business process innovation for maximizing stakeholder

www.theinternationaljournal.org > RJEBS: Volume: 04, Number: 06, April-‐2015 Page 39

Business Process Innovation For Maximizing Stakeholder Value In The

Chilly Commodity System In India

Pavan Kumar Student, PGDM, SP Jain Institute of Management and Research, Mumbai, India

Abstract: Chilly is one of the most widely grown agricultural cash crops and India leads the production by volume in the world. There are multiple output products with just one input that is Chilly. With such a multipurpose commodity, it is quite essential to ensure proper price spread in the supply chain from the producer to the end consumer. This is to ensure producers are not at an unfair position which could possibly lead to switching over to cultivation of other crops thereby resulting demand supply imbalance of chilly. Of late, India has seen certain policy changes that would encourage organized Global retail and wholesale chains for direct investments. To maximize the value creation and sharing of various stake holders in the supply chain, a change in the business process with an element of innovation is warranted. This study primarily focuses on the adoption of the right innovative practice to the business process for mutual benefit to all the stakeholders in the supply chain of chilly. The methodology was based on survey in the state of Tamil Nadu, India. The take away of the study shows that producers are benefited by choosing organized retailers and the organized retail/ wholesale chain gain better control over procurement cost. A business innovation in the supply chain process of chilly has been found to yield higher profits to the retailer which is at 34% above the traditional supply chain model. KEYWORDS:Agro output marketing,Contract farming, Chilly, Supply Chain, Business Innovation Introduction: Indian economy was an agrarian dominated one till two decades ago. Subsequent growth in Industrial and service sectors pushed the contribution by agriculture to the third position in terms of contribution to Indian Economy. However, with in the sector, shift towards cash crops from conventional cereals and millets are significant during the past 20 years as indicated by the Indian agricultural statistical reports by Indian Council of Agricultural Research. However, realization on the investments made in cultivation has become non remunerative and alternative uses of human energy as well as land resource stated emerging as an area of study. The shopping behavior for staple food articles by Indian consumers has undergone significant change at rapid pace with in a short span of the past decade. Organised retailing which had hardly 0.75% of total share had grown to the level of 11% in spite of restricting policies of the Government in terms of the FDI by control as well as geographical restrictions. This warrants retail chains to be highly effective in operations in orderto have fair financial returns on business operations. The mentioned realistic situation warrants to have an innovative perspective at the business process as a whole in procurement function by retail chains as applicable to procurement of chillies as India is the largest producer and consumer as well. This study focuses on the above and generates a suitable business innovation process with empirically proven methods to make the vital stakeholders in the process create and share the value for the product. Some of the reasons that could be attributed to the relatively low productivity could be seed quality, inadequate irrigation infrastructure, insufficient land holding pattern and lack of access to fertilizers and other modern agricultural techniques. Business Process: Business processes refers to the way things are done. It primarily refers to how the requirements of the end user are transformed to actual deliverable goods/services. Process strategy emphasizes on the linkages between the organizations strategic goals and actions taken in achieving the same by


deploying the required infrastructure and manpower. The final outcome of a business process would be to add value to the end consumer.

Figure 1

Source: Accenture Business Process Management- A Visual Guide For effective and efficient design and implementation of the business process, it requires a thorough understanding of the various dimensions of the Business Processes. Improvisation on the various dimensions requires innovative solutions that addressthe various needs of all the stakeholders. Innovation: Innovation generally refers to developing and implementing new ideas to products/processes/services that result in increased “value”. The value increase thereby creates benefits the firm, the consumers and the various stakeholders associated with the organization. According to the book “Economics of Production and Innovation, Rosegger(1986)”, the stages of innovation could be diagrammatically represented as:

Figure 2

Global Scenario: The major chilli growing countries are India, China, Pakistan, Indonesia, Turkey and Sri Lanka in Asia; Nigeria, Ghana and Tunisia in Africa; Mexico in North America; Spain, Bulgaria and Italy in Europe; Argentina and Peru in South America. India 68% is the leading producer of chilli, followed by China 19% and Pakistan 2%. There are more than 400 different varieties of chillies found all over the world. It is also called as hot pepper, cayenne pepper, sweet pepper, bell pepper, etc. It’s botanical name is “Capsicum annuum”. In


terms of nutritional value, chillies are rich in Vitamin A and C and are also rich sources of iron, magnesium and potassium. In India, the major chilli producing states are Andhra Pradesh at 57%, followed by Karnataka at 12%, Orissa and West Bengal at 5% each. In Andhra, the major districts producing chilli are Guntur, Warangal and Khammam. The production in India is heading north because ofincreasing demand from various sectors and changes in the consumption patterns.

