10/1/23, 12:58 PM MoneyWeek - 2023-01-06

22 Cover story
Logistics should prove
lucrative for investors
Assembling goods or moving them around has become muchmore complicated in the past few year
Jonathan Compton assesses global supply chainsand highlights some promising stocks
There would seem to be little in common between rubber plantations (for the tyres) to steel mills and
the Russian army in 2022, the current famines in battery factories. He believed he was being scalped
East Africa, Walkers Crisps and Walmart. Yet each is by suppliers. The reality is that specialists provide a
connected by a common thread: appalling logistics. product or service more efficiently and cheaply, but if
Given its superior numbers, Russia should have the logistics break down – as happened earlier this ye
conquered Ukraine by the end of May 2022. Its when the supply of chips (or transistors) was reduced
inability to deliver its overwhelming strength to the by lockdowns in China and shipping problems – who
right places at the right time will hopefully see Ukraine production chains slow or grind to a halt.
triumph eventually. The current famines – and every A car will contain between 500 and 1,500 chips,
one since 1972 – are purely about distribution,as the which will comprise less than 0.2% of a car’s weight,
world has enjoyed a food surplus for 50 years. but 8%-15% of its costs. But the Big Daddy of logistic
On a lighter note, Walkers Crisps owns the largest nightmares is the aeroplane. A Boeing 747 contains
factory of its kind in the world (in Leicestershire). The roughly six million individual parts. It’s easy to see w
parent company PepsiCo took out advertisements last that humble warehouseman and transport manager
year to apologise for its inability to deliver enough crisps have become key executives.
and snacks nationwide owing to “computer upgrade Until World War II logistics management was larg
problems”, for which read logistical incompetence. confined to the military. The key imperative was getti
In August this year America’s biggest retailer,Walmart, well-equipped troops to the right place at the right tim
said it had more than £1.5bn of “excess inventory”, in overwhelming numbers. Every successful general
meaning it had far too much stock it could not sell. kept a keen eye on logistics.
Logistics is a term describing a section of the The war produced a step change, especially in
supply chain, which in turn is responsible for the America. The need to supply huge armies and whole
overall sourcing, processing and delivery of goods to countries, both in Asia and Europe, created a dramat
the customer. Logistics specifically denotes moving response, such as more than 250 aeroplanes and 50
and storing goods between different supply-chain Sherman tanks being built every day by 1944 (and
organisations. While this difference is important, the saving Henry Ford’s bacon).
lines become blurred quickly and I will not be a purist
either. Thirty years ago, logistics was deemed a minor The “just-in-time” approach
and unimportant part of a company’s business. The After the war many lessons were forgotten. Firms
warehouseman and fleet manager were lowly positions maintained huge supplies of spare parts and raw
about which the board knew little and cared less. materials, many of which would rust or rot before
Now it is often the dominant priority and problem: being used; expensive and inefficient. In America
get your logistics right and profit margins will soar. “just-in-time” (JIT) manufacturing had in theory, an
Have your crisps in the wrong place or too much occasionally in practice, long been recognised as mor
inventory, and the reverse applies. All this has been efficient and profitable. But it was Japan, and especia
brought into sharp focus by Covid-19 and the Russian Toyota, that first applied this approach on a large sca
invasion, but the difficulties started well before these After the war it was implemented in Japan’s car
two events, and were exacerbated by globalisation. manufacturing sector. The sector adopted the “seven
wastes” and “ten precepts” of an employee called
What it takes to make a smartphone Taiichi Ohno, who can be described as the father of
Take four common products you are likely to use or applied JIT. This turned conventional manufacturing
 own. Your mobile phone is surprisingly simple, with a on its head. No longer were customers supplied
mere 300 or so parts, but uses more than 40 different stock. JIT focused on producing exactly the amount
 from
materials ranging from silicon and plastic to rare metals you needed at exactly the time your customers wante
and chips. Each has its own extensive supply chain and it, with minimal stocks; components were often
because some of the technology within the phones is received minutes before their use.
complex and capital intensive, few countries have the This approach required detailed supply-chain and
ability to manufacture them. logistics management. The impact was dramatic. Fro
“Your mobile By contrast, an average bicycle contains roughly 900 producing less than 1% of the world’s cars in 1950, b
phone has parts but the key components (the frame, wheels and
chain) are relatively easy to make. The engineering is
the mid-1980s Japan’s market share was nearly 30%
and to the horror of many Americans, it was the top
300 parts neither complex nor expensive, so many developing seller of cars even in the US. And where Toyota had le
and uses 40 countries produce their own, using mostly locally
sourced components.
its suppliers, competitors and other industries (such a
steel and electronics) had rapidly followed, also maki
different Then there is the automobile. A car with an the Japanese stockmarket larger than its US counterp
materials, internal-combustion engine contains around 30,000 before it imploded in 1989.
parts, from tiny nuts to the engine block. As a result, Globalisation increased at breakneck speed, with t
from silicon carmakers have long been pioneers in logistics and fall of the Soviet Empire and with China rejoining the
to rare supply-chain management.
Henry Ford almost bankrupted his company
world economy. A key underlying driver was a collap
in shipping rates (and to a lesser extent air freight). Th
metals” before 1945 by trying to own the entire chain from coincided with a rapid loosening of trade barriers and
6 January 2023 moneyweek.c

https://www.yumpu.com/news/en/issue/158137-moneyweek-2023-01-06/read?page=23 1/2
10/1/23, 12:58 PM MoneyWeek - 2023-01-06

