itc echoupal

ITC ECHOUPAL INITIATIVE:A CHALLENGE OF INCLUSIVE GROWTH

ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and PracticesOlivia Momosor

Case Information Discipline: Value Chain Description: ITC Chairman challenged

International Business Division (IBD) to generate a new business plan that would increase the division’s 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

Dahod – 25 KM S

Olivia Momosor

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

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 & Tobacco Hotels Information Technology Packaging, Paperboards & Specialty Papers Agri-Exports Foods Lifestyle Retailing Greeting Gifting & Stationeryhttp://www.itcportal.com/the_itc_profile/history_evolution.html

Olivia Momosor

http://upload.wikimedia.org/wikipedia/en/8/8c/ITC_Limited_Logo.png


Business Strategy

ITC Vision 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 Company’s stakeholders

ITC Mission create a sustaining

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

Olivia Momosor


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

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

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

IS/IT Strategy:- 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

Olivia Momosor


D’Aveni’s “7 Ss”

Which of D’Aveni’s 7 Ss is most applicable to ITC? Shifting the Rules of Competition

Found new ways to serve their customers and transformed the industry

Steve Hartman


Porter’s Competitive Forces Model Threat of New

Entrants? Low-Moderate

Bargaining Power of Buyers?

High Bargaining Power

of Suppliers? Moderate-High

Threat of Substitute Products?

Moderate Industry

Competitors? Low

Steve Hartman


Four Actions Framework

ELIMINATE: • Intermediaries• Farmer’s 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

Steve Hartman


1. What was ITC’s 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 ¼ 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 didn’t want to risk new farming methods

Tracey Abdo


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 Often had to wait 2-3 days to get into market 1700 farmers per day

Farmers at mercy of CA’s offer No way to store unsold produce

Then hauled to winning bidder’s 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

Tracey Abdo



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

Tracey Abdo



New Physical Flows Eliminate the “middle-man” – the mandi Farmers sold directly to one of 44 ITC hubs

Same distance as mandi ITC hubs serve as “one-stop shop”

Herbicides, sowing seeds, gas lanterns, soy bean oil

ITC saved $5/ton on freight cost In return, reimbursed farmers for travel time,

resulting in $8/ton increase fore farmer.

Tracey Abdo



New Information Flows Transparency of Information Access to information via eChoupal

Weather 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

Tracey Abdo


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

Tracey Abdo


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

The current supply chain must be broken

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

Village A

Mandi B

Factory C

Olivia Momosor


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 government of the

potential benefits to the farmers and the economy

Incorporated new supply chain into already existing of the Choupal by placing the eChoupal kiosks in lead farmers homes Sanchalak – lead farmer who received basic IT training,

served as the liaison between ITC and the famersOlivia Momosor


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 Expanded upon Mandi model

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

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

Sanchalak- Farmer’s representative 0.5% commission on the sale of soybeans 2%-3% commission on complimentary products

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

Steve Hartman


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

ITC’s 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 Innovate

Continue to Provide Beneficial Information Continue to Update and Enhance Information

Technology

Steve Hartman


Is ITC’s 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

NSteve 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 TechnologySteve 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 Culturehttp://www.youtube.com/watch?v=qkHWdhobgiM

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 World’s Most Reputable Companies by Forbes

Top 50 Asia’s best performing companies by Business Week

Olivia Momosor


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

Olivia Momosor

Questions?

itc echoupal

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information systems

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ineffective supply chain

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hindi word

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