in terms of media exposure – like Niger. If humanitarian efforts are geared to put a country “back on its feet” then, arguably, these countries have never been on their feet in the first place. They suffer from croney governance; corrupt practices; huge inequalities between rich and poor but, the fact remains that markets are a crucial component of how people survive in these places. Then, there are those places hit by similar earthquakes or meterological disasters this past year such as Japan; Queensland, Australia and Thailand. These disasters, because of their part in any number of integrated global supply chains – have had a wider global impact. Again on markets.
- Queensland, Australia. The floods closed 34 coal mines; knocking out 75 per cent of Australia’s 120 million tonnes. Queensland coal is high quality with < 15 per cent ash. On the 29/10/04 price per tonne was $53.90. After the floods in Queensland, this shot to over $300 per tonne. Power stations in Japan and India were badly affected and from this a number of industries dependent on coal fired power.
- Fukushima, Japan.27,000 people were killed and over 202,000 homes wiped out. Damages have been estimated at up to $305 billion – Greece GDP is $330 billion. Companies like Sony Ericsson record losses as a direct consequence and global GDP drops by an estimated 0.5 per cent. For example, 25 per cent of global supply of silicon wafers used in semi-conductors collapsed.The cost to insurers well may rival the record $62 billion that followed Hurricane Katrina. The rebuilding efforts will create more fiscal strain on Japan, where the ratio of debt to GDP already is 200 per cent, compared to 90 per cent in the U.S. Japan is “chronically under insured and that means that the government will pick up the tab for a particularly large part of the recovery effort, pushing the level of public debt perhaps even higher. In supply chain terms, South Korea and places like Thailand – for a short time – benefited from Japan’s misfortune.
- Thailand. Over two-thirds of the country’s 77 provinces have been flooded during the four-month-long crisis. The floods have had an impact on the following companies: Honda; Toyota; Nissan; Isuzu; Nikon; Sony; Canon; Nidec; TDK and various food companies. Some have had production suspended and are actively looking for alternatives. This means that many will not return to Thailand.
Building back opens up a number of issues. Fundamentally, the mindset has to shift from making sure that humanitarian needs are met; that essential shelter, food and medical supplies are made available to a bigger and more long term picture – survival to sustainable livelihoods. This means a clear view of what is possible within a global economy and, a commitment to improved resilience going forward.
At the Policy or macro-economic level, there has been a significant impact on the economy as a whole. This is where the opportunity to RE-THINK purpose , scope and approach matters. What can we do to recover and what can we do to build back a sustainable future? Disasters wipe the slate clean in more ways than one. Then, at the micro or operational level, we have businesses and the market. This is not just about MNCs; it is more about SMEs or micro firms. These are often in the informal sector and have no insurance; they do not have any assets and, yet are a vital part of reconstruction.
The issue that needs to be addressed in the third phase of the Humanitarian effort is how to bridge the gap between the macro and the micro levels. This is the transformational agenda; a focus on business models themselves. That has to move beyond MNCs and into the details of SMEs and micro firms; informal as well as formal business relationships.
Let’s look at the core issues related to building back; starting with the neutrality of humanitarian efforts; the “second tsunami” and, moving to the need for logistics and supply chain thinking more adaptable to local context and, a transitional agenda.
1. Purpose. There are many interpretations of a humanitarian action but the principles of Humanity, Neutrality and Impartiality first developed by Henri Dunant after the battle of Solferino (1859) stand the test of time. See: Tomasini and Van Wassenhove (2009). The issue is to balance local, national and global priorities by respecting these key drivers and the challenge – as we move from Emergency Response to Post Emergency Reconstruction – is how can this be achieved and monitored?
Moving from Emergency to Reconstruction is not an easy transition.
Beware the power of the media to shape priorities. For example, International news and governments will not hesitate to allocate significant sums to rescue a loan yachtsman lost at sea but, the same sum is unlikely to be found for an improved weather forecasting system that could prevent future tragedies for many more sailors. This was very much the case with the Tsunami early warning system.
Then, as the transition from emergency to reconstruction and sustainable growth (or, better said, livelihoods) takes shape there is a need to ensure that the hard won neutrality and impartiality is maintained. This is a huge subject and important work has been done on Rwanda, Cambodia, Nicaragua, Iraq and Afghanistan. See: Terry (2002); Uvin (1998); Klein (2007) and much more. It does not remove the imperative – any place devastated by whatever needs to be helped to fend for itself and this is no short term fix. But by its very nature, what is done in the name of reconstruction is not the same as that effort to respond. It is the difference between a 100 metre sprint and a marathon.