Figure 3 Source: Griffith Laboratories report on Chilly and Turmeric Production February 2014

. Figure 4 and 5 Source: Griffith Laboratories report on Chilly and Turmeric Production February 2014

Figure 6

www.theinternationaljournal.org > RJEBS: Volume: 04, Number: 06, April-‐2015 2

Source: Griffith Laboratories report on Chilly and Turmeric Production February 2014 The farmers are highly conscious about farm inputs and the remunerative prices for the farm produce as the research study reveals (Jyothis.andRaju,2003).The distribution costs vary significantly owing to substandard warehousing, logistic difficulties, lack of grading and in certaincommodities hoarding and all these lead to poor share of producers in the revenue generated by thefarm output( Hager and Hrmath,1984;Pawar 2005). Retailing Retailing in India is highly unorganized with predominantly family owned business. The retail sector in India employs about 21 million people whereasorganized retailing accounts for about less than 2 % (Chengappa et al 2005). Food is the largest contributor in the retail segment with a small number of retail super markets for the fresh produce retail sale. Supermarkets are the widely used form of organized retailing for foodand grocery products after clothing and jewels. Organized retailers have a contract farming relationship with regard to fresh fruits and vegetables. Thereafter, the surplus would reach the mandis, commission agents and other traditional middlemen at a predetermined warehouse. The e-choupal portal of ITC bridged the gap between farmers and buyers with the application of technology which resulted in reduced costs, updated information and higher farmer share in total revenue.The organized retail chain ensure direct relationships with farmers thereby raising the commitment level of farmers to sustain the relationship (Key andRunsten,1999). The contract farming methodology with smaller farmers has proved to be highly beneficial with regard to gherkins and broiler leading to intensive approaches to farming practices.(Khairnarand Yeleti.,2006).A major number of market transactions involve large producers thereby ignoring the millions of small producer , putting the latter at a disadvantage. These are situation that demand a viable business innovation that would also be advantageous to the small producers in terms of price spread. Organized retail formats are seen as a viable business model to address these issues. The reasoning behind this could be with regard to the fact that there is possibility for institutional arrangements in providing essential inputs to farming, access to soil testing, high yielding seeds and procurement of the produce at the farmyard. It also ensures reliability in terms of quality consciousness on the part of the producers by enhancing the skill levels of the farmers and grading. The financial institutions shall also be ready to fund the integration process ensured by organized retail chains wherein the sales revenue generated could be used for repayment leading to the reduction in the number of non-performing assets (Asokumar.B,2011).The organized retailers could also minimize their cost of procurement and thereby theirprofit margin is better. This is a perfect win-win situation for both the seller and buyer. The businessmodel as researched here is scalable and replicated. This model would bring better revenue to smalland marginal producers by which their standard of living can be improved (Asokumar.B,2011). The marketing channel of chilly consists of the involvement of various intermediaries such as: producers, pre-harvest contractors, commission agents, wholesale merchants, retailers, co-operative organisations, government organisations, exporters and importers. Research methodology: In view of the above review of scientific research and the prevailing market practices, survey method of research has been employed to evaluate the following two different types of channels in Kovilpatti (Tuticorin District) and Virudhunagar district of Tamilnadu state and the sample size is 150. The Socio economic profiles of the respondents are as follows: Particulars of Samples Frequency Percentage of the total Education Illiterates 35 23% Primary School 58 39% Secondary School 42 28% Graduate 15 10% Age


Less than 35 years 7 5% 35 to 55 years 95 63% 55 years and above 48 32% Occupation Agriculture Only 105 70% Agriculture with allied activities 45 30% Figure 7 Types of channelsfor evaluation: The existing supply chain followed for chilly is:

TYPE 1: Producer->Trader->Wholesaler->Retailer->Consumer The proposed supply chain is: TYPE 2: Producer->The Collection Centre of Organized Retail Chain->Retailer Results and Discussion: In the TYPE 2 process, the trader purchases from the producer through the use of commission agents. There is credit terms mutually agreed between the trader and commission agents which in turn impacts the producer/farmer. The price spread in this type of supply chain would be: 49% to the producer, 6% to the trader, 6% to the wholesaler and 13% to the retailer. The marketing cost in the entire process was about 26%. In the TYPE 2 process, the processor immediately pays the producer and hence in this process, the producer is benefitted with immediate cash. The price spread in this process would be: 40% to the producer, 17% to the collection centre, 20% to the retailer. The overall marketing cost of the process is 23%. The prices of chilly as taken from the Directorate of Economics and Statistics reveal that the prices have been stable with minor seasonal deviations. Hence, with prices stable, the retailers and producers margins/convenience depends upon the costs and the marketing channels chosen. An evaluation of the two marketing channels has been carried out along with the associated costs and the findings are as follows:

