GLAMS Research Publications - Indian Institute of...

GLAMS Research Publications

Technical Papers

• N Viswanadham and Roshan Gaonkar, A Conceptual and Analytical Frameworkfor the Management of Risk in Supply Chains, to appear in IEEE TASE, 2007.

• D Garg, Y Narahari, and N Viswanadham, Achieving sharp deliveries in Sup-ply Chains through Variance Pool Allocation, European Journal of OperationsResearch, May 2006.

• N Viswanadham and Kannan Balaji, Foreign Direct Investment or Outsourcing :A Tax Integrated Supply Chain Decision Model, to appear in E-business and E-commerce, Kluwer, Eds: Christopher Tang, Wei Kwok Kee and CP Teo, 2006.

• Sunil Chopra, Usha Mohan and Gilles Reinhardt, The Importance of DecouplingRecurrent and Disruption Risks in a Supply Chain, to appear in Naval LogisticsResearch, 2006.

• N Viswanadham and S Kameshwaran, Location Selection in Global Supply Chains,2006.

• Milind Sohoni, Sunil Chopra, Usha Mohan and M Nuri Sendil, Impact of Stair-Step Incentives and Dealer Structures on a Manufacturers Sales Variance, 2005.

• Ram Bala, Pricing of Software Services, 2005.

• Ram Bala, Pricing and Market Segmentation for Software Upgrades, Ram Bala,2005.

• Ram Bala, Renting of Software Services under Competition, 2004.

• Milind Sohoni, Ellis L Johnson and T Glenn Bailey, Operational Airline ReserveCrew Planning, 2004.

Books

• Achieving Rural and Global Supply Chain Excellence: The Indian Way, Eds: NViswanadham, December 2006.

Thought Leadership Papers

• N Viswanadham and Roshan Gaonkar, E-Logistics - Trends and Opportunities,TDB Tradelink Web-site, Jan 2001.

• N Viswanadham, Supply Chain Automation: The Past, Present and Future, June2001.

• N Viswanadham and Roshan Gaonkar, Foundations of E-Supply Chains.

Achieving Rural & GlobalSupply Chain Excellence

The Indian Way

Edited by

N ViswanadhamExecutive Director, GLAMSIndian School of BusinessHyderabad 500032

Center for Global Logistics and Manufacturing StrategiesIndian School of BusinessGachibowli, Hyderabad 500032

Disclaimer: The contributors of this book have used their best efforts inpreparing this manuscript. These efforts include the research and devel-opment of the theories and methods to determine their usefulness. Thecontributors or the ISB makes no warranty of any kind, expressed or im-plied, with regard to the documentation contained in this book.

Copyright c! 2006 by ISB

All rights reserved. No part of this publication may be reproduced, stored ina retrieval system or transmitted in any form or by any means, mechanical,photocopying, recording, or otherwise, without the prior written permissionof GLAMS, ISB, Gachibowli, Hyderabad 500032

Printed in India. Not for sale.

Released byHonourable Prime Minister of India

Dr Manmohan Singh,during the inaugural session of the

Global Logistics Summit 2006December 5-6, 2006

Indian School of BusinessGachibowli, Hyderabad 500032

Contents

List of Figures viii

List of Tables ix

Foreword 1M Rammohan Rao

Introduction 3N Viswanadham

1 Can India be the Food Basket for the World? 9N Viswanadham

1.1 Introduction 91.2 Current State of Indian Agricultural Industry 101.3 The Indian Food Processing Industry 111.4 The Food Supply Chain 121.5 Food Supply Chain Cluster 131.6 Government Initiatives to Promote Food Exports 171.7 Private Sector Initiatives 191.8 Opportunities for Improving Food Supply Chain 191.9 Opportunities for Research in Food Supply Chain 201.10 Conclusions 21

References 22

2 Dynamics of Retail in India: Case Studies of Andhra Pradesh andPunjab 23

N Viswanadham and Navolina Patnaik

2.1 Introduction 232.2 Food and Retail in India 252.3 Food and Retail in Andhra Pradesh 30

xi

xii Contents

2.4 Food and Retail in Punjab 362.5 Conclusions 43

References 46

3 Impact of Avian Influenza in the Indian Poultry Industry: A SupplyChain Risk Perspective 49

N Viswanadham, Usha Mohan, and Prachi Trikha

3.1 Introduction 493.2 Literature Review 503.3 Avian Influenza: Background and Analysis 523.4 Supply Chain Risk Mitigation Strategies 593.5 Poultry Supply Chain in India 603.6 Risk Management in Supply Chains 643.7 Conclusions and Discussions 68

References 69

4 Rural Business Transformation - Empowering Villages using Kisan-bandhu 71

N Viswanadham and D Ramakrishna

4.1 Introduction 714.2 Private and Public Sector Initiatives in India 734.3 Rural Business Transformation (RBT) 764.4 Village as a Business System 804.5 Rural Supply Chain Transformation 834.6 Rural Retailing 874.7 Conclusion 89

