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OPERATIONS MANAGEMENT

REPORT ON
THE ITC eCHOUPAL INITIATIVE

PREPARED BY GROUP 5-
ARPIT AGRAWAL
HARSH PATEL
RISHAV RAJ
SATYAJIT SARMA
SUDHATA ARNAB
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CONTENT

1. SYNOPSIS OF THE CASE…………………………… 3

2. NEW SUPPLY CHAIN…………………………………4

3. SERVICE ASPECTS………………………………......5

4. SERVICE PROVIDED DIFFERENT FROM OTHERS……6

5. SUCCESS OF E-CHAUPAL INITATIVE…………………7-8

6. eECHOUPAL INITITAIVE FOR TEA CROP IN KENYA.9-10

7. REDISIGNING THE SOYABEAN SUPPLY CHAIN……...11

8. ITC STAND TODAY WITH RESPECT TO ITS


E-CHOUPAL INITATIVE……………………………………12

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1. SYNOPSIS OF THE CASE
This case is about eChoupal an initiative of ITC Limited, a conglomerate in India,
to link directly with rural farmers via the Internet for procurement
of agricultural and aquaculture products like soybeans, wheat, coffee, and prawns.
e-Choupal tackles the challenges posed by Indian agriculture, characterized by
fragmented farms, weak infrastructure, and the involvement of intermediaries.
e-Choupal leverages the power of Information and Digital Technology and the
internet to empower small and marginal farmers with a host of services related to
know how, best practices, timely and relevant weather information, transparent
discovery of prices and much more. e-Choupals not only connect farmers with
markets but also allow for a virtual integration of the supply chain and create
significant efficiencies in the traditional system.

Challenges - There are several problems faced by the E-choupal model, most of
which were unique and hence all the more challenging. ITC faced many problems
like Intermediary unrest, lack of awareness, outdated infrastructure, problem in
electricity supply etc. But gradually ITC tried to overcome these problems. ITC
upgraded the telephone lines using RNS kits. The company made use of specially
devised technical solutions to manage data along with new imaging techniques, to
deal with the bandwidth-related problems. To handle the problem of sporadic
electricity, ITC made use of backup batteries, which could be recharged with solar
panels.

The e-choupal model worked in the following way. It had processing and
collection centres as hubs and ‘Sanchalaks’ as conveners. These sanchalaks were
chosen from among the farmers and were trained on using the PC. Farmers were
provided with information like daily mandi prices, weather reports, global prices,
best farming practices and water, soil, PCR testing etc. The farmers sold their
produce in the collection centres for cash. It helped farmers in getting better
prices, while ITC could directly procure from farmers and remove the
intermediaries. It benefited the company by reducing its sourcing cost and gaining
wider reach and networks. It helped in creating new markets for own and third
party goods. ITC also used this model to sell FMCG products like packaged
vegetable oil, salt, wheat flour and sugar, agri-related goods of other companies
like Monsanto (seeds), BASF etc.
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2. NEW SUPPLY CHAIN

INPUT COST INPUT


SEED STOCKIST
RETAILER
FERTILIZER
PESTICIDES
P
R
O
e- CHOUPAL INTERME C
FARMERS (SANCHALAK) -DIARIES E
S
S
GOVT UNIVE
MET Dep MSP Dep. OF O
MONEY
INSURNCE agri R
LENDERS
PRACTICES WLV
WEATHER

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3. SERVICE ASPECTS

1) Comprehensive knowledge of rural markets – e-Choupal providing the


knowledge of rural markets to the farmers. Farmers are able to gain
knowledge about the mandi: the prices (lows & highs), as well as number of
bags that had arrived at the mandi to date, and the estimated daily arrivals.

2) Q + A forum (FAQs) – Farmers could ask a question, and it would be


answered by an appropriate “panel” of experts. Weather related questions
were routed to the meteorological department; crop questions went to four or
five agriscientisis on the panel.

3) Recent news on agriculture – e-Choupal provides the service of news items


to the farmers. This contained excerpts of relevant news items, such as the
government’s decisions on subsidies or minimum support prices, and
innovation in other countries’ farming systems.

4) Weather forecast – Farmers needed to know their regional weather in order


to accurately expect the rains. ITC negotiated with the Indian Meteorological
Department, the national weather service, to get localized forecasts for
district pockets.

5) Training Programmes – ITC provided the IT training programme to


Sanchalak, as well as instruction in effective methods of communication.
This qualified them to open the site to farmers, who could then navigate the
site themselves.

ITC IS PROVIDING THESE SERVICES TO THE FARMERS.

