Logistics and Distribution

May 15, 2023

Logistics is the distribution of goods and services across space and over time, how something is moved from one place to another and in what order. This far, there have been no substantive proposals made about logistics in a participatory economy. 

For a number of reasons, it makes sense to organise and fund logistical systems and distribution collectively, in some cases for the whole economy, in others for regions or within and between industries. Logistical systems and supply chains will look different and have different features depending on 

  • whether goods are consumer goods, intermediate goods, or capital goods
  • whether goods are mass produced for retail or produced to order and/or custom made
  • how industries are structured, especially with regard to size, production capacity and location of individual worker councils in relation to their customers
  • production technology, including complexity, setup costs and economy of scale

Logistical systems and supply chains should facilitate the planning and implementation of physical distribution of goods between producers and customers. If possible, they should do so without restricting available options for individual production units, ex ante, regarding what goods to produce and deliver when preparing production proposals during annual planning or even when implementing the agreed production plan during the year. 

Society’s infrastructure

An important part of a logistical system in any economy is its public infrastructure. In a Participatory Economy, the development of an economy’s infrastructure is considered and planned as part of the long-term and investment planning processes and involves the design of society’s infrastructure for communication and transportation. It is about the planning and development of road networks, railways, ports, airports, electricity grids, internet, telephone networks and much more, and it involves major investments with obvious economies of scale, the planning of which need to be long-term.

The large group of investments and activities that together make up the infrastructure in the broadest sense includes different categories of investments, some that will be classified as public utilities and funded collectively and some that will be considered part of the National Federation of Worker Councils’ capital investments and decided and funded through the procedures relating to such investments. A well-developed infrastructure has a major impact on a society’s potential for efficient logistical system.

Initial costs for creating and providing society’s infrastructure will in most cases be funded collectively by every member of society regardless of the degree of usage, within the framework of the consumers’ planning of their collective consumption regarding long term consumer assets. The management and ongoing maintenance for many networks, e.g., highway systems, will likely be funded collectively, as well. Management and maintenance of other networks may sometimes be financed, wholly or in part, through calculated user fees, for instance based on kilometres (rail network), weight or volume (ports), departures (airports), etc. charged to users, while the overall responsibility for planning and executing ongoing management and maintenance lies with the consumer council or federation.

The distribution of individually consumed goods

In our present capitalist economy, some of the biggest multinational companies are companies providing logistic services and distribution of individually consumed goods, i.e., Walmart and Amazon. The logic behind this situation is that there is a very clear economy of scale in the production of logistic and distribution services. The more customers served in a logistic network, the lower the unit cost and the more opportunities to plan, organise and use resources efficiently. This alone suggests that the distribution of individually consumed goods in a participatory economy should be performed through a logistical system operated as a public utility network with the goal of cost minimisation. 

A public logistical network system can operate better on a cost minimizing basis to prioritise society-wide goals than can a collection of independent units. This logistical network system could be under the control of NFCC with all individual consumer federations and councils making up the network’s separate parts. There could be separate networks organised for different types of goods, one network for the distribution of clothes, another for electronics, food, cars etc. Additionally, there could be separate networks for different categories of outlets and distribution centres, such as convenience stores, airport stores, specialised stores, general department stores etc.

The distribution networks for individually consumed goods would consist of a number of different types of resources and workplaces such as wholesale distribution centres, retailers, and shops with their warehouses and sorting stations and including their vehicles and machines such as delivery trucks, robots, forklift trucks etc, and their personnel, as well as route planning and inventory software. In the annual planning, to the extent they don’t perform the services themselves, these workplaces would request the goods and services that they expect they will need to achieve their goals and carry out their tasks. A workplace belonging to a public logistical service system provides logistic services to the NFCC or a regional unit connected to it. Its customer is the NFCC, not the individual consumers that pick up goods from the shelves. 

The costs associated with the distribution of individually consumed goods can schematically be categorised as (a) operating costs, for example, transport costs, cost for labour such as warehouse workers and store personnel, and “marketing”, and (b) costs for access to needed long term capital goods, such as buildings, fixtures, installations, forklifts. An important issue in a logistical system will be to decide on rules regarding when and under what circumstances the producer of a good will be responsible and bear the risk of transportation to a certain distribution centre and when that responsibility rests on the consumer. 