References 90

5 Design of Special Economic Zones as Economic Engines of Growth 93N Viswanadham

5.1 Introduction 935.2 Background on SEZs 945.3 SEZ Policy 2005 975.4 Economic and Technical Issues concerning SEZs 1015.5 Performance of the Indian SEZs 1035.6 Market Attractiveness of Indian States 1055.7 Design of SEZ 1075.8 Selection of Location 1105.9 Conclusions 114

Contents xiii

References 114

6 FDI Attractiveness of Indian States and Location Choice of MNCs 117N Viswanadham and S Kameshwaran

6.1 Introduction 1176.2 Location Choice Problem 1196.3 Related Literature 1246.4 Methodology 1286.5 Analysis: PERC based Hierarchical Structuring 1316.6 Synthesis: Analytic Hierarchy Process 1396.7 Location of a Biotech R&D Centre 1406.8 Measuring FDI and Market Attractiveness 1456.9 Final Notes and Proposals 146

References 148

7 Design of Competitive Indian Construction Supply Chain Networks 153N Viswanadham and Vinit Kumar

7.1 Introduction 1537.2 Construction Supply Chains: Characteristics 1557.3 Indian Construction Supply Chains: Status, Issues & Scope 1577.4 Indian Construction Supply Chains: Strategies 1687.5 Conclusions 184

Appendix: Cases of Government Infrastructure Projects & Causes ofDelays 185Appendix: Indian Construction System 187References 189

Index 193

xiv Contents

4 Rural Business Transformation -Empowering Villages usingKisan-bandhu

N Viswanadham† and D Ramakrishna

4.1 Introduction

The need for transforming rural India into a sophisticated vibrant activitycenter is well recognized. In this paper, we present a strategy for Rural Busi-ness Transformation. This involves creating a logistics network in and aroundrural India that enables an efficient and effective flow of goods, informationand funds between the villages and businesses such as grocery retailers, su-permarkets, food manufacturers, distributors,aggregators and the govern-ment and also supplying value added food and hygiene products, apparels,foot wear and others from factories to the rural areas. Rural Business Trans-formation thus combines both agri-marketing and rural retailing.

In this paper, we conceptualize Village as a business system and presenta methodology for streamlining the agri-marketing and retailing processesin rural areas using mobile technologies, IT enabled services such as callcenters (we design these as Kisan-bandhu) and electronic exchanges, andlinking all the stakeholders such as post offices, transport corporations,banks, insurance companies and farmers. In this new formulation, we layemphasis on resource management that will make rural marketing farmerfriendly and rural retailing a reality. Also this will create opportunity for theemergence of channel masters who can take control of agri-marketing andrural retailing supply chain processes. We have formulated an experimentfor agri-marketing of paddy and bananas in the East Godavari District ofAndhra Pradesh and are currently discussing with Byrraju Foundation andalso Multi Commodity Exchange (MCX) to implement the proof of conceptand develop a user’s guide for such an implementation.

†This research was partially sponsored by MCX

71

72 Rural Business Transformation - Empowering Villages using Kisan-bandhu

A typical rural economy is agriculture based and the quality of life inrural areas has always been an issue of concern around the world. Poorliving standards manifest themselves in the form of lack of basic amenitiessuch as nutritious food, safe drinking water, organized healthcare, educa-tion, etc. This is an issue of much concern particularly in developing coun-tries. These conditions prevail because of poor resource utilization of therural sector, and lack of alignment of the industrial sector products towardsrural community both in terms of cost and distribution. The penetration ofdevelopment programs and strategies by agencies such as the World Bank,World Health Organization and other welfare organizations is far belowexpectations.

Strategies and development initiatives have been implemented across theworld to alleviate rural areas from these inflictions by formulating revenuegenerating programmes. For example, in the US, agricultural prospects ofdifferent regions have been identified and a cluster mechanism has beenadopted. In Thailand and Japan, the concept of One Village One Producthas evolved which improved the prosperity of rural communities in thesecountries. The idea of micro credit Bangladesh gave birth to the model ofGramin Bank. All these are some of the initiatives which transformed theway in which rural communities operate.

4.1.1 Indian Scenario

In India, 51% of the land is cultivable. It has diversified climatic conditions,live river systems, and a variety of agricultural, and community practices.India is in the top 5 list in the production of many agri-products such asvegetables, fruits, milk, meat, etc . But the revenue generated from theseresources does not match its potential and the farmers are unable to findremunerative prices for their produce. There are several reasons for this.The main reason is that Indian agriculture is mainly supply driven both interms of crop variety and quality. Other significant reasons are the lack oforganized logistics and supply chain management of food products includ-ing post harvest storage and handling technologies, cold chain, packaging,and innovative distribution methods, resulting in sub standard delivery ofgrocery and enormous wastage. Further, in the absence of a supply chainintegrator or a channel master, who manages the logistical activities, eachstake holder be it farmer, wholesalers, or food manufacturers, work inde-pendently and the infrastructure connecting these partners is very weak.The distribution and pricing of processed food also needs a radical change.The prevailing paradoxical situation is the higher prices of processed foodthan freshly cooked food. Mass production and distribution of nutritiouspackaged food will bring the cost down and also reduce the disease burden

Private and Public Sector Initiatives in India 73

on the nation. To achieve all the above mentioned objectives, technologies,infrastructure and services have to be augmented to meet global standards.Thus, we see that growth of agriculture, manufacturing and services sectorsare mutually reinforcing and one promotes to the growth of the other.

