Supply ChainSpecial Feature

A After an effort span-ning two decades to dis-intermediate its co-pra supply chain—rid-

ding it of exploitative struc-tures and agents—and infuse it with technology platforms for quick, transparent transac-tions, FMCG major Marico is nearing its holy grail: the envi-able situation of dealing with the smallest possible vendor—a marginal farmer with a few coconut palms in his backyard.

For a company that is the larg-est buyer of copra in India—about 100,000 tonnes a year—and is striving to meet steadily growing demand for its popu-lar range of Parachute coconut oils, reliable, resilient and sus-tainable in-bound raw material chains are a lynchpin for a cri-sis-free future. “Supply chain is also a critical driver of effi-ciency in today’s complex busi-ness environment, given the existing cost structures and challenges,” says Saugata Gupta, CEO of Marico.

The difficult years spent to “broad-base supply” has evi-dently borne fruits for the com-pany feted for its supply chain innovations. The recent unveil-ing of a pilot collection centre near Madurai in Tamil Nadu—where farmers can troop in with their ‘raw’ coconuts—is a milestone. Earlier, Marico would buy only copra—coco-nuts sun-dried by its vendors. This migration from copra to coconut is significant.

One-Stop Shop This collection centre, one of the thousands it has, has ma-chines to de-husk, de-shell and dry coconuts. Farmers disin-clined or unable to convert their coconuts to copra can sell their produce here. “It will be a game-changer,” says Jitendra Mahajan, EVP and global head- procurement and operations, Marico. “Once we refine the technology, bring down costs, we will proliferate.”

For Mahajan, the Madurai centre is a turning point in streamlining the supply chain and establishing a relationship with the smallest farmer pos-sible, without engaging in con-tract farming. Marico has suf-fered during two bull runs in copra—in 2003-05 and in 2008-09—as middlemensalted away copra in warehouses. From Rs 18,000 a tonne in 2001-02, the price peaked at Rs 52,000 a tonne in 2005. “To break this stranglehold, we set a goal of reaching out to the largest pos-sible mass of people willing to sell,” says Mahajan. “Farmers don’t usually hoard. Their aim, always, is to sell their produce as quickly as possible and in-vest in the next crop.”

T h e p r o c u r e m e nt h e a d doesn’t want to reveal too much about his Madurai experiment, but does say it also addresses a host of present day challeng-es—like manpower shortage, emblematic to Kerala. The mechanised drying-conver-sion process takes just a day at Madurai, a vast improvement from the manual six days, and uses one-third of manpower.

Marico has also been endeav-ouring to increase productivi-ty among its farmer-partners. Its cluster farming initiative, which started in Malappuram in north Kerala, has expanded to 61 clusters involving 7,982 farmers covering 1,737 hec-tares; yields have improved 20%, covering 300,000 palms.

Trader Pressure It’s been a long haul for Marico. This dis-intermediating initia-tive, which began in 1991, is a case study at IIM–Ahmedabad. Professor Saral Mukherjee, in his inimitable style, takes stu-dents of supply chain manage-ment through Marico’s break-throughs and setbacks.

In the early years, Marico sourced its copra from termi-nal markets of Kerala—a bee-hive of agents and unions. There was the transporter, who doubled up as trading facilita-tor; traders undertook fumiga-tion, drying and sorting; a workers’ union also sorted; an-

other union filled copra into sacks, and stitched and loaded them; and yet another union stacked the sacks in trucks. All these activities cost around Rs 500 a tonne and gunny bags cost another Rs 300 per tonne.

Knowing that sourcing from terminal markets couldn’t go on, Marico diversified into buying directly from individu-al traders, who moved truck-loads of copra directly to its fac-tory. Simultaneously, the company started developing a sourcing base in Tamil Nadu to de-risk itself from Kerala.

In 2002, with of reverse auc-tions, price discovery and a feel of the quantity available be-c a me much e a sier. T h i s prompted a month-long block-age by Kerala traders. Another tactic adopted by angry trad-ers, to break and discredit the auction system, was to offer co-pra at lower prices than those accepted by Marico, after auc-tion hours. Marico buyers, however, refused to renege on the high prices contracted.

Professor Mukherjee says traders even complained to top

management that the company was incurring losses by buying copra at higher prices. “We had set up a transparent system, and we ensured the process is never violated,” says Mahajan. “Once it was clear that no of-f line buying would happen, everything fell in place.”

A web-based system was also crafted. Marico set up its first copra collection centre in Perambra, Kerala. It was an-other significant step in broad-basing supplies and also ena-bled Marico to rehabilitate smaller agents as centre heads, paying them Rs 150 a tonne as commission. “It was important to bring them in as they have a connect with farmers and also understand the commodity well,” says Mahajan. Today, over 50% of copra procurement by Marico is through its cen-tres; the rest comes from nor-mal trade.

naren.karunakaran@times-group.com

From Copra to CoconutIt began dis-intermediating its supply chain in 1991. The last link is being put in place

Tradition And ModernityIt handholds people in its back end. And infuses modern techniques in the front

F o r we e k s o n e n d , Amishi Vadgama and Tanvi Kareer scoured for and absorbed the

patterns that embellish the 18th century mansions of the Chettinad region —a blend of south-eastern and European architecture—in Tamil Nadu. The duo was fascinated by the geometry of the traditional athangudi tiles. They also quickly mastered the design cues of parapets, cornices and columns that adorn the man-sions. Vadgama and Kareer are, however, not architects.

