Building a Supply Chain for Rural India

Published by MBA Skool Team, Published on February 05, 2016

Building a Supply Chain for Rural India is one of the most critical aspects for a developing nation. Approximately 60% of India’s population is rural & 800 million people is expected to live in rural India in the 2040-50s making rural supply chains in India the next big opportunity. Inclusive innovation combining significant improvement in products and processes as well as in business and service models is needed to transform rural India to a confluence of vibrant business activities.

Population size, density & availability of services including communication, healthcare, education & finance differentiate between global, rural and urban. MNCs improve upon their business and set up activity centres only in cities, metros buzzing with their good infrastructure, transportation & IT facilities and they don’t find it profitable to build up establishments in rural India. Hence, infrastructure development and inclusive development of rural India is majorly driven by Government. Hence rural supply chains mainly revolving around agricultural produce, toys, handicrafts and textiles are not modern day, sophisticated functions and hence needs revolutionary intervention & holistic improvement.

Image: pixabay

Prominence of Rural India and importance of Supply Chain:

Criticality of Supply Chain in Rural India becomes visible through the below statistics.

- India with an astonishing GDP of about 1.877 trillion USD spends around 13% of its GDP on logistics, which gives rise to an industry of immense potential having a size of Rs. 4,068 billion

- The logistics sector has been clocking two digit growth rate for 13 years now and is expected to be cross the mark of USD 120 billion by 2015.

- 6.1 Lakhs of villages are there in rural India which spans across 3.2 million square kilometers and is inhabited by 700 million people.

- A huge market in rural India exists valued at nearly 53 billion US dollars for setting up of last mile distribution networks in rural India.

- 41% of India’s middle-class are rural Indians & urban India consists of mere 42% of the total disposable income.

- There are roughly 3.6 million rural retail points in India and they are not covered by active distribution & marketing.

The Rural Supply Chain Network:

Fig 1. Will be a perfect representation of an Input-Output of a typical rural supply chain. The main objective of IRSN (Integrated Rural Supply Chain Network) is to flawlessly design a service or product, efficiently manufacture it & finally deliver it to customers in optimum quality faster. IRSN is basically a strategic alliance of a bunch of independent companies operating out of different regions. It is an essential combination of three factors: a logistics networks entrusted with efficient handling & transfer of goods, funds, information; an IT network & a financial network. The logistics network ensures streamlined material flow across partners with a key goal of reducing lead time & cost of material handling. The IT network is essentially a secure Extranet which enables communication & integration of information across the organization which has the potential to offer efficient logistics and more data driven effective business decision making. Finally the third financial network takes care of proper communication and connect among various stakeholders like financing, credit rating agencies and insurance agencies. This can be considered as an ideal rural supply-demand-financial chain but the sad fact is that the current state of Indian supply chain is really at quite distance.

Current attempts in India revolve around connecting stakeholder’s information networks via Internet Kiosks, Wireless Phones & Messaging; but they are primarily targeted to provide supply of information rather than efficiently controlling the supply chain. The logistics network in India has many barriers to pass through like bad conditions of roads, absence of a network of well-maintained supply chains, manual handling and majorly bullock cart or tractor based slow transportations. World Bank backs up the financial network earlier talked about. India’s rural supply chain’s aim should be attaining the ideal set up described above to make it supply chain more responsive and agile. Industry best practices & well developed and maintained supply chains of industrial goods can guide the path. To attain this two value delivery processes in the food supply chain for reengineering needs to be considered: (1) Production & consequent sale of produces by farmers & (2) Rural Retail Network.

IRSN’s value delivery processes are essentially four i.e. (1) Procurement (2) Production (3) Processing & (4) Retailing. Cold chains, mobile communications, techniques of pre & post harvesting, handling of goods, packaging, proper resourcing, marketing and efficient running of financial services are quintessential to realize the core business processes.