The vision in the case of rural retail transformation is to provide qualityfood products, processed food; sanitation, safe drinking water, energy, andeducation etc to the rural areas. As is known 70% of the country’s popu-lation live in villages. There is a huge customer base in rural India whichis not served or poorly served. Business in rural areas is based on scale,price, and quality. Consumption patterns of rural areas mostly are on dailybasis due to monetary constraints. Therefore there is a need to shift fromthe conventional way of producing goods to a more differentiated, qualityadded, affordable set of goods and make them accessible to the rural com-munity. Customizing products to the needs of rural community is very im-portant. Channels through which information about the requirements andconsumption patterns can be gathered play an important role in initiatingmarket activity.

Thus we see that the requirements for efficient agri-marketing and retail-ing in rural areas are much different from those in the urban areas. In thispaper, we address the transformation of these two processes for increasedefficiency taking into account the constraints imposed by rural settings andsuggest workable solutions that benefit the farmer.

This paper is organized as follows. In section 2, we survey the successfulrural initiatives in procurement from the farmers and the rural retailing sec-tors in India and provide a critical analysis and identify their deficiencies.In section 3, we identify all the stakeholders in the rural business transfor-mation: the farmers, the logistics players, business houses, financial insti-tutions etc and also list the social, economic and technological constraintsunder which the rural sector operates. We present an example of mangoharvest to illustrate the importance of the knowledge and logistical pro-cesses needed for efficient post harvest agri-marketing process. In section4, we model village as business system and identify the core and supportvalue delivery processes. In section 5 we present the main result of this pa-per, design of a agri-marketing process using Kisan-bandhu. In section 6, therural retail model is discussed. We conclude this paper with a comparisonof Kisan-bandhu with the existing models.

4.2 Private and Public Sector Initiatives in India

We have studied the germinal initiatives in rural sector in the present andpast that have become very successful. These initiatives can be classified


based on their operating mode and its effect on rural transformation. Westudied:

1. Procurement

• Cooperative Movement, AMUL and Banas dairy;

• ITC’S e-Choupal and Choupal Sagar;

• Appachi’s Integrated Cotton Cultivation;

• One Village One Product (OVOP);

• Rural Clusters, US;

2. Rural retailing

• Annapurna Salt & Project Shakti of HLL;

• Byrraju Foundation;

• N-Logue Chiraag;

We describe these initiatives briefly below.

4.2.1 Procurement from farmers

A striking feature of all the five initiatives mentioned under this mode is thatthey have all identified the opportunity and captured it by connecting to thegrass roots. They worked directly with the farmers and helped them in pro-viding a market for their produce. ITC’s approach is revolutionary in thatit has implemented computers and internet to enhance the farmers’ reachto the market. Appachi has spearheaded a unique supply chain model forcotton, integrating both backward and forward linkages with the producingand the consuming communities. All the other players such as the banks,insurance company, farm service providers, and the user textile units havestayed committed to the programme of Appachi. The models of One VillageOne Product (OVOP) and rural clusters have identified the resources of ruralregions and utilized them by effectively producing marketable products andservices. AMUL and Banas Dairy are Cooperatives that created an efficientsupply chain for milk where the farmers have benefited the most.

ITC’s interest is in Soybean and Wheat and Appachi’s is in Cotton. Thenetwork they have built in order to maximize the farmer’s profit is basicand can be improved by providing the farmer with pre and post harvestknowledge in terms of best practices, storage and handling techniques, andothers. In the case of ITC, Internet was used for giving fair prices to farm-ers and ITC bought the produce for consumption in its factories. Appachisupported the farmers with schemes such as: door delivery of farm inputs,

Private and Public Sector Initiatives in India 75

crop insurance, teaching pre harvest best practices, and buyback schemesof final produce at the farmer’s doorstep etc. These initiatives have beenimplemented in select regions where the firms have good presence. Thereare several directions in which these models of ITC and Appachi can beimproved. Television and mobile phones have greater penetration in ru-ral areas in comparison with computers and internet. Also computers aremore expensive and require training. Replacing the computers and Internetwith mobile phones and call center will make the communication processmore farmers friendly. The success of a agri-marketing process lies withcreating a supply chain which involves not just information flow, but alsoflow of goods and money, Transportation logistics of the produce is a ma-jor concern. Encouraging third party logistics companies to provide trans-port services for products including perishables would reduce the wastage.Knowledge of post harvest handling processes are vital for adding value tothe rural produce and deriving higher returns.

