Strengthening the weakest link with supply chain management

Associate Professor of Supply Chain Management Arnold Maltz wants to figure out how supply chain can help get goods into and out of developing regions, a challenge facing the 1 to 2 billion people globally who make up the bottom of the pyramid.

When there are no roads or distribution centers - the building blocks of a successful supply chain - how do you get goods into and out of developing regions?

Those and other challenges are facing the 1 to 2 billion people globally who make up the "bottom of the pyramid (BOP)" - a term first used in 1999 to describe those who make less than $1,500 a year. And Associate Professor of Supply Chain Management Arnold Maltz wants to figure out how supply chain can help.

Over the past three decades, Maltz's interest in poverty obviation has grown. "In my mind, the thing that we could all do, those of us who are privileged to live in developed countries, is to see if we could bring the bottom up, without taking the top down," he says.

To do that, Maltz started studying the supply chain factors that can affect BOP populations. "Transportation and logistics are key ingredients in improving people's lives," he says. His recent research, "Base of the Pyramid Projects: A Framework for Further Investigation," looks at what efforts have been successful.

Urban versus rural concerns

Maltz says that much of the existing BOP research has been on rural populations. But with major migration toward the cities in the past 15 to 20 years, the image of what a poor person is around the world is changing. He says the question now is whether the BOP issue can be solved in the same ways in both rural and urban settings.

Rural supply chain issues arise because areas are lightly populated with a lot of distance between deliveries, and, often, poor infrastructure. That leads to a very large set of distributors, each one with a small area.

In comparison, urban settings have dense populations and infrastructure in place. But, Maltz says, there are similar issues. "You have terrible delays due to congestion in some of these cities, so you have long times to get stuff there. Timewise it's just as bad, and aggravation-wise it's probably worse." However, dense commercial settings are different in terms of number of warehouses, so it's a different supply chain set up.

Logistics plays a supporting role in helping improve quality of life for bottom-of-the-pyramid populations. 

The social organizations also are different, he says. In urban settings, there is easier access to advanced information. "Does that change what they expect?" Maltz wonders. "If you go to Mumbai, slums are sitting next to very expensive housing - does that make expectations very different than rural settings?"

BOP 2.0

Initially, developed countries viewed BOP markets as simply a source of new consumers. BOP 2.0 also looks at these populations as producers. "We weren't sourcing from the bottom of the pyramid, partly because of a supply chain issue and partly [out of a sense] that they simply didn't have the capabilities," Maltz says. "It turns out, both of those things can be changed." As a result, BOP 2.0 envisions creating enterprises that are not just a way for someone to sell to the BOP market, but also a way for BOP populations to produce income and, therefore, have money to buy what others are selling.

Supply chain actually plays a more prominent role in BOP 2.0, including the need for direct procurement, supplier development, training, and certification, as well as centralizing processing, and minimizing transportation costs and difficulties.

Maltz says that while selling to these markets is more developed, "the whole issue of how you get stuff into and out of those markets is a big deal. Looking at distribution channels, where you put regional warehouses, and how you set up delivery operations and pick up operations. You're going to have to be a little bit nontraditional."

In Nairobi, for example, instead of a typical truck operation, they're using a fleet of motorcycles, bicycles, and other vehicles that get around the urban infrastructure problems. In a rural setting, warehouses need to be set up where people can access products, often on foot.

Technology and collaboration

As with many problems in the 21st century, technology will be part of the BOP solution, Maltz says. "People will be connected, and once you get connected and we get good tracking data, it helps the supply chain dramatically. We perform better when we can see what's going on and we have real-time tracking."

Regular drone deliveries to remote areas with bad or nonexistent roads could also be a game changer.

Another option to improve distribution is collaboration. One creative example of supply chain collaboration involves companies distributing malaria vaccines and medications that needed to be refrigerated in remote parts of Africa. Instead of trying to develop their own supply chain, they are piggybacking with Coca-Cola, who is already delivering to those areas with refrigerated trucks.

Setting up partnerships with companies like Alibaba and Flipkart, who are established local players in many regions, will also help facilitate distribution in and out of many developing areas.