22 Cover story
Logistics should prove
lucrative for investors
Assembling goods or moving them around has become muchmore complicated in the past few year
Jonathan Compton assesses global supply chainsand highlights some promising stocks
There would seem to be little in common between rubber plantations (for the tyres) to steel mills and
the Russian army in 2022, the current famines in battery factories. He believed he was being scalped
East Africa, Walkers Crisps and Walmart. Yet each is by suppliers. The reality is that specialists provide a
connected by a common thread: appalling logistics. product or service more efficiently and cheaply, but if
Given its superior numbers, Russia should have the logistics break down – as happened earlier this ye
conquered Ukraine by the end of May 2022. Its when the supply of chips (or transistors) was reduced
inability to deliver its overwhelming strength to the by lockdowns in China and shipping problems – who
right places at the right time will hopefully see Ukraine production chains slow or grind to a halt.
triumph eventually. The current famines – and every A car will contain between 500 and 1,500 chips,
one since 1972 – are purely about distribution,as the which will comprise less than 0.2% of a car’s weight,
world has enjoyed a food surplus for 50 years. but 8%-15% of its costs. But the Big Daddy of logistic
On a lighter note, Walkers Crisps owns the largest nightmares is the aeroplane. A Boeing 747 contains
factory of its kind in the world (in Leicestershire). The roughly six million individual parts. It’s easy to see w
parent company PepsiCo took out advertisements last that humble warehouseman and transport manager
year to apologise for its inability to deliver enough crisps have become key executives.
and snacks nationwide owing to “computer upgrade Until World War II logistics management was larg
problems”, for which read logistical incompetence. confined to the military. The key imperative was getti
In August this year America’s biggest retailer,Walmart, well-equipped troops to the right place at the right tim
said it had more than £1.5bn of “excess inventory”, in overwhelming numbers. Every successful general
meaning it had far too much stock it could not sell. kept a keen eye on logistics.
Logistics is a term describing a section of the The war produced a step change, especially in
supply chain, which in turn is responsible for the America. The need to supply huge armies and whole
overall sourcing, processing and delivery of goods to countries, both in Asia and Europe, created a dramat
the customer. Logistics specifically denotes moving response, such as more than 250 aeroplanes and 50
and storing goods between different supply-chain Sherman tanks being built every day by 1944 (and
organisations. While this difference is important, the saving Henry Ford’s bacon).
lines become blurred quickly and I will not be a purist
either. Thirty years ago, logistics was deemed a minor The “just-in-time” approach
and unimportant part of a company’s business. The After the war many lessons were forgotten. Firms
warehouseman and fleet manager were lowly positions maintained huge supplies of spare parts and raw
about which the board knew little and cared less. materials, many of which would rust or rot before
Now it is often the dominant priority and problem: being used; expensive and inefficient. In America
get your logistics right and profit margins will soar. “just-in-time” (JIT) manufacturing had in theory, an
Have your crisps in the wrong place or too much occasionally in practice, long been recognised as mor
inventory, and the reverse applies. All this has been efficient and profitable. But it was Japan, and especia
brought into sharp focus by Covid-19 and the Russian Toyota, that first applied this approach on a large sca
invasion, but the difficulties started well before these After the war it was implemented in Japan’s car
two events, and were exacerbated by globalisation. manufacturing sector. The sector adopted the “seven
wastes” and “ten precepts” of an employee called
What it takes to make a smartphone Taiichi Ohno, who can be described as the father of
Take four common products you are likely to use or applied JIT. This turned conventional manufacturing
 own. Your mobile phone is surprisingly simple, with a on its head. No longer were customers supplied
mere 300 or so parts, but uses more than 40 different stock. JIT focused on producing exactly the amount
 from
materials ranging from silicon and plastic to rare metals you needed at exactly the time your customers wante
and chips. Each has its own extensive supply chain and it, with minimal stocks; components were often
because some of the technology within the phones is received minutes before their use.
complex and capital intensive, few countries have the This approach required detailed supply-chain and
ability to manufacture them. logistics management. The impact was dramatic. Fro
“Your mobile By contrast, an average bicycle contains roughly 900 producing less than 1% of the world’s cars in 1950, b
phone has parts but the key components (the frame, wheels and
chain) are relatively easy to make. The engineering is
the mid-1980s Japan’s market share was nearly 30%
and to the horror of many Americans, it was the top
300 parts neither complex nor expensive, so many developing seller of cars even in the US. And where Toyota had le
and uses 40 countries produce their own, using mostly locally
sourced components.
its suppliers, competitors and other industries (such a
steel and electronics) had rapidly followed, also maki
different Then there is the automobile. A car with an the Japanese stockmarket larger than its US counterp
materials, internal-combustion engine contains around 30,000 before it imploded in 1989.
parts, from tiny nuts to the engine block. As a result, Globalisation increased at breakneck speed, with t
from silicon carmakers have long been pioneers in logistics and fall of the Soviet Empire and with China rejoining the
to rare supply-chain management.
Henry Ford almost bankrupted his company
world economy. A key underlying driver was a collap
in shipping rates (and to a lesser extent air freight). Th
metals” before 1945 by trying to own the entire chain from coincided with a rapid loosening of trade barriers and
6 January 2023 moneyweek.c

https://www.yumpu.com/news/en/issue/158137-moneyweek-2023-01-06/read?page=23 2/2