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Copy of 3 Last-mile distribution.pptx
- August, 2022 Last-mile Distribution Bopinc Workshop 1 Photo credit: Hystra
- Agenda 1. Warm-up 2. Your supply chain 3. Last-mile distribution models 4. Key roles in distribution
- How satisfied are you with your current supply chain management? Let’s warm up!
- How satisfied are you with your current distribution channels? Let’s warm up!
- Are you planning to introduce a new distribution channel, or improve your current one in the near future? Let’s warm up!
- Your supply chain
- Your supply chain What is supply chain management for you? How is it structured in your business?
- Your supply chain Supply Chain Management (SCM) is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, to minimize system-wide costs, while satisfying service level requirements. What is supply chain management?
- Typical roles in an agri-food supply chain Supplier Input provider Farmer Aggregator Processor Wholesaler Retailer Financial institution Financial institution Distributor Consumer market
- Typical roles in an agri-food supply chain Supplier Input provider Farmer Aggregator Processor Wholesaler Retailer Consumer market Distributor Material flows : movement of materials or physical products from suppliers, all the way down to the consumers. Financial flows : movement of money from the buyers Information flows : two way flow of information between actors from suppliers to consumers, and back.
- Questions to ask about the 3 flows Material flow - What are the most time consuming steps of your material flow? Where is the biggest chance of disruption? What can you do to mitigate disruptions? Financial flow - Which steps take up the most working capital*? What can you do to lower this? Information flow - Which parts of the supply chain do you receive the least information about? Where are the biggest chances of miscommunication?
- Some best practices Material flow - Put a procurement policy in place (SOP), use inventory management practices (ABC analysis), periodically review inventory challenges: are the right number of SKUs available in the right places, what are reasons for missing sales, digitise order to sale process for better transparency Financial flow - Negotiate better terms with suppliers, offer right payment cycles for the right customer profile (assess credit risk, credit terms) Information flow - Implement ITC systems for better transparency, have regular feedback loops with resellers and customers, have a good after-sales process in place
- What does your supply chain look like?
- Farmer group Example: biochar-based fertilizer producer Individual farmer Fertilizer company Organic retailer Individual farmer Individual farmer Rice millers Compost producer Material flows Financial flows Information flows Company warehouse Individual farmer
- Farmer group Example: biochar-based fertilizer producer Individual farmer Fertilizer company Organic retailer Individual farmer Individual farmer Rice millers Compost producer Material flows Financial flows Information flows Company warehouse NGO project Individual farmer
- Farmer group Example: biochar-based fertilizer producer Individual farmer Fertilizer company Organic retailer Individual farmer Individual farmer Rice millers Compost producer Material flows Financial flows Information flows Company warehouse NGO project Individual farmer
- Example: biochar-based fertilizer producer Challenges Free “promotional” distribution through farmer groups inhibits willingness to pay Lack of direct feedback loops between company and its final customers, the farmers Actions identified New way of working together with farmer groups needed Insights gathering from farmers Identification of “Superfarmers”, who can promote / distribute for a commission and provide direct connection to farming community
- Your turn! 1. Draw your supply chain and the 3 flows on your sheet 2. Reflect on questions in small groups 3. Put any next steps on your action plan! 4. Sharing among groups
- Questions to ask about the 3 flows Material flow - What are the most time consuming steps of your material flow? Where is the biggest chance of disruption? What can you do to mitigate disruptions? Financial flow - Which steps take up the most working capital*? What can you do to lower this? Information flow - Which parts of the supply chain do you receive the least information about? Where are the biggest chances of miscommunication?
- Last-mile distribution models
- Last-mile distribution Distribution is the process of making a product or service available for the consumer or business user who needs it. In rural markets, we often speak of ‘last-mile distribution’. The last-mile describes the last leg of this journey comprising the movement of goods from a transportation hub to a consumer or user - in your case, often a smallholder farmer. This is often the most critical part of the distribution system and thus essential to get right.
- Typical last-mile distribution models 1. Agent Active selling through (door-to-door), a model also often referred to as active microdistribution and mostly relevant during demand creation stage for new propositions. 2. Hybrid partnerships Teaming up with NGOs, MFIs, self help groups, cooperatives that have organised networks. This is mostly relevant when introducing products that rely on education. 3. Retail Selling through retail chains or small, informal retailers, a route often used when there is already demand for your product. 4. Direct to customer Leveraging digital channels , from social media to e-commerce websites or apps, mostly relevant for scaling, when the product is well-established in markets, where consumers are mobile internet users.
- Agent model example: Copia Kenya Chama agents: As such groups are built on mutual trust and tend to purchase collectively, they are an ideal structure for Copia to introduce their products through a “chama agent,” an existing member of such a group. Tea Buying Centers: Tea farmers go to a tea collection center to sell their tea. Copia has recognized the opportunity to have agents at these centers who can make additional income by providing products to the farmers at an affordable price.
