Integrating small trading activities into supply chains in developing countries

Leo Iacovone researches how new technologies can help coordinate between suppliers and vendors. 

Small trading activities, such as in perishable produce, are a common form of self-employment in developing countries. But getting these goods to market is often costly and inefficient. In a Policy Research Working Paper for the World Bank, Hertie School Professor of Economics Leo Iacovone explores the potential for new technologies to solve coordination problems between suppliers and vendors. 

“Shortening Supply Chains: Experimental Evidence from Fruit and Vegetable Vendors in Bogota”, published in August 2019, also offers a window into the nature of competition between small retailers, and into the challenges of achieving economies of scale when disrupting centralised markets for firms offering multiple products.

Fruit and vegetable vendors in Bogotá, Colombia, usually travel to a central market to source produce. As an alternative, a social enterprise offered them the use of an app and a centralised distribution system. The idea was to aggregate orders from many small stores, source produce directly from farmers, and then deliver the goods directly to the stores. The introduction of the new service was randomized at the market block level. 

Results were mixed, according to the paper: “Initial interest was high and offering the service reduced travel time for users by almost two hours a week, reduced travel costs, and increased work-life balance for store owners. Firms offered the service saved an average of 6 to 8 percent on purchase costs, and although some of this passed through into lower prices for consumers, there was incomplete pass-through, so that markups rose. However, stores reduced their sales of products that were not originally offered by this new service, and their total sales and profits appear to have fallen in the short run, with service usage falling over time.”

Read the full paper on the World Bank website.  

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