Value Chain Innovation in Developing Economies:

Exploring the Future

May 15, 2013
Research Roundtable Summary
More than 35 leading supply chain academics, nonprofit and corporate leaders from around the world
met at the Stanford Graduate School of Business on May 15, 2013 to discuss the evolution of value
chain innovation in developing economies. The goal of the roundtable was to identify successful value
chain innovations, key challenges to implementing innovations, and opportunities for future research in
this field.
A value chain can be defined as stages of value addition by a single or several organizations in a
process of deriving products or delivering services. Participants discussed financing, information
technology, distribution, and sourcing innovations that are promoting entrepreneurship and improving
the lives of people living in poverty in developing economies. Academics shared work focused on the
agriculture, health, information technology, retail and other sectors. Research discussions revolved
around distribution modeling, impact assessment, agriculture commodity pricing analysis, and more.
Today, value chain innovation is increasing due to new strategies and technology, but many questions
remain regarding how to replicate and scale these innovations. Discussion during the day also focused
on whether current attempts at creating shared value are meeting the social and economic priorities of
those living in poverty.
With the ongoing evolution of supply chains in developing economies, the group discussed how newly
created value can be equitably distributed. The group explored the idea an orchestrator can play an
important role in decreasing bottlenecks in value chains. Many other ideas and research questions were
raised throughout the day.
Highlights from each session are included below. Several participants expressed their intentions to
engage in collaborations focused on the research questions raised, which is one indication that this field
will continue to evolve.
Session 1: Sourcing and Agriculture
Innovations:
The group discussed several innovations in the shea, coffee and dairy industries. The Global Shea
Alliance was founded to promote a competitive and sustainable shea industry worldwide. Its goals
include expanding the market for shea butter, increasing competition with other vegetable oils,
establishing quality standards, and improving sustainability and facilitating corporate partnerships. The
Alliance brings hundreds of stakeholders in the shea nut supply chain under one umbrella and organizes
and empowers thousands of women who pick shea nuts by strengthening the value chain.
In the coffee industry, Sustainable Harvest is a consortium comprised of stakeholders at every level
of the coffee supply chain. Built on trust between growers and buyers, its goal is to boost financial
returns for suppliers while providing a sustainable, high quality, and consistent product to roasters. At
the annual Lets Talk Coffee event, 500 coffee supply chain stakeholders meet face-to-face to establish

direct business relationships. Through Sustainable Harvest channels, 200,000 coffee growers pre-sell
coffee beans to global buyers on an annual basis. Source suppliers now receive consistent and reliable
income, allowing for increased access to credit and opportunities for expansion and empowerment.
Danone established the Ecosystem Fund to strengthen and develop the activities of its various partners
throughout its value chains. For example, within its dairy supply chain, the Ecosystem Fund has
formed relationships with 20,000 small milk farmers to provide them with access to education and
direct access to the market. Danone is also developing a micro distribution network in various rural
communities without access to its products and is supporting the creation of a packaging/recycling
value chain. The company is investing in impact evaluations to inform program expansion.
The research of Professor Mohan Sodhi of Cass Business School, City University, London focuses on
value creation with agricultural products in the Punjab state of India. There, several value chain
innovations are empowering farmers who lack bargaining power. Recent research shows that farmers in
the region who sell to traders retain 2% of the value of a final commodity. To expand value for the
farmer, self-help groups have been established. One group assists women with building efficient
systems for fruit picking and production and distribution systems for fruit juice. In addition, smallholder
farmers are joining together to create food production facilities for their crops as an upgrading strategy
which can to increase their share of value. However the farmers struggle due to variability of prices and
a two-dimensional focus on only rice and wheat.
The group discussed several challenges facing upstream suppliers in agricultural supply chains:
Finance Challenges:
Small farmers are often disenfranchised. They need access to funding to invest in equipment
and expansion. How do we increase cash in the system? Sustainable Harvests coffee pre-sell
model allows farmers to gain access to financing through long-term contracts with coffee
buyers. But can this model be replicated elsewhere? Perhaps with the cocoa industry?
Farmers require consistent, reliable payment for crops with minimal market price fluctuation.
Danone is assisting farmers by committing to a fixed dairy price for seasonal farming periods.
Can this model be replicated?
Since most farming is seasonal, farmer income is typically restricted to one quarter of the year.
Can we create a system of distributed income throughout the year?
When value in the supply chain is shifted to the small-scale farmer (usually male head of
household), it does not often lead to increased social welfare and economic development. How
can extra value be allocated to women or development activities?
How can we provide financial literacy and entrepreneurship training to farmers?
How can we increase transparency and education in market pricing so farmers can understand
and dispute corrupt tactics of buyers and middlemen?
Value Chain Improvement Challenges:
If you reduce middlemen in the supply chain, does the supply chain function more efficiently?
You may have to review each link carefully to understand its role and adjust it.
How can we encourage farmers to shift focus to more profitable crops, and educate farmers
about the benefits of growing different crops?
Summary and Research Next Steps:
How do we strengthen the agricultural supply chain? To accomplish this, the group
discussed a need to implement additional transparency and access to training for farmers (both
financial skills and farming techniques).
There is a need to change the value chain structure. How do we avoid forcing supply chain
stakeholders to change behavior, and instead work with them to organize and strengthen their
operations? How can source suppliers gain more negotiating power?

