A systems perspective to supply chain development

In classic economic theory, making products cheaper by reducing the cost of goods (COGS) can mean removing the intermediaries in the supply chain where margin might be absorbed. This means system actors, such as agents, middlemen/women, traders, small retailers (kiosks) are vulnerable to the disintermediation. However, in low-income countries, this has a system wide effect: this will limit the supply of goods and services to marginalized populations, such as smallholder farmers or the urban poor and this will reduce employment and revenue generation by cutting the poor out of the system. Moreover, in times of desperation, this will naturally create conflict and instability that will have even more far-reaching effects beyond the original supply chain.

Things to remember:

• For real wide-scale change, take a step back and think more systemically and less narrowly and think about the wider impact of any intervention in business operations, pricing and COGS. 
• Rather than a focus on cost, price and money, consider gains that bring about long-term growth, such as quality, value and service-driven loyalty
• Yes, eliminating supply chain actors may reduce the cost of goods along the way, but there is no guarantee that this will be passed on to the customer.  
• Intermediaries are the backbone of a system and agents, traders, kiosks are ever present in a market - work through them rather than against them or by sidelining them
• Look at where the incentives lie. For a supplier, that wants to shed certain costs, who might be willing to take them on? Who might benefit? Who might see the value in managing this transaction directly? This is essentially the origination of outsourcing.
• Consider how the market could function better. As a supplier, you may be incurring a huge cost getting products to the consumer. However, if a retailer can offer a better coordination function, then it would make more sense to switch to wholesale operations. Many retailers in developing countries do this albeit with  need for capacity building around effective management.