- Hybrid partnership example: One Acre Fund In 2014, 80k+ farmers paid a premium to One Acre Fund for their agricultural input package in Kenya. The credit bundle, provides holistic solutions for risks: (1) certified quality inputs, (2) delivery at time of planting, (3) training, (4) flexible payment terms, (5) crop and death insurance. This led to 100% repayment. Insight Clients pay more for their seeds than if they went to an agro dealer shop, and are happy to do so because of all the added services that ensure they will succeed in their harvest. Source: Hystra “ One Acre Fund is an agriculture organization that began in 2006 with a mission of serving those smallholder farmers. We offer a complete service model—agriculture inputs, training, credit, and distribution—that allows farmers to double their income per planted acre.” Low-income customers are not looking for cheap products, but for risk-free solutions
- Retail example: Agrovets
- Direct (digital) example: DigiFarm
- Typical last-mile distribution models High touch Create demand Low touch Fulfill demand High customer acquisition cost Agent model Retail model Low customer acquisition cost Hybrid partnerships Retail model Direct to consumer
- Example: biochar-based fertilizer producer High touch Create demand Low touch Fulfill demand High customer acquisition cost Agent model Retail model Low customer acquisition cost Hybrid partnerships Retail model Direct to consumer
- Example: biochar-based fertilizer producer High touch Create demand Low touch Fulfill demand High customer acquisition cost Agent model Retail model Low customer acquisition cost Hybrid partnerships Retail model Direct to consumer
- Discussion Which models do you use? What is your reflection on the fit with the maturity of your business, and with the demand that is available on the market? Are you planning to explore any new models? Do you find any of them inspiring, relevant for your business?
- Key roles in distribution
- Key roles in distribution ❏ Create demand ❏ Sell product ❏ Transport ❏ Keep stock ❏ Provide credit (to customer) ❏ After-sales support ❏ Manage ICT system ❏ What else?
- Key roles in last-mile distribution 1. Take a look at your current, or planned / new distribution model! (You can make a new drawing.) 2. Who are the key actors in the model? 3. Which actor is fulfilling which role? Mark it with a in the table on the worksheet. 4. Add any new actions to your action plan! 5. Sharing in group
Notas do Editor
- Day 1 Warm-up : 5 minutes Your supply chain: 80 minutes (theory 20 min, exercise and sharing 60 min) Day 2 Warm-up: 5 minutes Distribution models: 30 min (10 minutes theory, 20 minutes discussion) Key roles: 45 min (30 min theory and exercise, 15 min sharing)
- Let’s stand up. One side of the room: very much, other side: not at all (by SCM we mean the whole chain)
- Let’s stand up. One side of the room: very good, other side: poor (by distribution we mean product /service getting to customer)
- Let’s stand up. One side of the room: definitely, other side: not likely USE this info when guiding them for the exercises! If they are planning to set up a new distribution channel, advise them to work on that later during the exercises. If they are not fully satisfied with their current channels, then they can also work on their current one.
- Supply Chain Management is primarily concerned with the efficient integration of suppliers, manufacturers, warehouses and stores. So that merchandise is produced and distributed, in the right quantities, to the right locations, and at the right time. In turn, this helps to minimize system-wide costs, while also satisfying service requirements. The important thing to remember here is: (1) Who is involved (2) The cost and level of service And (3) That it’s all about integration! (“integrated supply chain management”)
- Of course it can come in all shapes and forms, one actor may have several roles. FIs are crucial in the processes but not strictly part of the supply chain. Farmers are often organized in groups and the groups play functions like aggregation. “Customer market” is more complex, the final product may go through wholesale / retail, but since you are typically more involved in the distribution to farmers, we concentrate on that side. There may be a distributor / wholesaler/retailer involved in different sides of the chain, roles may be skipped, there are likely parallel distribution channels, etc etc
- A typical supply chain consists of three primary flows. These are material flow, financial flow and information flow. - Material flow involves the movement of materials or physical products from suppliers, all the way down to the consumers. For example, the product travels from input provider to distributor. - Financial flow involves movement of money from the buyers to the suppliers, for example, farmer pays to the retailer and - Information flow is the two way flow of information from suppliers to consumers, and back. Ideally, information flows in both directions, and across the whole supply chain, but often, that is not the case.
- Mapping and analysing these flows for your supply chain gives you better visibility of the supply chain and helps identify areas for improvement and risk mitigation. *working capital is the money used to cover all of a company's short-term expenses. Working capital is the difference between a company's current short-term assets (money customers owe you, inventory) and current liabilities (money you owe). Working capital is used to purchase inventory, pay short-term debt, and day-to-day operating expenses.
- Audio script while this slide shows: ABC analysis is a tool you can use to prioritize your inventory and focus on those products that have the biggest impact on your business. It is based on the notion that for most companies a few items of stock usually hold the most value for your business. It is important to know which items these are and focus your efforts and resources on making the procurement and inventory process smooth for these items. Category A products are the most important. They hold 70-80% of the value for your business, even though they often only encompassed 5-15% of inventory items. These are the items to watch closely and focus your attention on. You can implement this for instance by spending more time and effort on the procurement and demand estimation for these products. It also can justify more senior level involvement in purchasing decisions. Category B items, are the second in terms of importance. These generally hold still significant value for your company and encompass about 30% of your inventory items. These still deserve some significant attention, but are not top priority. Category C items show a big share in terms of the number inventory items, but hold little value compared to the other categories. Some companies decide to only put basic control measures for this inventory.
