Supply Chain Relationship Resilience at the Base of the Pyramid: Evidence from India

42 Pages Posted: 26 Feb 2021 Last revised: 31 May 2024

See all articles by Olumurejiwa Fatunde

Olumurejiwa Fatunde

Massachusetts Institute of Technology (MIT)

Andre Calmon

Georgia Institute of Technology - Operations Management Area; INSEAD - Technology and Operations Management

Joann F. de Zegher

Massachusetts Institute of Technology (MIT) - Management Science (MS)

Gonzalo Romero

University of Toronto - Rotman School of Management

Date Written: February 25, 2021

Abstract

We propose a novel hypothesis for why distributors struggle to scale last-mile distribution of durable, life-improving goods to customers at the Base of the Pyramid (BoP): the relatively lower supply chain relationship resilience-the ability of a supply chain relationship to recover from disruption-of informal retailers, which are the primary source of retail purchases for BoP customers. We measure this concept as the ratio of post-disruption revenue to pre-disruption revenue. Informal retailers are often embedded within communities where local, long-term relationships are essential to business transactions. Methodology/results: We build an analytical model to demonstrate how supply chain relationship resilience can shape a distributor's allocation of retailers to sales executives. We show that if resilience levels are uniform across informal and formal retailers, the distributor's optimal assignment to sales executives is fully unbalanced (i.e., the majority of sales executives handle only one of the two retailer types). We then show how accounting for differences in supply chain relationship resilience can dramatically change the firm's optimal sales executive assignment strategy. We provide empirical evidence for this hypothesis by analyzing data from a distributor selling to 319 formal retailers and 505 informal retailers in India from April 2016 to December 2019. Specifically, we examine the effect of supply chain relationship disruptions on subsequent orders placed by informal and formal retailers. Using two quasi-experimental methods, we find that while formal retailers do not experience a significant change, informal retailers experience a decrease in order value of 43.5% relative to the control group and do not experience sustained recovery within four 60-day periods of a disruption. Managerial implications: Our results demonstrate the importance of supply chain relationship resilience when designing BoP operations. In particular, informal retailers' lack of resilience should be considered when making resource allocation decisions and determining BoP operations strategy.

Keywords: Base of the Pyramid (BoP), causal inference, panel data, difference-in-difference

Suggested Citation

Fatunde, Olumurejiwa and Calmon, Andre and de Zegher, Joann F. and Romero, Gonzalo, Supply Chain Relationship Resilience at the Base of the Pyramid: Evidence from India (February 25, 2021). Rotman School of Management Working Paper No. 3792639, Available at SSRN: https://ssrn.com/abstract=3792639

Olumurejiwa Fatunde

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Andre Calmon

Georgia Institute of Technology - Operations Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

Joann F. De Zegher (Contact Author)

Massachusetts Institute of Technology (MIT) - Management Science (MS) ( email )

United States

Gonzalo Romero

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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