Opportunity from Technology Convergence – The Philippines as One Virtual Bodega 1 of 2

It costs more to ship a full container from Manila to Mindanao than to Hongkong or San Francisco. Thus, food and other goods from the provinces is more expensive for the city people. At the same time, lower demand from the city slows down development in the provinces. Overall, it makes everybody poorer. High internal logistics cost is a substantial bottleneck to national development.

The high cost of internal logistics in the country comes at no fault to the present players. It just happens that the existing logistics model is inefficient by default. (Note: The ports’ locations in relation to users are also not the most efficient.) The inefficiency comes because ownership of the links is across the chain and not along the chain. Thus, customers need to have internal or third party supply chain service provider are necessary to create the link.

To give a typical example for outgoing shipments:

In each of the links, the respective manager uses his best knowledge to optimize operations for profits. Paradoxically, this will result into higher total system cost for the client as well as time delays at each step. This is because the economic batch size at each link differs based on the logic of that particular link. While the Strong Republic RORO has provided some competition, the tollgate nature of the ports (i.e. natural monopoly) also results into some inefficiency. They serve mainly as cross-docks towards more warehousing. Except for a few large customers, transfer and process batches are not uniform leading to operations designed for the average (i.e. non-typical) batch sizes. Thus profitable operation at each link results in very high total logistics costs to the system.

In general, my proposal involves a player, new or existing, stepping up to work as system integrator along the supply chain. At its simplest, he will provide door-to-door service on a pallet-transfer basis, a JIT concept, but with a lot of technology-enabled value-added.

With a technology-enabler, he will convert transport or shipping to storage. He will also lower total system inventory through smaller trampers (say 200-TEU) continuously rotating the system like hemoglobin in the bloodstream. Lastly, he will allow the client to reduce system inventory buffers, again with technology, by providing tracking information that allows a very high-level of certainty as to availability of supply within the system. He is then better able to match supply with demand. This proposal, in effect, converts the whole Philippines as one Virtual Bodega.

A combination of technology-enabled business model that ought to be an unbeatable profit generator while reducing costs for clients.

I believe that the cost savings and inventory reduction from this proposal will allow lower total logistics cost while at the same time increase profits for the service provider.

Click here for Part 2 of 2.