How do we shift more value to farmers? Can farmers own more elements of the supply chain,
such as processing? How can processing be shifted to the raw material supplier country? The
group suggested possible research analyzing whether a shift of production to farmers or other
local entities can improve the local economy and elevate the economic situation of farmers.
Also, do government-regulated crop prices remove value from farmers?
We should understand the varying characteristics of crops. For example, the production of
hazelnuts varies widely from that of coffee, tea, and cocoa. Can we research how the differing
characteristics alter supply chain management and improvement?
Lastly, the speakers suggested that impact assessments are critical to understanding key
methods for strengthening the supply chain and shifting value to source suppliers.

Session 2: Information and Communications Technology for Development

Innovations:
E-Choupal, an initiative of ITC Limited, placed internet kiosks in 40,000 Indian villages. Designed
for farmers, the kiosks have increased profitability by providing market pricing transparency, access to
weather reports, access to educational materials as well as the ability to conduct any type of businessrelated research.
Esoko, a mobile phone based service focusing on agricultural supply chains in Africa, strives to
improve market transparency and operational efficiency of organizations. Funded through
subscriptions, Esoko provides market prices to farmers who previously had no information to negotiate
with traders. It offers farming tips, weather reports, and organizes produce pickups in rural locations.
In Ghana, it has demonstrated cost savings for farmers who can increase and schedule output with a
more transparent view of the market.
Grameen Intel Social Business Limited develops software applications for mobile devices for use by
rural entrepreneurs. For example, its applications connect farmers to suppliers, buyers, and
agricultural experts to increase income and facilitate expansion, leading to increased employment
opportunities. Various tools help farmers manage soil nutrition, insect infestation and disease as well as
opening links to the agricultural market. To date, initial results show 10-15% profit increases for
farmers in several countries.
During the discussion, the group discussed several challenges and questions regarding technology
design and implementation:
Challenges Technology Design:
When initiating design, one must begin with a user need. After witnessing, engaging with and
understanding the users life, a point of view can be developed. This point of view will guide the
prototyping process. We must avoid discussing technology in the abstract and must consider
functionality based on the user.
Is simple design more impactful than flashy design with increased features? As an example,
MPesa, Kenyas successful mobile money tool is characterized by an intuitive and simple
interface.
Challenges The Value of Information:
Will the provision of new information change behavior? The group discussed that this is a key
goal of new technology.
With expanded technology, we must ensure that information shared is accurate. Many
innovators mentioned that trust is critical to adoption of new technology tools.

Can technology-delivered information replace face-to-face contact, especially in the health

industry where trust is critical to success? Which industries can replace face-to-face contact with
technology; which cannot?
We need to understand the value of information if follow-up action is not available. For
example, if a cardiologist can diagnose heart failure from a distance using technology, what is
the value of the diagnosis if treatment for the patient is not available?
We must understand cultural barriers to technology innovations. Where is it culturally
appropriate to introduce technology?
Education is key for adoption of technology, as proven by Safaricoms investment in education
for MPesa versus MTNs lack of investment with their product Mobile Money. Several mentioned
that education fosters trust with technology innovations.