2. Re-think & re-model. I recall a BBC Radio interview when the head of an NGO was asked what the goal was in Haiti. “To get Haiti back on its feet” came the reply. Paul Collier, the Oxford Economist, was in the studio and snapped back: “Haiti was never on its feet in the first place.” This is important. The word reconstruction implies building back to a model. No post emergency effort should be on automatic pilot. There is a real opportunity to RE-THINK the approach. Let’s not forget that after the Great Fire of London, Wren submitted a comprehensive plan to re-build London in a different way. Vested interests won and the City went back to what Le Corbusier would later describe as “the zig zag of donkeys”. Should we build back Port Au Prince or build a Port further along the coast? Should we bother with land line telephony? Is there an opportunity to challenge the energy mix? What industries will work? How can we ensure that we train and retain our people? Above all, how can we balance the market in an inclusive way? This means a focus on more than better, cheaper and faster ways of exiting the country with commodities etc and more value added in country. And this does mean an effort to champion traditional as well modern; micro firms as well as MNCs.
3. The second tsunami. After every disaster there is a risk that “build back better” can be the trigger to a second tsunami – what Naomi Klein has called “blanking the beach”. This is when a disaster takes place where the poor live; a favelha, a shanty town or, in the case of the Indian Ocean tsunami of 2005, on the beaches where fishing communities had lived and worked for years. As Seth Mydans puts it: “The tsunami that cleared the shoreline like a giant bulldozer has presented developers with an undreamed of opportunity, and they have moved quickly to sieze it.” (IHT, March 10, 2005).
The Tsunami that struck on 26/12/04 took the lives of 250,000 people and left 2.5 million people homeless throughout the region. The relief effort was enormous. In Indonesia alone this meant a US$684-million Multi-Donor Fund for Aceh and Nias that has helped to build or rehabilitate 18,600 houses, to build 43 community health clinics, to build or repair 282 schools, to repair 975 bridges, to rebuild 2,881 km of village roads, and 199 km of urban roads, to finance 1,581 irrigation and drainage projects in rural areas, to rehabilitate 178 km of drainage in urban areas, to build 1,148 clean water systems, and to build 1,032 sanitation units.
In other places, the impact has not been so constructive. In Sri Lanka and elsewhere, hotel developers used the tsunami as a catalyst for their efforts to stake a claim for land that would be ideal for leisure facilities. Suddenly, the beaches were off limits for communities that had been there for years and, because of the fact that they had no title for the land, there was to be no compensation. In legal terms, they had lost what they did not own. Herman Kumara, the head of Sri Lanka’s National Fisheries Solidarity Movement, which represents small boats, referred to this reconstruction as a “second tsunami of corporate globalization”.
Let’s keep with the fishing communities around the Indian Ocean. Our work at Rushikonda, South India, illustrates the point that, generating over 1 per cent of Indian GDP, the traditional fishing industry has a role to play in the economy. We need to understand and explore how best to develop these traditional markets. It is unhelpful to assume that these are irrelevant to globalisation. As Mauro Guillen makes plain “globalisation … does not compel countries, industries and firms to converge toward a homogenous organisational pattern of “best practice” or “optimal efficiency” – those who fail to conform are doomed to fail”.
4. Transformational Logistics. As detailed on this Blog, we see the need to develop logistics and supply chain thinking and practice beyond the mainstream of the developed world to understand and reflect reality in emerging, developing AND devastated markets.
Rightly, the focus of any emergency response is on saving lives – ensuring that the local impact in terms of human suffering is assessed and, that vital food and medical supplies reach the needy as fast as possible. This is performance based logistics focussed on getting the job done. This is not about a better, cheaper and faster response to consumers in order to return greater dividends to shareholders; so much for an emergency response.
And yet, Logistics in the Developed world costs between 5 to 8 per cent of most products; this figure rises to over 13 per cent in India and, in the case of Humanitarian efforts can be as much as 50 per cent of total cost; 70 per cent in some cases. There has to be a way to reduce these costs after the Emergency or, consumer markets – not NGOs – will not be able to foot the bill.
We will not be able to move straight to a state-of-the-art approach in many markets post devastation and need to move from an obsession with better, cheaper and faster supply chain models to an agenda rooted in agility, adaptability and alignment – the three A’s. This means agility to respond to short term changes in demand or supply; adaptability to local context and, alignment with other operators or NGOs. All these factors in synchronisation can deliver improved performance. This means INCLUSIVITY – an effort to maximise job creation by building back and developing traditional markets as well as exploring global markets for more modern products and services.
