Featured

ETN: Evolution – Thumbs Up or Down?

The greatest misconception of evolution is that it adheres to a plan. We largely believe that opposable thumbs occurred because they were a good idea. It’s hogwash: it was actually via a series of accidents and mutations over countless generations that they ever existed. The fact they then proved to be advantageous kept them in the gene pool while countless other, less successful, thumb configurations were forgotten. Generally, because the timescales and variations involved are difficult to conceive, we prefer to employ the notion that evolution is a pre-ordained process as a kind of metaphor – and then forget it’s a metaphor and start using the term “designed”.

The same is true of anything that can be said to have evolved – and it’s largely the way a supply chain works. We may think we’ve designed it, rationally and earnestly but in reality, we’ve only really done more of the things that gave a good return and less of the things that threatened our existence.

T Rex
“I’ll threaten your existence if you think all primitive life is ill-adapted” Photo: Paul Bentham

It always used to fascinate me how many pairs of hands a product went through from factory floor to the consumer’s door, each adding a layer of margin but reducing affordability and competitiveness along the way. Each (opposable) thumb in the pie claims to “add value” but is that always the case or is there a lot of money for old rope being paid? And, according to the ‘law of the jungle’, for how long will that remain to be the case?

Here’s my basic summary of the traditional supply chain:

  • Manufacturer: Owns factory, makes stuff. Production requires that volumes are huge. Often more obsessed with improving the product than finding a route to market for it. Historically tended to be the ‘brand owner’.
  • Wholesaler: Owns warehouse, professional ‘go-between’. Sees promising products and buys in bulk, to offer to a roster of retailers. Justifies ‘middleman’ cut by offering exclusivity and/or continuity of supply by investing in large quantities, stocking it “so the retailer doesn’t have to”.
  • Retailer: Owns shop, cultivates goodwill with local clientele. Needs broad range of competitively-priced items that local clientele demands/will tolerate. Accepts Wholesaler’s higher price for small-volume supply flexibility with implicit promise that no-one else uses their lower cost prices to engage directly with ‘their’ end user.

Yes, the landscape has become complicated over time, with the addition of Distributors, Agents, Buying Co-operatives, Marketplaces, Franchisees and Affiliates (did I forget anyone?) but still, you can’t make stuff economically without great depth of units and you can’t be the place to go shopping for very long without a great breadth of range. The Wholesaler always was – and usually still is – the solution to this Depth-to-Breadth conundrum, explaining why there are three or four lots of profit margin on the same item between creation and consumption.

Here comes the “but”: …but the supply chain as we recognise it today is not a product of immutable parameters. It merely evolved as an adaptation to limitations on communications and the logistical solution to production in great depth and re-selling in great breadth.

There have always been temptations to miss someone out and pocket their margin as well as your own. Retailers have been at it for years, doing supply deals with manufacturers when MOQs allow, much to the chagrin of Wholesalers. Then again, Wholesalers haven’t always played a straight bat, occasionally offering price reductions they wouldn’t tolerate of their stockists or (gasp) “going direct”. As in the evolution of life itself, much of the last epoch has seen one type of life-form or another attempting to assert its dominance over the whole ecosystem.

Evolutionary theory also warns us to expect, eventually, an extinction event, an inevitable occurrence that becomes a game-changer. It’s believed the Chicxulub asteroid wiped out the dinosaurs at the end of the Cretaceous period (thus creating opportunity for the dominance of mammals) and it’s worth considering what the next asteroid-scale event might look like. Having scanned the skies, I wonder if I might have found it. It’s a bit scary and Retailers in particular may wish to make sure they’re sitting down at this point.

Some American retail analysts now predict a quarter of all consumer ‘retail’ spend will take place online within six years (perhaps 30% in the UK) in an online space that will be 40% controlled by the combined might of Amazon, eBay and Alibaba. In addition to current trends, the growing ‘internet of things’ (if that’s a new phrase to you, Google it!) will offer a multitude of self-ordered replacement items with shoppers merely ‘signing off’ auto-suggested purchases rather than actively shopping.

Better, cheaper communications (social media, email, apps, digital ads) have strengthened direct engagement for all; the part of the equation that was traditionally the brands’ biggest weakness – plus the virtual nature of shopping means that breadth of offering isn’t as vital as it always was. With the gloves off and everyone approaching the punter, the brands can now circumvent the distribution network and communicate their message to the end user without the distortive prism of stockists and distributors. Brands may already fulfill orders directly to their “customer” so they’re increasingly less reliant on the old-fashioned retailer for shifting the units. There’s even a belief that surviving retail stores in future won’t be places to physically procure products any more but to simply ‘experience the brand’. 4.6 million people work in retail in the US and their long-term career advice is to find another sector before they’re replaced by Amazon-style automated stores.

If you’re frantically clutching your chest at this point, it may help to point out that we’re not in the most cutting-edge of industries – and that’s probably a good thing. Remember, sixty million years ago, while 75% of the planet’s fauna was being wiped out, only the most durable species, able to live on the most meagre of diets (notably, sharks and crocodiles) survived – and continue to thrive today. The ability of the equestrian industry to make a living in an environment most others would regard as infertile may yet see it outlive the real dinosaurs of mainstream retail.

 

 

 

BBC: Britain’s Biggest Controversy?

– Oh, he’s not going off one one about the BBC again, is he?

