‘Businesses not adopting logistics and supply chain principles preparing to close down’
Phillip Isakpa is Businessamlive Executive Editor.
You can contact him on phillipi@businessamlive.com with stories and commentary.
Obiora Madu (PhD) is arguably Nigeria’s authority in logistics and supply chain management. His authority cuts across practice and theory as he is not only a teacher/trainer but has himself practiced what he teaches. He is the chief executive officer, Multimix Academy and director general of Africa Centre for Supply Chain. He has spent the last 33 years in the areas of international trade and logistics & supply chain management with eight books to his credit. He was guest speaker at this month’s business a.m./GTI Finance and Investment Dialogue (FID) which held in Lagos last Thursday and in this interview with PHILLIP ISAKPA, he spoke about the importance of logistics and supply chain management and how it can transform the economy. Excerpts:
You understand the Nigerian economy well; you know what has been going on with this economy. Can you talk uEs through your take on the state of the Nigerian economy today?
Everybody knows that the economy is sick and it is not as a result of lack of resources, human and otherwise; but obviously as a result of management. This country has so much that we have no business being in the situation we are in. But year after year, administration after administration, things keep getting worse because we have wrong people in the wrong places, so you cannot take advantage of what is happening globally. About 180 million population; over 50 per- cent are in the youth category, which is where the strength lies globally right now, it is just that we have all the comparative advantage, but we lack competitive advantage.
In terms of competitiveness, because again you talked about the disconnect between this economy and what is going on globally, how do we make that connection, how can this government begin to bring this economy up to speed to connect with the world?
First of all, when they say that the world is a global village, I am not sure that down here, we really understand it. Thomas Friedman wrote a book, “The World Is Flat”. What it means is that the competitive field has been levelled, nobody cares from which part of the world you are coming. There is no room for quality specification, and there is no room for Third World countries or First World countries. What it means is, even if it is a business or a government you are running, you are either running a world-class business or government or you are planning to close down. So the disconnect is realising that the world is not waiting for us. The worst of it is not making use of what we have, and until that happens … like I told you, it can only happen when we have the right people in the right places. We have had so many examples in this country when you’ve had right people in the right places and we have seen the results, so that is that.
I was doing training for a company in what is called the 70- 20-10 model. It is a capacity building model, where, 10 percent is in the classroom, 20 in supervised work and the rest of the 70 in class, and I found out that it is a corporate thing that companies are doing, but some governments around the globe have adopted that particular thing. I don’t know if you have experienced taking public sector people for training. As far as they are concerned, they are not ready to learn; either they are there for shopping, or something else. And these are the people making the policies that run the nation. It means we are all in trouble! So, until that happens, we won’t mea- sure up because the world is leaving us behind.
Let me give you a typical example, there is a publication by the World Bank in my area, the Logistics Performance Index. The first time it came out, that was when we did port re- forms so we started at 125th position. After the port reforms we jumped to 75, but last year we dropped to 90; and this year’s report, which came out two days ago, we dropped further to 103. It is about infrastructure; hard infrastructure, we do not have, soft, we do not have because some people say our graduates are not employable, so it is a challenge. When some universities want to be innovative, the agency managing them makes it difficult for them, and with the kind of education we have, it simply shows that we are going backwards because we need to do what others are doing, we need to get quality education for our people to be able to compete. So, all these people are drifting and relocating. It is all to our disadvantage, and until there is a realisation in government, and then they begin to run like an organisation, because that is what happens elsewhere. Look at NNPC for example. The Malaysian oil corporation declares profits, year in, year out. So, I don’t know how long it will take to achieve, but I think it will take one crazy right person and then things can change.
You talked about skills; now we see skills issues in the private sector, we see skills issues in the public sector, but you are in the area of training and imparting knowledge to people; what do you think we need to do to deal with this skills deficiencies?
We need to have a lot more people shouting in this direction. I was speaking to the faculty of business in one of these Nigerian Universities, and I said: ‘Do you know what the problem is? You are training soldiers for previous wars, not the present one or the future one.’ That is simply it; it has to do with curriculum. If you look at India and outsourcing, it was the availability of manpower. At that point in time, if you owned a software company, it was either you were planning to go to India or planning to close down because you cannot
compete. At times, I ask: ‘whose fault is it, the university or the children?’ But you can see that they are both to blame, but more blame goes to the institution. I was speaking to some final year students; I mentioned six books in the course of my talking, “Who has read this?”, “Who has read this?” At the end of the day, I asked: “What did you guys do here? This is supposed to be a university, so what are you doing?” And the lecturer said: ‘They are doing Facebook.’ So, that is the situation.