Take agriculture. Few of these disaster hit markets have modern day agriculture but the opportunity is open for many in a world climbing from 7 to 9 billion by 2050 and needing to increase agricultural production by 70 per cent to achieve this.
Take infrastructure. In mature markets the ROI on infrastructure is $3 for every $1 invested. The impact figures after a disaster are significantly more. This is where, strategic decisions can be taken on urban layouts; affordable housing and connectivity. Above all, we need to move beyond hard infrastructure and explore “soft” – broadband etc; as well as “intermediate” – warehousing, truck fleets etc.
Take logistics. All too often Governments and International agencies fail to see “the multiplier effect” of this cross cutting theme. Governments will often have a Minister for Transport; another for Ports; another for Aviation; Agriculture etc. Post emergency, there is a real opportunity to build a Logistics and Supply Chain capability to combine with Infrastructure. This thinking needs to extend to the small players too. Don’t forget that truck fleets will be small and the effectiveness and efficiency of road transport will be critical. Warehousing is another area to focus.
Take retail. It is not all about the modern trade. The impact of building back small traditional outlets and serving them by cash and carry’s is considerable. Much more needs to be known about all sorts of supply chains from perishable to FMCG from source to consumer and back through waste and recycling.
Other sectors. This depends on local context. A Chemicals industry is useful to agriculture in developing fertilisers etc.
5. The flows. As with mainstream logistics, we need to consider the flows: physical; information; cash and skills.
- Physical movement of goods. Coca-Cola have opened up their distribution networks for medical supplies and more companies need to explore the win-win of such initiatives. Nestle are using a floating supermarket, Nestle Ate Vocee (Nestle comes to you), to take products to remote areas of the amazon; Unilever use small armies of door-to-door vendors in several markets and Nestle has set up a network of over 7,500 resellers and 220 micro-distributors to reach people in the favelhas of Rio and Sao Paulo and many other Brazilian cities. Many companies are using manual handling systems in urban areas as a means to reach consumers in crowded places. More needs to be done to reduce empty trucks by sharing distribution systems – a dramatic shift to 3 PL and the growth of consolidation hubs. Then, there are a number of simply modal options from adapted bikes to the South African street trader stalls made up of water carriers. the integration of packaging thinking into this will help enormously. Shelf ready packaging designed around motor rickshaws for example.
- Information flows. From wireless technology to cloud computing, more can be done to enable populations after a disaster. For example, mobile phones are being used increasingly to aggregate demand and supply in all sorts of contexts. Then, we have ideas like eChoupal – computer terminals deployed in villages to offer information, advice and on-line sales to rural communities. TVS have used this to sell motrocycles to rural areas – 37,000 in 2009.
- Cash flows. Not many ATMs – let alone bank branches – survived any of the disasters from Pakistan to Chile; Fukushima to Thailand and, many disaster zones are populated by what conventional banking would describe as the un-bankable. More needs to be done to explore mobile banking. In Haiti, companies like yellow pepper have developed the subscriber base and this improves the dispersal of monies. In contrast, look at what happened in Libya after the fall of Gaddaffi – a massive operation to print banknotes followed by a dubious effort to distribute the notes. It is like scrap metal dealers in the UK – keep it at cash and there is no traceability. Surely, more can be done to develop mobile cash options.
- Labour mobility and skills. All the very best equipment can be donated but someone locally has to be able to operate it – buy a man a fish and feed him for a day; teach him how to fish and feed him for a life time. We need to be realistic. Everyone in micro firms and SMEs is a key employee – there is little or no slack or, in the jargon, redundant equipment or resource. We need to take a view on training – standards; content and the use of technology for delivery. This is a huge area. Ironically, the developed world persists in selling legacy systems into markets that can’t absorb them and don’t need them. We need to respond to context.
- Energy and Utilities. Intermittent supply of electricity is hugely significant and every effort has to be made in the transition to look closely at the mix of energy available, developed and used. This is the oppotunity to explore “leap frog” technologies and green supply chains.
- Water. This is increasingly scarce and there is a need to focus beyond source and to include use. For example, embedded water. It is estimated that the average Briton drinks between 2 and 5 litres of water per day and will use about 145 litres for cooking, cleaning, washing and flushing. If the embedded water used in the production of the goods people consume is also taken into account however the daily use per person in the UK may be nearer 3400 litres (Source: Waterwise). So, encouraging a given location to produce and sell something that does not reflect an understanding of real water use is foolhardy.