Well, yes I am, I’m afraid.  Normally, I’m motivated to assault my keyboard (and your attention) by the need to defend dear old ‘Auntie’ in the face of some current slight or attack on her being.

This time, it’s slightly different.  My trigger to this particular polemic is not to decry the latest piece of perceived BBC-bashing: the Government’s insistence that all BBC employees earning over £150,000 must be listed in the interests of ‘transparency’.  Much as I love the BBC and I’m suspicious about the thinking behind this development, I happen to agree with the idea.

5833862906_0196a46cbd_z

It’s right of course that taxpayers can see how their c.£3.75 billion is spent each year but it’s hardly fair to infer from that that the BBC has been utterly opaque about its finances until now.  For many years, The BBC’s Annual Reports have been available to download and/or read for anyone with an internet connection and enough inclination/nosiness so to do.  This year’s version runs to 168 pages of often glossy prospectus-like self-promotion but as ever, it is required to include a high degree of financial information.

This compulsion to transparency, I imagine, is both a blessing and a curse to the BBC Trust.  For example, thanks to the report, we can find out that the Beeb spent an astonishing £45.5m on Human Resources (HR) over the last year, up from £43.1m the year before, both seemingly massive numbers.  With a total income of £4.8bn last year, this HR figure amounts to almost 1%, which seems much less significant.  Whether or not you believe this figure is still far too high is of course up to you, but either way, you’re better informed by having this information available to you – as you would be, either way, by knowing that Gary Lineker, Claudia Winkelman et al are this band or that above £150k pa (the declarations will be in bands of 50,000: £150k-£200k; £200k-£250k etc.).

As with any form of information, it’s fair to say that the information alone is not the whole picture.  There is also context.  For instance, the BBC Report shows that the World Service is currently costing licence fee payers £261m and the cost of actually collecting the licence fee come is at around £115m.  So what?  Well did you know these two areas were, until recently, not covered by the licence fee but by other parts of the Government?  Some might say that it was a rather underhand trick to suddenly burden these liabilities on the corporation without allowing any recompense.

Equally, you might take the view that these things were already being paid for by your taxes anyway so what difference does it make what part of the public purse they come under?  That’s a fair point but it’s also then rather harsh to draw too many conclusions about the Beeb’s levels of like-for-like efficiency when these two new overheads account for around 10% of the licence revenue.

There’s also a point to be made here about the fact that most of the £115 fee collection costs (which, let’s face it, are likely to be mostly comprised of pursuing dodgers) are being borne by us, those who do pay our licence.  It’s non-payers we should be directing our ire towards for this, not the BBC for being forced to include the provision in its accounts.

With effectively a £380m millstone placed around its neck, it was hardly surprising that the BBC wasn’t able to stop The Great British Bake-Off defecting to Channel 4 earlier this week.  If only the Corporation had had to spend ‘just’ £105m a year on stopping licence-dodgers, it would have been able to fund the £10m shortfall to keep one of its most popular programmes of recent years.

Or maybe not.  Perhaps it was not just the increased cost that did for the GBBO contract; it was more the fact that the increased cost would have been scrutinised because of the BBC’s ever-heightened commitment to transparency.  It can be argued that the loss of a flagship programme was therefore the right thing to happen and a sign of responsible management and cost control.  Will Channel 4 manage to maintain the quirky-yet-comfy style of the departing Mel & Sue?  Will Paul & Mary judge the new format to be too crummy for their taste?  Will the inevitably fully-laden ad breaks ruin it?  Like the contestants, we’ll have to wait to see how it turns out.

I suspect that, on balance, we’ll miss the BBC version and, in its absence, our hearts should grow fonder for the Corporation that bestowed it on us in the first place.  The same goes for the other divide-crossing crowd-pleaser The Voice.  Auntie Beeb has a proud history of conceiving and developing formats into a mind-boggling list of national treasures from Watch With Mother to Strictly Come Dancing – and far too many in between for me to reel off.  There’s no reason to believe that it isn’t capable of creating something else, just as popular – or even better.

I think Stephen Fry best stated the BBC’s value during his 2008 lecture on the Future of Public Service Broadcasting (it’s well worth watching all 43 minutes but the bit I’m quoting comes right at the end) when he makes the point that, in some other countries, there seems to be enough funding for enriching floral displays on roundabouts, posing the question “why don’t we do that?  How pleasing.”  The point is that such countries can afford to do it  because they choose to make it a priority.  He likens the BBC and its core values (to educate, inform and entertain) to a million such roundabouts and something which we as a nation can agree that we can afford – and if we don’t we may only truly discover its value when it’s too late to recover.  I’ve seldom agreed more with anything else I’ve ever heard or read.

Oh, and one more thing: if the Government’s recently-renewed thirst for transparency is to be the driving force behind another requirement of the BBC’s proberty, we taxpayers must then surely look forward to a similar, consistent, ascending commitment to demonstrating value and equal transparency when it comes to the rest of the Public Sector.

I’ve blogged before about how voters should be given the same consideration as shareholders, with all the access to structured reporting that that entails.  Thus we can eagerly await similar levels of dedication to scrutiny in the case of NHS (with a c.£100bn expenditure, a 214-page report, a lesser amount of financial information and salary information pertaining only to its Board members.) and after that, who knows: Parliament, the Armed Services, the Civil Service, the Police, the Prison Systems and, one might presume, all the privately-owned organisations that depend on Public Sector contracts for, let’s say, 50% of their revenue.

Or would it be too cynical to suspect that that won’t happen?