SUPPLY CHAIN ANALYSIS OF ITC E-CHOUPAL

By

A.Arputha Selvaraj APMP IIM CALCUTTA

AGENDA

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ITC e-Choupal : An Introduction, Stake holder Analysis

1

Comparison of status of Supply Chain before and after ITC e-Choupal

2

Critical Analysis, and Comparison with HKB3

Future Scope4

ITC e-Choupal : An Introduction

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ITC :AN OVERVIEW Incorporated on August 24, 1910 under the name of 'Imperial Tobacco

Company Company rechristened 'ITC Limited‘ in 1974 One of the 8 Indian Companies to feature in ‘Forbes A-list’ for 2004 Only Indian FMCG Company to feature in Forbes 2000 List Among top in :

Sustained value creation (BT-Stern Stewart survey) Operating profits Cash Profits

Ranks No. 4 among Indian listed Private Sector Companies by market cap. (@ April 09)

No. 1 in FMCG Sector Rated as one of India’s Most Respected Companies (IMRB-Businessworld

Survey 2006) Diversified conglomerate with interests ranging from Tobacco to Hospitality

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ITC’S AGRI COMMODITY DIVISON

Farm linkages in 14 states covering Soya, Wheat, Marine products, Coffee etc. Focus on value added agri commodities

Unique CRM programme in commodity exports

Leveraging IT for the transformational ‘e-Choupal’ initiative Rural India’s largest Internet-based intervention Over 40,000 villages linked through 6500 e-Choupals

servicing over 4 million farmers

Distinctive sourcing capability for ITC’s Foods business

Low Risk Appetite

Weak Market Orientation

Low InvestmentLow Margins

Low ProductivityLow Value Addition

Caught in a vicious cycle of

underdevelopment

The predicament of Indian Farmers

ITC E-CHOUPAL Started in the year 2000 Target Area so far 38,000 villages, 6500 kiosks, 9

states Wholly owned by ITCWhy it become a success ? Only initiative to attempt to combine Services and

an Effective Business Model successfully

Designed to address the issues such as:

1. Fragmented farms2. Weak institutions3. Involvement of intermediaries4. Information Asymmetry

ITC’s Supply chain of Soya bean before e-Choupal Initiative

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Farmer

Agri-Input Companies

Dealer/

StockiestRetailer

Agril University, Met Dept,

Insurance Co.

VLW (of Dept of Agriculture)

Money Lender

Pakka Adtiya(Registered Dealer)

Kaccha Adtiya(Un-Registered Dealer)

Trader

Broker

Pro

cess

or

ITC-IBD

WHY ITC THOUGHT OF E-CHOUPAL

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The Tactical Imperative

Capture of Intra-day

Price shifts

Seasonal price Inflation

Daily price inflation

ITC’s distance from Farmer

The Strategic

Imperative

Horizontal spread

Vertical presence

Risk management

The Social Imperative

ITC’s Supply chain of Soya bean after e-Choupal Initiative

SUPPLY CHAIN POST RE-ENGINEERING

PricingPrevious day’s closing price used as benchmark price

for next dayMandi prices communicated to sanchalak through e-

Choupal portalSanchalak inspects the sample, assesses quality and

gives farmer a conditional quote and a note (name/village/quality tests/approx. quantity/conditional price), if farmer decides to sell to ITC

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Pricing Inbound Logistics

Inspection

Grading

Weighing and

Payment

Hub Logistics

Technological

support

Inbound LogisticsFarmer proceeds to the nearest ITC procurement hub

with the noteSome procurement hubs are ITC factories, others are

purely warehouse operations ITC’s aim is to have a processing centre within 30-40

km radius of its farmers

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Pricing Inbound Logistics

Inspection

Grading

Weighing and

Payment

Hub Logistics

Technological

support

Inspection and GradingAt the ITC procurement hub, laboratory tests are

conducted on a sample of farmer’s produceTo change farmer’s attitude and appreciating produce

quality, ITC is developing lab tests to reward farmers with reward points for better quality supply

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PricingInbound Logistic

s

Inspection

Grading

Weighing and

Payment

Hub Logistic

s

Technological

support

Inspection and GradingAt the ITC procurement hub, laboratory tests are

conducted on a sample of farmer’s produceTo change farmer’s attitude and appreciating produce

quality, ITC is developing lab tests to reward farmers with reward points for better quality supply

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PricingInbound Logistic

s

Inspection

Grading

Weighing and

Payment

Hub Logistic

s

Technological

support

Weighing and PaymentFarmer’s produce is weighed on electronic

weighbridgeHe is then given full cash paymentFreight expenses are reimbursedAppropriate documentation at each stage and farmer

is given a copy of thatSamyojaks handle cash operations

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PricingInbound Logistic

s

Inspection

Grading

Weighing and

Payment

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s

Technological

support

Hub LogisticsFarmer transports his produce to the nearest

processing centre or storage hub ITC incurs the transportation costThe farmer bears the risk of transportation until

produce is delivered and the sale is completed

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PricingInbound Logistic

s

Inspection

Grading

Weighing and

Payment

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s

Technological

support

Technological support Nodal platform catering to commodity blending,

agricultural trading, e-choupal &rural distribution 24,000 personalized business function points 110,000+ pre-built business function points Integrated Business Systems for Direct Agriculture