Summary and Research Next Steps:

While conversations around technology for development are centered on mobile devices, we
need to research and understand the benefits and shortcomings of mobile phone
technology versus other communication methods, such as radio, CB, digital scans, etc.
Which technology is appropriate and relevant to the intended user?
We understand that mobile technology and ICT are useful for reducing the cost of acquiring
information, but how important is the actual information to the user? How do you make
sure the information is reliable and useful? How can we discriminate between accurate
information and false information?
The group discussed that a critical goal of technology is to help change behavior. How
critical is reliable information to achieving behavior change? How does inaccurate information
sharing hinder behavior change?
We need to study the impact of technology. The goal is to quantify the impact and
understand how benefits are distributed. Which groups receive and capitalize on the benefits of
information technology? If people do not understand or trust the technology innovation, it will
not have the desired effects.
Lastly, the group discussed the need to understand the connection between supply chain
performance, ICT, and achieving development impact. What is the connection? Can
improved supply chains and ICT improve health indicators, education and personal income? How
can we research the impacts?
Session 3: Distribution Innovations
Innovations and Findings:
Prashant Yadav, Director of Healthcare Research at University of Michigans William Davidson Institute,
noted that health supply chains often mimic the design of the governments administrative structure
and distribution networks. In Zambia, he conducted a large-scale quasi-randomized study comparing
the governments medicine supply chain structure to a privately managed supply chain for drug
distribution. His analysis proved that the privately managed supply chain was more efficient,
which led the government to adopt that system. He also conducted inventory analyses in Tanzanian
rural pharmacies to track supply chain deficiencies and discovered that most shops stock out on the
22nd of the month. The stock-outs occurred because of a lack of working capital to fund replacements;
his team is working to understand improved stocking practices.
Allen Wilcox, President of Village Reach, an organization working to improve access to healthcare in
underserved communities around the world, argued that increased value chain innovation at the
top of the supply chain is creating an innovation pile up at the last mile. There is limited
human capacity and infrastructure at the last mile, as well as a disconnect between policies and reality.
In response, Village Reach focuses on system optimization, strengthening information systems and

leveraging the innovative capacity and cost efficiency of the private sector to open the bottlenecks and
increase capacity at the last mile.
Logistimo, a hosted web service for supply chain management, provides mobile and cloud-based
services which allow suppliers and wholesalers to sync operations and create more efficient
interactions, instead of haphazard last-minute transactions. Through testing, Logistimo discovered that
distribution-enhancing technology cannot just provide straight data to its users; it must also convey
tangible advice to suppliers and wholesalers. Therefore it focuses on real-time information specifically
geared to help source suppliers make better logistics decisions and minimize operating costs. Anup
Akkihal, Founder and CEO of Logistimo, also claims that shifting value in supply chains can change the
pecking order within a supply chain, causing stakeholders to thwart efforts to create efficiency.
Ravi Anupindi, Professor of Business Administration at University of Michigans Ross School of Business,
stressed the need for an orchestrator to manage supply chains and play a role to shift value
down the pyramid. Providing information is not enough, who will organize and connect all the
relevant stakeholders?
Following the four presentations, the group discussed several challenges and ideas to improve
distribution:
To reduce stock-outs, can pharmacists (for example) form a collective group, and one member
at a time can travel to the city to pick up supplies for restocking?
In Tanzania, wholesalers receive incentives for dropping materials at one shop in a large cluster,
where neighboring shops can pick up at central location. Different associations of shops
coordinate delivery points. Can this be replicated?
Mountain Hazelnuts uses a paid community representative who serves as a troubleshooter.
Perhaps a similar arrangement can be created for a delivery point person or logistical
manager. Logistimos model includes a supervisor, which fixes bottlenecks in the supply chain,
using social pressure to encourage action.
Summary and Research Next Steps:
When reviewing distribution innovations in developing countries, can we parse out why more
funding remains with governments to manage and innovate new supply chains,
instead of the private sector? Should more funding be channeled to third party logistics
innovators instead?
How can you build trust in the value chain while innovating at the same time? If pecking
order is changed, will the affected link thwart the other links?
How can you create incentives or social pressure to reduce bottlenecks and improve supply
chain performance?
Can supply chain interest groups (a cluster of farmers or pharmacy owners) nominate a
representative to travel for supplies or receive delivery of goods or transport goods to market?
Could this reduce time constraints and increase bargaining power for these groups?
Once technology exists, how can we orchestrate the network? Its not enough to simply
have new platforms, but who will manage and sustainably orchestrate these innovations so they
remain effective? Who can take responsibility?
How can we build trust across supply chain networks? If supply chain stakeholders at
different levels develop trust with each other, can it create ripple effect to prevent stock outs,
sync transport, deliveries, etc.?
A final research question, how can we further understand the segmentation of supply
chains? Do we need different supply chain systems for rural versus urban settings? What
different products does the user demand in these settings?

