ITC ECHOUPAL INITIATIVE:

A CHALLENGE OF INCLUSIVE GROWTH

Case Information

Discipline: Value Chain Description: ITC Chairman challenged International Business Division (IBD) to generate a new business plan that would increase the divisions revenues to $442.6 million by 2005. Learning Objective: To figure out how to improve the ineffective supply chain for agricultural goods. Subjects Covered: Indian culture, supply chain, technology Setting: India; Soybean Industry; 2003

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Olivia Momosor

Dahod 25 KM S

Olivia Momosor

Imperial Tobacco Company of India Limited

Founded

August 1910 Indian Conglomerate Changed to I.T.C. Limited in 1974 Vision: A Commitment Beyond the Market Business Portfolio
Cigarettes Hotels Information

& Tobacco

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Technology Packaging, Paperboards & Specialty Papers Agri-Exports Foods Lifestyle Retailing
Olivia Momosor

Business Strategy

ITC Vision

ITC Mission

Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Companys stakeholders

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Olivia Momosor

create a sustaining high economic growth rate with equity over many years in order to convert the worlds largest pool of economically disadvantaged people into viable consumers, thereby translating development into economic freedom.

Definitions

Choupal: Hindi word for evening gathering, where villagers chat, gossip, or share stories and news from the day Mandi: Hindi word for market yard

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Olivia Momosor

Information Systems Strategy Triangle

Business Strategy:
-A Commitment beyond the market - Create economic freedom - Reengineer supply chain - Fix market inefficiencies - Information sharing - Differentiation

IS/IT Strategy: Organizational Strategy:

- Work with village culture - Have transparent pricing - Technology is available to everyone - Reimbursement for transportation - Waiting area at processing facilities -No commitment required to join ITC eChoupal network
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- eChoupal kiosks - Computer - Connection lines - UPS power supply - Printer - Internet access for remote villages - Technology training for farmers - Created pricing trends - Computerized weightbridge - Performed soil testing

DAvenis 7 Ss

Which of DAvenis 7 Ss is most applicable to ITC?

Shifting
Found

the Rules of Competition

new ways to serve their customers and transformed the industry

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Porters Competitive Forces Model

Threat of New Entrants?

Low-Moderate

Threat of Substitute Products?

Moderate

Bargaining Power of Buyers?

High

Industry Competitors?
Low

Bargaining Power of Suppliers?

Moderate-High

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

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Four Actions Framework

ELIMINATE:
Intermediaries Farmers Risk Aversion Time Pressure (Perishable)

RAISE:
Crop Yield Quality of Product Level and Quality of Information

REDUCE:
Inefficiencies in the Market Inconvenience to the Farmer Instability of Income

CREATE:
New Marketplace Trust and Transparency Throughout the Supply Chain

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

1. What was ITCs motivation for creating the eChoupal?

IBD lagging behind other divisions Ineffective supply chain for agricultural goods Farmers losing 60-70% of potential crop value

Agricultural yields of 1/3 to of global standards

Middlemen reduced profit margin Unfair practices Farmers had limited capacity for risk

Minimized investment in crops Lower crop value, slimmer margins Farmers didnt want to risk new farming methods

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2.(a) What were the old & new physical flows & information flows in the channel?

Old Physical Flows Farmers hauled produce on a 1-day journey to mandi for auction

Farmers at mercy of CAs offer

Often had to wait 2-3 days to get into market 1700 farmers per day No way to store unsold produce

Then hauled to winning bidders shop for weighing

Manually operated scales resulted in 0.5% loss

Cash payment delayed after unofficial credit period CA brought produce to ITC processing facility

CA receives reimbursement for soybeans

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

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2.(a) What were the old & new physical flows & information flows in the channel?

Old Information Flows

Choupal

served as primary source of information for farmers Due to isolation of farmers, no market price information other than word of mouth
Farmers

hauled to market in hopes of receiving enough to cover their costs of transport Forced to settle for whatever they could get
No

access to weather report Poor access to crop education

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Tracey Abdo

2.(a) What were the old & new physical flows & information flows in the channel?

New Physical Flows

Eliminate

the middle-man the mandi Farmers sold directly to one of 44 ITC hubs
Same

distance as mandi sowing seeds, gas lanterns, soy bean oil

ITC

hubs serve as one-stop shop

saved $5/ton on freight cost

Herbicides,

ITC
In

return, reimbursed farmers for travel time, resulting in $8/ton increase fore farmer.