4.2.2 Rural retailing

Many industrial firms have entered in to rural retailing identifying the cus-tomer base at the Bottom of the Pyramid. It was Nirma which first capturedeverybody’s imagination by launching Nirma detergent. HLL followed thesuit by launching Wheel, and slowly gained ground in the rural market. Italso launched Annapurna salt for the urban poor and rural population in2003. Annapurna salt is a reinvention in salt business which captured boththe rural and urban markets. The innovations in transportation and mar-keting have benefited HLL by reducing the costs and thereby increasing themarket size. Project Shakti of HLL increased the reach to rural markets, andpromoted women entrepreneurship. ITC has launched rural malls calledChoupal sagar. These are rural outlets located at the procurement hubs ofITC selling products ranging from batteries to tractors.

I-Shakti project brought information into the villages and strengthenedthe relationship between HLL and rural India. n-Logue is working in thesame direction by providing internet and voice services to the small townsand villages. n-Logue also provides services like e-governance, child carecenter, online tutorials, and photo studios etc.

Byrraju Foundation, a non-profit organization started by Satyam Com-puters, made inroads into the rural areas by providing services such ashealth care, education, safe drinking water etc. Due to the efforts of thisfoundation, the cost of treatment of a diabetes and hypertension patient hasbeen brought down to Rs. 10 and the cost of bottled safe drinking water isbrought down to 12.5 paisa/liter. One million people are availing the ser-vices and are able to appreciate the health benefits of purified water. The


market in the rural areas is still in nascent. Many opportunities presentthemselves when in action as we saw in the case of Byrraju Foundation,n-Logue, and HLL.

We discussed above the highly successful cases. These are test casesof a much larger methodology. These cover only a select few segmentsof the transformation process. These initiatives have identified profitableopportunities and implemented them through innovative means by utilizingthe existing infrastructure efficiently. They have made a beginning of hugeevolutionary process required for the transformation of rural supply chain.

4.3 Rural Business Transformation (RBT)

India has an abundance of natural and human resources. The main issueis about the management of these resources towards the prosperity of thecommunities and the country. Business transformation of rural India needs tobe addressed in a systematic and strategic way. The following key playersneed to collaborate in several ways to enable the rural business transforma-tion. They include:

• Rural Communities (Farmers, Laborers, Cottage Industry, Households);

• Corporation Communities (Manufacturing, Logistics, Traders, Finan-cial Institutions);

• Government bodies (Road Transport Corporation, Post office, Pan-chayat);

• Non Profit Organizations;

A logistics network which facilitates a rural 2 rural, rural 2 urban, and ur-ban 2 rural flow of goods and services is vital for rural business transforma-tion to take place. While this may mean constructing and developing somenew rural infrastructure, our solutions gainfully employ the existing logis-tics network elements such as road transport, post offices and the banks.The Government participation through Panchayats is possible but not nec-essary. Creating a logistics network around rural India that enables an efficientand effective value chain for the flow of goods, information and funds using mobiletechnologies, IT enabled services such as call centers and electronic exchanges, postoffices, transport corporations, banks, insurance companies and other stake holdersis suggested in this report.

Rural areas can be compared to business systems which have resourcesand market potential but are poorly managed due to lack of proper infras-tructure, and trained manpower, awareness and improper policies. This

Rural Business Transformation (RBT) 77

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kind of comparison enables us to borrow concepts and best practices frommanufacturing and service industries and customizing them to the ruralscenario for increased efficiency. For this to succeed there must be a com-pelling vision and streamlining of the resources and operations to increasethe efficiency of the value chain and also value generation to the stake hold-ers. Rural business transformation is an integrated approach involving theleadership, strategy, organizational structure and operations towards thisgoal.

Villages can be viewed as organizations with resources that need to beconverted into value added products and ultimately into profits. If we iden-tify the resources, the requirements, opportunities then there is a variety ofbusinesses that can be created in the rural areas for the benefit of all stakeholders. This we term as the Transformation of Rural areas into Business Activ-ity Centers. The aim of the transformation is to create a value flow in and outof the villages. The vision is to help the farmers in order to generate qualityproduce usable by food processing industries and also the retailers that gen-erates wealth for them. The persisting problem of Indian agriculture is thepresence of too many intermediaries in the value chain who employ deviousmethods to exploit the farmers by offering low prices. Hence the objectivehere is to provide efficient and affordable solutions to the existing problemsin rural India through use of technology and streamlining of value deliv-ery processes such as the marketing of the farmers’ produce, the flow of


goods in to the rural areas using existing transportation networks and man-ufacture of value added products by sourcing raw materials or componentsfrom various rural areas using management techniques that worked well inmanufacturing and service areas. The generalized model includes all theplayers in the rural supply chain. The linkage between all the players is acommunications hub which acts like an exchange and through which infor-mation is disseminated. Figure 4.1 shows the cluster of stake holders thatneed to be brought together to make the rural business transformation pos-sible. We must be aware of the constraints and sub-constraints under whichthe rural areas operate so that we can come up with actionable solutions assuggested above. These include:

1. Infrastructural and Technological Constraints;

• Lack of Processing industries;

• Inefficient transportation systems;

• Lack of Cold chain and refrigeration technologies;

• Short supply of trained manpower to provide knowledge ser-vices;

• Inefficient Communications;

2. Economic Constraints

• Competitive marketing - prices for rural produce;

• Availability of Farm inputs, retail goods and services at afford-able prices;

• Utilization of resources;

3. Social Constraints

• Improper governance;

• Unfriendly policies;

• Traditional mindset and illiteracy;

To illustrate the importance of knowledge processes, technology and ef-ficient logistics; and underscore the inefficiency of the existing rural supplychain, we present below a case study on marketing of mango.

4.3.1 Case on mango marketing

Harvesting- It is carried out with picking poles either from the ground orclimbing the tree and dropped to a catcher below (some trees are easily 12m tall). Most of the damage occurring at this point is not seen until later

Rural Business Transformation (RBT) 79

during ripening. There are at least three areas where mechanical damagecan occur:

1. during harvest as the fruit falls into the bag of the picking pole (fruitto fruit). This is increased as more fruit are collected in the bag beforeemptying.

2. As it is caught by hand by the catcher on the ground.

3. More than likely, the catcher then drops the fruit onto the groundwhere the latex is supposed to drain. He does not bend down to placeevery fruit on the ground. There is limited control of latex flow thatalmost always results in staining of the fruit.

4. Additional problems may occur when the fruit is placed on the baresoil as soil sticks to the latex, essentially creating a sandpaper effectwhich scratches the skin.

Transport to Collection Centers- The fruit at this stage is probably handled4 or 5 times and it is placed in piles on the floor, sorted by the buyer intoanother pile, or is moved again to another pile inside a room for holdingand then loaded into crates or into pick-up trucks. The multiple handlingof individual fruit guarantees mechanical damage of all forms, which willbe noted at the pack house reception or when the fruit begins to ripen. Inaddition to damaging of the fruit, this method is highly inefficient both interms of the time required and also in the grading process. The stores orholding areas are small and enclosed with little or no ventilation. Fruitstacked in piles on dirt floors under these conditions for any length of timeresults in rapid quality loss.

Field to Packinghouse Transport- Transport systems ranged from loose fruiton a pick up truck to a container truck with fruit in bins and crates. Peo-ple, spare tires and other items were normally seen on top of the mangoes.From the point of loading the fruit to off-loading at the packing house eachindividual fruit was handled up to four times. While some roads did appeargood, there were also many roads in somewhat poor condition that woulddefinitely contribute to mechanical damage.

From the above case it is evident that there is a lack of attention andprofessionalism in every step right from harvesting techniques to packaging.The lack of pre-harvest research and post-harvest research knowledge to thefarmer is an impediment. Poor access to technology and packaging facilities,storage facilities lead to wastage of the produce which is a loss to the farmer.Lack of better processing practices; varieties in processing also limit the useof the damaged produce. Already practices like mango cake, mango juiceout of damaged fruits are existent presently. Having separate groups for


managing the above mentioned problems creates a profitable market forthe farmer. Better transportation facilities, temperature controlled storage,better seeds, agri inputs etc. will lead to a better quality produce and createsa business for the produce.

It will be very difficult to remove all these constraints and any solu-tion for rural business transformation should not suggest whole sale reor-ganization as prerequisite. The smart way is to work around some of theconstraints and suggest satisfying solutions rather than optimal ones. Asthings start working and the transformation process gets underway, someof the bottlenecks automatically get removed. Our approach for rural busi-ness transformation borrows concepts from input - models of organizationsfrom the manufacturing systems literature.

4.4 Village as a Business System

A village or region can be viewed as a business system as shown in Fig-ure 4.2 transforming inputs into value added marketable or demand drivenproducts and services. It is important to realize that the rural businesseshave to get integrated into the global value chains and benefit from interna-tional markets. For this to happen it is important to understand the marketsand create a demand driven trade mechanism and have in place organiza-tion processes that enable internationalization of the best practices in foodsupply chains, entry strategies in to the global markets through alliances,etc.

There are some essential manufacturing and services industries thatneed to be encouraged in the rural areas. Food processing industry addsvalue to the produce by increasing the shelf life and providing better re-muneration to the farmers. Similarly, logistics service providers play theimportant role by providing proper transportation of the farmer’s produceto the processing industries, to the retail chains etc. Transport technologieslike the cold storage facilities, refrigerated mobile carriers, earth handlingequipment etc. reduce the loss and preserve the freshness of the agriculturalproduce.