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4. SERVICE PROVIDED DIFFERENT FROM
OTHERS
 e-Choupal is an initiative to link directly with rural farmers via the Internet
for procurement of agricultural and aquaculture products like soybeans,
wheat, coffee, and prawns. e-Choupal tackles the challenges posed by Indian
agriculture, characterized by fragmented farms, weak infrastructure and the
involvement of intermediaries. The programme installs computers with
Internet access in rural areas of India to offer farmers up-to-date marketing
and agricultural information. (Reference- Wikipedia)
 From the above, we can say that they are using digital platform as a core
services provider and there is a significant reduction of intermediators as
they are directly dealing with farmers. That shows that they are customer
centric.
 Fetching information about weather, modern farming practices and market
prices from the sources like Meteorological department, Agricultural
universities and local markets also called as ‘Mandis’, and uploads this
information on to e-choupal website for better convenience.
 The key role of information technology, in this case it was maintained by the
corporation but used by farmers to help bring in the transparency and to
increase the accessibility of information among the farmers.
 If you see the supply chain structure of e-choupal, they are giving the
information about the quality and approximate price of the commodity if the
farmer want to sell it to the ITC and for that there is an investigator called
‘sanchalak’, who is providing all this information. The sanchalak gets the
prices from the Mandi and inspect the sample, assesses the quality and gives
farmer a conditional note only if farmer want to sell it to ITC. Now farmer
take this note to the nearest ITC hub, where laboratory tests are conducted on
a farmer’s sample production. To change farmers attitude and appreciating
produce quality, ITC is developing lab tests to reward farmers with reward
points for better quality supply. (Reference- www.e-choupal.com).

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5. SUCCESS OF E-CHOUPAL INITATIVE
For Farmers
1) With the efficiencies built into the e-Choupal procurement process at
virtually every stage of the transactions, farmers make significant savings,
for example, soya farmers in Maharashtra save about `815 per metric ton.

2) Prior to the initiation of e-Choupal, farmers had no access to scientific


farming practices and tended to use 40-45 kg of seeds per acre. However,
with knowledge on best practices available through the website as well as
access to on-the-ground advice, this came down to 30-35 kg per acre –
translating into a saving of `3508 per acre.

3) Samyojaks also earn commissions on the services they provide as the


logistics and distribution providers for e-Choupal, and as licensed principals
on retail transactions through the system. Ranging from 1-5 per cent
depending on the service or product, these earnings are potentially more than
the 1 per cent they earn on crop transactions at the mandis. In addition, the
retail transactions provide year-round opportunities, as opposed to mandi
sales which are clustered around harvest seasons.

TRANSACTION MANDI e-CHOUPAL

FREIGHT 300 300

LABOUR/HANDLING 150 0

COMMISSION 570 0
(0.5-3%)

HANDLING LOSS 95 0

TOTAL 1,115 300


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For ITC
ITC benefits directly through reduced transaction costs. Cost savings also arise
from improved quality, product traceability and the ability to procure identity-
preserved produce. Coupled with better risk management and long-term planning
capability, these factors all work together to give ITC a distinct competitive edge.
1) ITC saves about `600 per metric ton. In the mandi system, there was a markup
of 7-8 per cent from the farm to the factory gate. While 2.5 per cent of this markup
was borne by the farmer, for ITC it worked out to 5 per cent. Procurement through
Choupal has brought down ITC’s costs by 2.5 per cent on an average despite the
fact that it pays farmers fair prices based on the previous day’s closing price at
local mandis, reimburses them for transport costs.
2) Taking the wheat procurement example, the platform has enabled ITC to
differentiate itself by competing on variety, increasing its market share to about 10
per cent of the volume available for private trade. This sourcing capability has
allowed ITC to achieve and sustain market leadership status.
3) Over the years, the quantum of commodities traded through ITC e-Choupal has
risen from 62,000 tons in 2001 to 13,00,000 tons in 2013-14 through multiple
purchase models, representing a value of approximately `2,693 crores.

TRANSACTION MANDI e-CHOUPAL

COMMISSION 285 50

HANDLING & TRANSIT 114 0


LOSSES

LABOUR COSTS 150 200


BAGGING AMD
WEIGHING 100 0

TRANSPORTATION 200 0
TOTAL
849 250
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6. eChoupal initiative for “tea” crop in Kenya
Tea is a major cash crop that is grown in Kenya. Kenya tea has been the leading
major foreign exchange earner for the country. Most tea produced in Kenya is
black tea, with green tea, yellow tea, and white tea produced on order by major tea
producers.
Yes, I think that the eChoupal initiative will work for “tea” crop in Kenya
Problems facing by farmers in Kenya

1) Lack of Reliable Labor- Kenyan farmers are experiencing alt of hardships


when it comes to the production of huge amounts of tea. Majority of them
spend huge amounts of money in trying to get the labor needed to plant and
harvest the crops. Labor is becoming more expensive and readily
unavailable. The labor that is gotten in most cases does little and the amount
of work is much and more.