How should costs for logistics and transport be allocated to end customers of goods? 

Presumably allocation of distribution costs to end users would most easily be achieved through markups on the price of goods, the size of which the NFCC, the federations, or individual consumer councils would calculate and announce outside of the annual planning based on the expected quantities and total costs for logistics for the year.

Well before the annual planning, each separately identified distribution system or network belonging to a consumer council or federation needs to prepare a tentative distribution plan identifying the estimated resources and costs needed to fulfil the specified logistical services that are requested by the consumer councils. The logistical services to be requested by consumer councils will be based on estimates of number of consumers, visitors, consumption volumes, etc.

Once there is a tentative distribution plan for each distribution system the consumer council or NFCC can calculate a markup percentage to cover all distribution costs. Since a markup would be calculated on estimated costs and volumes and presumably stay fixed or only in rare circumstances change through the annual planning, the actually allocated costs to customers via markups on products throughout the year may very well differ from actually incurred logistical costs, in which case the difference could be carried forward to next year and considered when calculating next year’s markup.

While allocating distribution cost to products through markups on acquisition cost is easy and convenient, it does not necessarily correctly reflect actual distribution costs for different goods. For example, with a markup on cost, if the quoted price of a good changes in the annual planning iterations so does its allocated unit cost for distribution, which may not necessarily reflect an actual increase in distribution cost.

The unit distribution cost for a certain type of product may very well be stable even if its production cost changes. However, a general markup is an easy and convenient method for allocating distribution costs between products. Importantly, a general markup percentage for distribution cost applied to all products will not affect relative prices in situations when production prices change and may therefore still be preferable to differentiated mark ups based on weight or volume or something else, which risk complicating price formations and planning decisions. Attempts to differentiate markups for different products that are priced through the annual planning with the purpose of reflecting differences in distribution costs should be approached with caution since this may be magnifying the identified problem regardless of any good intentions.

On the other hand, the markup may well be differentiated for different types of outlets or distribution systems to reflect their different cost structures. For instance, distribution through on-line solutions has a very different cost structure compared to distribution through physical shops. But should markups differ for different regions to reflect higher or lower transport costs? Even if markups are calculated based on costs within a large region and not individualised for separate individual shops or even local groups of shops, in a public logistical network system there will still be an incentive to minimise total costs since lower costs will reduce the mark up for all units in the economy and one can argue that remotely located areas should not be punished for its location but pay the same markup for distribution and logistics as everybody else.

In practice this would mean that centrally located areas with lower actual distribution costs will subsidize remote areas with high distribution costs and this could be a conscious decision to facilitate diversity in living opportunities. Alternatively, remote regions with high transport costs could be expected to fund a part of their transport costs for individually consumed goods collectively through their consumer councils (or through a separate extra markup) in addition to the generally applied markup percentage.

One can also imagine that a portion of the total costs for distribution and logistics, such as costs for access to fixed assets, warehouses, distribution centres etc. would be considered part of the neighbourhood’s or region’s collective “infrastructure” and funded collectively through neighbourhood consumer councils or federations, which would reduce the markup percentage.

In the context of annual planning, logistical and distributional services for individually consumed goods can be approached in a similar way as for any requested good or service, with categories reflecting different distribution solutions. When a consumer requests a good in annual planning, she requests not only the actual item but also the distribution services that are needed to deliver it to her house or to the distribution centre or shop where she will pick it up. The price of distribution services that a consumer is charged is manifested in a markup of goods (sometimes complemented by collectively decided and financed subsidies). A category markup to be used in the annual planning would be a distribution markup for a certain group of outlets, for example a different markup for convenience stores, supermarkets, department stores, on-line distribution, etc. 

How would a public logistical network system work during the year? 

The planning and execution of logistic tasks during a year will be much facilitated by modern logistic software programs, which is already the case today. There have been major developments in this area in the last decades with AI and software programs planning the best possible supply solutions and distribution routes etc. Basically, when the inventory software in a distribution centre or shop notices a decrease in inventory below a certain level for a good, it would automatically place an order for a delivery through the logistic software program. The program would then pass on the order to the best possible supplier based on desired time of delivery, availability and location and the order would be delivered in accordance.

