Stoa Daily Challenge #11
Elon Musk now owns Twitter. And it's your chance to help him fix it.
Step into the shoes of Jared Birchall — MD of Elon Musk's family office — and prioritize the list of activities the company should undertake after its acquisition.
Now, to today's issue.
When I ask you to imagine or chart the process of how a product or service reaches you, you’re very likely to mention the direct source or channel you buy it from. A source would be your local vegetable vendor, and a channel would be an app like Instamart, BlinkIt, etc.
But is that really all there is to how the product reaches you?
Of course not.
As consumers, the complex supply chain that is needed to deliver every single product we use is shrouded behind the lucid interface of a shopfront or an app.
Unless you’re from a business family, a family practising agriculture, or if your dad operates as a wholesaler of a certain product, you’re most likely to be unaware of the number of stakeholders and processes involved in ensuring the final product reaches you, hopefully looking like what you've seen in the commercials.
Let’s take firecrackers as an example.
For starters, there are raw materials. And mining is required to source a lot of the raw materials that go into manufacturing these firecrackers.
Contrary to what we might believe as ‘the default’, firecrackers cannot be produced in a factory. In addition to mining for raw materials, even making firecrackers requires a huge supply of manual labour.
Once produced, firecrackers need optimal environments where the finished goods can be stored. Because of the inflammable nature of the product, the choice of transporting the product has to be mindful of all the risks that can arise.
In India, the government has additional sanctions to keep in check on how polluting the firecrackers will be. In fact, even transporting firecrackers requires special sanctions.
Mind you, so far we’ve only listed the supply chain processes and stakeholders involved before the firecrackers reach distributors or wholesalers.
Other than manufacturing the product, a business producing fireworks also has to take care of how they distribute the products, which channels should they optimise for, the stakeholders involved at each level, government rules, consumer demand, and shifting mindsets.
Yes, all of this is related to supply chain decisions.
Let’s say you were to decide how to rebuild the supply distribution channel for Standard Fireworks, the largest producer of fireworks in India.
Given the pandemic induced lockdown, over the last two years Standard Fireworks went into major losses and they need to move fast in 2022 in order to bring the business back on track.
How would you go about it?
What are the factors you would account for?
How would you organise your supply chain to ensure minimal losses?
What would you prioritise and double down on?
What are the backup solutions if things go wrong?
To top it all, there might not be a definite response to any of the questions because last-minute government regulation could undo all your planning and efforts. What then?
Here are the few factors you would have to account for just to be prepared:
Transporting fireworks is a major task for Standard Fireworks. If you’re making logistical choices for Standard Fireworks, you’ll have to seek government approvals because the rules for shipping fireworks are decided by law.
Even if you find the answer to the logistics question easily, shipping, and ensuring the firecrackers reach the location is a gamble at best. If there’s sudden rain on the way or in the city you reach, all your shipment may be compromised.
Logistical planning is closely tied to the location a sale has to be made in. In the example of Standard Fireworks, you would have to evaluate the cities that will serve as distribution centres. A city’s rules regards the sale and use of fireworks will impact the volume of sales possible.
How then do you recalibrate the supply chain mechanism to redistribute to a different city and manage to bag sales or find a storage facility which will ensure your products don’t get wasted?
In case of tangible goods, inventory and warehousing services make or break the efficiency of a supply chain.
For Standard Fireworks, a product that’s considered risky because of its inflammatory nature, warehousing decisions will play a crucial role in determining which city to prioritise for. Firecrackers don't sell well once the festive season ends, and they don't age well if not housed in a completely dry location safe from any kind of fire hazard.
You’ll have to pay attention to this factor the most because in case there is a sudden announcement of a ban you will have to configure a backup option. This would involve transporting the unsold goods to a different city or using the warehouse service till you can sell the stocks for an occasion other than say Diwali.
In the case of fireworks, there is also seasonality in demand and sudden weather changes that will influence your warehousing decisions.
Given that you’ve to make up for the losses or at least break even, you’d have to price the products smartly to get anywhere. But do you know the pricing caveat behind selling fireworks?
I too hadn’t known this pricing caveat until I read this. I reckon pricing would also be another question that you would need to respond to.
5. Market conditions
By market conditions, I refer to the mix of market sentiments held by customers.
How do you account for the same to ensure you match production and inventory with demand? You do not want excess firecrackers that won't get sold post-Diwali, right up until New Year's eve.
If you were Standard Fireworks, would you benefit from a market research survey of actual demand and historical data to gauge how much sales can be projected for the city?
Or would you also, perhaps, think of new cultural variables at play?
Now, this is one factor that indirectly affects all supply chains. Regardless of how robust your supply chain is, in a marketplace the consumer decides what gets bought. In certain cases, government intervention can play a role in protecting producer interests but there are second-order effects like weakening of the industry which have long-term effects on how a business operates.
If a government protects your industry, quality goes for a toss and accountability reduces. In case you want to take your products to a global market, you’re competing with superior quality and that reduces any prospects of selling globally.
Supply chain distribution is incomplete without discussing legislation.
Legislation could refer to the rules to be followed within the industry as well as the local rules that a business has to abide by. This involves a lot of paperwork and following protocols.
In the case of Standard Fireworks, you’ll have to account for city-specific protocols.
What kind of help would you require to abide by the regulations?
Would taking the support of local politicians be more sensible?
Will there be demand even when firecrackers are outlawed and banned in certain states?
A smooth functioning supply chain involves managing a lot of stakeholders and their incentives, both up and down the chain.
In the planning stage you can use certain metrics to decide what factors to prioritize and move closer to making a decision. But in the real world, there are multiple confounding variables that you cannot neatly plan for.
Stakeholder management is one of the crucial aspects of constructing efficient supply chains. It essentially refers to interacting, informing, and onboarding different players in the supply chain ecosystem. Once they’re onboard, as a business you’d have to correctly align every stakeholder's incentives so that they don’t defect and create any hindrance.
If you’re reading this piece hoping to get a neat framework that helps you give definite answers, then I’m sorry to disappoint you but business problems, and specifically supply chain distribution issues are never straightforward enough to prescribe those.
There are no definitive answers in business and it all depends on the context you're dealing with in the micro.