- Feedback loops. What are we learning? Over the summer, we worked on seven traditional supply chains and since then we have opened this up. There are more to follow. I have been struck by how weak developed world process mapping skills are in these traditional contexts. Procedures don’t exist and, due to financial constraints, improvisation is key and a constant feature. It is like asking a concert pianist to play in a jazz quartet with no notes written down. Few can do this.
- Innovation. As Paul Polak maintains, 90% of design resources serve 10% of the population. His point is that more needs to be done to serve needs and livelihood rather than feed expectations and lifestyle. This means a shift in emphasis from product to process innovation. And this may mean more jugaad (a hindi word meaning make do and mend) than on an obsession with blue sky and “new to the world” invention. It may mean championing second hand equipment for supply chains. And it may mean developing a comprehensive maintenance programme to maximise life-time value of assets. And this brings us back to skills and a need for huge innovation in learning and knowledge transfer. For example, the work that Pearson Group are doing in Africa or, Airtel are doing with mobile phones.
- Firms. The developed world needs to wake up to the fact that the Public Sector and Multi Nationals do not employ the majority world. The informal economy generates over 1.8 billion jobs worldwide and far more than this depend on what is earned in this way. We need to explore ways in which we regulate and develop employment across all types of firm – one regulation does not fit all circumstances.
- Transition. Any shift from Emergency to Reconstruction will take an enormous effort and, as we have noted, it is not an area well served by academic research or analysis of actual cases. As we have noted elsewhere in this T L Blog, there is a case building to extend the World Bank LPI to open up more the transition between the Modern and fully developed mature market and, the Traditional ones at the opposite end of the spectrum.Equally, there is a need to dis-aggregate large geographies into their constituent parts – logistically speaking. For example, we cannot compare Shanghai with a Western Province within China in much the same way that it is not helpful to aggregate logistics capacity, capability and delivery of a Region within a larger unit. We need greater granularity and, a recognition that micro firm capability needs to be tracked as well as bigger operators.This should explore ways in which a wider geographical radar can be of real benefit to accelerate reconstruction efforts. For example, Haiti being able to avail itself of adjacent Santo Domingo. This is especially significant when we factor in conflict hotspots in Africa where 15 countries are landlocked and 20 states have more than 4 neighbours. Tanzania and Zambia have 8. Try borrowing milk from a next door neighbour whose house has just burned down or, whose inhabitants are being dealt with by social services. An expanded LPI could provide a vital insight into this area and place an emphasis on external contingency as well as internal structures, performance and monitoring. Witness the implementation of a Tsunami early warning system in the Indian Ocean post tsunami – ignored by the Junta in Myanmar as if to prove the point.
- Inclusivity. Low growth in mature markets is driving MNCs to look to emerging and developing markets for growth. In 2010 39 per cent of acquisition deals by consumer companies were in emerging markets, compared with just 1 per cent in 2008 according to the Grocer’s OC&C Global 50 league table. There needs to be some way in which recovering regions can be re-built in the best interests of local people. We need to look at how Singapore, Taiwan and more significantly South Korea could be transformed over time. In logistics terms, we need to shift the emphasis from supply chains to what Malcolm Harper (2009) has called Inclusive Value Chains – a focus on linking small growers and producers to modern markets. This is the route to sustainable livelihoods and not just sustained growth for the developed world. As recent events demonstrate closing rather than widening the gap between rich and poor makes commercial sense.
All of the above merits a renewed effort to develop a research agenda to underpin global policy. The Humanitarian effort is underserved in any case but, what happens after the Emergency is most certainly the Cinderella at even that rather badly served table.
Each disaster area has a unique challenge – its own ground zero; and, a set of options that need to be understood; prioritised and delivered. Citizens need to be given the security of a job and a home; International business protected from corruption large and petty and, small business from government corruption and big business exploitation alike. Enabling strategies need to be developed and implemented to build the platform for sustainable growth and this does mean a long term vision far from the bottom line of quarterly shareholder reports.
We need to develop strategies to witness, understand and explore transitions from emergency to reconstruction. This is vital and so many governments; major international corporations; international agencies and specific trade associations can only benefit from this effort. At the very least it will improve value for money and result in wider impacts.
Article by: Rob Bell, Transformational Logistics Blog