BRIEF November 10, 2017

Shortening Microentrepreneur Supply Chain through Mobile Technology

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Agruppa visiting a microenterprise in Bogotá.

Photo by Agruppa


Story Highlights

  • Agruppa, a start-up based in Colombia, aggregates small vendors’ orders to purchase produce at wholesale quantities, and delivers the goods directly to the vendors.
  • Can vendors benefit from lower procurement and travel costs through Agruppa’s services? If so, are the benefits passed onto consumers?

Micro-entrepreneurs in developing countries are often constraint by inefficient supply chains, facing high travel costs and high prices in purchasing their inventory. At the same time, due to their small scale, they buy in small quantities, limiting their benefit from economies of scale, whether in bulk discounts or transport efficiencies. Small-scale food vendors in Bogotá, whose customers are residents of low-income neighborhoods, face these very issues. Based on initial research, these vendors spend an average of 15 hours per week and 20-30 percent of their weekly income travelling to the central marketplace (Corabastos) for their purchase.

Agruppa, a start-up, has developed a new mobile based technology that agglomerates orders for these small vendors. The technology system aggregates produce orders from the vendors that add up to wholesale quantities, purchases them from farmer cooperatives, and delivers them directly to the vendors. It is estimated that the bulk orders are priced an estimated 30% below the small orders. Agruppa, through its technology, not only aims to lower the inventory and travel cost of the small vendors, but also intends to measure the benefits to spillovers to the residential consumers. The study will measure the impact of these direct effects of the technology, as well as the indirect effects, which are the loss of sales of the competitors who do not take-up the technology.

This impact evaluation will contribute to a larger question of how technology can be utilized to the benefit of MSMEs. This study will specifically look at 1) technology’s role in connecting small vendors to larger suppliers, 2) its ability to create value through new modes of transaction, and 3) its effects in creating competition.

Evaluation Design

Given that the vendors are located in densely populated residential areas, many of them are geographically close to one another. Thus, the evaluation takes a randomized block design, where the micro-entrepreneurs are divided into approximately 60 equal blocks, using major roads and natural geographic boundaries. These blocks are then randomly assigned to treatment and control blocks. It is assumed that within each block there will be interested vendors and uninterested firms. Thus, the evaluation measures the direct impact of the program by comparing the interested firms across the treated and untreated blocks, and the indirect impact by comparing the uninterested firms. The diagram below illustrates this:

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Road map and materials

Principal Investigators

David McKenzie is a Lead Economist in the Development Research Group, Finance and Private Sector Development Unit. He received his B.Com.(Hons)/B.A. from the University of Auckland, New Zealand and his Ph.D. in Economics from Yale University. Prior to joining the World Bank, he spent four years as an assistant professor of Economics at Stanford University. His main research is on migration, enterprise development, and methodology for use with developing country data. He has published more than 100 articles in journals such as the Quarterly Journal of EconomicsScience, Review of Economics and StatisticsJournal of the European Economic AssociationEconomic JournalAmerican Economic Journal: Applied MicroJournal of Econometrics, and all leading development journals. He is currently on the editorial boards of the Journal of Development Economics, the World Bank Economic Review, and Migration Studies. He is also a co-founder and regular contributor to the Development Impact blog

Leonardo Iacovone After having joined the World Bank as Young Professional in 2008, Leonardo has worked in the Development Research Group and in the Financial and Private Sector Development Unit of the Africa Region. Currently Leonardo is a Senior Economist with the Innovation, Technology and Entrepreneurship Global Practice. Before joining the World Bank Leonardo worked as a consultant in Latin America and Southern Africa for UNDP, WTO, UNIDO, USAID and EU. Additionally, before his PhD, Leonardo worked for more than two years in Mozambique as advisor to the Government where he served as economic advisor for the Ministry of Agriculture and Rural Development advising the director of the Unit for Development of Private Sector and Commercial Agriculture on agricultural trade negotiations, SPS/TBT, and agribusiness strategies to attract investments.