Figure 8


The consequences: To the producer/farmer, is assured of lower marketing costs besides convenience as the organized retailer collection agents would collect the output at the doorstep of the farmer. Besides, the farmer would have clarity of the exact requirements(variety, grade etc) of the crop depending upon the retailers’ needs.The producer is also assured of instant payment for the produce and also of assured sale of the produce. From the point of view of the retailer, the first advantage would be higher margins. By directrelationship with farmers, there is greater bargaining power with regard to variants, grading etc. With instant procurement, there would be no impact on the moisture front, leading to better quality. Conclusion: The procurement methodology adopted by the company shall have a substantial impact on the input costs since higher the number of middlemen involved, higher would be the price spread. As in the above two supply chain methods, we see that there is a significant difference in the marketing costs and overall margins between the two supply chain methods, with supply chain 2 proving to be more beneficial(savings of INR 2830 per acre which is the cost difference in the two methods of supply chain) to the stakeholders and eventually creating more value to the end consumer. The results that we arrived at has been further substantiated by (Mangalaet all, 2008) which states that compared to traditional marketing system through agents, thecontract farming bring better returns to the farmers significantly.Contract farming lowers the transaction costs significantlyand benefits both the buyers and producers, according to a study (IFPRI,2005) References: 1. Analysis of supply chain of Spices in India: A case study of Red chillies Y Prabhavathi, N T

Krishna Kishore, Dr. Seema International Journal of Scientific and Research Publications, Volume 3, Issue 9, September 2013 3 ISSN 2250-3153

2. Humboldt-University Berlin Faculty of Agriculture and Horticulture-Value chains for a better integration of smallholders to trade – the case of chilli in Ghana Master Thesis in the study programme: Agricultural Economics Submitted by: Christin Schipmann

3. Understanding Business Process Management: Implications for theory and practice Dr P A Smart H MaddernDr R S Maull, University of Exeter Discussion Papers in Management Paper number 07/08 ISSN 1472-2939

4. Accenture business process management- a visual guide 5. Princeton Book- http://press.princeton.edu/chapters/s9221.pdf 6. Karnataka J. Agric. Sci.,25 (2) : (203-207) 2012 Organic and inorganic cultivation of chilli and its

marketing- An economic analysis V. R. Naik, L. B. Kunnal, S. S. Patil And S. S. Guledgudda 7. Research Journal of Economics and Business Studies A Study On Evaluation Of Market Price

Realization By Onion Cultivators Through Organized Retail Chains Vis-À-Vis Conventional Channels Ashwin A Kumar

8. Asokumar.B, “Agro Output Marketing andorganizedRetail chainpurchasing”, The International Journal’s researchjournalof Social Science and Management, June, 2011, pg 65-75

9. Jyothi,S. And Raju.V.T.(2003).”Study on Marketing of Crossandra, Jasmine and Rose Flowers in EastGodavari District of Andhra Pradesh.”Agricultural Marketing,46(2),pp.2-4Asokumar.B, “Agro Output Marketing andorganizedRetail chainpurchasing”, The InternationalJournal’s researchjournalof Social Science and Management, June, 2011, pg 65-75

10. Chengappa, P.G.,L.Achoth,K.K.P.Rashmi, V.Degga, “Globalization of Agriculture in southasia: HasIt made difference in Rural Livelihoods?” CESS/ IFPRI/ IAAE/ ISAM/ ANGRAU,March, 2005.

11. IFPRI: Vertical coordination in High Value Food Commodities: Implications for smallholders”Joshi, P.K, A Gulati and R Cummings Jr. (eds.)(2005):Agricultural diversification andmall holders inSouth Asia, academicfoundation, New Delhi.


12. Jyothi,S. And Raju.V.T.(2003).”Study on Marketing of Crossandra, Jasmine and Rose Flowers in EastGodavari District of Andhra Pradesh.”Agricultural Marketing,46(2),pp.2-4

13. Key N and D Runsten: contractfarming, Small holders and rural development in latinamerica:Theorganizationof Agro Processing firms and the scale of out growerproduction‟27 (2), WorldDevelopment (1999) 381-401

14. Khairnar, S and V Yeleti: Contract Farming in India: India and Implications”, in rameshchand(ed):India‟s agricultural challenges-Reflections on Policy, technology and otherissues,CENTAD, NewDelhi, (2006) 105-128.

15. Mangala, K.P., &Chengappa, P.G (2008),A novel agri business model for backward linkageswithFarmers; A case of food retail chain. Agricultural economics Research review, 21, 363-370MTID discussion paper no: 85,IFPRI,Washington,April,2005.

16. Pawar,N.D., and Pawar,B.R (2005).” Price Spread and Marketing Efficiency of Green ChilliesInWatershed Areas of Maharashtra”. Indian Journal of Agricultural Marketing, 48(2), pp. 48-51.

17. Singh, G. „Contract farming of Mint in Punjab‟,19(2),Indian journal of agriculturalmarketing 18. Book titled “Economics of Production and Innovation” byRosegger(1986)

business process innovation for maximizing stakeholder

Documents