Disrupting Exploitive Supply Chains

In India, there are over 600,000 cooperatives (co-ops) with 240 million members.  In these mostly rural co-ops, producers are trapped in exploitive cycles of poverty without the skillsets, capital, or opportunities necessary to succeed. Using the crafts and handloom sector as an example, we’ll illustrate the current supply chain inefficiencies and the key factors contributing to the exploitation of producers.  Based on these learnings, we’ll explore how two companies are using innovation to disrupt the cycle and redistribute margins to create a new paradigm of Business as Usual.

Inefficiency and exploitation in the supply chain

India’s handloom/craft sector is a RS 24,300 crore industry with more than 70 lakh artisans, half of which are disbursed across 24,000 co-ops averaging a hundred members each.  For insight into the larger supply chain, its helpful to understand how margins are distributed to key players at the per unit level. In the craft sector, artisans acquire raw materials for RS 100, utilize their skills to create a finished good, and then sell them to traders for RS 110-120.  The finished good is sold through multiple layers of traders until distributors and retailers at the end of the supply chain purchase it for RS 160-180.  The final price of the product to the consumers is around RS 250 to 300.  As a result, in the current supply chain, inefficient intermediaries in aggregate receive a margin of 150-200%.  Meanwhile, producers are seeing only 10-20% profit margins at best; at worst, producers are forced to sell by weight, in lieu of quality, in order to remain solvent.  Adding to their challenges, producers often have to borrow funds to purchase raw materials, further impacting margins and/or locking them into unscrupulous distributors who finance their materials. In addition to challenges associated with pricing, multiple layers of intermediaries insulate producers from consumers, leaving them unable to assess market trends to create differentiated products.  Due to lack of differentiation and the control of intermediaries within the supply chain, artisans are forced to operate in a distorted market where their products are being sold as if they were commodities. This inevitably leads to the question: Why are artisans allowing this to occur?