The Global Distributors Collective (GDC) facilitated an ecosystem event at the Skoll World Forum on 12 April dedicated to ‘innovations in last mile distribution’.
Event hosts Practical Action, BoP Innovation Center and Miller Center for Social Entrepreneurship ran a panel with practitioners from the Shell Foundation, EYElliance and Danone Communities. The audience, which included a wide array of participants from the private sector, social enterprises, multinational institutions and NGOs, had a lively Q&A session followed by a world café.
The event highlighted a range of key challenges and innovations in the last mile distribution (LMD) sector:
1. Working capital for inventory and consumer financing
LMDs struggle to access working capital for inventory because they are not selling at sufficient volumes to attract the interest of mainstream debt providers, and are seen as too high-risk to lend to. They manage this challenge using different approaches, such as providing sales agents with stock on consignment, but innovation is desperately needed to facilitate better access to capital.
The burden of providing consumer finance tends to fall to LMDs, but there is potential for manufacturers and intermediaries to play this role. There is significant opportunity to tap into MFIs, especially in countries like India where the pay-as-you-go (PAYG) sector is not as strong, but questions remain about how to de-risk this investment for MFIs. One innovation in consumer financing that Shell Foundation is exploring is digital lay-away schemes for customers to save towards down payments on products.
2. Demand creation and behaviour change
For complex products like eyeglasses and improved cookstoves, consumer education is needed to raise awareness and ensure adoption, but this is often expensive and inefficient. Broad campaigns can be a more cost-effective way of building demand and educating consumers than targeting individuals. Campaigns can be done nationally (such as those planned by EYElliance alongside governments) or on a local level (such as those done by Danone Communities using community ambassadors). Consumer campaigns must integrate LMDs on the ground in order to be effective and to ensure supply can adequately meet demand.
3. Salesforce training
All participants agreed that salesforce training continues to be an enormous challenge in the sector, especially given high churn rates in sales teams and the need to adapt training to different markets. Classroom training is of limited value, so ongoing mentoring and support (and a small sales manager/sales agent ratio) is essential. Innovative training providers are emerging in the sector to support LMDs and some companies (eg. M-KOPA) have set up their own training universities. However, these services are either exclusive or very expensive, and tend to focus more on technical skills rather than sales and marketing. There is huge demand for more innovation in this space.
4. Opportunities to leverage economies of scale
EYElliance represents an excellent example of how collective approaches can work in distribution. EYElliance is a coalition of multi-sector actors working at system level to create change in the vision sector. They have had success in distribution of eyeglasses by tapping into the expertise of many members and learning from distribution methods in other product categories such as antimalarials, solar lighting and Fast Moving Consumer Goods (FMCGs).
The following key opportunities were identified to leverage the power of the collective across the LMD sector:
- sharing best practices and lessons learned through online platforms, in-person networking and exchange visits between LMDs
- improving access to information, including by building a directory of certified peer-reviewed products
- developing standardised metrics and measurement tools for M&E
- bulk buying products to streamline procurement processes
5. Potential of emerging technologies to transform the sector
Technologies that help gather data for operational intelligence are increasingly being utilised, for example software that can digitally track consumer behaviour. The next disruptive technologies are 3D printing which will transform manufacturing, and blockchain which will enable LMDs to track inventory through the supply chain and more effectively assess impact.
6. Product specialisation vs diversification
LMDs that use sales agent networks to sell complex consumer products generally need to specialise. Specialisation tends to be the most cost-effective approach because different skills and knowledge are required for different product categories, and also because LMDs have so many other functions to manage – logistics, procurement, finance, etc – that end sales need to be simplified to the greatest extent possible. However, LMDs can still achieve diversification across their portfolio by specialising at the sales agent level (ie, each sales agent only sells one product category) or by focusing on promoting different products during different time periods, rather than offering a basket of goods all year round. It has proven difficult to combine distribution channels for consumer durables like solar lights with FMCG products, although retail channels have more success than sales agent networks.
The hosts closed the session by showing great willingness to work on the discussion points raised through the Global Distribution Collective.