Turning a supply chain into a social enterprise

For conventional for-profit companies, moving to social impact has huge contradictions. A one-time, small-scale initiative is an inexpensive way to do a little good and receive a nice boost. warm glow In the process. But any attempt to achieve a more serious impact by expanding the initiative is likely to trigger awkward discussions about the value of that warm glow to the business. Thus, the cap remains low on the social impact unless it can be justified in “win-win” terms. Needless to say, this is no small feat.

My recently published case study[1] about Swedish oils and fats producer AAK’s ‘Kolo Nafaso’ program in West Africa describes how a company redefined ‘win-win’ by creating a sustainable and scalable shea butter supply chain . By doing so, AAK was able to use the company as a tool to maximize social impactcreating ripple effects with strongly positive implications for relationships with the company’s most important stakeholders and future business in the region.

The initial growth of Kolo Nafaso

Shea butter, a component widely used in the confectionery and cosmetics industries, is extracted from the fruit of the shea tree, which grows in the Sahel region from Africa. In 2018, an estimated four million West African women are involved in the shea butter industry.

In 2009, AAK began exploring how to source shea butter more sustainably, starting with Burkina Faso. The first step was to start working directly with farmers (mainly smallholder farmers) rather than through dealers. AAK recruited women into the Kolo Nafaso (translation: Shea Kernel Benefit House) program by hiring local female representatives, or “extension workers,” in the style of global NGOs. The extension workers showed the women a safer and faster technique for processing shea kernels (the part of the nut that contains the butter): instead of the traditional method of boiling the nuts in a pan full of water for an hour, they could nuts in two inches of water for 15 minutes. Doing it the AAK way has saved time and firewood, reduced the amount of water to haul from local wells, and eliminated routine burns as an occupational hazard.

In 2016, AAK began training women in the construction and use of rocket stoves, requiring up to 65% less wood than the traditional three-stone stove. Not only is this type of stove obviously better from an environmental standpoint, but it also saves shea pickers valuable time, money and the physical fatigue of collecting and transporting wood. Seventy-three percent of Kolo Nafaso enrollees who responded to an AAK survey said rocket stoves saved them time, 28 percent said they spent more time on business activities, and 37% said they had benefited financially.

Teaching better working methods such as those described above was only the beginning of the benefits of the program for smallholder farmers. AAK proposed a new payment structure in which harvesters were grouped together and each member committed to delivering a certain volume of shea kernels for the season. Based on her pledge, each woman received a portion of her expected future earnings as a prepayment. If the group as a whole fulfilled its joint commitments, the AAK would pay a bonus to be distributed as it saw fit among the members.

AAK’s recruiting efforts have been successful. Starting with around 2,000 women, the program grew to over 50,000 by 2015. That year, Kolo Nafaso was rolled out to Ghana; by 2019, over 100,000 Ghanaian women had joined. The success of the program fueled an expansion to Burkina Faso, Ivory Coast and Nigeria – as of June 2020, over 300,000 women were enrolled in total.

The impact on fishermen

Beyond removing the middleman, Kolo Nafaso did not provide direct financial benefits to participants. Their goods were subject to prevailing market rates. However, the payment structure designed by AAK has helped communities in various ways.

First, the program saved women from physically taxing trips to the local market, because they knew they already had a buyer there who was collecting the harvest from the village.

Second, the three-part payment cycle – advance, time of sale, and seasonal premium – serves several beneficial purposes. The prepayment, which takes place when the shea tree flowers, is also made at the start of the planting season. It allows women to invest in agricultural services (for example, have their land plowed by someone who has the necessary equipment) and buy inputs to plant more of their land than before.

The innovative payment structure also stabilizes cash flow for women so they can plan their spending and save for bad weather. Lump-sum payments (as opposed to sporadic and uncertain additional income from intermediaries) can also be used to create micro-enterprises that generate additional income. Many women used their advance to pay school fees for their children, a common challenge (especially for large families) in this context, or to meet unexpected monetary needs such as treating a sick child.

