The Big Impact of Small Improvements: How Last-Mile Distributors Have Responded to COVID-19 with ‘Incremental Innovation’
Editor’s note: This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic. For news updates and analysis, virtual events, and links to useful resources related to the COVID-19 crisis, check out our coronavirus resource page.
Distributing beneficial products in last-mile communities has always been a difficult task. But COVID-19 exacerbated many of the challenges that last-mile distributors (LMDs) were already facing. The crisis created an urgent need to find solutions to issues such as:
- Maximising sales efficiency: finding cost-effective ways to provide consumers with information, generate sales and deliver products – particularly when face-to-face interactions were heavily restricted.
- Ensuring affordability: providing payment plans to last-mile consumers, which requires assessing consumer creditworthiness and managing default risk – particularly now that many consumers have lower incomes than they did pre-pandemic.
- Accessing finance: raising finance, particularly working capital – particularly now that uncertainty has caused funders to tighten their purse strings.
Since these challenges have been around since long before the pandemic, it’s perhaps unsurprising that the innovations LMDs adopted in response to COVID-19 have tended to be incremental rather than radical. Instead of pursuing radical innovations that disrupt the market and significantly impact the economic activity of businesses, many LMDs have implemented small improvements to existing products, services, processes or methods to enhance performance. These improvements have put LMDs in a strong position to bounce back, with many having already shifted into recovery mode.
This article showcases innovations addressing each of the three challenge areas listed above. At the Global Distributors Collective (GDC), we have gathered these insights from regular member interaction during the COVID-19 crisis, as well as from the GDC Innovation Challenge launched in July. This was our second Innovation Challenge, and it focused on building resilience in last-mile distribution, so that LMDs can better respond to future shocks like COVID-19. It was open to GDC members, as well as partnerships between GDC members and third parties such as software providers. (We had over 80 applications, and you can find out more about the challenge and its winners here).
Innovations to maximise sales efficiency
To maximise sales efficiency, LMDs are increasingly digitising operations. The majority of proposals submitted to our Innovation Challenge involved digital solutions. Two of the winning ideas are new software solutions to manage remote sales teams. Both are partnerships between LMDs and service providers: one is a collaboration between GDC member Vitalite Senegal and Maad, and one is between GDC member UpOwa and Optimetriks. The digital solutions they’re developing include features such as agent training, on-boarding, task management and route planning. Sales managers will be able to track their agents’ performance and compliance with sales processes via a central dashboard, while an agent app component, optimised to function offline, will feed into the platform.
Other digital solutions we see LMDs testing include:
- Chatbots, enabling quick and easy access to information and troubleshooting, ultimately enhancing lead generation and aftersales support.
- Sales agent apps to tackle e-waste, facilitating improved interactivity between agents and customers to help them enable product life extension through repair, refurbishment and recycling.
- SMS and social media for customer engagement and education, particularly leveraging referrals and driving marketing.
- Assisted e-commerce for sales agents and customers.
Innovations to ensure affordability
To help maintain affordability through the crisis, LMDs quickly found new ways to support struggling consumers in purchasing products or making repayments. ATEC*, for example, introduced flexible payment terms allowing new customers to pay less upfront, and existing customers to pay less per month. LMDs are also testing new long-term consumer financing strategies. For example, MyAgro is testing the application of layaway financing – which has proven to be highly effective in the agriculture sector – to new product categories. And under the GDC Innovation Challenge, GDC member Econome and Sevi are partnering to digitise lending to women’s savings groups. Their app’s algorithm calculates the creditworthiness of group members, after which users can select their preferred product and submit a loan request. Users increase their trust score by showing positive loan behaviour, while gamified incentives encourage timely repayment.
Managing credit risk is a real pain point for LMDs, and it is a focus of two of our Innovation Challenge winners. One idea, a collaboration between GDC member Vitalite Zambia and Nithio, will use historical customer data and geospatial household characteristics to develop a data-driven underwriting service. This will enable LMDs to predict with much greater precision which customers are slow, moderate and fast re-payers. The second idea, a collaboration between GDC member Kambasco Technologies and UpyaTech, will draw on datasets from savings groups to develop a credit assessment tool that integrates into existing customer relationship management platforms, enabling customers to access instant loans from Equity Bank.
Innovations to access finance
To access finance during the worst of the crisis, many LMDs turned to crowdfunding platforms such as Kiva to raise relief funding in the form of grants and loans. Initially, they used these funds to expand their crisis response by delivering personal protective equipment and essential services. Later, this funding was used more to ensure business survival and refinance existing debt. One interesting innovation from LMDs in the crowdfunding space is Arojintech’s development of an indigenous crowdlending platform for Nigerian entrepreneurs in the clean energy space, called Sunvest. To address the challenges around working capital at the agent level, SolarAid is setting up energy cooperatives for last mile entrepreneurs, and creating training and monitoring structures to let members pool their own funds to purchase stock.
On the investor side, we are seeing funders move to full or hybrid digital due diligence processes, relying on local partners for added support. Foundations and donor programmes are reallocating smaller pools of grant and debt capital to support resilience and digital transformation, and to ramp up leaner business models to maintain margins in the face of lower revenues. And we are seeing unprecedented collaboration between funders (as demonstrated, for example, by the Energy Access Relief Response), and between ecosystem enablers (such as the Aqua4All relief facility for water and sanitation enterprises), which in the long-run will benefit entrepreneurs. However, relief funding when it was most needed was scarce for SMEs, and raising funding for long-term growth is now harder than ever.
How service providers can support last-mile distributors
The innovations we are now seeing, through the Innovation Challenge and across the sector, validate the idea that the value chain is becoming increasingly specialised, and that this is benefiting LMDs. Historically, service providers have not catered to the needs of LMDs. As a result, many LMDs have ended up building their own solutions, which is highly inefficient (e.g. 20% of GDC members have built in-house PAYGO software solutions). Others have found themselves trapped in partnerships that don’t meet their needs.
But for some time now it has been common practice for LMDs to adopt third-party sales management and PAYGO software solutions. And we are now seeing the emergence of more and more services for LMDs, which are partnering with digital marketing companies like Viamo, working with field-based data capture providers like Ukall Apps, and outsourcing recruitment to providers like Shortlist. This is enabling LMDs to improve the sophistication of their operations by leveraging third party expertise, while they concentrate on what they do best: generating and meeting demand for beneficial products.
It turns out that, in the last-mile distribution sector at least, innovation in a crisis is not so different from innovation during periods of “business as usual.” COVID-19 has simply magnified many of the challenges that last-mile distributors have been facing for years, and accelerated much of the innovation that was already underway.
Of course, while the pandemic has presented an opportunity to do things differently, many of the pivots LMDs made particularly early on in the crisis were temporary survival strategies, rather than long-term business strategies – and this often meant operating in ways that are simply not ideal. For example, for many LMDs, in-person trainings of sales agents cannot be replaced with virtual or phone trainings. And for LMDs that have built successful models based on selling through groups like cooperatives, schools or churches, being forced to move products through alternative sales channels is better than not being able to sell at all – but it’s still relatively slow and expensive.
Nevertheless, many of the innovations we are seeing represent a significant step forward for the sector. Many companies are becoming leaner, more agile and more resilient. And if these incremental innovations are adopted by a large number of companies, then it doesn’t matter that they aren’t radical: They will still be transformative.
Photo courtesy of Econome.