- Audio script while this slide shows: Economic Order Quantity (EOQ) is the number of units that a company should order to minimize the total costs of inventory—such as holding costs, order costs, and shortage costs. In the long run, it might be cheaper to order slightly more inventory than required to decrease overall costs, like transportation, clearance, and handling. For managers it is important to be aware of the factors that influence your economic order quantity; ordering cost and holding costs, and that there is an optimal point in this trade off. They also need weight the EOQ against the more qualitative factors influencing your ordering policy, such as customer complaints and loyalty resulting from being out of stock.
- Audio script while this slide shows: Procurement should follow a standard operating procedure, this prevents mistakes and evaluation and decision making based on subjective and unclear criteria. When you set up a procurement policy for your company here are some things to think of: Create a standard procurement process Authority, clarifying who can make decisions and who can not Purchasing limits - who can approve a buy upto what amount? Processes to follow such as: Get multiple quotations from suppliers Quality control Basis for supplier selection. E.g what makes a preferred supplier? Registration & certification requirements for Suppliers Registration & certification requirements for Products Ethical considerations Environmental considerations End of life & material usage minimization procedures
- Show worksheet (do not distribute yet) - explain that we will use this on this session, first part 1 and 2 and then later step 3. But first, let’s see an example and then we’ll start the exercise on part 1.
- (simplified example based on a real case) The company makes biochar from rice husks, and uses that to produce soil amendments and fertilizers. This is the material flow: It supplies rice husk from millers, and compost from an organic compost producer. It’s present in several regions. In one region further from the production site, it stocks products in a company warehouse. From there, it’s been distributing through : 1) a farmer group (cooperative), who distributed to its members and 2) through an organic retailer. This retailer buys and resells produce from organic farmers, and it also offers inputs to organic farmers through retail. 3) directly to farmers from its warehouse.
- Looking at its financial and information flows, the company had several challenges.1st, when supplying directly to farmers from the company warehouse, farmers needed flexible payment terms, which meant working capital and also administrative challenges for the company. Payment terms were much better when dealing with a farmer group, which paid immediately. However, the payment was actually financed by an NGO project, and the farmer group distributed the products for free. Once the project was over, farmers were not interested in ordering through the farmer group, because previously they got the product for free.
- In terms of information flows, the biggest flaw was lack of direct communication, feedback from farmers. The company kept in touch with the organic retailer and the farmer group, but they did not really understand the attitudes towards their products , and thus they did not have all insights for finding solutions for improving sales.
- Distribute worksheets. Make pairs / small groups where direct competitors are not together!!! 60 min
- Mapping and analysing these flows for your supply chain gives you better visibility of the supply chain and helps identify areas for improvement and risk mitigation. *working capital is the money used to cover all of a company's short-term expenses. Working capital is the difference between a company's current short-term assets (money customers owe you, inventory) and current liabilities (money you owe). Working capital is used to purchase inventory, pay short-term debt, and day-to-day operating expenses.
- Distribution is the process of making a product or service available for the consumer or business user who needs it. This can be done by a producer of a product or service provider directly. Another option would be shared distribution, by which independent distributors, partners or intermediaries help to distribute your product or service. In low-income markets, we often speak of ‘last-mile distribution’. The last-mile describes the last leg of this journey comprising the movement of goods from a transportation hub to a consumer or userm in your case, often a smallholder farmer. This is often the most critical part of the distribution system and thus essential to get right.
- Ask them how it works. There was interesting research by Hystra on the model, proving that low-income customers are not looking for cheap products, but for risk-free solutions.
- Discussion: what are your experiences with such platforms? Anything you are trying to leverage? Why / why not? 15 min https://www.mercycorpsagrifin.org/2021/05/26/the-impact-of-digifarm-on-smallholder-farmers/
- Note: this is a generalization of course Customer Acquisition Cost is the cost of winning a customer to purchase a product or service. Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired
- In our example, the biochar company used a Hybrid partnership with a farmer group, and a Retail model with an organic retailer. The hybrid partnership worked for educational purposes - they were doing demo sessions with farmers, many tried the new product and was satisfied. However, it did not work as a commercially sustainable model, because willingness to pay was absent. The retail model seemed to be to early: there was not yet enough existing demand, and stock did not move.
- They are now introducing a Superfarmer model, where superfarmers promote / sell the product for a commission. They also started a new partnership with an NGO, but this time, there is no free distribution. Some superfarmers act only as promoters, and farmers can buy the product from the hubs of the NGO partner. Some superfarmers with more stocking capacity, are also acting as resellers themselves. This model should help the company to create demand, before they can transition to a less costly, more scalable model.
- You can make this in plenary or in pairs / small groups, as you see fit.
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- One role can be performed by several actors, but all roles should be filled. 30 min work 15 min presentations
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