Rural production activities need to be supplemented with resource man-agement and marketing skills. Resource management is a lever that canopen the lid of the underutilized skill basket of rural areas. Marketing isa facilitating mechanism which nurtures a demand driven market and thusgives way to an entrepreneurial approach in rural production.

Manufacturing systems are managed efficiently as a collection of value-delivering processes. The value-delivery to the customer in an enterprisestarts with a requirement from the customer and ends with customer sat-

Village as a Business System 81

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isfaction. We consider below the rural business system as a collection ofvalue delivery processes and discuss ways for their efficient and effectivemanagement.

4.4.1 Rural Business Processes

A Business process can be defined as a structured set of activities ordered intime and space, designed to produce a customer-desired output. A processis essentially a mechanism for creating outputs that have greater economicvalue than inputs in a systematic way. In rural production, inputs are labor,quality seeds, fertilizers, knowledge processes, capital, market informationetc. As the produce moves through from production to processing and to theretailer a value transformation occurs. The transformation could be enabledby transportation using cold chain initiatives that preserve the freshness ofthe produce, handling techniques, knowledge processes leading to diversityof processed foods. The effects of the transformation will be visible at thecustomer end in the form of ready usability, value addition such as nutri-tious food, easy availability, and better quality and reduced cost of the finalproduct.

As in industrial manufacturing, rural production must also minimize allnon-value adding activities like storage, review, and inspection. Though


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storage is very essential in the case of food grains and other time sustain-ing produce, all perishables like vegetables and fruits need a fast movementmechanism so that they reach the customers before losing any value. Lo-gistics is an important process supporting system to preserve the freshnessand transport the produce to the customers; the customers are the process-ing plants, retailers etc. We identify below the set of core business processesand the support-processes which enable the efficient functioning of thesecore processes in a rural production region.

4.4.2 Core and Support Processes in rural supply chains

The core business processes in a rural production organization are:

• Production (Farming and Non-farming);

• Agri-marketing (Marketing of farm-inputs, marketing of fresh pro-duce);

• Processing (Processing of fresh produce grains, fruits, vegetables,meat);

• Retailing (Rural and Urban retailing);

The support processes assisting the above core business processes can beidentified as follows:

• Transportation including cold chain initiatives, mobile refrigerators;

• Communications technology;

Rural Supply Chain Transformation 83

• Logistics Service Providers;

• Knowledge Processes - pre-harvesting & post-harvesting techniques,handling, packaging, and processing techniques;

• Resource management and marketing;

• Financial services;

Our concern here is to illustrate the streamlining methodology by bor-rowing tools from manufacturing systems practice. We consider the agri-marketing and rural retail processes and present an efficient and effectivedesign of those processes.

4.5 Rural Supply Chain Transformation

The rationale behind rural business transformation lies in creating an efficientrural supply chain enabling collaboration between all the players in the sup-ply chain. The rural supply chain has two core value delivery processes.

• Agri-marketing and processing (Value addition)

• Retail 2 rural commodity transfer

4.5.1 Agri-marketing process

Agri-marketing is one of the important value delivery processes in the ruralsupply chain. It is the tail end of the supply chain and also involves the mostimportant stake holders of the supply chain, the small farmers. The farmersneed better remuneration and a fair deal. With in the agri-marketing supplychain a substantial share belongs to food products which are mainly grains,vegetables, fruits, meat and poultry. There is a huge variation in the agricul-tural practices, the type of produce, and quality of the produce due to thevariation in the soil, environment, climate, irrigation facilities and energyresources that are available. To enable the success of agri-marketing pro-cess, parameters such as logistics, insurance, finance etc must be brought into action simultaneously in a well orchestrated manner.

We have identified the units of resources rural India is equipped with.Looking at the same in detail we have,

• Farmers, Farm Lands, Irrigation sources;

• Cultural Resources;


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Fig. 4.4 Bridge between supply and demand side in rural supply chain

• Post office;

• Road Transport Corporation;

The target market is processing industries, retail chains, and kirana co-operatives for all agri-based products. The customer base for agriculturalproducts is mostly the urban households. There are a group of playersoutside the boundary of rural areas which forms an alliance with the ruralcommunity directly or indirectly.

• Food processing, packaging and distribution agencies;

• Retail chains, Kirana-co-operatives;

• Textiles Industry, Handicrafts Stores Like Fabindia;

• Financial institutions;

• Research institutions;

In the existing system there is no proper linkage between the demand andsupply side. There are a few examples viz., ITC, AMUL, PepsiCo, and HLLwhich could go into rural areas and work along with the farmers, eventuallyadding value both to the farmers and to themselves. Figure 4.4 shows the

Rural Supply Chain Transformation 85

current way the rural supply chains are operating in most parts of India.If the connecting bridge is reformed by employing resource managementskills, favorable policies, efficient and friendly technologies then the trans-formation of rural supply chain will become a reality. The first step in thetransformation of the bridge mentioned in Figure 4.4 is to create a farmerfriendly means of communication which is available to him without any in-terruption. We present a model in this context which allows even the remoteareas of rural India to participate actively in agri-marketing.