One important task for the distribution centres and shops during a year will be to assess and approve deliveries of goods from worker councils and manage what we today call ‘warranty claims’ for products that do not measure up. Categories of goods are defined in terms of different characteristics, materials, and quality and in many cases, it will be relatively easy to determine if a product meets the established criteria, while in other cases it may be more difficult. Goods that are not accepted will be returned to the worker council.

Notable Replies

  1. I think that under a participatory economy, there would be an almost-inherent tension between desires to increase ‘efficiency’ through such national and international trade and shipping networks on the one hand, and ecological aspirations on the other hand.

    Something in the planning process must also take into account the ecological costs of long distance ‘transport’ versus the costs and benefits of duplicating production of goods and services locally. Under capitalism, it makes sense for Amazon (or even a small leftwing bookstore) to ship a book order half way across the planet to a customer (who has in turn agreed to pay the shipping costs). But in a participatory economy, in my view, that would be a symptom of failure.

    I think there are some distinctions that need to be made between the types of things being transported: between items that spoil and require refrigeration (especially food and medicine, but not exclusively) and those that do not spoil; between items that are non-renewable and scarce and those that are renewable and/or plentiful; and between items that cannot be produced everywhere on the planet (for example, crops that require a certain climate, or resources that are only found in certain biomes or countries), and those that CAN be produced everywhere (or close to everywhere).

    A participatory economy would need to account for such differences, and would presumably (all other things being equal) want to grow certain kinds of industries locally – not just because there is an ecological incentive to minimize transport methods that may have less-than-sustainable fuel/energy costs associated with them, but also perhaps just because there is a demand for diverse kinds of work in our balanced job complexes. Are there costs to duplicating production of certain goods locally, when they could be shipped from afar? There might be some, especially if there are efficiency gains from the scale of production itself, or if the natural resource inputs required are simply not found in that region. I am not arguing here that everyone ought to be doing everything. But speaking to that tension between an ‘efficient’ national or international trade and transport network and the ecological costs of using it when local production options might be explored – is still likely to be an important argument that workers would need to be constantly engaged in under a participatory economy.

    Large cities or “central” economic hubs subsidizing smaller or more remote areas (without the same transport infrastructure) is also an interesting question. Under capitalism, for example, a number of bus charter lines in Canada closed many of their routes to remote locations, particularly in the less populated north – which has left a great number of small towns and Indigenous communities without public transport. This has, in turn, limited parcel deliveries (which used to come with the buses) and limited people’s access to hospitals and so on. Presumably people in a democratic and fair economy would want to make different choices, but there are still costs associated with transport to remote areas. Right now the costs of road and rail infrastructure are typically borne by public coffers, while the benefits primarily accrue to resource-extraction corporations (mining, timber, hydro, etc.). In a just economy, however, presumably the local population would be actually in a position to reap the benefits of that resource-extraction in a way that genuinely helps their own locally- and worker-directed work options, economy, and infrastructure development. That doesn’t automatically eliminate the transportation costs to get goods in and out of remote areas. But it gets you part of the way. Presumably if workers in a participatory economy want or need some of those remote resources then their annual plan ought to include an infrastructure development and maintenance fund specifically designed to help improve remote communities’ access. Some of that funding could be based on a “needs” assessment (helping a more disadvantaged community), but some of it presumably would be based on a mutual benefit assessment too (because that infrastructure also helps the more established, or well-off workers in the economy too – who might now gain access to hitherto scarce resources, or even to natural environments or wilderness destinations that are valued in their own right).

    Anyway, interesting post. Just wanted to run with some thoughts that it spurred.

  2. Just quickly want to add that the fact that costs for harmful pollution are borne by the producers, including producers of transportation services, at least is helpful in providing true social costs for shipping.

  3. Absolutely, and maybe those true social costs would, in and of themselves, lead to communities and workplaces investing in local production of certain crops, goods, etc. – where possible – to avoid having to pay those true social (ecological) costs. I am curious if others think that the true social costs being reflected in prices for long-distance shipping would create an incentive for local production and diversification, with or without losses in efficiency.

Continue the discussion at forum.participatoryeconomy.org


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