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Amity Business School

TECHNOLOGICAL ADVANCEMENT IN DISTRIBUTION CHANNEL


IN ITC

“Internet will extend electronic marketplace and make it the ultimate go-between, the universal
middleman”.
- Bill Gates

SUBMITTED BY:
Nikhil Chandra ------ 12
Abhinav Rajput-------- 39
Gaurav Shukla --------48
Yashpal Malik -------- 53
Rachit Goyal -------- 57

Amity Business School


MBA Class of 2011
Amity Business School
INTRODUCTION

What Is distribution Channel?


• path or route along which goods move from producers to ultimate
consumers.
A channel of distribution represents three types of flows:
- Goods flow from producer to consumers.
- Cash flow from consumers to producer as payment for goods.
- marketing information flows in both directions.

What brought changes in distribution channel of ITC.?


• Globalization
• Changing Time and Technology.
• Time, place and possession utilities.
• Maximum customer satisfaction.
•Expansions and Growth.
Role Of Technology In Distribution Channels
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• Efficiency- Potential to remove many points of frustration (or


‘pain points’) that consume valuable time and resources of the
transacting parties.
• Speed - No delays in the distribution processes.
• Reduce Operation Cost- A typical solution with E-Distribution
has proven to help businesses to save more than 50% of
communication, information processing and administration cost
through effective business automation and paperless technology.
• Reduce Exchange Time
• It transmits Information. It transfers Knowledge, reduces effort
and brings innovations.
Advancements In Distribution Channels
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Latest technologies such as information technologies, communication


technologies, automation technologies, and computing and networking
technologies are playing the integral role in this transformation of
distribution channels.
Some of such technologies are-

• E-Commerce
• Electronic Distribution
• MIS - Management Information System
• ERP – Enterprise resource planning
• SCM- Supply Chain Management
• Long Linked technologies
• Inventory Management
• Networking and Internet Technologies etc
E-Commerce- Transforming Distribution
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Channels
Electronic commerce, commonly known as (electronic marketing)
or E-Commerce consists of the buying and selling of
products or services over electronic systems such as the Internet
and other computer networks.

The broad domain of


e-commerce
Function of E-Commerce in Transforming
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Distribution Channel

 E-commerce Facilitates- electronic funds transfer, supply chain management,


Internet marketing, online transaction processing, electronic data interchange
(EDI), inventory management systems, and automated data collection systems.

Other functions are:


Disintermediation- The involvement of electronic commerce in distribution
channel has shortened the gap between the supplier and end customer. This
concept is referred to as disintermediation or an elimination of one or more
organizations from the distribution channel.
Being able to conduct business 24 x 7 x 36 - E-commerce systems can operate
all day every day. Your physical storefront does not need to be open in order for
customers and suppliers to be doing business with you electronically
Access the global marketplace. The Internet spans the world, and it is possible
to do business anytime and anywhere with any business or person who is
connected to the Internet.
E-DISTRBUTION REDEFINING THE
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DISTRIBUTION CHANNELS
The Most Efficient Way to Manage Your Customers, Sales,
Distribution & Services.
E-Distribution (Electronic Distribution Management System) is a
powerful e-business application that facilitates every aspect of your
distribution chain like-
•Customers
•ordering
•Inventory
•Delivery
•Payment right through to services management

ADVANTAGES OF E-DISTRBUTION-
•Reduce Business Workflow Problem through Business Automation
•Maximizing Revenues through Better Sales Efficiency & Customer
Servicing
•Reduce Operation Cost
E-PROCUREMENT SYSTEM Amity Business School

•User-friendly, Internet-based purchasing system


•Offers electronic purchase, order processing and enhanced
administrative functions to buyers and suppliers.

