Supply Chain Analysis of ITC e - Choupal

By Shitansu XIMB

Agenda
1 2 3 4
ITC e-Choupal : An Introduction, Stake holder Analysis Comparison of status of Supply Chain before and after ITC e-Choupal Critical Analysis, and Comparison with HKB Future Scope

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ITC e-Choupal : An Introduction

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Ø Incorporated on August 24, 1910 under the name of 'Imperial Tobacco Ø Company rechristened 'ITC Limited‘ in 1974

ITC :An Overview
Company

Ø One of the 8 Indian Companies to feature in ‘Forbes A-list’ for 2004 Ø Only Indian FMCG Company to feature in Forbes 2000 List Ø Among top in : Sustained value creation (BT-Stern Stewart survey) Operating profits Cash Profits
(@ April 09)

Ø Ranks No. 4 among Indian listed Private Sector Companies by market cap.
l

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

Ø Rated

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

Divison
Ø Farm linkages in 14 states covering Soya, Wheat, Marine products, Coffee etc. Focus on value added agri commodities Ø Unique CRM programme in commodity exports Ø Leveraging initiative IT for the transformational ‘e-Choupal’

Rural India’s largest Internet-based intervention Over 40,000 villages linked through 6500 eChoupals

servicing over 4 million farmers

Ø Distinctive sourcing capability for ITC’s Foods business

The predicament of Indian Farmers
Low Risk Appetite Low Margins Low Value Addition Low Investment

Caught in a vicious cycle of underdevelopment

Low Productivity

Weak Market Orientation

ITC e-Choupal
Started in the year 2000 Target Area so far 38,000 villages, 6500 kiosks, 9

states Wholly owned by ITC Why 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 farms 2.Weak institutions 3.Involvement of intermediaries 4.Information Asymmetry

ITC’s

Supply chain of Soya bean before e-Choupal Initiative
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A ri -In u g pt C m a ie o pn s

D a r/ e le S c ie t to k s

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Why ITC thought of e-Choupal

 

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ITC’s

Supply chain of Soya bean after e-Choupal Initiative
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Pricing Previous day’s closing price used as benchmark price for next day Mandi prices communicated to sanchalak through e-Choupal portal Sanchalak 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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Inbound Logistics Farmer proceeds to the nearest ITC procurement hub with the note Some procurement hubs are ITC factories, others are purely warehouse operations ITC’s aim is to have a processing centre within 3040 km radius of its farmers
 

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Inspection and Grading At the ITC procurement hub, laboratory tests are conducted on a sample of farmer’s produce To 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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Inspection and Grading At the ITC procurement hub, laboratory tests are conducted on a sample of farmer’s produce To 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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Weighing and Payment Farmer’s produce is weighed on electronic weighbridge He is then given full cash payment Freight expenses are reimbursed Appropriate documentation at each stage and farmer is given a copy of that Samyojaks handle cash operations
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Hub Logistics Farmer transports his produce to the nearest processing centre or storage hub ITC incurs the transportation cost The farmer bears the risk of transportation until produce is delivered and the sale is completed

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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 languages
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A win-win Deal

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Transaction cost in Mandi Chain (before eChoupal)

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

Transaction cost in Mandi Chain (after eChoupal)

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

Synergies for ITC

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qGeneration of Goodwill & positive public opinion qBetter supply chain for ITC’s Food & Agri Businesses
Costs, Quality, Traceability

qAccess to the Underserved Rural Markets
Through a Virtuous Cycle created by “Larger

Incomes”, and founded on “Trust” that is built Education, eGovernance
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qNew ITES Business Opportunities
Health,

Entertainment,

Synergy Redefined :The Future
VPN providing SCM, ERP & CRM capability

F A e-choupal rural two-way fulfillment R capability M E Cigarette Trade Marketing capability R Expanded FMCG distribution capability S

M A R K E T S

A basis for strategic partnerships with other FMCG brand owners
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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 Analysis
Primary Stakeholders Farmer Community Interest 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 Lower procurement costs Direct interaction with farmers - Control on quality & supply security Low cost distribution channel Access to market intelligence Gain access to global markets through ITC and commission to compensate some of the loss revenue

ITC

Commission Agents (Kachha & Pakka Adatiyas)

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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Comparison with Haryali Kisan Bazar

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Hariyali Kisaan Bazaar
Loan for pass through to farmers

Other companies

Extension service

Repayment of loan with interest

Produce procurement

E-chaupal
Main objective Procurement

Haryali Kisaan Bazaar
Rural Retail

Benefit to the computer application to provide provide better method of cultivation by farmers market information trained agronomist

Synergies

Synergies with products which ITC is manufacturing

Synergies with what DSCL is selling(inputs to agriculture plus other services

Economies of 25-30 km area coverage scale Procurement near small town centre

20-25 km area coverage 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 2.0
Parameters Idea Version 1 . 0 ( the start ) The concept gave a power of scale to the small farmers by aggregating them as sellers ( of produce) and as buyers (of farm inputs)

Version 2 . 0 ( the scale - up ) 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 qNEW BUSINESSES: 1) Rural jobs and employability 2) Personalised agri services.
 

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

qNEW TECHNOLOGY: Use of especially enabled mobile phones, analytics, new partner
www.themegallery.com Company Logo

I e -C h o u p a lFo o tp ri t TC n

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Thank You !

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