Wealth Creation Through Coordination and Efficiency in the Rural Procurement Supply Chain: An Examination of Mechanisms, Structures and Costs

Abstract

The base of the pyramid (BOP) is characterized by severe resource constraints, yet organizational processes in this context are highly coordination-intensive. One such coordination-intensive process is the rural procurement supply chain. We examine coordination problems and mechanisms in rural procurement supply chains. While much case study evidence of successful operations of the rural supply chains have been cited in the literature, not much effort has been devoted to analyzing informational and coordination problems at the BOP. For instance, what is the optimal set of coordination mechanisms for managing dependencies and creating value in the rural procurement supply chain? What is the value of the information structure and the resulting decisions to the farmer? To answer these questions and to find solutions to such informational and coordination problems, we used a research approach based on analyzing a large set of cases, identifying the coordination problems, formulating a set of coordination problems as decision-making situations and developing a simulation model to test solutions to such problems. The analytical model lead to the formulation of a set of propositions related to the coordination structures and tradeoffs related to costs of coordination, vulnerability and production. The decision-making models helped identify a set of strategies (expected value and minimax) for the farmer, that can yield different payoffs, based on different world states (such as valuable information or higher price and farther distance). Our simulation of the rural procurement supply chain used an agent-based model to implement the algorithms that utilized the strategies, to make decisions about acquiring additional information and transporting to the warehouse. Our findings provide initial insight into effective coordination mechanisms and decision-making of the farmer for value creation in the rural supply chain.