Production of Basic Agriculture Products (Farming): A New Model proposed by ISB

Indian School of Business (ISB) has come up with a new model targeted towards enabling farmers to sell their produce at a fair price. The ISB KisanBandhu (IKB) model developed by the faculty of centre of Global Logistics and Manufacturing Strategies (GLAMS) comprises of a cyber intermediary, a commodity exchange and logistics provider, quality teams, financial organizations and insurance companies. The Cyber Intermediary will contain an updated real time database of all the major stakeholders namely registered farmers, logistics providers, retailers, mandi managers, brokers, exporters & food manufacturers. It contains real time updated market information, information related to commodity exchanges along with other immensely useful marketing information. IKB has other uses as well for example during procurement of input materials. It is embedded with natural language processing capabilities and a farmer can interact in his native language directly from his phone. Feedback on processing of the transaction is available on Televisions as well.

Rural Retailing:

Post Offices can play a pivotal role in Rural Retailing. The rural retail group can order over the call centre with post office which can inform the State Distribution Centre (SDC) & the SDC will consequently pass on this order information to the district or local distributor located near the village. While consumer durables can be delivered via Post Office Mobile Vans, perishables & FMCG goods can be delivered on road to post office which can act as the distributor to the retail group. Payment will be taken care of by the Post Office and this methodology provides Rural Supply Chain with sufficient visibility.

Small Scale Industries:

The Orchestrator Model is a widely popular model. Groups of SMEs having competencies spanning across various production activities form a partnership and collaborate with each other across the product life cycle. An orchestrator bridges the supply and demand side and monitors customer requirements and production activity.

Innovative thinking:

Cherie Blair Foundation for Women has worked in partnership with India’s Self Employed Women’s Association (SEWA) and Vodafone Foundation in India and developed a mobile-based Management Information Systems. SEWA’s Rural Distribution Network operates mainly in Gujarat and its business model revolves around buying farm produces from farmers at market prices, processing & packaging before finally selling it off to a bunch of saleswomen known as “Rudibens” at affordable prices. They are using a simple user friendly App and have reported significant positive growth in their monthly sales.

United Villages came in limelight in 2011 operating out of Jaipur, Rajasthan and tried to fill up the void existing between India’s rural supply chain and big brands. Real time mobile alerts and notifications updated farmers about current price of crops, business correspondents took portable banking to households: mobile technology unlocked a huge, profitable customer base.


Special Economic Zones (SEZs) having same kind of companies with similar logistics have the potential to fuel economic growth. Technology mediated solutions need to be implemented to improve the supply chain and mobile phone based services can become useful. Significant investment and R&D is being done in applications oriented around technologies like GPS, GSM triangulation and Placecab using GSM. Indian Government is currently considering liberalization of India’s retail market valued at $400 billion. MNCs like Wal-Mart is free to own up to 51% of a multi brand retailer provided it invests at least $100 million, with 50% spending on infrastructure development in India. Infrastructure development includes significant supply chain investments as Wal-Mart would like to build up its capability of transporting perishable goods across the breadth and spread of a continental size country of India. An obvious matter of concern is the kind of buying pressures a giant retailer like Wal-Mart can exercise on single farmers and storeowners leading to displacement of jobs. Another option is depending on social enterprises working with farmers to make supply chain efficient by implementing best practices and involving innovative technology tools. In this landscape, Jagriti Agro Tech’s commendable effort is much talked about which gifted farmers a 25% increase in prices. While one argument is that working with social enterprises in close connection with farmers lead to better price and avoid middlemen but there remains lack of clarity about how the supply chains would become able to nationalize and ultimately rationalize supply and demand equation of perishable goods across India without multi-national investment and help. Small scale organizations like Jagriti Agro Tech developing efficient supply chains across India is difficult to imagine and hence there is an increasing advocacy on behalf of foreign investment to improve rural supply chain.


Fig 1: Input – Output Representation of Rural Supply Chain Network

Reference: Rural Supply Chain Networks: The Future

Fig 2: Integrated Rural Supply Chain Network

Fig 3: Orchestrator Business Model

Fig 4: Traditional Agriculture Supply Chain Model


Fig 5: Share of Urban vs. Rural Markets

Reference: NSSO 5th round

Fig 6: Key Challenges in Indian retail market

Reference: KPMG International Consumer Markets in India survey

Fig 7: Share of FDI in total investment in Indian SEZs.

This article has been authored by Anurag Das from XLRI Jamshedpur


(1) Rural Supply Chain Networks: The Future | ISB Insight | June 2007





(6) Augmenting Rural Supply Chains with a Location Enhanced Mobile Information System by Paul s. Javid & Tapan S. Parikh




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