Be confident of your supply chain figures

Roger OakdenLogistics Planning

Using numbers to support your logistics strategy.

When developing your logistics strategy, you may have in mind possible expansion to additional countries. Your Marketing and Logistics groups must build the business case for the expansion; but what figures will you use, especially concerning the prospective market size?

You have heard the saying ‘lies, damn lies and statistics’, which gives a warning – when developing your logistics strategy, take care with the figures used to substantiate your plans.

When considering market size, you want to know the potential number of people who can afford to buy your products; this is likely to be the middle and prosperous classes. A recent article by a respected Australian economist concerning the potential for Australian food exports to Asia stated that the ‘middle class’ in Asia would be 3.2 billion by 2030.

I was intrigued by the sheer number and wondered where he obtained the figure. Reports from the United Nations and the OECD forecast that the world middle class will substantially increase by 2030; however, they do not agree on the percentage of world middle class that will reside in Asia. So, the figure of 3.2 billion people must be further analysed.

The measure of middle class used in the reports identify those with a minimum income of U$2 per day per person, adjusted for the cost of living in each country (called Purchasing Power Parity of PPP). Other than this single figure, there does not appear to be a standard definition of middle class that takes account of structural differences (that is social stratification) in and between countries.

Who are middle class families?

Essentially it is those with a low probability of falling into poverty (the poor class); but this does not inform you about the potential market. What you need to know is the households with disposable income and the decision making ability concerning where their money is spent.

As an example, consider India for your expansion plans. The Indian middle class is often quoted in the media as about 250 million people and even as high as 400 million, but should you accept even the lower figure?

Commence with the quoted lowest middle class income of U$2 per day and the average Indian household of five people. The household income of U$10 per day translates at the World Bank PPP exchange rate of about Rs18 per U$1 to Rs5,400 per month. Does this income provide sufficient disposable income to spend on your company’s products?

Colleagues in India advise me that a household income of Rs15,000 per month (about U$6 per day per person) is required to allow spending on consumer durables and to save for future expenditure. On that basis, the number of people in India who are middle class is actually about 50 million; that is 10 million households or 5 percent of the population.

The moral of the story is to not accept figures at their face value, but ask questions about their origin and undertake research to substantiate the figures used in your logistics strategy – be safe, not sorry!

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...