Supply Chain Fragility
The situation with coronavirus has put significant pressure on global market relationships and most recently has caused particular turmoil in the global seafood supply chain. The Boston Seafood show is canceled, and the industry is waiting for Brussels to be canceled as well (for now — just postponed)
Some companies in this sector have already closed, some of our clients are facing sales drop up to 70%. There are painful shortages/surplus at various ports of long-time stable commodities, and seafood procurement/sales managers are scrambling to find alternatives sources/channels in order to keep their businesses afloat.
Inefficiencies and conservatism are consequences when companies who shy away from digital penetration
While traditional B2C markets feel the eCommerce “boom” now, the lack of digital penetration in the old-school B2B industries (like the seafood industry) causes a bottleneck when it comes to making quick moves/shifts in supply chain decisions. These types of problems will only get worse as the world continues to become more connected and linked, for better or for worse.
A Digital Transformation is needed to make supply chains more “seaworthy“
Recently I was invited to speak about my ambitions for improving supply chain technologies at a private event in Milan sponsored by Sealed Air, a leading force in the global packaging industry. The event was coordinated by Gonzalo Campos who acts as the company’s liaison to the global seafood industry. The event brought together a group of executives from the packaging, seafood processing, seafood trading, retail, and technology industries.
I’m deeply involved in the fish and seafood industry digital transformation and in most cases owners want to change and starve for efficiency but the middle and top-level managers are always “very busy” in the same way as it is shown on the main picture for this article. I suggest they be more open already now since the inability to change on an operational level will lead them to lose their job very soon.
Here is a short summary of why it will happen and why these changes are just inevitable in the near future for the sake of overall industry sustainability, traceability, and efficiency.
Digital transformation factors for the next 3–5 years
Behavioral shift (XYZ-generation)
During the last two years 60–70+ y.o. owners and managers in the seafood companies are starting to be replaced by a younger generation of 30+ y.o. people. The new generation can be characterized by a set of factors making the industry completely not ready for this change, specifically:
- They are mobile. Is your company already providing mobile services or still addicted to old-school enterprise desktop applications?
- They are digital. They ask “Which app should I open to buy/sell the product?”. They are very surprised to know that the answer to the B2B is “none”.
- They are addicted to good design and UX. Current state of the art in the B2C service set them a high level of sense of good service and user experience. Has your company already thrown away the software which makes your people bleeding their eyes and provides better customer support?
- They are bored with fish. While the old generation was proud to be professional in every fish detail, the new one is not interested in differentiating all of the 100 000 species of cephalopods but just wants to get the job done “automatically”. The value of professional knowledge went down with new digital tools and companies who already understood this got a huge competitive advantage: hiring and onboarding process for the sales and procurement process become easy
- They prefer “pull” vs “push”. Old companies still rely on sales forces who “push” clients and sell to them. The new generation just needs a tool that helps them to buy themselves. Do you remember an army of door-to-door salesmen or in-store consultants massively replaced by Amazon and self-services cashiers in Mcdonalds?
Industry 4.0
AI, Blockchain, Big Data, IoT… the list goes on.
These are all the buzzwords that are already a part of our daily life and businesses, they are no longer rocket science. Yet somehow, the fish and seafood industry is still in the dark ages. In that industry, the most functional automation tools are still pen and paper, WhatsApp, email and, of course, tons of excel files.
Two years ago I did a simple survey during the Brussels seafood show to see what different players in the seafood supply chain felt about this technological stagnation. I found that there was quite limited interest/growth in the idea of going “online” from most seafood producers/suppliers/sellers, however, we observed 100% growth of the demand (buyer side) during the last two years.
We did a bunch of experiments with Blockchain traceability in 2016–2017 but what we learned is that while speaking about this loudly from the stage for the PR and marketing reasons, in reality, the industry doesn’t want to be traceable and transparent. Though, consumer behavior starts to change these rules of the game already now forcing new generation of traceability startups to enter the market.
5PL Logistics
Digital brings efficiency. Companies in the Logistics and wholesale supply chain sector are forced to survive with constantly lower margins, to address new challenges it is not enough just to deliver better and faster — it is required to automate the business at all levels.
Companies who understand the value of technology and automation get valued higher, grow faster, increase EBITDA margins and increase loyalty for the customers. Customer — is the king.
Staying within the context of the seafood industry, most companies sell the same type of fish caught in a limited number of places worldwide, they use the same equipment and certifications and use the same packaging provided by the industry leaders.