My Organisation was the first organisation to talk about logistics and supply chain education in Nigeria, about 20 years ago. As I speak to you I have a minimum of 3000 certified people in this area across industries, including public sector and military, and as I speak to you, even though we don’t have a licence, we facilitated the first and only MBA in supply chain running in Nigeria today, because this is the area the world is going. If you run an organisation and your supply chain is not working, that organisation is on its way out, whether it is services or manufacturing. I also did a project with World Bank. There were five centres, I handled Lagos, had about 307 kids who stayed with us for about 10 weeks; and these things are not rocket science, they are basic soft skills, computer skills, time management, team skills, communication. In the course of the World Bank programme, a young man got up and asked why they do not teach them these things in the university. I told him to ask NUC [National Universities Commission], not the university. Because, if you remember the man who made Singapore what it is, when he started, he called all the institutions and told them, ‘this is where we are going, will this curriculum take us there?’ They said ‘no’ and he told them to go and do something about it. Of course, you know where Singapore is; even without any natural resources they are the logistics hub of Asia. So, the point is that as I speak to you, I am speaking to one new university, I am tell- ing them, look, I want you to be different, this is the time to start, if you wait until you are grown, you will join the band- wagon. I do recruitment too. There are certain universities that once you see the name of the university on the CV, you drop it aside; you do not even look at it at all. That is subjective, but the point is that there is a reason why this happens.
One of the banks recruited about 100 kids from different universities and put them through a six months training, set exams, the first ten came from the same university, so if you were hiring where would you look? The institutions are too rigid, no flexibility. Even today, if you want to set up a university, you will have to rob a bank. Why should everybody do everything? Why can’t we have professional institutions, let’s say this university is about business, logistics and sup- ply chain and it ends there? So, those are the kind of things that need to happen if we are to get out of where we are; and then the curriculum, will parents have the responsibility to do some things for their kids? None of my kid come out of the university without taking some certifications. As it is, certifications are beginning to push degrees to the background.
That is one of the things we provide, certification, a whole lot. If you come to my office on Saturday we have like three to four classes running and, of course, during the week, for corporate, skills and others. So, if we can individually have organisations that are doing this in so many places, we will be increasing the number of people that know about this. But most importantly, the majority of those who are learning are in the university. I was shocked when the VC of a university said that we are mentioning so many private universities, but what is their carrying capacity; and that at the end of the day, 90 percent of the students go to public universities, if not for any other thing, but for affordability. The media have to help, the print, the electronic.
During the AM Express programme on NTA, there was a time I did an export programme, ‘Export Digest’. It ran for nine months; one man stopped me on the road and said, “do you know I have a notebook and once that programme is up, I pick up my notebook.” That is the kind of thing that we need to do, but after a while, NTA thought they were doing me a favour because of the number of mails they were getting, and asked me to pay. But I said no, you are providing the airtime, I am providing the technical design and I am not charging you a fee, I am not earning anything. And that was how the programme died. So, the media also need to provide information in this direction because what I found out is that there is a general lack of information about a whole lot of things around, so the media need to help push universities, push NUC, organise programmes to ask, “why are we running this type of curriculum if it is not taking us to where we are going? Why are we sticking to it and expecting a different result?
Let’s look at the whole notion of logistics and supply chain management, especially the impact it has made on economies throughout the world. Why are we lacking in the appreciation of this in the country and unable to allow it drive this economy the way it should?
Well, you said it all; first, we do not understand what it can do. The economy cannot grow if your logistics is not work- ing, and in fact, in one of the World Bank report it said that any nation that is anti-logistics is destroying the economy of its nation. Let us take Nigeria for instance, as I speak to you, some local commodities for export, have a higher local market price than the international market price and the reason is very simple, logistics infrastructure. It is cheaper to bring a container from Europe to Lagos than to take it from Lagos to Kano, so how does it work when there is no rail, no road. The Malaysian prime minister once said that it was not until they put one road from north to south, that their economy opened. Do you know the amount of perishables that perish in this country?
I think partly, oil is responsible for this because we do not have to do anything, we have a tap that runs and dollar drops into the bucket. But the point is that, like I just told you about the logistics performance in the world, what does it consider? It looks at ease of entry and exit from the port, the ease of shipping things in and out of Nigeria, it is looking at the logistics infrastructure, both hard and soft infrastructure, the quality of these infrastructure, it is looking at timeliness, that is why we are number 103 out of 155 and some small countries in Africa being ahead of us. So the point is that I have written several articles and when they are talking about transport commission, I will say, no, can’t we have a logistics commission instead? But when all the people who are making the policies are all transport people, in fact, most of them are economic geographers, they don’t understand. Let me give you an example. Logistics was invented by the military and until the late 60s that was when logistics started coming into business literature. Why did it come into business? Because business looked at the precision at which military operations happened and said, ‘it looks like if we do this, we will survive.’ That’s how it came into business. We’ve run programmes that the military sent people and they saw that the business has actually taken it further than them. In fact, one of the US military officers said that businesses have taken logistics 10 years ahead of them. So, the knowledge is here, you have people and apart from my book, ‘Fundamentals of Logistics and Supply Chain Management’, which came out in November last year, there are no books. But my happiness is that at any point in time you confront my past students, you will know; at least that is our contribution. I don’t know if that was responsible for my getting a National Productivity Award, but the point is that, if we fold our hands and continue to watch this government, we will get into trouble.