4.5.2 A Model for Agri-marketing

In a typical marketing model of rural production a list of intermediariesexist through whom the produce reaches the mandi. The intermediariescharge huge marketing feesmarketing,fees. The farmers do not have accessto price information and therefore there is nothing like timing of the sale.The actual price of the produce is decided at the auction site. The inspectionof the produce always tends to favor the buyers. Lack of scientific and stan-dard grading norms does not reward the producer and hence he is at a loss.In the case of farm produce a fraction of it gets lost during transportation,handling and packing. The number of touch points has to be reduced tolimit the wastage of the produce during transportation.

Any new mechanism must remove the information barrier, intermedi-aries; provide the right standards to grade the produce, and also the rightprice. Apart from that the agri-marketing must include a means of trans-porting the produce while preserving the quality of the produce. The vil-lagers must have a direct access to the prices and must be able to makedecisions at their will. The quality of the produce has to be monitored andinputs must be provided in order to make the villagers accrue profits.

In this paper, we describe one model in which the different players areconnected through a communication hub. The communication hub con-sists of a call center (Kisan-bandhu) which is connected to all the support-processes and stakeholders of rural supply chain. The Kisan-bandhu alsoacts as a Cyber intermediary (marketing gateway) and is in practice a B2Band B2C exchange. The stakeholders register with the hub. A well definedworkflow connecting the stakeholders through the Kisan-bandhu facilitatesefficient marketing process.

4.5.2.1 Description of the process

1. Aggregation of demand for the farmers produce by Kisan-bandhu.The farmers communicate the details of the produce and request for


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the market information, to choose the buyer (customer) (see figures4.5 and 4.6).

2. Kisan-bandhu will have an exchange terminal which is fed with realtime commodity market information.

3. At the commodity exchange end, there will be a set of buyers whointeract electronically and bid for the farmers’ produce. The Kisan-bandhu and commodity exchange together conduct auctioning of thefarm produce thus creating a transparent demand driven electronictrade facilitation.

4. The highest bid for the produce will be communicated to the farmers.The produce will be transported to the buyer by the logistics serviceprovider.

5. Once the deal is settled, all financial transactions can take place throughthe bank.

The Kisan-bandhu can be further extended for dissemination of useful in-formation to the rural community and function as a retail marketing andservice channel which we will discuss in the next section.

Rural Retailing 87

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4.6 Rural Retailing

In the concept of Village as a Business System we have discussed the input-output model defining the core business processes of a village. Apart fromproduction, agri-marketing, and processing, the important core process ofthis system is rural retailing which is not so extensive in the present sce-nario. Rural India needs attention in many basic requirements for a healthy,prosperous life like food, sanitation, education, credit services, healthcare,and energy. The penetration of retailing in rural markets is low. Most ofthe buying in rural areas happens either through the local shop keeper, orthrough the haats, and melas.

For rural retailing to become a reality, industry community must alsosee a paradigm shift in their perception of rural markets. Retail sector mustinitiate the transformation by identifying the needs of rural community andemploying innovative production, marketing, and transportation.

The compelling vision in the case of rural retail transformation is to pro-vide quality food products, processed food; sanitation, safe drinking water,energy, and education etc. All this can be achieved by building customizedproducts, and creating a retail supply chain by employing efficient meansof communication and transportation.

Retailing in rural areas becomes an issue of transportation of the prod-ucts once they are customized for the rural community. Whether it is health


care; food retailing; or retail banking, mobile means is by far the best wayto reach the customers. The information can be communicated between thedemand side and the supply side using call centers and help lines. The re-tailers operate from a nearby town or city and provide services and goodsthrough mobile transport.

4.6.1 Rural retail flow chart

In our model for rural retailing, we considered Post office and Road Trans-port Corporation as service resources which provide logistics of retail goodsto rural areas. The presence of these two resources is widespread in ruralareas and hence can be leveraged for many other service purposes.

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Rural retailing can be facilitated by using Kisan-bandhu acting as a mar-keting intermediary between the retailers and the villagers. Kisan-bandhucan aggregate the demand from the villagers and convey the details of theorder to the retailers who in alliance with RTC and Post office can deliverthe goods.

1. The Village Retail group places an order with Kisan-bandhu.

2. Kisan-bandhu will communicate the order to the State distributioncenter.

Conclusion 89

3. The State Distribution Center will pass on the details of the order tothe District/local distributor located near the Village.

4. Depending upon the type of order the goods can be delivered. AllConsumer durables can be delivered by Post office mobile vans. Per-ishable and FMCG goods can be delivered by RTC to the Post officewho can distribute it to the Village Retail group.

5. Delivery of the goods to the Village Retail group. The payment for thegoods will be handed over to the agent from the distribution center.

Retail flow charts can be designed depending upon the type of goodsand services as each type requires a different mode of operation. For exam-ple, retail banking may require periodic modes of operation whereas foodretailing and retail healthcare require a daily mode of operation.