2) Poor farming methods- Tea farming requires a lot of skills from farmers
making it an essential part of life. It has come to the realization that many
farmers planet tea in the wrong way hence it grows under the wrong set of
planting procedures. It is therefore important for one to be careful when
planting to avoid problems in the near future.

3) Pests and Diseases - Some seasons in the year make the prevalence of
diseases to be more popular and make the Kenyan farmers to suffer huge
loses. The crops continually gets attacks from pests and makes the farmer go
huge waste as they attack some parts of whole of the crop making it hard to
survive and thrive well. Furthermore, it infects the crops with diseases that
completely kill and destroy it. Pest and diseases are very dangerous to crops
more especially when they attack crops in large scale basis.

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The most worrying problem is the danger caused by the rising costs of
production. This applies most forcibly to the estate sector where labor
account for some two thirds of production costs ex-factory. The main
problem arises from the pattern of wage awards imposed on the industry.
Since 1990, the basic wage rate has risen 10 times; in fact since 1998 it has
gone up by more than 50%. The danger signals are evident: small producers
have been resigning from the industry body in order to escape the statutory
basic wage award. Kericho labor costs are twice those in Uganda. Daily rates
are paid by smallholders growers in rural areas are half those offered in
estates. Already, some areas of low tea are seriously loss making and it will
only be a matter of time before they are taken out of production. In other
words there could be a loss of output as well as of employment. The policy
response should be to freeze wage rates until the world market situation
improves

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7. REDISIGNING THE SOYABEAN SUPPLY
CHAIN
Redesigning the Soybean supply chain, ITC were able to create a great value to
the Indian farmers. Some of them are:

 The Web Technology brought price discovery to the village level. This
changed the way farmers did business. First, empowered with the knowledge
of what price he could get at an ITC hub, as well as the reports on prices at
nearby Mandis, the farmers were able to make an informed decision about
where to go and sell his beans.
 By following the real-time prices on the Web site, the farmers could decide
when to sell. Knowing the price in advance meant that the farmer could go to
an ITC hub on its own schedule, even if there were no other reasonable bids
on the beans at the Mandi.
 The most distinguishing feature of eChoupal was its transparency. It is
arguable that prices could be communicated to farmers by other means, such
as telephone or radio broadcast. The ability to see prices being offered, in
writing, on the computer screen, was instrumental in establishing the
trustworthiness that made the eCoupal effective.
Challenges: As the power is usually available for only a few hours a day, the e-
choupal computer cannot always be accessed when the information is needed.
Telecommunication infrastructure in village is very poor. There is no local support
staff to maintain telephone exchanges. Other challenges were: -

 Illiteracy about computer in rural areas as well as rural population has low
trust on electronic system.
 Selection of an educated, intelligent, reliable, and matured person as a
sanchalak
 Improper knowledge about rural market
 Improper and complex user interface on e-choupal
 Lack of rules and regulations related to electronic Choupal

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8. ITC STAND TODAY WITH RESPECT TO ITS
E-CHOUPAL INITATIVE

Diversified group ITC is expecting near three-fold jump in the turnover of its
agriculture division, to touch ₹18,000 crores in the next five years, driven mostly
by procurement and retail initiatives in rural markets. ITC expects the agri
business division to have a turnover of ₹6,500 crores in the ongoing fiscal, up
from ₹5,672.07 crores in the last fiscal. Much of the business is generated from its
'e-Choupals', a web-enabled supply chain network in villages and rural hypermarts
'Chaupal Sagars' ITC Agri Business Division COO Rajnikant Rai said in the last
five years, the agri division has been witnessing an average growth of 15 to 20%.
In the financial Year 2009-10, ITC were at ₹2,500 crores and now at present its
more than double of that in five years. The target for financial year 2020-21 from
this agricultural division is ₹18,000 crores. Currently, the company has 6,500 e-
Choupals and 25 Chaupal Sagars in 11 states. ITC sources a variety of farm
produce like wheat, soya beans, coffee, shrimp, pulses, millets, barley, and jowar
along with fruits such as mango, litchi, jamun, guava and pineapple. ITC expects
internal consumption by group companies to increase to almost half of its agri
segment's business in the next five years. Presently ITC operates 6,500 e-Choupals
covering 40,000 villages in different states including Madhya Pradesh, Uttar
Pradesh, Maharashtra, Rajasthan, Tamil Nadu and West Bengal, touching 4
million farmers. Besides, ITC also has 24 Chaupal Sagars where it sells a host of
items, from fertilisers and hair oil to mixer-grinders and tractors. On expansion of
e-Choupals, ITC Agri Business Division COO Rajnikant Rai said: "As of now, we
have sufficient capacity and we would expand only when we would go to new
states where we believe that this model would succeed".

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REFERENCE
1. www.itcportal.com

2. Sharma A, 2011, ‘ITC E-Choupal: Empowering Rural India’, Research


Society

3. Neggehalli R, Shankaran D, 2008 ‘IT FOR CHANGE’

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