Reducing supply chain credit risk

In 2014, SlimTrader, an e-commerce firm headquartered in Seattle, Washington, will partner with Nigeria-based agro-chemical producer Notore to streamline Notore’s fertilizer delivery and collections system to rural areas. For these kinds of projects, SlimTrader has developed a mobile commerce platform called MoBiashara (mo’ business in Swahili), specifically designed to serve fast-moving consumer goods companies. This proprietary, customisable platform provides enterprises in the fast-moving consumer goods sector with information on their supply chain as well as functionality to accommodate mobile payments by farmers. Their distributors, meanwhile, can electronically process in-coming shipping orders and mobile payments from retailers in the field.

Risky business

Notore has two levels of distribution: the main distributor and the retailer. In the past, the retailer received supply chain credit from the main distributor. The retailer would store the fertilizer and then seek out customers – often small farmers tucked away in rural areas. Obviously, this supply chain credit risk is costly and inefficient.

Both the main distributor and the retailer have to carry a number of upfront costs without any guarantee of recouping their initial investment. First, the distributor provides the fertilizer to the retailer on credit. This process may not seem like a big deal but in rural Nigeria credit is not based on any formal assessment of credit risk or financial identity. Rather, risk assessment is informally based on personal interaction, imperfect memory and hearsay.

So the main distributor bears the entire burden of financing the supply chain on credit. The retailer, meanwhile, must rely largely on faith and goodwill. First, he must pay for the fertilizer transport to his storage facility as well as costs related to visiting farmers to take orders that he hopes will match what he purchased from the distributor. If he over-estimates the amount of fertilizer he can sell he is still liable to the distributor for the unsold fertilizer. In addition, the retailer also incurs the cost of storage. So up and down the supply chain, there is risk but with only a potential promise of reward, resulting in an inefficient supply chain.

Going mobile

Notore is partnering with SlimTrader to significantly reduce this supply chain credit risk and these inventory management issues. From its offices in Lagos, Nigeria, SlimTrader will launch a pilot programme to train the main distributors and retailers on the MoBiashara platform that accommodates ‘just-in-time’ inventory management and mobile purchases by farmers.

The main distributor and the retailer download the MoBiashara application onto their mobile phones. Then, like a waiter in a restaurant, the retailer does site visits and takes orders from farmers for Notore’s fertilizer. Using MoBiashara, the retailer examines the main distributor’s inventory right then and there, together with the farmer, to see what is available and when.

The retailer then places the farmer’s order via his phone. The retailer, therefore, is no longer running up transport or storage costs without a guarantee of a sale. Upon delivery, the MoBiashara platform – which is connected to available mobile money companies – receives a system notification immediately after a successful mobile money payment is made by the farmer, after which the farmer takes possession of the fertilizer.

Everyone benefits

MoBiashara’s greatest advantage is that everyone in the supply chain benefits. The main distributor incurs a significantly reduced supply chain credit risk and the retailer has reduced storage costs. These reductions in supply chain costs can benefit farmers with lower prices for fertilizer as well as a more efficient supply chain for them as end-users.

It is also important to note that MoBiashara allows retailers to create a profile of farmers and records their transactional history. As this transactional database becomes deeper over time there is potential to compute an alternative credit score. This type of credit risk assessment can then inform decision making by retailers and financial institutions. Retailers might choose to sell fertilizer to a farmer on credit, or a financial institution might decide to provide a farmer loan.

The bottom line is that SlimTrader’s MoBiashara platform significantly reduces supply chain credit risk, promotes just-in-time inventory management and can inform the computation of alternative credit scoring that promotes access to finance.