Guest Articles

Friday
February 4
2022

Javier Baranda Alonso

How Cross-Industry Collaboration Can Spur the Digitalisation of the Last-Mile Distribution Sector

Last-mile distributors (LMDs) play a critical role in providing access to energy and other life-changing services to unserved or underserved customers in sub-Saharan Africa, and digitalisation is key to enabling these companies to operate efficiently on a larger scale. From processing micropayments and managing inventory logistics, to running business intelligence analytics and consolidating accounting reports, the benefits of digitalisation for social enterprises operating in last-mile markets are countless. And it’s crucial to support their efforts to efficiently scale the basic services they provide to millions of people around the world.

The COVID-19 pandemic has made this digital transition more urgent, as restrictions imposed on the physical movement of agents and assets have impacted the last-mile distribution sector. Over the course of the pandemic, many LMDs have accelerated their digital transformation processes, and many of their digital service providers (DSPs) have also streamlined their services to allow for more flexibility and adapt to the new challenges faced by these distributors.

However, both last-mile distributors and digital service providers currently often struggle to understand and service each other’s requirements.

LMDs understand the value of digital solutions provided by DSPs, and are willing to pay for the right solutions. In exchange, they want solutions that are easy and intuitive to use, and easily customised and adapted to their ways of working – while being versatile and interoperable with the other digital solutions they are already using. But despite the efforts of DSPs, not all of these needs can always be met simultaneously, as most DSPs don’t provide the full suite of functionalities required by their LMD customers. That leads to trade-offs in terms of design execution: For example, enabling greater customisability of DSP solutions generally compromises their affordability.

To address these challenges, Energy Catalyst, an Innovate UK programme supporting innovation to tackle energy poverty in Africa and Asia, and the Global Distributors Collective, which supports LMDs’ efforts to reach underserved customers globally, joined forces to launch a research report last year. The report, “Digital transformation to support last mile distribution: overcoming barriers together,” translates the respective needs of LMDs and DSPs, aiming to promote mutually beneficial dialogue between the two industries in order to accelerate the digitalisation of the LMD sector. It focuses on building bridges between the two sectors in five particular areas, which I’ll discuss below.

 

Industry visibility

Despite the breadth of digital solutions available in the market, LMDs often struggle to easily find solutions that match their needs, while DSPs face difficulties in sharing and marketing their product capabilities. Furthermore, a lot can still be lost in translation, with LMDs struggling both to understand the technical terminology used by DSPs and to define what they are really looking for. DSP’s that contributed to the research, like Upya Technologies, which is one of the innovators supported by the Energy Catalyst programme, provide guidance to LMDs trying to make such decisions. But more tools are needed, including common markets and repositories, and specialised brokering advisories.

To help address this need, the Global Distributors Collective recently launched a digital services catalogue that features more than 70 digital solutions – used and reviewed by their LMD members. This catalogue helps last-mile distributors identify service providers that could help increase business efficiencies and ensure sales agent compliance.

 

Digital readiness

The intensive on-the-ground requirements to run an LMD company mean that other aspects of the business are often left underdeveloped, such as information technology (IT) skills. The lack of basic IT capabilities among LMDs’ employees represents a huge obstacle for DSPs during their onboarding process. Equally important is assessing the digital literacy not only of LMDs’ customer base, but also of the sales agents that will be distributing the solution.

DSPs are innovating here to support the digitalisation of the entire LMD value chain. For instance, Upya Technologies’ “Wingu” app is designed to give LMDs the opportunity to access customer account information, while providing in-app upselling and referrals that enable distributors to increase their sales while reducing their operational costs.

 

Financing digital transformation

As a rule of thumb, enable|digital, a digital solutions advisory company in frontier markets, tells its clients to budget 7% of their expenses for IT needs, aligned with the small and medium-sized enterprise (SME) sector’s average. However, a PaygOps survey carried out with 40 LMDs showed that 75% of respondents were already underspending on IT – and digital transformation can be a significant additional IT expense. Thus, maximising the value of each IT investment is crucial to closing the affordability gap that many LMDs face. It’s also important to increase LMDs’ awareness of the realistic costs of digitalisation, to help them make accurate financial assessments (e.g., through the use of pricing simulators).