How can businesses use logistics to drive their operations and affect the bottom line?
The point is that, right now, if any business is not adopting logistics and supply chain principles that business is preparing to close down, because that is the only source of competitive advantage. It is very simple; it is about having people who understand it. For example, in the manufacturing sector, there is what is called sales and operations planning; it is a monthly meeting were all the stakeholders come in to resolve all the issues that cause problem in the system, to smoothen it up. So, whether you are in manufacturing or what have you; of course, logistics is very wide, we have events logistics etc, but the point is that you cannot, because, you have your suppliers and your supply chain does not end in your organisation, it includes your supplier and customer. It means you have to be sure that it is not only your own that is strong, if the other guys are not strong, they can make nonsense of whatever you are doing.
Nigerian companies are really yet to come up, which is what we keep shouting about. Looking at it, the conglomerates, because they understand how important it is, they have elevated it to a directorate level. When you go to Coca-Cola and the rest of them, you will hear “supply chain director” or “logistics director”, that is it; but here in our companies you still have a logistics manager that is very low and doesn’t attend strategic meetings. So, companies need to hire people or train people. Yesterday [Wednesday July 25] we completed a supply chain optimisation programme for the UAC group, which was attended by all their supply chain managers from their subsidiaries; these are the things that companies need to do, and you cannot pretend that it does not matter because in a short time you will be in trouble as it accounts for your viability.
The similarity between the military and business logistics is that for the military, it is how to take ammunition and materials to the war front, but for business, it is how to get the goods to reach the customer; because if you manufacture it and it remains on your premises, it does not make any sense, so these are the issues. Companies need to realise even if the government does not, because, the companies that have strong logistics are those who are able to manoeuvre the challenges of the environment, and for those who do not, their situation is worse.
We have two types of environments; we have environments that are smooth and we have environments that are quite challenging. Nigeria is a tough environment. If you go to Apapa in Lagos, it is a logistic nightmare. Can you talk us through the problem of Apapa on one hand, and then talk us through how a solution can be found there?
The Apapa situation is very unfortunate. Close to 50 per- cent of government revenues comes from those two ports, so how could someone have allowed it to degenerate to the point where it is now? Why again should containers that are headed to Calabar and the east arrive in Lagos? So you can see that the thing is hydra-headed. The truth is that some vessel owners do not want their vessels to stop over in Lagos because they do not know how long it is going to take. The consequence is higher freight charges, and who bears it at the end of the day, the customer. So, it is a sad situation; but again, it is not rocket science, it takes political will.
A few days after the vice president gave an order, at least there was a bit of sanity, but that is like just treating symptoms, we need to get down. You noticed that there were truck parks that were being opened and trucks were going in. Why would that be? It is because there is no strategy, that’s why I told them that if they keep talking about transport commis- sion, you will forget that logistics is not about transport alone, it is about transport and storage. Everything cannot be on the road at the same time. Those things [parks] are there, they were built by individuals so, if people must park there, they must pay money and I am sure they will be willing to open their doors and be paid but you cannot do that free of charge. They practically parked into it and met them later because of the circumstances and the order from the vice president. So, what I think is that a research has shown that 60 percent of the trucks waiting to enter Apapa have no business being there. So, we need a strategy and most of these things are things that IT can resolve.
In our port, you do not have radio frequency identification (RFID); at the Malaysian port, it is there, all you need do is put an RFID tag on vehicles and it would detect who has business or who does not have business to go there. So, this thing is not about… because after we struggle now, when it looks like [we have succeeded], we go and sleep and one day they will all come back and who knows the consequences on our bridges and the rest of them. So, the implication of what is going on there is so terrible that we need to sit down and find a permanent solution. And the roads are not helping matters because if the roads were completely okay, it would have been less than what we are experiencing. Therefore, there is a need to look at the entire thing and tackle it stage by stage, then shipping companies can designate somewhere outside the port for the return containers to be taken and they can be taken from there because a lot of these vehicles are carrying empty containers.