Bonus payments to groups that fulfill their quota can be distributed as they see fit. Some groups have established local savings and loan associations from which members can borrow to cover emergency expenses. In other cases, bonuses have paid for public utility projects such as the improvement of wells or school facilities. This improves the position and respect that women obtain in their community, beyond the benefits that accrue to them or their children.

Third, because AAK insisted that all payments go through the banking system, Kolo Nafaso helped expand financial inclusion in a region where a simple 23% of the population is cashed. Bringing more Africans into the formal financial system is a prerequisite for governments to direct aid where it is most needed.

Benefits for AAK

So where is the win-win in all of this? To begin with, AAK benefited from a higher quality product and a more reliable supply chain thanks to the program. AAK was also able to capitalize on insights from locals who knew the shea butter industry inside out. As one executive put it, “It gives us a lot of information before the season because we hear from the women how they see the harvest, and they are the experts on it.”

Additionally, AAK has been able to solidify its relationships with valued customers willing to strengthen their own sustainability credentials through an association with Kolo Nafaso. For example, in 2017, Swedish confectioner Cloetta signed an agreement to source shea butter exclusively from AAK. Later that year, the Kolo Nafaso partnership was featured prominently in Cloetta’s annual report, website, and press materials.

Beiersdorf, the German multinational that owns NIVEA and other popular personal care brands, is just one of the companies that has joined AAK’s Sustainable Partner Program, which supports empowerment initiatives such as planting 10,000 shea trees and sponsoring training for shea collectors. Participation in the program allows AAK partners to demonstrate their commitment to ethical sourcing and traceability, issues of growing concern to consumers. Additionally, a group of four Beiersdorf employees were inspired to independently create Herzen’s NIVEAa limited edition 100% sustainable shea butter product for the German market – proof that social initiatives can strengthen commitment in as well as between organizations.

Being more deeply integrated into West African farming communities can also bring unintended benefits. By helping to improve local agricultural infrastructure, AAK may be sowing the seeds for future supply chains, should it ever decide to source products other than shea butter from the region.

Why Kolo Nafaso succeeded

Kolo Nafaso is an ambitious initiative whose success was not guaranteed. Its launch involved considerable risks. How did AAK’s procurement team convince the organization that the risk was worth it?

Based on my conversations with AAK leaders, I would attribute this accomplishment to two factors. First, the supply chain team kept the program low-key at first. They didn’t spread the word about startup efforts or solicit feedback from other departments such as sales until there was something to show that looked promising. Second, AAK realized that the impact of the program did not translate easily to PowerPoint. Key stakeholders, both internal and external, should travel to Africa to see it for themselves. In Cloetta’s case, it was only after senior staff spent two days touring AAK’s Kolo Nafaso operations in Ghana, including visiting women’s groups in project villages around the town. of Tamale, that the light bulb went out and the partnership was forged.

Now that business travel is on hold due to the pandemic, sustainability initiatives in emerging markets may encounter another hurdle in their path. Businesses can consider creative solutions such as using immersive online video or VR technology to provide a sense of the environment, without physically transporting people there. Beyond that, I hope our Kolo Nafaso case study will be an inspiring example, showing how, with thoughtful planning, organizations can increase both profit and social impact.

Amitava Chattopadhyay is Professor of Marketing and GlaxoSmithKline Professor of Business Innovation at INSEAD. He is co-author of The New Multinationals of Emerging Markets: Four Strategies for Disrupting Markets and Building Brands. You can follow him on Twitter @AmitavaCats.

Don’t miss our latest content. Free download INSEAD Knowledge app today.

Follow INSEAD’s knowledge of Twitter and Facebook.

[1] Co-authored by Pierre-Yann Dolbec, Assistant Professor of Marketing and holder of the Concordia University Research Chair in Complexity and Markets at Concordia University; Rajesh Nanarpuzha, assistant professor of marketing at the Indian Institute of Management, Udaipur; and Jean Wee, associate researcher at INSEAD.

Comments are closed.