DSPs are already striving to increase the affordability of their solutions through different pricing models, cheaper entry-level solutions and free trial periods. However, support from investors and donors – both of whom value greater access to digitally captured impact data – can also help unlock the benefits of digitalisation for smaller LMDs.

An example is the Innovate UK Energy Catalyst grant provided to a partnership between Upya Technologies and the LMD GIVEWATTS. This grant facilitated the design and implementation of innovative crowdfunding and customer pooling business models to reduce the cost of energy for end-users in Kenya. This partnership allowed Upya and GIVEWATTS to successfully pilot their more innovative products and weather the impact and restrictions imposed by the COVID-19 pandemic, providing an example of how donors are increasingly turning to the private sector to enable market-based development solutions. (Learn more about this partnership in this video.)

 

Software interoperability

While LMDs aspire to use all-in-one integrated digital solutions, the reality is that the industry remains largely fragmented, so most distributors use multiple, often unconnected solutions. Working toward the interoperability of solutions through Application Programming Interfaces (APIs) and open-source software offers opportunities to optimise costs and processes, but DSPs often face challenges in agreeing amongst themselves on the terms for integration with LMDs. And though larger players may simply aim to expand their own feature systems to cover most LMD needs, this can be very difficult to accomplish given the diversity of these needs, and it may result in increased cost for LMDs.

When reflecting on the digitalisation of the last-mile distribution sector, it is important to consider the breadth of the industry and the increasing number of channels that LMDs operate in – and that DSPs, by extension, must provide solutions for. It is only by working closely with LMDs that solution providers can understand the variety of channels that these distributors work in. After gaining a fuller understanding of LMDs’ multifaceted needs, DSPs will be better able provide flexible and modular solutions to help them digitise their operations, across sectors ranging from PAYG solar, clean cooking and agriculture, to communications, carbon credit tracking and emerging industries like e-mobility. The interoperability of these solutions is tested when they must work alongside LMDs’ existing in-house tools, and this is where flexibility and modularity are critical to delivering an easy-to-use and streamlined service to distributors.

 

Replicability across countries

Digital solutions are generally easy to replicate across geographies due to their cloud-based nature and their product-agnostic focus – i.e., they generally apply to all product categories that LMDs sell. However, engaging with local telecommunications companies (telcos) and mobile money providers can involve a long and bureaucratic process that presents a major barrier for DSPs (and also for LMDs), limiting their ability to expand their operations in new markets. To address this challenge, DSPs and LMDs can engage with aggregators that act as intermediaries in the integration process with telcos and mobile money providers. Developing a good understanding of telco requirements, and leveraging the support of industry-wide platforms such as GSMA, can also be key to facilitating cooperation with mobile operators.

 

Ensuring equity in the digital transition

DSPs, LMDs and other stakeholders, including donors and digital access sector organisations, all have a role to play in fostering the digitalisation of the last-mile distribution sector. They all have a lot to win if this transition is successfully achieved – but they need to ensure that this transformation addresses the existing digital divide and doesn’t leave anyone behind.

Conversations about digital inclusion, championed by organisations such as the Digital Impact Alliance, GSMA and Principles for Digital Development, reflect the importance of this goal to the sector. DSPs also have an essential role to play in reducing inequalities in digital literacy, in part by providing digital skill-building training to staff and customers in collaboration with LMDs. Donors can also play their part by supporting the co-creation of new and innovative digital solutions between LMDs and DSPs. They can do this through initiatives like the Global Distributors Collective’s Innovation Challenge, or by promoting direct collaboration between different players within the sector that can benefit the whole ecosystem, like the DSP Angaza and the investor SIMA Funds are doing through their Distributor Finance Fund. This sort of cross-industry collaboration can spur the digitalisation of the last-mile distribution sector, allowing SMEs to grow and provide essential products to millions of people around the world.

 

Javier Baranda Alonso is an energy access analyst at Energy 4 Impact.

 

Photo courtesy of Upya Technologies & Givewatts.

 


 

 

Categories
Energy, Entrepreneurship, Technology
Tags
digital finance, digitalization, distribution, energy access, fintech, innovation, rural development, SMEs, social enterprise, technology