Globally, people are talking about integration; they want to integrate different modes of transportation. If you go to Dubai, the cargo airport, the free zone and container terminal are 10 minutes apart. That’s why one man said he wept when he saw them use a bulldozer to remove the remains of the rail line at Apapa port. Now everyone is saying if we had a rail line at Apapa port; but how long does it take to do these things. There is a law that says only Nigerian Railway Corporation can build a rail line, fine; but how long does it take to build or change it, because private companies are waiting and are able to do this thing, but the law says no and we have been talking about it and what it will take to amend this law. I think it is a matter of if you do not get angry about where you are, you cannot get to the next place that you want to go to, because we seem to have accepted it as normal and that is the reason why we are where we are.
What would you suggest, apart from saying that policy people should think more logistically; would you suggest that they get people in logistics to look at these problems across board?
Several nations have logistics strategies, we need a national logistics strategy and I have written an article on this. Currently, we publish a report on logistics, which shows the situation of where we are, so we need a national logistics strategy.
When you invite public sector people to programmes, the minister will send the director, the director will send the assistant director and the assistant director will send a junior person to come and sit down with nothing to contribute and nothing to take away. So, that is the issue, we need to sit down, I think only on one occasion have I attended this National Transport Council. It is the same thing, committees; we don’t check what we agreed last time and how far it has gone, we jump into making new policies. One of my students, when I was in Abuja, was saying that should they call it Ministry of Logistics? I told him that was not the issue. If you have someone who thinks logistics on that sit, he will take care of it. First, he will have to amend laws and do all the civil service thing, all you need is the right people in the right places.
You seem to be saying that the economy can be re- vamped with logistics and supply chain management at the heart of policies; how?
It is very simple. if you have solid infrastructure, both hard and soft, 50 percent of your challenges are gone. There is no local government in Nigeria that does not have something to export, but the point is, the prices are not competitive, and this is an African problem too. Africa is about 20 percent of the world’s population but Africa’s contribution to global trade is about four percent; yet all the natural resources are here. It is very simple, if we can attend to the logistics infra- structure, which is all you need. Part of the infrastructure is power, roads; if aviation is working well, and trains are work- ing, you can go and sleep because Nigerians are enterprising. If we can survive in the midst of what we find ourselves in now, imagine if the environment was friendlier.
The supply chain principle, if applied in government, things will definitely be better because everybody in govern- ment works in silos and the supply chain teaches that silos must go. We must all hold hands together and if we fall, we fall together. With this, nobody can work with the intention of finger pointing. These are the challenges – lack of inter-agen- cy collaboration is a major issue. The economy of this country will fly if logistics issues are well attended to.
Now, because you are speaking at the business a.m./ GTI Finance and Investment Dialogue later on, in terms of financing, I believe finance must be a big challenge, what are the challenges that finance places on supply chain management and how can they be overcome?
Finance is a major issue because when the supply chain is of different segments, money is required at every point. That is why what I will be talking about later on is the difference between financial supply chain and supply chain finance. The financial supply chain is actually finding those activities that help things to move from one place to the other while the more modern one, which is the supply chain finance, is how you need to strengthen your supplier, the day of “he who pays the piper, calls the tune,” is no longer in play again. So, you have to strengthen your supplier, provide him with money. There is a case of Rolls Royce that we will look at, which is called “funding the unfundable.” A situation where the bank is no longer looking at the supplier but is looking at the per- son who is being supplied, such that once the company that is receiving the supply endorses the invoice, the bank pays 100 percent without recourse to the supplier. That is what we are looking at because right now, the capital market is not doing much in this area and there are cases internationally, where capital market operators came to help. Of course, for infrastructure, PPP is the way to go. If we keep waiting for government, not much will happen, so everything we are talking about has to do with finance, without it, nothing will happen.
We have had a situation where companies import something and it is at the port, the import people told the finance people to raise a cheque for the duty and the finance people refused, leaving the container there at the port, incurring demurrage.
That is the reason why a supply chain person will excel anywhere he finds himself because he knows that it is not about his department but about the customer. If you have done your own and someone fails, the customer will not be happy and that is the person who pays your salary. So, finance is needed across board in different forms because there is a normal trade finance, which has to do with structured commodity financing and the rest of them, which essentially centres on the buyers side. But the supply chain finance is looking at the supplier’s side and the Rolls Royce case is a very interesting one and I think at the end of the day I believe that the capital market people will learn and see what others are doing and then sit up. Today, some companies are in Singapore and doing supply chain finance for companies in South Africa.
So, the Nigerian capital market needs to wake up to this?
Definitely! Gone are the days when you just remain where you are. I know a few capital market people; I remember someone who imported wines and he did not have money to clear the goods, and I directed him to these capital market people, who then funded the clearing of the wine. So, there is a lot happening in this economy and a whole lot more will happen if this economy is friendlier.