Supplying Cash-Constrained Retailers: Understanding Shopkeeper Behavior at the Bottom of the Pyramid

As the largest retail channel in the world, nanostores are the source of income for millions of shopkeepers in developing countries. Nanostore shopkeepers order products from multiple suppliers that visit them at different frequencies. Being cash-constrained, shopkeepers face the challenge of deciding how much of their available cash to invest acquiring products from each supplier and how much to retain to support their families.  We study how suppliers' visit frequency, product margins, and shopkeepers' cash constraints influence shopkeepers' orders. First, in an empirical analysis based on 29 million orders, we show that reduced order frequency leads to significantly lower orders per unit of time. Second, in a laboratory experiment, we show that the level of underordering from high-margin suppliers, with respect to the theoretical benchmark, decreases as their visit frequency decreases. For low-margin suppliers, a reduction in the visit frequency may eliminate the tendency to overorder. Furthermore, we show how shopkeepers limit the exposure to having leftovers.

Jan Fransoo is Professor of Operations and Logistics Management in Tilburg University’s School of Economics and Management. In addition, he holds courtesy appointments at Eindhoven University of Technology and Massachusetts Institute of Technology. Prior to joining Tilburg he served on the faculty and in leadership positions at Kuehne Logistics University and at Eindhoven University of Technology. Fransoo’s research has been published in more than 130 academic publications and book chapters, including in the leading (FT50) journals of his field. While his published research covers an extensive range of topics in operations and supply chain management, his current research focuses on retail operations and digitization in developing countries, and on the role than humans play in operations and supply chain decision making.