Research: improving nano store supply chains

In developing economies, nano stores in urban and rural areas face different infrastructural, operational, and financial challenges. How can urban nano stores compete with supermarket chains as they enter the market? How can rural nano stores provide more services at affordable prices to sustain their operations?

In rural areas of many developing countries, formal distribution channels are essentially non‐existent and micro‐retailers have to travel long distances to purchase small quantities of their stocks directly from regional wholesalers or from large retailers. For example, to obtain supplies of medicines, over 80% of the private drug stores in the rural areas of Tanzania travel on their own to purchase their supplies of medicines directly from key suppliers located in the city.

New business models

By developing new business models enabled by technologies such as smartphones, mobile payments, and solar panels, researchers Escamilla, Fransoo, and Tang show how urban nano stores can increase the capabilities of agility, adaptability, and alignment in their supply chain to compete, and how rural nano stores can change their operations to improve accessibility (in terms of products/services) and affordability (in terms of price). Their article presents some examples of smart solutions in nano store supply chains in emerging countries.

Digitalization of nano store operations in China: Alibaba’s Ling Shou Tong

Selling to rural consumers continues to be a challenge because of limited access to the Internet and very costly “last mile” delivery. At the same time, underdeveloped logistics in rural China make it difficult for nano stores to replenish their stocks efficiently. The wholesalers/distributors are reluctant to make less‐than‐truckload shipments due to high shipping costs, and nano stores need to wait until their aggregated orders are large enough for a full‐truckload shipment.

In August 2018, Alibaba worked with nano store owners in rural China to launch a retail management platform that is called “Ling Shou Tong” (LST) that is intended to help store owners to optimize their retail operations. By installing scanners, Alibaba can help these stores to collect customer sales data and collect customer payments via Alipay. Also, Alibaba can use its cloud computing to analyze the sales data and its logistics businesses to create a digitally connected inventory management system so that these nano store owners can also use Alibaba’s app to replenish their stocks, which are fulfilled by Alibaba and shipped directly from its warehouses, eliminating the need to deal with traditional middlemen (i.e., wholesalers or distributors).

In return for this free service, each store shares customer sales data so that Alibaba can perform sales analytics, and allow it to use their physical storefronts as Alibaba’s fulfillment‐and‐delivery centers so that customers can pick up their online orders at these stores. This program can align incentives as nano stores can improve their replenishment operations and attract more store traffic when customers pick up their online orders, and Alibaba can gain access to the rural consumers by overcoming the last-mile delivery problem.

By September 2019, over 1.3 million nano stores have participated in the Ling Shou Tong Platform, even though there is a concern that Alibaba may end up competing with these stores directly, especially when these stores have to rely on its product selection when replenishing their stocks. While originally started as a rural initiative, the LST program is now also available to urban nano stores as well, allowing them to make use of Alibaba’s efficient urban distribution network.

Innovative rural distribution by engaging micro‐entrepreneurs: Coca‐Cola and Unilever 

Rural nano stores in developing countries lack the support of a distribution channel so that it is a challenge for them to replenish their inventory. Companies such as Coca‐Cola developed a “hub‐and‐spoke” distribution system by engaging the local micro‐distributors to set up a center in a larger village as a “hub” from which other micro‐distributors can travel to the more remote rural areas as “spokes” to distribute products to nano stores.

For example, in East Africa, Coca‐Cola bottlers deliver over $500 million worth of product to 1,800 “manual” distribution hubs operated by 7.500 micro‐distributors. Then these micro‐distributors operate as distribution spokes by using pushcarts or even bicycles to distribute the product to nano stores, making frequent but small deliveries to these cash‐strapped nano stores.
In 2000, Hindustan Unilever started Project Shakti in 50 villages with woman distributors receiving training and stocks of consumer‐packaged goods from Unilever’s rural distributor and operate as spokes for distributing products to nano stores in 6 to 10 villages. By 2019, Project Shakti has over 100.000 Shakti woman distributors, distributing Unilever products in 18 states. Also, these woman distributors earn approximately 2000 to 3000 Rupees per month under a commission‐based model, which doubles their regular income.

Innovative Replenishment Through Supply Chain Re‐engineering: Hapinoy

In the Philippines, nano stores (known as sari‐sari stores) sell basic products such as canned foods, cigarettes, cooking oil, salt, and sugar to consumers through a metal barred window of the owner’s home. Due to the lack of distribution support in many small towns or villages, it is inconvenient and costly for these nano stores to replenish their stocks. Faced with this challenge, they created an efficient replenishment strategy that is known as the Hapinoy program, jointly developed by sari‐sari store owners and MicroVentures, a venture capital firm.

Under the Hapinoy program, some existing sari‐sari stores are chosen to become “community stores.” With some financial assistance provided by MicroVentures, each community store operates as a wholesaler by fulfilling orders placed by other participating sari‐sari stores in the neighborhood and simultaneously continues to operate as a nano store by selling directly to consumers.

By sourcing from the community store, participating stores can reduce their travel‐related costs. At the same time, by aggregating the orders from the participating stores, the community store can obtain a lower purchasing price (through quantity discounts) from the supplier. By reducing the travel cost and by reducing the purchasing price, the community store and all participating sari‐sari stores can improve their productivity and reduce their replenishment cost.

Affordable technologies

The global spread of affordable technologies allows new business models to be developed. These business models help to make urban nano stores more agile, adaptable, and aligned, while it improves the accessibility and affordability of the nanostores in the countryside.

Source: Escamilla, R., Fransoo, J. C., & Tang, C. S. Improving Agility, Adaptability, Alignment, Accessibility, and Affordability in Nanostore Supply Chains. Production and Operations Management.

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