Their service and internal efficiency becomes the point from which the leaders in the industry can differentiate themselves from the rest
“We are a personal relationship business with a long history”
We see a lot of misunderstanding from companies when we talk about supply chain automation and digital management. Some of the industry representatives claim “We are a modern company, we have an ERP inside!” but in fact, the ERP is limited by the forces explained in the below graphic:
Yes, inside you have ERP but all external communication and interactions are done with “manual labor”. Bill Gates noted in the 90s: “If your business is not on the internet, then your business will be out of business”. This already happened in the B2C market and now becoming relevant for the B2B sphere as well. Companies complain again saying that it will never happen in the fish and seafood since it is a “personal relationship business”.
I’d love to believe in this but the problem is that 50% of the time sales and purchases people don’t sell or buy: they spend so much of their time dealing with document routines and simply repeating other types of operations/negotiations.
Just think about this: humans behave like robotic interfaces filling data from one set of files to another set of files/ERP by means of hands through phone calls, WhatsApp messages or emails. Throughout this “human” supply chain, each step brings errors and inaccuracies which lead to catastrophic mistakes and delays described many years ago by Eliyahu Goldratt.
The real reasons but not excuses are hidden here:
- Fear of process change and loss. Most managers don’t like to go out of their comfort zone and never change/improve. This fear drives conservatism and finally leads to company death. I heard many times excuses like “I’m an old man and want to retire in 3–4 years, do you think I’d love to change/learn something new?”
- Transparency issues. Digitization leads not only to efficiency but company transparency at all levels. As a company owner — how well do you know the data? And how do you make decisions? Do you know what is hidden from you by the staff in place?
- Interoperability standards. Fish and food industries are still not standardized. Bunch of latin names and species makes it hard to come up with a single taxonomy. A huge room for improvement exists for the government institutions but it is not the case to not prepare on company level before. When we started digital transformation of several visionary companies the process bared all the gaps in internal processes and from top to bottom companies started to change and become healthier
- Dependency on people. One of my clients (fish processing owner with $100M+ year sales) told me:
“The stronger sales department I have — the weaker is my company. The stronger client I have — the weaker is my company. Digital transformation helps to diversify the supply chain in case of diseases and trade wars. And yes, it helps to reduce the dependency on people knowledge having this knowledge inside the company”
It was well said and I never met an owner who disagrees with this quote. The problem is though that on the operational level this fear reduces the sustainability of the market as a whole ecosystem. Is your company ready to meet these changes now? Tomorrow? Since Monday? Never?
Data mining is the new gold
To meet the future companies must be ready to answer some of these questions:
- What trades best?
- At what prices?
- Are margins max?
- In what package?
- For which region?
- Whom to serve first?
- What do we expect in the new region?
- How will the virus affect my business?
- Do I need to sell the stock today or tomorrow or in one week?
The problem in data management and analytics is hidden in the fact that it is impossible to predict and make market decisions having just your own data. It is like if I say that “The most popular car is BMW because 2 out of my 5 friends own a BMW”. The key to real traceability and sustainability is hidden in the whole market data which doesn’t exist now at all. I’m quite sure that in the next several years the third-party Supply Chain Management (SCM) software operator will appear and start providing such kind of analytics.
Some of the industry players tried to create such a platform but none of the other industry participants will ever join this platform because of the obvious conflict of interest of sharing sensitive data with your competitors. Fish and seafood businesses being conservative would logically complain stating things like: “You will steal our data and re-sell our stock/prices to our competitors”. Thus, this technological bridge to connect various ERP systems of companies throughout the supply chain must be an independent software company/industry whose reputation and survival will be directly correlated to its ability to perform its services in an unbiased manner and respect proprietary information.
The graphic below helps to map out where the periphery of “in house” 5PL logistics intersect with the market at large.
Based on this, future companies must go into one-two directions, if not both:
- Become internally a 5PL technology operator
- Get along with SCM software companies to feed and consume the market data for the good future of the whole ecosystem and themselves and reach the desired level of antifragility.
The SCM type of companies can’t be a single hero and need support from other major players: packaging as the only way for “offline-to-online” communication, production equipment, ERP/CRM companies, financial institutions and, of course, the fish and seafood industry itself.
Being a software startup we are not a magic pill. Only a union between all the parties can make it happen to reach a sustainable state and become stronger with each disaster happening in the industry globally from year to year. If you are not afraid to experiment and invest in a better reliable future for the whole industry — let’s connect the forces already now.
As a postmortem I’d love everyone understands a very simple thing:
“Digital is not stealing jobs or breaking personal relationships. It turns process-oriented jobs into customer-oriented jobs removing robots from human nature and outsourcing routines to software. And this is the only way to improve these personal relationships through meetings, communication and hanging out with your colleagues, partners, and families”.
