Transcript
*Elements of the video have been paraphrased for readability.
Jorge:
Good afternoon Germán, or good morning.
Germán:
Jorge, how are you?
Jorge:
Very well, you?
Germán:
We are going to do a new podcast today.
Jorge:
That’s right, people asked for it, we are back. And if they didn’t ask for it, well we are back anyways.
Germán:
We are going to do it anyway.
Jorge:
Yes, yes, but oh well. The second episode of “It’s the end of the week” – “Es el fin de la semana” in Spanish. And today we are going to talk about a new topic.
Germán:
The topic is going to be distribution centers, warehousing and distribution networks in North America and in particular, the United States, Canada and Mexico. Basically, we have seen that, what is more common in Canada and in the United States, is that companies that manage warehousing and distribution are going to have either one warehouse, or they are going to have between two and four, or they are going to have many warehousing and distribution points. What we have seen in particular, in Mexico, is that frequently many distribution points are required. It is not so common to have one or between two and four.
Jorge:
That’s right, and let’s talk specifically about the factors that have influence on the decisions or… that make a difference on…
Germán:
…why is it that we are going to have that case of one, two or four or many distribution points in the different countries.
Jorge:
And what are the similarities between Canada, the United States and Mexico? What are the differences between those product distribution networks in these three countries? No?
Germán:
Right. But to begin with, we have to talk about how they are designed, or how do you come to the conclusion of how many warehousing and distribution points are needed, or the design of a distribution network as such. And what is important to take into account… there are many factors… but some factors are more relevant than others.
For example, the type of product to be stored and distributed, the customer profile… where are the customers located, what is their profile, what are they looking for in terms of service, for example? The profile of the inventory to be stored, the amount of inventory that needs to be stored in each of the distribution points. But above all, the type of transportation available, the transportation infrastructure that is available in each of the countries or areas where a distribution operation is going to be carried out, to be able to determine what is the optimal distribution network. And the main objective, as always, is money, the costs that storage and distribution imply. So, what is the cost of operating?
Jorge:
…of transportation…
Germán:
…in particular. Transportation is one of the most important costs in the operation. And obviously the level of service that you have with the customer. Customers who want to receive the product a day or two days after they have ordered it.
Jorge:
Yes, yes, yes, and, as you mentioned, there are different things to take into account, what is the product like? If the product has to be at a controlled temperature also, that is if it’s refrigerated or if it’s dry or in bulk. Two of the most relevant variables are the location of the customer, as you said, which determines the distance to travel, and the distribution capacity or rather the transportation infrastructure within the country.
Germán:
Right, the infrastructure available and that is definitely different in each of these three countries that we are talking about.
Jorge:
And, just to understand these two factors, it’s important to point out some of the characteristics in the three countries that are influential in terms of how the transportation infrastructure is, or how the infrastructure has been built, how it has been created.
Germán:
Why is it we have the situation we have today.
Jorge:
How did we get there?
Jorge:
So, to get into that, first we have to talk about geography. Which is the first point, I think. Then, about the transportation infrastructure, and the population of each country and where that population is located. No?
Germán:
Right. And something interesting is: geography is one of the drivers or like one of the most important reasons why we have the transportation infrastructure and the population distributed as it is in each of the countries. So, let’s start talking about that geography.
Jorge:
We start with Canada, then we go to the United States, and then we move on to Mexico.
Germán:
Right. And as you described it with your hands: to the north we have Canada, then the United States and to the south is Mexico. And if we start with Canada, the most significant or most relevant characteristic of Canada is: it is a very, very large country, right?
Jorge:
The second largest country, right?
Germán:
It’s the second largest country in the world after Russia. And it has the peculiarity that, since it is in the north, there is a large land, a large area, vast, north of Canada, which is basically forests, tundra, and it is difficult to grow crops in that area.
Jorge:
Yeah, well, and apart from being difficult to farm, also when the winter comes, it’s very difficult to access.
Germán:
Right. And something particular in Canada, on the west side, we have the mountains. So, between the Pacific and the mountains, we have a fertile area, but just after the mountains and to the east Canada is a very flat country where we have a lot of lakes and also there are a lot of rivers. Lakes and rivers that are navigable.
George:
Yes. And it is one of the particularities, but it’s something that it also shares with the United States.
