Urbanization – New Approach to Supply Chain Management

supply chain processes need to be changed due to Urbanization

Of the world population of approximately 7.3 billion, more than 4.2 billion, or more than 60% of world population, live in Asia.  All through the past several decades, the majority of world population live in urban, civilized areas rather than rural areas.  Statistics show that in 2015 as many as 3.4 billion people lived in urban areas.

The annual urbanization trend (according to Wikipedia, urbanization is a population shift from rural to urban areas with gradual increase in the proportion of people living in urban areas) appears to be dramatically upward from now on, 96% of which is to occur in developing countries in Asia and Africa by 2030. This is going to directly affect resources such as food, water, fuel energy, (particularly water as it has been estimated that the global demand for water will rise more than 55% by 2050) as well as various management processes which lack proactive measures or planning as we see today.

As for Thailand, the capital city of Bangkok has been referred to as one of the world’s most primate cities.  (A primate city is the largest city in its country, disproportionately larger than the country’s second-largest city or any others in the urban hierarchy.)  Bangkok’s population currently stands at 5.7 million while that of the country’s second-largest city, Nakhon Ratchasima, totals 2.6 million; the third-largest city, Ubon Ratchathani, 1.9 million; the fourth-largest city, Khon Kaen, 1.8 million and the fifth-largest city, Chiang Mai, 1.7 million.  The past government development plans concentrated on the development of Bangkok Metropolis as the country’s economic hub where a cluster of significant financial institutions, mega-sized businesses and labor market is located.  Bangkok is, besides, the country’s transportation hub, a destination of all major roads, highways, trains and cargo ships – a gateway to the North, the South, the East and the West, which explains its constant population growth rate as a result of provincial people migrating to Bangkok in search of progress and urban prosperity.  The government later shifted its development policy from Bangkok to its perimeter as well as major cities in each region.  As a result, these cities have similarly been developed in various aspects.  While Bangkok’s population growth rate has, in turn, been trending downward, the rate in cities such as Chiang Mai is showing an upward trend as urban areas in the provinces are just as flourishing as Bangkok and its perimeter.  As such, people living there can enjoy facilities, earn their living and can visit entertainment and recreational places as if they were living in the capital city.

Let’s have a closer look at Chiang Mai which is, population-wise, the country’s fifth-largest city, the economic potential of which continues to be developed as evidenced an increase in the number of shopping and community malls in the heart of the city.  As a result, Chiang Mai urbanites’ life style is changing.  Given their increased spending at shopping malls, the province’s economy is bound to grow steadily along with trade and service businesses which are compelled to adjust in order to be able to meet the ever increasing consumers’ demand.  Retailers, in particular, have to make sure that their customers do not encounter empty shelves due to an out-of-stock situation (in the case of fast moving consumer goods that need to be promptly and frequently replenished).  However, city streets often do not accommodate large delivery trucks needing to unload goods for the stores or the manufacturing plant is situated in another province.  Cost-effective delivery can be achieved if the volume of goods is large enough to justify transport cost per unit.  Transport of goods by large delivery trucks from a remote production source to the destination, albeit a suitable solution, is hardly feasible due to road limitations.Thus, businesses/ stores are compelled to have warehouses or space in the back to store goods and inevitably be burdened with inventory costs.

As it happened, all logistics service providers tried to adjust themselves as well as the existing resource management system pertaining to delivery vehicles, warehouses and technological equipment in order to come up with an effective solution to the problem while easing the anxiety of business operators who wanted to expand their businesses in tandem with the urban growth.  This explains why large numbers of warehouses have emerged along the periphery of Chiang Mai city.  An integrated solution in the context of logistics service provision starts from the loading of goods from a manufacturing plant on a large-sized delivery truck to ensure reasonable transport costs, storage and management covering receipt/release of goods to distribution of goods by smaller-sized delivery trucks to downstream stores, be they department stores, community malls, modern-trade stores such as Big C and Tesco Lotus or retail shops, to meet the customers’ need to continually expand their businesses.  Such an integrated management can help tackle the problem and achieve logistics-cost-effectiveness through resource sharing management (covering facilities and vehicles) and cost sharing as different types of goods are simultaneously shipped on the same route.  In addition, factors pertaining to the locations of warehouses or distribution centers must be taken into account.  As the saying goes: ‘Well begun (well planned) is half done,’ a future expansion to the other regions is bound to be feasible and effective.

In the last analysis, even though the capital city such as Bangkok has managed to draw more on national resources, be they in the form of investments in infrastructure or public utilities, than other cities or administrative regions/zones, thereby becoming a clearly fast growing city as well as a hub in many aspects, major cities in every region of the country can thrust themselves forward and implement a great number of economic development projects thanks to social and economic growth and prosperity coupled with effective economic potential development plans.  All these have contributed to other regions’ growth and strength, especially in the rural sector – a business opportunity for operators, both in the production and service sectors, who are trying to meet an increase in demand following the establishment of the city’s new urban areas, which has given rise to proactive supply chain management in anticipation of business and growth trends in business triggered by urbanization.  Not yet mentioned but indeed a significant factor is the key role played by leaders in those cities who can bring about growth and prosperity of their own communities by means of urbanization without any adverse effect on the environment or people’s way of life specifically prevailing in the respective localities but with preparedness in the areas of resources, infrastructure and operational processes as a preventive measure against crime and/or potential negative impact inherent in rapid urbanization.  If all this could be achieved, the country’s overall economic picture should be on the positive side, more or less.

Compiled by BLOG.SCGLogistics
References and pictures by  ipsr.mahidol.ac.th, esa.un.org, worldbank.org, weforum.org , wikipedia.org, pixabay.com (account Unsplash, picaidol),thaifranchisecenter.com
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