Socially Responsible Distribution
Posted by Category: Corporate Social Responsibility, Research ReviewSocially Responsible Distribution
.DISTRIBUTION STRATEGIES FOR REACHING THE BOTTOM OF THE PYRAMID
. — Sushil Vachani & Craig Smith —.
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The article “Socially Responsible Distribution: DISTRIBUTION STRATEGIES FOR REACHING THE BOTTOM OF THE PYRAMID”, by Sushil Vachani & Craig Smith, says that inadequate attention has been given to the specific strategies and business models for effectively engaging the bottom of the pyramid. The World Bank determined that about 1.1 billion people with daily consumption income of less than $1.08 (rounded off to $1)10 lived in extreme poverty in 2001.
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Challenges for Distribution:
Poor Road, Communications, and Electricity Infrastructure. Poor roads can present a significant barrier to school attendance.
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Information Problems
Inadequate infrastructure and lack of information providers result in unavailability of the information necessary for the rural population to make informed choices about buying and selling goods and accessing services.
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Lack of Knowledge and Skills
In order to extract the benefits of information, farmers must know how best to use it. For example, they must understand how to decide what practices to adopt for tackling threats to agricultural crops.
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Illiteracy
The average years of schooling in India is only 5 years. The illiterate are especially prone to being confused by counterfeits as they rely entirely on package design to recognize and evaluate brands.
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Socially Responsible Distribution Strategies
We refer to socially responsible distribution to describe initiatives that provide poor producers and consumers with market access for goods and services by helping neutralize the disadvantages they suffer from inadequate physical links to markets, information asymmetries, and weak bargaining power.
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There are three creative market-based alternatives that we identified in our research:
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▪ Taking cost out: This approach increases access by lowering the costs of distribution.
▪ Reinventing the distribution channel: This approach increases access through innovation, by identifying different routes for reaching rural consumers and for rural producers to get their products to market.
▪ Taking the long-term view and investing for the future: This approach entails increased private sector investment anticipating a long-term payback and/or as a social commitment.
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Poor farmers suffer significantly from lack of free and well-informed access to markets, which limits the income they can derive from the commodities they grow. The improved market access that socially responsible distribution provides the rural poor can give them better product choices and help them derive greater value from their purchases. In order to study socially responsible distribution strategies across multiple sectors in India, we chose a multinational company, an NGO and a government department that have implemented successful programs to bridge the gap. ITC Limited, Gyan Shala and Indian postal department.
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ITC Limited
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ITC uses information technology to empower small farmers by providing them with realtime market information, and it has set up a direct procurement system that gives farmers an alternative channel for selling their produce. In 2004, ITC has committed to a significant enhancement of its rural distribution by investing in a chain of mini-malls to sell a range of goods and services. It has succeeded by taking cost out and reinventing the distribution channel and, arguably, invested by taking a long-term view.
Typically, small Indian farmers bring their produce, such as soya bean, to the “mandi,” a state-sanctioned wholesale marketplace. They are discouraged from turning down an offer because they have already incurred the sunk cost of bringing their produce to the market and would need to spend more money to take it back. ITC set up an IT-enabled procurement system. With the assistance of the village representative, farmers access ITC’s web portal, which provides information on commodity prices the previous day. The savings accrue from lower transportation as the produce moves directly from farm to ITC rather than via the mandi.
Initially, farmers were suspicious of ITC. Once it had signed on the initial set of representatives and they saw how the system worked, they were convinced of its value and it became easier to sell it to others. Using the e-choupal route, ITS now sells from salt to motorcycles some of which are its own brands.
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Gyan Shala
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Illiteracy is a significant barrier to enhancing welfare at the bottom of the pyramid. Gyan Shala relies on several key design elements:
▪ Classes are located in the village, or in the urban slum
▪ Costs are contained by hiring teachers who live in the community
▪ Teachers are given solid training and are continually and closely monitored and assisted to ensure that they deliver quality instruction.
▪ High-quality materials are developed and used, and detailed teaching plans guide delivery of each class session in the year to ensure consistent high-quality education.
Gyan Shala’s annual cost per student is about a quarter of that in government schools.
Gyan Shala has re-engineered the role of the teacher, by transferring selected tasks of traditional teachers. Gyan Shala’s design team puts together the curriculum and the schedule for daily classroom activities to translate its goals into the educational program and class experience. The team creates daily lesson plans for teachers, with
detailed worksheets and small-group activities for students. The typical class consists of about 30 children, all at the same learning level—grade 1, 2, or 3. A unique aspect of Gyan Shala classes is that they are physically located within the village or slum where children live so that they can easily—and safely—walk from home to class. The decision to establish a class in a community results from surveys conducted by field staff who visit various communities to assess their needs. When a community is identified as a potential class location, staff take time to explain their proposal to community leaders and enlist their support. Teachers are also selected from among the unemployed members of the community.
The net effect of Gyan Shala’s programs is that at the end of a 3-year education, young children can read, write, and perform basic arithmetic functions.
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Department of Posts
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Extended the reach of its network by relying on private entrepreneurs who serve as its representatives and offer a range of postal services from their own private premises. Technology is used to enhance service. With the advent of the Internet, the Department of Posts has introduced services to bridge the digital divide.
Strategies that can enable organizations to design and implement socially responsible distribution are:
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Selectively Bridge the Infrastructure Gap
Department of Posts and ITC that are willing to bridge the infrastructure gaps, such as lack of Internet access and reliable electric power. They did not begin to build roads or set up poles to hook up power or telephone lines, which would have called for prohibitive levels of investment. They carefully chose technologies.
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Aggressively Control Cost through Differential, or Layered, Distribution
All three organizations run village-level operations with low fixed operating costs and very low variable operating costs. Outsourced the “last mile” to BOP entrepreneurs.
Broadening the distribution network’s scope and sharing it for multiple purposes such as reverse distribution and selling products of other companies.
A remarkable aspect of Gyan Shala’s model to bring basic education to the poorest children in villages and urban slums is that instead of striving to provide a rich educational environment using college graduates, it
decided to strip out non-essential aspects of education and focus on providing high-quality essential education.
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Cluster retail locations: Cluster village-level locations in a way that the infrastructural and supervisory backbone is efficiently and economically utilized.
Develop benchmarks for retail locations: Ensure that proposed village-level operations meet benchmarks for activity level and financial performance.
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For companies, the benefits include lower procurement costs, future profits, Corporate Image, Preemptive distribution and competitive advantage.
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Tags: BOTTOM OF THE PYRAMID, Department of Posts, Distribution, DISTRIBUTION STRATEGIES, Gyan Shala, Infrastructure Gap, ITC Limited, Layered, Socially Responsible Distribution