Food and FMCG Retailing: Retailers can use mobile refrigerated carriers,vans, and franchise system for distribution. The carriers will be fitted withrefrigeration, micro oven and other cooking facilities. They also have con-tainers for ordered goods that are to be delivered to the customers. Thesecarriers can operate from a nearby town or city to the village clusters andprovide the needed service and delivery. Franchise system can also be em-ployed in the case of villages which cannot be reached, where the franchisemarkets the goods. RTC and Post office can provide service in the form ofmobile carriers by customizing their vans and buses.

As discussed in this section there are opportunities in the rural sectorwhich have to be turned into businesses that provide high quality, valueadded services and products. Capturing these opportunities depends a loton the alignment towards the vision of improving the quality of life of ruralcommunity and transforming the way businesses work by incorporatinginnovation in every possible way.

4.7 Conclusion

Transformation of rural areas requires a paradigm shift from supply drivento demand driven business structures. Rural areas must be perceived asproduction houses which function like an Industrial manufacturing enter-prise. To achieve this, there are lessons that have to be learnt from thesuccessful attempts of the past. We presented here two models: one foragri-marketing and the other for rural retailing: a agri-marketing modelusing Kisan-bandhu and a model for rural retailing. Both use existing com-munications and logistics infrastructure. The approach requires more ofstreamlining of processes rather than building new infrastructure. We will


shortly be conducting proof of concept experiments with the help of MCXand Byrraju Foundation.

4.7.1 Comparison of Kisan-bandhu with existing models

1. The flow of information is a very recognized aspect of the rural sec-tor which has been facilitated by using internet and other technologytools. Existing models like ITC, HLL are using computer kiosks todeliver relevant information to the people in village. The models dis-cussed in this research present a similar view except that the mode inwhich information can be disseminated is different. It proposes a ruralfriendly communication channel considering the easiness of people tocommunicate in their vernacular language.

2. The concept of contract farming and co-operatives are samples of anorganizational structure implemented in agriculture. This paper dis-cusses the importance and need for an organizational structure inmanaging the resources of rural areas. It discusses the Corporatizationof rural production and the viewpoint of rural production houses.

3. The existing models are localized and produce specific; also the lo-gistics aspect which is so important in managing the rural produce isnot organized. This research gives much attention to the logistics partand underscores the point that rural transformation lies in efficientmanagement of the rural supply chain.

4. Rural retailing remains a neglected area except in a few cases like HLL.This research provides a direction in which Industrial manufacturingfirms must progress to capture the rural market.

We do hope the simple and implementable models suggested in thispaper will find application in some of the attempts for rural business trans-formation by business and industry.

References

1. N.Viswanadham. Food & Retail Chains in India, Andhra Pradesh & Pun-jab,Report August (2006).

2. David Neven & Thomas Reardon. South Africa’s rural poor in the eraof Supermarkets: Adaptive Organizational, Institutional and Technological re-sponses to access and compete in dynamic markets, July (2005).

91

3. Ministry of Panchayat Raj, Government of India. Proceedings of the Na-tional presentation on Rural Business Hubs, November (2004).

4. N.Viswanadham. Analysis of Manufacturing Enterprises: An approach toleverage the value delivery processes to competitive advantage, Kluwer Aca-demic Publishers, (1999).

5. Vasant Gandhi, Gauri Kumar & Robin Marsh. Agroindustry for Ruraland Small Farmer Development: Issues and Lessons from India. InternationalFood and Agribusiness Management Review, (2001).

6. Maurice R. Landes. The Elephant Is Jogging, Economic Research Service(USDA), February (2004).

7. C.K. Prahalad. The Fortune at the Bottom of the Pyramid, Wharton SchoolPublishing, (2005).

8. Contract Farming Ventures in India: A Few Successful Cases, Spice magazinefrom MANAGE, March (2003).

9. Teruhiko Yoshimura. Sustainable Local Development and Revitalization:Case of One Village One Product Movement: Its Principles and Implications,United Nations Centre for Regional Development (UNCRD), (2004).

10. c k Prahalad. The Innovation Sandbox, (2006).

11. Creating wealth from farm gate to food plate, Bombay Chambers of Com-merce and Industry, 2006.

12. Douglas F.Barnee et al. Tackling the Rural Energy Problem in DevelopingCountries, June (1997).

13. Marketing Sanitation in Rural India, Field Note, Water and Sanitation pro-gram, March (2000).

14. B.Bowonder et al. Developing a Rural Market e-hub - The Case Study ofe-Choupal experience of ITC.

15. FMCGs Bet on Rural India, India brand Equity Foundation, August (2004).

16. V.Sridhar. The realities behind retailing, http://www.hinduonnet.com/thehindu/ February (2006).

17. Non-Farm Employment Opportunities in Rural Areas in Asia, Asian Produc-tivity Organization, (2004).

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