Session 4: Role of Supply Chains in Value Creation

Douglas Boateng, founder and CEO of PanAvest International, a Ghanaian company working with
businesses to enhance value creation and improve market share and profitability, noted a severe lack
of understanding concerning the basics of supply chain management among African
policymakers. He is working with several African universities to train practitioners and post-doctoral
students in operational management of supply chains. He established the West Africa Supply Chain
Initiative to help develop Afrro-centric supply chain systems, since currently most production is shifted
outside of producer countries. Lastly, he also stressed an urgent need to develop supply chains for
water, waste and other raw materials and crops.
Jan Fransoo, Professor of Management and Logistics at Eindhoven Institute of Technology, claims that
densely populated cities lack modern and organized supply chains for consumer commodities. Through
pricing analysis research, he discovered that people pay higher prices for rice, cooking materials,
hygiene products, and more in these settings because small family operated nanostores are
not organized and therefore lack bargaining power. Very small orders create inefficient
distribution systems. Jan argues that bundling of distribution will decrease costs and extend credit
opportunities. Also, he discussed a need for the use of mobile technology to spread information in retail
supply chains in Latin America and Asia.
Vish Krishan, Professor of Innovation, Technology and Operations at UC San Diegos Rady School of
Management, discussed the need to reach economically disadvantaged people, where there is a
reduced ability to purchase goods as well as major infrastructure and distribution challenges. His
product development research includes producing sustainable products for low-income groups, products
which do not require resources that are often unavailable, such as electricity. He stresses that
orchestration cannot simply manage the flow of goods in a supply chain, but also must
generate new ideas, so solutions are relevant and appropriate for economically
disadvantaged people.
The group discussed several challenges and insight related to value creation:
Hau Lee, Professor of Operations, Information and Technology at Stanfords Graduate School of
Business, asked why entrepreneurs are not developing production plants within countries
producing crops including cocoa and shea nuts. Douglas Boateng remarked that policymakers
have restricted the ability entrepreneurs to invest, as raising finance is much easier outside
West Africa countries. However, it was noted that South Africa produces consumer goods using
minerals mined inside the country. Can this be replicated in other countries and in other
industries?
Andrea Coleman, CEO of Riders for Health, a health management social enterprise working
throughout Africa, discussed that predictable logistics can help create organization within a
supply chain. In her experience, once a system is in place, budgeting and planning, and value
shifting can take place.
Helen Gichohi, Managing Director of Equity Group Foundation, an organization providing finance
for large and scalable social programs targeting low-income populations in Kenya, mentioned
that infrastructure and personnel capacity is unavailable in certain countries to develop
production and retain value within the country. For example, Kenya has only one petroleum
expert for its burgeoning oil industry. She stressed that education is a critical component to
shifting value to producing countries.
Prashnat Yadav reminded the group that shifting production back to the country of origin does
not necessarily extend value down the supply chain. In many cases, the head of state controls
industry and all related revenue.
Lastly, Laura Kopczak, International Logistics Professor at MIT-Zaragoza, discussed the
research trap. If the state earns significant revenue from raw minerals and fossil fuels, history

proves it does not need to maintain a manufacturing base. This could negatively impact the
development of production and shifting value within the agricultural supply chain.
Summary and Research Next Steps:
How do we expand coverage of services and goods to low-income groups? The ability to
pay and willingness to pay for the right goods is not an issue but we need new business models
to serve the needs of this group. How can we expand coverage and bring this group into the
market?
We need to strengthen the existing supply chain. How can we isolate vulnerabilities and
improve the supply chain?
How do we bring peace of mind and understanding to the shared value chain without
exploitation and create the ability for stakeholders to take ownership?
How do we develop value creation in supply chains without negative environmental
consequences?
Education is key. Beyond developing physical supply chains, how do we promote education
and capacity building?
Session 5: Looking Ahead A Research Roundup
The final session began with Hau Lee summarizing the large questions raised throughout the day:

Solving the where questions. We need to understand where the bottlenecks lie in varied
supply chains. How can we develop bottleneck solutions in developing economies, which require
a different approach compared to mature economies? We need to understand the user, the
users needs and the distinct business environments in all settings.
Solving the how questions. How can technology be leveraged properly and effectively in
supply chains? How can the role of the orchestrator play a role to innovate value chains? How
can we build capacity at all levels of the supply chain? How can we set up the right incentives
within the supply chain to encourage all stakeholders to engage? Lastly, how can we leverage
existing physical infrastructure to improve value for all stakeholders in supply chains?
Solving the who questions. The group discussed that an orchestrator, who can drive value
to all stakeholders in a supply chain, is critical to success. An orchestrator can be a government
official, corporation or entrepreneur. However, can we conduct research to understand if the
entrepreneur is best suited to orchestrate the supply chain? Or is the ideal orchestrator a cocreation of several actors, including NGOs coupled with entrepreneurs.
Solving the what questions. What is the impact of all of our work with supply chains?
Beyond the economic impact, what are the social and environmental impacts and how does
morality affect impact?

Following the summary, the group raised several other research questions during the final wrap-up
session. All are for further research consideration:

Can the social lifestyle tool (SLA) quantify social impacts of shifting value in supply chains? Are
there other ways to measure impacts among communities? Participants mentioned several ways
that they are measuring impact in the supply chain. Mountain Hazelnuts conducts surveys with
its growers to measure economic status, health improvements and education. Danone is using a
tool developed by a university to measure social, environmental, health and economic
sustainability at their farms.
How do we ensure value chains have a social and moral impact? Laura Kopczak cited Mary
Andersons research, which highlights interventions that do not perpetuate conflict.
Understanding local context is key.

Education was mentioned as a major component of shifting value to source suppliers. Several
education tools were discussed, including quality videos using content developed in local
context.
How can we encourage governments to invest in source suppliers instead of other social and
development priorities? We must look at the alternatives to investing in upstream suppliers and
understand which is the better option for policymakers. We need more strong evidence to prove
our point.
There is a need to understand the new generation Z consumer. What are new consuming habits
among younger people? How can we understand the power of the consumer? Is behavior
change more difficult with the new consumer? How do we tackle the perception that green
companies deliver poor quality goods?
How can U.S. companies break into foreign supply chains? The U.S. is at a competitive
disadvantage because of strict compliance measures. Can research be conducted to inform and
work with policymakers to remove disadvantages? How can a multinational company compete
with other companies that do not follow international laws?

Conclusion
Several important trends, challenges and research opportunities were discussed at the Stanford
roundtable. A common theme was the need to empower, elevate, and increase the economic and social
status of members in value chains living in poverty involved in sourcing, production and distribution.
Innovations are improving opportunities. However several challenges and research questions remain.
How can we continue to build peoples capacities and scale innovations? How can production shift onshore, bringing increased value for emerging economies? How can we leverage existing infrastructure
to provide opportunities for suppliers and distributors? We hope that collaborative research among
practitioners and academics will strive to answer these questions.
The group discussed a second priority: the challenges accompanying technological innovations. Many
groups are enabling increased information across the value chain, but there is a need to understand the
value of sharing information through technology. How do we effectively present new information and
encourage behavior change? The influence of technological innovations, as well as education
interventions and other initiatives can be further researched through impact assessments.
Lastly, to encourage development and influence value chain innovation, the intended target, or the
user, must be better understood. What are the economic and social priorities of the farmer, the
nanostore owner, the picker or the entrepreneur? What tools does he or she need to focus on these
priorities? What type of supply chain orchestrator does this user demand to achieve his or her goals?
Could it be a nonprofit, a logistics manager, a multinational corporation, or a fellow entrepreneur?
These questions and others will provide rich subjects for researchers to explore.
If there was one consistent idea throughout the day, it was that practitioners and academics have
ample opportunities ahead of them to leverage existing innovations, develop new initiatives and to gain
insights through additional research. Ultimately, all of these actions will contribute to building shared
value throughout value chains.