www.SupplyChainQuarterly.com [QUARTER 1/2017] CSCMP’s Supply Chain Quarterly 45
optimistic that new business opportunities will return.
“We are always looking for new customers, and we will
grow our facilities to accommodate them,” he says.
The company is also exploring structural changes. It
currently offers next-day services to Moscow from its
Yaroslavl base, but a growing appetite for even shorter
delivery times, especially among Moscow’s wealthy
and sophisticated population, may justify investment
in a facility closer to the city, he suggests.
Building a successful supply chain in Russia
Even without the additional burden of an economy
in crisis, Russia is a demanding place to operate a
supply chain, a point emphasized by every executive
I spoke with. “Any company operating in Russia has
to understand that everything is different there,” says
Arvato’s Michael Poetschke. Those differences span
almost every aspect of the supply chain.
Take supply chain real estate, my own area of work.
Over and above the normal demands of identifying
ideal locations and delivering large construction
projects within time, quality, and budget constraints,
developing property in Russia comes with its own
challenges, which should not be underestimated. Key
considerations include securing utility capacities,
development entitlements, and construction permits
for connecting all necessary utilities to the land site;
managing the cost and timing of establishing such
utility connections; and ensuring reliable, cost-effective, long-term utility supply. When my company
embarked on the development of a new warehouse
park close to Moscow, for example, we had to evaluate dozens of different sites before finding one with
suitable road connections, robust utilities, and a busi-ness-friendly municipality. In addition, it is laborious
and time-consuming to ensure—and document—
compliance with the appropriate fire-safety, security,
and environmental performance standards, especially
when working with contractors who are unfamiliar
with internationally accepted construction practices.
Logistics service providers capable of delivering a
consistent, high-quality service remain hard to find.
“The growth in e-commerce has encourage rapid
expansion in the logistics sector, but we now have
thousands of providers all offering the same, low-qual-ity service,” comments Poetschke. “It is difficult to
develop sustainable and stable partnerships.” Tactical
challenges include integration with providers’ IT
systems and establishing appropriate performance
indicators for lead times and on-time delivery performance, he adds.
Then there is speed. Poor road links and a popula-
tion spread across nine time zones mean delivery times
can be long by Western standards. Leroy Merlin’s Eric
Poulet, for example, notes that his company expects a
lead time from order to delivery of one month at the
eastern edge of its network, with most of those goods
shipped by rail.
Rapid fulfillment of e-commerce orders can be
equally challenging. “You only have to look at a
map to realize that next-day delivery is not going to
be possible from a single distribution center,” says
Poetschke. “If someone orders late in the afternoon in
Vladivostok, it will already be the next day when the
product is picked and packed in Moscow.”
Where e-commerce companies can’t achieve abso-
lute speed, they can compensate with clear com-
munication, however. Like Olga Evteeva of Next,
Poetschke emphasizes the importance of setting rea-
sonable delivery expectations, and then meeting
them. “The final client wants to know when his parcel
will arrive,” he says. “If a company says it will arrive
within three to five days, and it does, he is happy.”
In early 2017, things appear to be turning a corner.
The price of oil has risen to a level that favors Russia’s
producers, and the ruble has strengthened in response.
Forecaster Oxford Economics predicts that the country’s economy will return to growth this year. The new
U.S. administration may take a different approach in
its policies and approach to Russia than its predecessor did. Economic challenges arise and are overcome
while the modernization of Russia continues; for
those international companies with the stamina and
flexibility to ride out the tough times, the future looks
increasingly encouraging. R
1. A.T. Kearney, “The 2015 Global Retail
Development Index, Global Retail Expansion: An
Unstoppable Force” (2015), www.atkearney.com/
2. Organisation for Economic Co-operation and
Development (OECD), Trade in goods and services
indicator (2017) https://data.oecd.org/trade/trade-in-goods-and-services.htm (accessed February 1, 2017).
3. JLL, “Moscow & Moscow Region Warehouse
Market Overview Q3 2016,” http://www.jll.ru/russia/
4. East-West Digital News, “E-commerce in Russia”
(January 2017), www.ewdn.com/files/e-commerce/
5. JLL, “Moscow & Moscow Region Warehouse
Market Overview Q3 2016.”