Supply Chain Innovation for the bottom of the pyramid

The bottom of the pyramid is a socio-economic phenomenon, allowing the grouping of the vast segments of the world’s poorest citizens, who constitute an invisible and unserved market that is hindered by innumerable barriers, preventing those citizens from realizing their true potential at all levels. With the fast-paced changing customer goods and the emerging companies in economies seeking growth, the people at the bottom of the pyramid are the most potential customers. To capitalize on this market, many entrepreneurs and companies are in search of producers, suppliers, distributors, and retailers in this segment. These opportunities come with challenges regarding the building and operation of the supply chains that take place at the bottom of the pyramid. For supply chain influencers and scholars, these supply chains, alongside their interaction with the bottom of the pyramid, the segment present many prospects for research. The below-mentioned illustration is taken from impactpreneurs.

Distribution strategies for supporting the Base of Pyramid retailers

Buying from or selling to the BoP segment involves a huge number of transactions for large corporations because each of these transactions is relatively small. There are two eminent research opportunities involving the micro-retailers in the country. One is to design and operate supply chains using BoP micro-entrepreneurs and the other is to devise ways to share the value created between the company and their micro-retailers. In developing countries, due to the lack of large retailers with supply chains, the distribution infrastructure is insufficient and the formal distribution channels do not reach most customers, as they do in the developed countries.

There are two fundamental approaches to the distribution involving BoP distributors. The first one is the ‘Hub-and-Spoke’ strategy, wherein, an enterprise can set up a center in a larger village as a hub from which the micro-entrepreneurs can travel to more remote areas, termed as the ‘Spokes’, in order to sell goods and services. The second one is the ‘Piggy-bank Strategy’ which suggests the use of existing networks for transfer of goods to the micro-entrepreneurs, alongside providing additional services at the hub or selling more products, thereby, creating a larger supply chain surplus. For this type of distribution, the sharing of value between the owner and the micro-entrepreneur is not yet clear. Meanwhile, for the Hub-and-Spoke type, some inventory issues arise as the Spokes provide immense research opportunities. These approaches thus furnish a big room for research.

Financial Strategies for supporting the Base of Pyramid segment

Working capital is often the main drawback of cash-strapped BoP businesses, as there is a constant requirement for cash to stay afloat. The micro-entrepreneurs are often viewed as risky borrowers with insufficient collaterals, due to which many financial institutions deny them credit. Micro-finance emerged as a way out. Risk reduction in group lending was heavily researched upon. This was then applied to micro-entrepreneurs, in the form of distributors who are given goods on a credit basis. Another such research opportunity involves optimal loan repayment where frequent repayment schedule reduces the amount of defaulted loans but increases the lenders’ cost of collection. The third opportunity in research is the screening of micro-entrepreneurs for lending to reduce the cost associated with the defaulted loans.

A question for research and a business opportunity which is supported by these examples is the prospective role which large companies play in the supply chain. Companies can offer micro-finance as working capital for the suppliers and distributors of the lower strata, by making the pre-payment for the supplies procured from them. Hereby, the collection costs can be cut down with the collection being piggy-banked on the goods’ transfer. Micro-lending the actual transactions can further reduce the lending transaction costs as well.

Strategies for improving productivity for the Base of Pyramid segment

Productivity in the BoP segment can be relatively low, owing to the poor health and the deficiency to sufficient means of production. Entrepreneurs and researchers can learn from social enterprises that have sought to meet these challenges. It’s critical to improve the skills and knowledge of the poor workers who are based out of the rural areas and working in the semi-industrialized cities. The provision of services is becoming important in the supply chain where the number of skills and knowledge matters more in the assembly-line jobs of the Ford system. There are two different education aims for productivity. The first one is to deepen the skills in a specific manufacturing domain and the second is to provide a breadth of skills and knowledge for the knowledge economy. For service-driven estates, this type of an education plays a vital role. To make this education a research opportunity; the investigation of the role of different platforms which enhance the education of BoP people who cannot afford formal education; is a crucial possibility. Since these people cannot afford access to the internet, strong business models need to be established. An example of such a business model is the “train the trainer” model which elevates the number of trained individuals. We at DiscoveryIoT, have come up with an inextricable innovation in order to enhance the technical knowledge across the country. We have set up ‘Discovery Labs’ which are distinctive research centers, allowing the exploration of various fields of technology. Discovery Labs are not just experimenting with these technologies but are also encouraging students across the country to learn about them while providing them with the desired exposure.

Conclusion

The design and implementation of BoP solutions or products require multinational companies to make adjustments to their business strategies and processes. Further, the importance of specific strategy process elements needs to be assessed. While it seems obvious that strategic management thought can be applied, the analytic criteria put forward are particularly geared towards the BoP solutions. While previous literature centers around analyzing needs, the case-based research provides the insight that aspects of internal organization, supply chain management, and sustainability outcomes are of equal importance. Thus, the bottom of the pyramid provides many opportunities to be exploited as well as to extend supply chain research.

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Originally published at https://discoveryiot.com

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