Germán:
Let’s talk then about the United States. So, what peculiarities and similarities does it have with Canada? The similarity, then, we have the mountains on the west side, the same situation as in Canada: from the Pacific to where the mountain range is: the Rockies, it’s a pretty fertile area. But just beyond those mountains, we have an area that is, significantly, let’s say desert, well not necessarily desert. It has a much lower amount of rainfall, lower amount of precipitation than what you have in the other areas of the country. And then on the east side, thanks to the proximity and all the Atlantic and Gulf currents, we have an extremely fertile area. And obviously a very flat country also with many rivers which are navigable.
Jorge:
Yes, as you mention, many navigable rivers and lakes. And well, I mean, those are similarities that have been found between Canada and the United States, but also if we go down with Mexico it is the same, as you mentioned about the mountainous areas that are in Canada and the United States, Mexico is also one of the most mountainous areas in the world.
Germán:
It is one of the most mountainous countries in the world, of course.
Jorge:
Yes. And that in itself, causes that the rivers they have, which start from high up, are not as navigable as the U.S. and Canadian counterparts,
Germán:
Because the slopes are very, very high, very big. And obviously you can’t navigate.
Jorge:
Exactly. And then you have the mountains, and in the center an area of volcanoes. And, also, in that area of volcanoes, the land is very fertile, all in the center of the country. Then we have the south, which is full of jungle, which is a dense jungle. It is also very difficult to penetrate or to enter, to create connections there. So, we have these three different countries, similar in certain things, but clearly different. Each one has its challenges in terms of geography.
But if we talk about infrastructure, talking about Mexico and its mountainous area, the density of roads and railroads is also lower because of that. Why? Because when, and you have driven in Mexico, everyone who has driven in Mexico on highways will know that you are always, always, going to get to a point on the road, that even though it has straight parts, most of it is going to be serpentine-like, it is going to be from right to left, which actually helps so you don’t fall asleep.
Germán:
And it’s fun to drive when you have many curves, I like it. But the interesting thing about that is because of the mountains, building roads or building railroads is much more expensive. It’s much more difficult, compared to what happens in the United States and Canada which are flat and it’s easy to do the construction. And what you mentioned about the jungle in southern Mexico, well, it is also difficult to build roads or railroads in the middle of the jungle. It is much more expensive.
Jorge:
Much more expensive, yes. Besides the fact that, even if you make some way in, you’ll soon be in a part where you cannot cross, because of the jungle, and because inside the jungle there are also mountains, and the mountain is full of even more jungle. So, it’s one thing on top of the other.
Germán:
Quite complex.
Jorge:
Yes, but oh well. And just like the United States, as we mentioned: the United States is flatter, it is easier to create roads, railroads, it is very similar in Canada. In Canada, in fact, I think you had said that, there are more roads… what was it? There are more roads per person…
Germán:
The density of roads per person in Canada is much greater than in the United States. But it is only and exclusively due to the fact that Canada is a very, very large country with a much smaller population than what we have in Mexico or in the United States. And this brings us precisely to talk about population.
Jorge:
Yes, yes, yes. And as you mentioned regarding the population, the majority… which is very similar to what we are commenting on, about the geography thing, in regard to the comparative of the east and the west; most of the population in Canada is located, to begin with, in the south near the border with the United States.
Germán:
No more than 150 kilometers from the border. The curious fact is: 80% of Canada’s population is in that strip of no more than 150 kilometers from the border.
Jorge:
And, apart from that, having all… well, most of the population in that southern part, a big part of it is concentrated in the east.
Germán:
50% of the population is in Ontario – Quebec. Which is towards the east, not the Atlantic, but to the east of Canada.
Jorge:
To the east of the country. And you have a smaller part, of which the majority lives in BC, in British Columbia, to the west, next to the Pacific.
Germán:
In British Columbia. 20% of the population lives on the west side of Canada.
Jorge:
That’s right.
Germán:
Now, what happens in the United States?
Jorge:
Well, if you want, before moving on to the United States, let me tell you one of my fun facts too, which is….
Germán:
A curious fact…
Jorge:
A curious fact. In Mexico, there are three times more inhabitants than in Canada.
Germán:
More or less, it is very true. In Canada we are 39 million people.