E-CRM (Electronic Customer Relationship


Management) SYSTEM
•eCRM Electronic CRM concerns all forms of managing
relationships with customers making use of Information Technology
(IT).
•With the right CRM solutions in place, organizations can build and
nurture lasting one-on-one relationships with customers.
•It allows you to grow your customer base and increase profitability.
An effective eCRM solution will help you retain current customers
and attract new business as well.
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MANAGEMENT INFORMATION SYSTEM
(MIS)
• Concerned with processing data into information, which is then
communicated to the various departments in an organization for
appropriate decision-making.
•Information system has made a big difference to channel operations
and management. Information is collected, stored and transmitted
between channel members. They add value to the distribution
function and enable channel members to integrate different channel
functions, which was not possible in conventional distribution
systems.
•Channel information systems have also influenced the structure of
distribution channels.
•Lengthy channels have given way to shorter and highly efficient
distribution systems
CHANNEL INFORMATION SYSTEM
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•Channel information systems comprise an information database


and the hardware and networks that help in the collection,
processing and transmission of information.
•. CIS has influenced the physical distribution of products or
distribution flow.
•Transaction flow, promotion flow, inventory flow and negotiation
flow have improved with the advent of information technology in
channel management.
•profound impact on channel member relationships.
•Coordination and cooperation among channel members have
greatly improved due to CIS. Channel members have opted for
collective goals over individual goals and have started looking for
benefits to the channel as a whole. Information is easily available
to all channel members, resulting in an increase in trust and
commitment
Companies That Are Using Technologies InSchool
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Channel
P&G: Getting ‘dot combined’
P&G’s feels its assets – global scale, strong brands, in-depth consumer
understanding and superior technology – combined with the unique
proprieties
of the Web can put it among leading consumer-driven, Web enabled
enterprise: What it calls a ‘dot combined’ company. P&G is using an
integrated strategy to commercialize the Net
That focuses on four key pillars:
– Creating new consumer relationships
– Developing new ways to create, market and sell its brands
– Reinventing the supply chain
– Developing new partnerships
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Canon revamping distribution

• CANON India is unveiling a business strategy combining technology


with marketing. "As consumer and business markets develop, this
combination would propel Canon India to a powerful position," a
company spokesperson said..
• Canon is planning to de-layer the distribution channel in phases by
restructuring the channel model for faster information flow,
increasing retail expansion and shifting its selling focus from
volumes to `value.'
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The Teleshopping Business In India: Offering 'Miraculous' Products!


Through Its Innovative Distribution Channel

• "Interested in reducing that 'extra flab' on your body in a matter of


hours? Would you like to grow hair on that balding pate of yours in
just a few days? All you need to do is watch the television (TV) and
order the 'miraculous' products being advertised through the phone.“
• Direct marketing is a zero-level channel, wherein marketers interact
with the customer on a one-to-one basis.
• Teleshopping is another name for Direct Response Television
(DRTV) shopping, a concept that originated in the US in the mid-
1980s.
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Case Study
E-Choupal- An Initiative By ITC

TRADITIONAL INDIAN AGRICULTURAL MARKETPLACE


• Agriculture is the backbone of Indian economy. It contributes around 26% of the
total GDP.
• Agriculture provides livelihood to about 65% of the labor force and accounts for
8.56% of India's exports.
• Despite green revolution Indian agriculture sector has not been able to achieve the
world level productivity.
• The fragmented farms are constraining the risk taking ability of Indian farmer locking
him up into a vicious cycle of “low risk taking ability > low investment > low
productivity > weak market orientation > low value addition > low margin >
low risk taking ability”.
• This is a case study of the development of a rural market hub using a set of
information communication technologies.
• This is the largest e-market initiative undertaken by any corporation in India and
also it has been a successful experience.
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The ITC E-Choupal Proposition


• Step 1: Leveraging Information Technology for
empowered access to markets (inputs & outputs)

• Step 2: Economic viability of IT infrastructure


investments through Win-Win business model,
hence scaleable

• Step 3: Customer responsive IT infrastructure in


the villages facilitate access to supplementary
Education, Health, eGovernance services
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. How Conventional value chain works

Figure 1: Conventional value chain


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Contd..
• Indian farmers rely on Department of Agriculture for various inputs such
as weather, modern and scientific farming practices and insurance cover.
• For seeds, fertilizers etc. farmers approach input retailer who source
them from wholesalers who are in direct contact with the manufacturers.
• After harvest, farmers bring their produce to Mandis (regional market
yards) in small multiple lots throughout the year, where the beans are
auctioned to the traders and agents of the processing companies in an
open outcry method. Most of these activities are done by intermediaries.
• But with every intermediary the cost of produce increases to the
processor as intermediary adds his profit margin to the cost although the
farmers get the lowest price and margin in the whole value chain.
• Intermediaries also block the flow of market information to the farmers
and use that information for their own good. Here poor farmers are
squeezed to the maximum without the benefits of their labor accruing to
them but to the intermediaries.
• International Business Division of ITC started the new initiative namely
e-choupal (village meeting place on an electronic platform).
How ITC E-Choupal Made A difference
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The E-Choupal Concept


