Developing and developed countries increasingly are being differentiated along the lines of "low quality" and "high quality" service economies. Much of that differentiation relates to the relative sophistication of their supply chains.

Supply chains in developing countries typically operate independently and in serial order, with one process step being completed before the next begins. Slow feedback from the marketplace in these developing economies causes scheduled production to grossly over- or under-shoot actual demand. In the absence of the more rigorous process integration and parallel control found in developed economies, inventories accumulate between each value-enhancing step in the supply chain.

The challenge that the World Bank is prepared to take up is to narrow this gap. The task of channeling our limited investment resources efficiently is as complex as it is important.

Investment in service quality implies, among other things, an investment in a pro-service culture. A pro-service culture implies a broadly shared aptitude to act on behalf of customers and to relate effectively to the problems they confront. Development of such a culture relies on systems and institutions that respond efficiently to transaction-related problems and to resolve these problems consistently and in accordance with predictable legal standards.

Supply chain investments must be supported by well-conceived government policy that defines and enforces the rules allowing buy/sell/deliver transactions to be completed at minimal cost. A related governmental role is to create a commercial environment in which competition is based on logistics innovation and terms of sale that allow genuine economies of full capacity utilization, scope, and scale to be realized.

A detailed supply chain policy development agenda needs to be tailored to the market and development requirements of each specific country and trading region. The World Bank currently is working with several South Asian countries on policies and programs that will make doing business within and beyond their borders more attractive. These include the largest economies of South Asia as well as some of the smallest. All of the countries in the region can benefit from more open trade and from the removal of obstacles and constraints that impose unnecessary transaction costs on buyers and sellers.

What emerges from our work to date is a set of investment targets and themes that we are incorporating into the programs being developed jointly with our South Asian clients. Among the most important are these:

Reduce transaction costs and increase the certainties of buy-sell transaction completion. Simple and certain enforcement of the terms of standard waybills, contracts, warehouse receipts, and equipment interchange agreements are essential to assuring that transactions are completed at minimal cost. Judicial, arbitration, and other dispute-resolution mechanisms involving commercial transactions should be fair, rapid, and predictable and conform to precedent. One important objective of institutional investment in South Asia is the adoption of international precedents and trade facilitation protocols—and the development of institutional capacities to enforce these protocols. Thus, the World Bank is supporting a project in Nepal designed to encourage adoption of multimodal bills of lading and other documentation standards for container shipments that are uniform and consistent with international best practice.

Enlarge effective market scope and scale. The deepening and broadening of local markets can increase competition significantly and lead to economies of scale in the consolidation of shipments, the creation of regional load centers, and the development of large-scale service networks. Hence, policies or infrastructure constraints that divide and separate national markets into separate franchise or service zones need to be removed. And price discovery and distribution systems must be opened, expanded, and offered as public services. Toward these goals, the World Bank, again in Nepal, is helping develop three inland customs clearance depots to which international goods can be consigned and delivered in bond before customs inspection and clearance. These depots are expected to form the center of a commercial cluster where value-added providers can set up customer-service centers, bagging plants, duty-free manufacturing operations, and so on.

Improve distribution network connectivity. Network connectivity means being able to move products at reasonable cost and with effective control from any production point within a service market to any consumption or redistribution point. The three keys to improving network connectivity are: (1) enhancing logistics information services, (2) developing intermodal transportation services, and (3) making infrastructure investments in such areas as inland transshipment and mulitmodal transfer stations, and in-transit and warehouse storage facilities. Intermodal and multimodal transportation, in particular, offer breakthrough opportunities for improved transport network connectivity. To illustrate, the intermodal subsidiary of India Railways—CONCOR—has grown tremendously since its inception to become the largest provider of rail/truck coordinated services on the Indian subcontinent. As CONCOR expands its service reach via other railways within the region, connectivity and coordinated intermodal services offered under a door-to-door bill of lading will become increasingly available.

Facilitate competition both within and between supply chains. Market entry constraints on third parties (for example, wholesalers, resellers, leasing companies, carriers, consolidators, freight forwarders, and logistics services providers) need to be removed. These third-party providers not only serve as risk arbitrageurs in many supply chains, but they also help liquidate excess inventory and achieve full utilization of transport capacity. In addition, the basis upon which the sale price of goods can—and cannot—be differentiated among buyers needs to be defined. Also, normative legal standards need to be clarified for franchising and for enforcing other types of exclusive distribution channel agreements. Careful consideration, too, should be given to prohibiting cross ownership or control between railways, port terminal operations, and related distribution-based activities.

Develop professionalism and skills in logistics management. It is professional managers who design effective supply chains and integrate multiple service suppliers into seamless distribution systems. Thus, professional development represents one of the most productive investments that can be made. Managers need the knowledge of what is possible and the skills to execute effectively. Multinational corporations provide a valuable window on international best practice and a channel for transferring proven relevant skills. Professional associations and educational institutions also play a valuable role in reinforcing professional values and developing a credo of ethical and fair dealing, which is the bedrock of efficient supply chain operations. An example of professional development is the training program organized by UNCTAD in Nepal to upgrade the skills of freight forwarders and to "raise the bar of competence" to the level of international best practices.

Facilitate movements across national borders. Costly and time-consuming impediments to the movement of freight across borders need to be eliminated. Integration and streamlining of customs processes and procedures not only will increase revenue to the government, but they also will facilitate trade. In particular, fair and open reciprocal rights can help reduce distribution costs significantly. New treaties recently negotiated between Nepal and India and between Nepal and Bangladesh, for example, show how borders can be made more commercially friendly. Formerly, containerized freight moving between Calcutta and Katmandu was inspected three times and loads were transferred from Indian trucks to Nepalese trucks at the border. Both the number of customs inspections and the need for transfer of transit loads are in the process of being reduced.

Enable the creation and distribution of accurate information. Supply chain management increasingly involves the distribution of information among trading partners on a need-to-know basis. Most importantly, this includes the standardization of information exchange protocols and documents that enforce buy/sell/deliver contracts. The creation of specialized community cargo systems and EDI networks managed by third parties can go far in supporting seamless supply chains. Logistics information systems are most useful when they link an entire network of trading partners and serve multiple information requirements. The Internet is an ideal vehicle for commercial communication between buyers and sellers. Valuable opportunities exist to develop hub-and-spoke supply chains around the basic information requirements of customs services, railways, or port authorities.

As trade and commerce become increasingly globalized, it's critical to raise the competencies and develop the service culture of all economies. That's why the World Bank believes that the kinds of supply chain investments being made in South Asia are so important. Through such projects, these countries not only will improve their internal supply chain processes, but they also will enhance trade opportunities with their neighbors in the region—and potential trading partners around the world.