The essential role of distribution Here Jun Xu, president at Brighton Best International, looks at how the impact of the Covid-19 pandemic has underlined the importance of the distribution sector; why the ‘just in time’ concept may need to change; and the importance of diversification in every aspect of a business.
020 will go down in history as one of the most disruptive years in our lifetimes. It has challenged our businesses, our families, and our society values. However, I am optimistic that as long as we are honest with ourselves and with the truth, we will come out of this stronger than ever. In the past six months, I believe we have learned several elemental truths. As an elemental truth, it was always there, but maybe it was not realised.
Distribution provides confidence
I believe one elemental truth is that distribution is an essential business. During the height of the pandemic, we saw what happens when distribution does not function properly. As businesses and restaurants did not operate, many farmers discarded foods already processed and ready for shipment. At the same time, grocery stores were running out of supplies as panic buying for food and toiletries ensued. Distribution provides confidence that a product is there and prevents a hoarding psychology. An economy or society without a proper distribution network is broken. A distributor’s job is to balance the supply and demand equation, which is the backbone to a functional society. During the Covid-19 pandemic, fasteners were used for food processing, farming, transportation and manufacturing. The distribution of fasteners is an essential service to keeping things and all other economic categories running. Although we are not medical workers, we should be proud of our fastener industry’s contribution to fighting the pandemic.
Just in time
Over the course of our professional careers, we were taught the profound benefits of ‘just in time’ manufacturing. I remember the concept was taken so far as to drawing a line on the factory floor demarking who the product belonged to – the supplier or the buyer. To me, ‘just in time’ is a concept that is a classic innovator’s dilemma. The idea of Innovator’s Dilemma, a book written by Clayton Christensen, is that rational managers will work to supply what customers ask them for – smaller and faster products. Like breeders of a horse, customers asked for faster and more enduring horses – not seeing the advent of the car. Silicon chip manufacturers and end users asking for faster and smaller chips, not realising the advent of the digital cloud. Just think how many comfortable industries the smartphone has disrupted or destroyed? Rational managers listening to their customers would be led to believe that faster and smaller is the security to longevity. It is not, and I believe Covid-19 has exposed the limits of ‘just in time’ manufacturing. ‘Just in time’ works, if the world is predictable. It is human hubris to think that we can control the future. Great entrepreneurs can help to ‘create’ a future, but no one can ‘control’ the future. Car companies – ready to manufacture and bring back hundreds of
FASTENER + FIXING MAGAZINE ≡ ISSUE 124: JULY 2020
thousands of workers, cannot manufacturer because of a lack of sub-contracted parts made elsewhere. Truly dropping a dollar to pick up a penny. Here is another elemental truth. Distribution companies cannot generate revenues if there is no inventory to sell. No level of marketing or technology can make up revenue dollars if your warehouses are empty or factories are down because of a lack of parts. Inventory is a distributor’s life blood, and I believe Covid-19 has taught us that we became too dependent on ‘just in time’ concepts in our supply chains. If you purchase business interruption insurance, maybe you should also purchase and hold more inventory. That is the best insurance.
There’s that word again – diversification – but it is so important to BBI. I’ve in the past talked about product diversification. For BBI, as demand dropped in fasteners, demand surged for our other products – especially PPE (Personal Protective Equipment). I understand this demand surge was due to the pandemic, however, it has buffered BBI’s sales and profitability and will help BBI come out of this stronger than ever before. Another critical factor to BBI’s growth is racial and cultural diversification. I do not often talk about this, but it is an elemental truth to who we are as a company. BBI operates in six countries and employs hundreds of employees, each with a unique background that could not be more different from one another. So I do not use the words diversity, respect, and teamwork lightly. You cannot learn anything new from people who think exactly the same as you. If you cannot learn anything new, how do you grow? Respect for one another is critically important to helping understand different views, so that we can work together as a team to understand the opportunities these differences of views present. Creation of opportunities do not exist in an equilibrium where everyone thinks the same and is comfortable. It exists through disruptions and differences. As leaders, we must not be blind to these differences. It is critically important for us to protect this diversity – because this is also where your future undiscovered opportunities lie.