Jorge:
That’s right, but the population in Mexico is very concentrated, why? Because in Mexico, if you see the map of Mexico, the population is concentrated in the center. So, you have a strip in the center where you have Mexico City, the State of Mexico, you have Guadalajara, Puebla, Leon. You have the Bajío. And most of the population of the country is in that strip.
Germán:
50% of Mexico’s population is in that strip.
Jorge:
Slightly above 50%, yes. I think it’s like 51%, something like that, or a little bit above, anyways. And the rest live mainly in the north. I think the majority is, in either, Tijuana, Ciudad Juarez, Monterrey and some other cities.
Germán:
They are spread out in extremes in the north of Mexico.
Jorge:
That’s right, and also a small part in the south. In the south of the country.
Germán:
And why do we have the 50% of the population in that strip you described? It is a fertile zone because of the volcanoes… that’s where people ended up settling and that’s where the population is, most of the population.
Jorge:
Most of the population. That’s right, for the same reason, since it is a fertile area, the population began to develop there first. And that population continued to grow.
Germán:
One of the cradles of civilization.
Jorge:
One of the cradles of civilization, precisely.
Germán:
It was in that area.
Jorge:
Well, in Mesoamerica. And as we were saying before, regarding Mexico having three times the population of Canada, well, the United States has almost… in this case ‘almost’ three times the population of Mexico.
Germán:
…the population of Mexico, and they are distributed very similar to how they are distributed in Canada. A large part of the population lives on the east side. And a smaller percentage is on the west side.
Jorge:
If Jeremy would do us the favor of putting the map here so that you can see that strip with less population that goes… as we know, from Canada, the United States and when it reaches Mexico it makes a small curve towards the Pacific. Where you can see the population density points… you can see that most of it is located to the east side in Canada and the United States. And as you go down towards Mexico, since it’s on a curve, it ends in the center of the country. And you have a small part or well, the smaller part rather, to the east side.
Germán:
Right. Eighty percent of the population of the United States is concentrated on the east side. And interestingly, the 98th meridian is the one that divides the country. So, 80% of the population is on the east side, a large majority are in the northwest of the United States and 20% of the population is on the west side. Another curious fact: there are more people living in California than we have in Canada.
Jorge:
Than in Canada. Yes, yes.
Germán:
So, when talking about all this about population, transportation infrastructure, what this basically determines is, or we can come to the conclusion that, in order to be able to distribute products in the United States or in Canada, if we handle a single distribution point, that distribution point is most likely located towards the center or east of the country. And if we handle two distribution points, there is going to be one on the east side and one on the west side. That is to achieve the level of service, a similar level of service, and to keep balanced the costs of the operation, the transportation costs. In Mexico, we need many more distribution points to be able to reach customers as fast as they are expected to be reached in the U.S. or in Canada, keeping transportation costs under control.
Jorge:
As you mention, in many cases, the similarity in Canada and the United States is that with one or two distribution centers or two warehouses you can cover most of the needs. But that is not always the case, you mentioned that many times there are three.
Germán:
Or four
Jorge:
I mean. One or two, or you have between two or four or you have many. Depending on, obviously, your market, your product, your distribution, your customer, where they are located. Everything we mentioned just now. But, with Mexico, it’s necessary to have more warehouses as we have seen or as experience has shown, as we have been able to see, it is necessary to have those satellite warehouses to be able to reach customers and control operating costs, as you mentioned. And then there are other considerations as well. Obviously, we can talk about the fact that labor in Mexico is cheaper and therefore, it is viable to have different small distribution centers around.
Germán:
And that the distribution center does not necessarily have to be managed directly by the company. They can be 3PLs that are in charge of doing that distribution. And act as those additional distribution points that are all over the country… all over the area… all over the Republic of Mexico.
Jorge:
That’s right. And well, if we talk about the other points… we can spend hours here… which we are not going to do because we want to continue appearing… bothering you in the following episodes. Let’s see if it happens… let’s see if it doesn’t happen… who knows?
Germán:
It depends on how many times people watch the video.
Jorge:
Yes. Thank you very much again for joining us. And well, Germán, enjoy the weekend.
Germán:
Same for you. Thank you very much for joining me again today… or am I the one joining you?
Jorge:
No idea, no idea!
Germán:
We are keeping each other company.
Jorge:
We are missing something here. Let’s go then. See you later.
Germán:
Thank you very much.