•E-choupal is a Hindi word which means “village meeting place”.
•E-choupal is a virtual market place where farmers can transact directly
with a processor and can realize better price for their produce.
•Geographical distances do not restrict participation in the e-choupal. The
main disadvantage of conventional market is that information asymmetry
is inherent in the market where as e-choupal provides for transparent
transactions.
•Elimination of some layers of intermediaries allows for larger share of
profits to reach the lower end of value chain.
•e-choupal does not attempt total elimination of intermediaries, as
intermediaries are indispensable in Indian economy.
•E-Choupal provides farmers with all the market information and this
helps them to become market oriented. In e-choupal intermediaries are
leveraged but they are disintermediated from the market information
flowing to the farmers.
Idea Generation Amity Business School
The idea of creating and leveraging an electronic market place
came from the brainstorming session done by senior executives of
ITC-IBD. ITC believes in using a business model that does good to
society and helps in improving the standard of living of stakeholders
as well as add value to the shareholder wealth.
Idea Initiation
•ITC was increasingly looking to introduce service element in its
activities and improve the customer centricity.
•ITC is the major exporter of soya bean. It used to buy soya bean
mainly from the local markets. This created the problem of poor quality
produce; need to handle a large variety and high cost of intermediation.
•Was looking for a solution that doesn’t eliminate the intermediaries
entirely but at the same time leverage their strengths.
Unique Business Model: e-Choupal
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Figure 2: e-Choupal, a new business model


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•ITC sets up a back-up physical service support at the village level,


called Choupal, through Sanchalak: a lead farmer, who acts as the
interface between computer and the farmer.
•ITC accumulates information regarding weather, modern farming
practices, and market prices from sources like Meteorological
Department, Agri-universities, mandis (regional market) etc., and
uploads all information on to e-Choupal web site.
•Availability of market information helps farmers to become market
oriented.
•They know what price ITC is quoting and the price prevalent in the
local market, thereby helping better price realization for farmers.
•. If farmer decides to sell to ITC, Sanchalak works as the aggregator
of small farmers produce to sell them to ITC. Sanchalak also
aggregates farmers input purchase orders for various items like seeds,
pesticides and places them directly with the suppliers through internet
and facilitate supply of high quality farm inputs as well as purchase of
farm produce at farmer’s doorstep with the help of intermediaries.
Transaction Costs in Mandi Chain
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Soybeans Example

Rs per MT

Trolley Freight to Mandi = 120


Labour = 50
Farmer Incurs Kacchha Adat = 150 370
Handling Loss = 50

Commission to Agent = 100


Processor Cost of Gunny Bags (net) = 75
Incurs Freight to Factory = 120 335
Handling at Mandi = 40

Total Chain 705


Transaction Costs in Choupal Chain
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Soybeans Example

Rs per MT

Trolley Freight to ITC Hub = 120


Labour = 50
Farmer Incurs Kacchha Adat = 150 370 120
Handling Loss = 50

50
Commission to Sanchalak = 100
Processor Cost of Gunny Bags (net) = 75
Incurs Freight to Factory = 120 335 215
Storage & Handling at Hub = 40

Cash Disbursement Costs = 50

Total Chain 705 335


CONCLUSION ON TECHNOLOGICAL
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ADVANCEVENT IN DISTRIBUTION CHANNEL

•Distribution channel is considered as the backbone of every


company and technology is the most important ingredient to make it
firm and strong.
•One of the effects of globalization is that a dramatic shift has been
witnessed in the importance of the technology as one of the main
drivers for value adding in distribution sector.
• Now companies are involving latest technologies such as
information technologies, communication technologies, automation
technologies, and computing and networking technologies are playing
the integral role in this transformation.
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THANK YOU.

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