Procurement, Rural Distribution, e-Choupal Management, Exports, Insurance, Aqua Processing & Commodity blending

Support for 8 local languagesCompany Logo

Pricing

Inbound

Logistics

Inspection

Grading

Weighing and

Payment

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s

Technological

support

A WIN-WIN DEAL

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Farmers gain

• Better information Content

• Better info timing• Less

transportation Cost

• Transaction duration

• Weighing accuracy

• Professionalism

ITC gains

• Disintermediation savings

• Freight costs• Quality control• Risk management

TRANSACTION COST IN MANDI CHAIN (BEFORE E-CHOUPAL)

Source: Seminar on Bottom of the Pyramid and CSR, IIM-K, Sept. 24, 2008

TRANSACTION COST IN MANDI CHAIN (AFTER E-CHOUPAL)

Source: Seminar on Bottom of the Pyramid and CSR, IIM-K, Sept. 24, 2008

Synergies for ITC

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Generation of Goodwill & positive public opinion

Better supply chain for ITC’s Food & Agri BusinessesCosts, Quality, Traceability

Access to the Underserved Rural MarketsThrough a Virtuous Cycle created by “Larger

Incomes”, and founded on “Trust” that is built New ITES Business Opportunities

Health, Education, Entertainment, eGovernance

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SYNERGY REDEFINED :THE FUTURE

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FARMERS

MARKETS

Cigarette Trade Marketing capability

BrandedFoods

Expanded FMCG distribution capability

e-choupal rural two-way fulfillment capability

VPN providing SCM, ERP & CRM capability

Lifestyle retailing

Education Stationery

Matches & Agarbattis

A basis for strategic partnerships with other FMCG brand owners

OTHER E-CHOUPAL INITIATIVE

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COMPANIES USING E-CHOUPAL NETWORK

Source: Seminar on Bottom of the Pyramid and CSR, IIM-K, Sept. 24, 2008

Critical Analysis of ITC’s Supply Chain

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STAKE HOLDER ANALYSISPrimary

Stakeholders

Interest

Farmer Community

Access to information– Empowered decisions– Improved agriculture

Economic benefits through lower transaction costs and process efficiencies

Served with dignity Knowledge bundled sale of goods and services Co-opted in product design Hope for a brighter future

ITC

Lower procurement costs Direct interaction with farmers - Control on quality

& supply security Low cost distribution channel Access to market intelligence

Commission Agents

(Kachha & Pakka

Adatiyas)

Gain access to global markets through ITC and commission to compensate some of the loss revenue

EFFICIENCIES IN E-CHOUPAL NETWORK

Last mile low cost solution

Full Service approach

Demand aggregation

Third party seller

Extensive use of technology

Access to information about customers

Pull based strategy

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Drivers of Supply Chain

Information

Logistics at hub

Transportation

Storage facilities at hub

Who are in problems

Local Mandi

Mandi laborers

Market near Mandi

Small processors

Risk associated

with e-ChoupalEroded dominance of Commission

agent

Authenticity of information

Problem of Power and

internet connectivity

Comparison with Haryali Kisan Bazar

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HARIYALI KISAAN BAZAARHariyali kisaan bazaar

Farmers

DSCL

ICICI Bank

Other companiesOther companies

Loan for pass through to farmers

Repayment of loan with interest Produce procurement

Extension service

E-chaupal Haryali Kisaan Bazaar

Main

objective

Procurement Rural Retail

Benefit to the

farmers

computer application to provide

market information

provide better method of cultivation by

trained agronomist

Synergies Synergies with products which

ITC is manufacturing

Synergies with what DSCL is

selling(inputs to agriculture plus other

services

Economies of

scale

25-30 km area coverage 20-25 km area coverage

Procurement

centre

near small town Strategically placed near petrol pump

mainly

Future of e-Choupal

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E-CHOUPAL 2.0

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VERSION 1.0 V/S VERSION 2.0Parameters Version 1.0( the start) Version 2.0( the scale-up)

Idea The concept gave a power of scale to

the small farmers by aggregating them as

sellers ( of produce) and as buyers

(of farm inputs)

By 2006, 40,000 villages covering 4 million

people.

Farmer’s gain The farmers get bargaining power and a

opportunity of have choice

Information on weather, price etc

Knowledge on farming methods,

soil testing etc

Purchase of seed, fertiliser to insurance

Farmers sell crops to the ITC centres

cattle care, water harvesting

ITC’s gain Access to inputs for its agri business;

offer the use of network to

other companies

ITC was able to procure

fresh commodities with

reasonable prices from the farmers

E-CHOUPAL 3.0.The Deepening NEW BUSINESSES: 1) Rural jobs and employability 2) Personalised agri services.

MORE INTERACTION: Through Choupal Saagars and Haats and via mobile phones

NEW TECHNOLOGY: Use of especially enabled mobile phones, analytics, new partner

www.themegallery.comCompany Logo

ITC E-CHOUPAL FOOTPRINT

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THANK YOU