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Tracey Abdo

2.(a) What were the old & new physical flows & information flows in the channel?

New Information Flows

Transparency
Weather

of Information Access to information via eChoupal

Reports Global crop standards Best Practices Market prices from around the world

Demand, production, prices: highs & lows 7-10 day market outlook on Chicago Board of Trade

Q&A forum News

page

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

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2.(b)What made this implementation successful?

Based on belief that farmer needed an alternative to the mandi system Worked with and respected existing culture: choupal, sanchalak Transparency of information No obligation

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3.(a) What barriers did ITC face in embarking on this project?

The current supply chain must be broken

Village A Mandi B Factory C

Transactions outside the mandi was prohibited by the Agricultural Produce Marketing Act The cultural infrastructure in the villages Perishable product (soybeans) = time pressure Trust Lack of technology in villages

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

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3.(b) How did the principles espoused by ITC overcome the obstacles facing the eChoupal?

eChoupal kiosks places technology at the core of the new supply chain, allowing farmers to break away from old supply chain Government amended Agricultural Produce Marketing Act to allow legalized purchases of soybeans (and other agricultural commodities) outside the mandi ITC convinced the supply chain into already Incorporated new government of the potential existing of the benefits to placing the eChoupal kiosks in lead farmers Choupal by the farmers and the economy homes

Sanchalak lead farmer who received basic IT training, served as Olivia Momosor liaison between ITC and the famers the
John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

3.(b) How did the principles espoused by ITC overcome the obstacles facing the eChoupal? Continued

Time pressure and corruption were extinguished through the transparency of the eChoupal

Accessible to everyone Prices being offered were shown in writing Created price discovery, so farmers were able to make informed decisions of where to sell their beans Farmers received cash upon delivery Reimbursed for transpiration costs Website provided information on whether, best practices, crops, market, Q & A, and news Processing facility offered soil-testing lab

Expanded upon Mandi model

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Olivia Momosor

4. How was value created in this model? Can everyone in this supply chain win?

Yes! ITC created a system in which value is created for everyone along the supply chain (Value Chain Model)

Farmers- Access to new information

Empowered them to make their own decisions Allowed them to produce a better product Increased profitability by 8$ a ton 0.5% commission on the sale of soybeans 2%-3% commission on complimentary products

Sanchalak- Farmers representative

Herbicides, sowing seeds, fertilizers, gas lanterns, etc.

Samyojak- Broker between ITC and farmers

2%-5% commission per transaction 1% commission on cash disbursements More opportunities to earn commission off farm inputs

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

5. How should ITC develop this platform for the future? Is this model sustainable? Why?
ITCs Future

Develop Infrastructure

More Hubs, Kiosks, and Choupals

Create a barrier to entry for competitors

Expand Into Other Regions and Markets

Coffee, Seafood, Wheat Maintain Founding Principle of Trust and Transparency Continue to Provide Beneficial Information Continue to Update and Enhance Information Technology

Continue to Innovate

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

Is ITCs Competitive Advantage Sustainable?

This model will only be sustainable as long as there are inefficiencies in the market that technology and information sharing can fix.
Once

these inefficiencies are corrected, ITC must rely on

Ability

to Innovate Loyal network of suppliers

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

Recommendations
1.

Continue to Develop Infrastructure

Create

a barrier to entry for new competitors

2.

Expand into Other Markets and Industries

Maintain

principles of trust and transparency

3.

Continue to Innovate and Develop Information Technology

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

Lessons to Be Learned

Information is the Key

Allows

for more productivity Creates a better product More efficient marketplace

Trust and Transparency throughout the Supply Chain

Creates

a value chain that everyone can benefit

from

Acknowledge and Respect the Existing Culture

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Steve Hartman

http://www.youtube.com/watch?v=qkHWdhobgiM

Current Position

Over-arching vision of the company:

"Enduring Value. For the nation. For the Shareholder."

Over 26,000 people employed More than 60 locations across India 4 million farmers empowered 6,500 e - Choupals installed Recognitions:
One

of Worlds Most Reputable Companies by Forbes

John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

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Nation Oriented
"ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. --Chairman Y C Deveshwar
John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Practices

Olivia Momosor

Questions?