They are young designers at Appachi EcoLogic, and are fel-low travellers in a journey to revive traditional handloom weaving, promote farmer live-lihoods and popularise organic-cotton apparel in India.

Run by the husband–wife team of Mani Chinnaswamy and Vijayalakshmi Nachiar from Pollachi in Tamil Nadu, Appachi has put together a remarkable, integrated chain for ethical fabrics, branded Ethicus. The chain starts by organising marginal organic-cotton farmers of Kabini in Karnataka, and extends to in-terventions in ginning, spin-ning, weaving and retailing.

The project, while focused on tradition, infuses modern tech-niques in design, branding, po-sitioning and marketing. It has begun to stir the stagnancy and despondence that handlooms had receded into.

A few months ago, when the Mu mbai-based A r tisa ns’ Centre held an exhibition-sale of Appachi’s sarees adorned with motifs of Chettinad man-sions, they were lapped up by consumers wanting to contrib-ute to sustainable agriculture and conservation. Each saree cost Rs 6,000 or more. “But they have a silk–like sheen due to in-novations in the way the yarns are processed and twisted,” says Radhi Parekh, founder-director, Artisans’. Parekh has teamed up with Chinnaswamy, and is a pivotal member of the sustainable fabrics ecosystem building up in India.

From Handholding... Building India’s first ethical organic-fabric brand has been a tempestuous endeavour for Chinnaswamy. A scion of a tra-ditional cotton-ginning family, he chucked a Rs 40 crore com-mercial ginning business of six decades to start afresh in 2006.

“I had no identity whatsoever and, as a ginner, was just a face-less person in the textile chain,” says Chinnaswamy, an MBA from Philadelphia University. “I had to find and engage in something meaningful to not only sustain my interest and involvement in the sector, but also ensure future generations are keen to continue.”

The answer wasn’t very far off as he witnessed tribal farmers in the Kabini region struggling with sustenance. He handheld them through the process of growing organic cotton—pro-viding seeds and other inputs, freeing them from agent-mon-eylenders, certifying cotton and finally buying. He also ran projects on water, sanitation and education in the villages.

Appachi started with 50 acres. Soon, Chinnaswamy was sit-ting on 20 metric tonnes of or-ganic cotton and no buyer. He had already paid farmers 23% premium over market price. “It was extra-long staple speciality cotton; and because of the small value and tonnage, I couldn’t

even export it,” he recalls.Chinnaswamy was left

with no alternative but to convert the cotton to yarn at some of the mills he knew.

Now, he was sitting on mounds of quality

yarn. Pushed to a wall, wife Nachiar, with a mas-

ters in textiles from SNDT, Mumbai, suggested weaving their own sarees.

The duo began exploring the intricacies of weaving and were hit by a story similar to that of exploited marginal farmers. Individual weavers, working on looms at home, were reel-ing under the viles of ‘master weaver-agents’ appointed by larger retailer-buyers.

Master weavers gave yarn to weavers and a poor price. This left weavers with no alternative but to weave loose sarees, and salt away yarn for themselves. This impacted quality, dimin-ished patronage from consum-ers for handloom, and led to general distrust and decline. “No one wanted to walk the last mile with weavers and find out what precisely their problems are,” says Chinnaswamy.

He gave yarn to weavers in north India, but they deliv-ered sarees after six months. Appachi got into weaving. The duo started looking in their backyard, in Tamil Nadu, and found looms were going out of business. A search led them to Chennimalai, once a thriving loom town with 40,000 looms. They picked up 42 looms from a stack of 2,000 old, dismantled looms piled up in a warehouse.

Appachi now has its own weav-ing centre in Pollachi. As a trib-ute to the skills of its workers, every piece of clothing sold by Appachi has a tag with a name and picture of the weaver.

...To PositioningThe seed-to-saree cycle takes a

year to complete, but this year Appachi broke even. Much of the focus is now on branding and positioning. The idea is to go beyond certification, which most organic products are lim-ited to, and engage consumers.

Pa rek h of ten combi nes sales with an educational component—a film or a talk series on ‘know your heritage’. Chinnaswamy organises the ‘cotton trail’, which takes buy-ers from the Kabini Elephant corridor, around which his cotton is grown, through the process of manufacture across Tamil Nadu, ending at the foothills of Anamalai Tiger Reserve, near Pollachi, where a product is woven and finished.

Parekh explains that while or-ganic-cotton fabrics cannot go mass, they can move out of the present small niche. It already has experts like Rajeshwari Sheth of Anveshan—a brand and innovation network that works with PepsiCo, Samsung and Unilever, among others—trying to take Ethicus to mar-ket. “We are also exploring brand associations with simi-lar global brands—like Muji of Japan,” she says. The tribe of Muji and Appachi is growing. It’s good for communities, en-vironment and the economy.

One is India’s largest coconut buyer, another is a leading beer producer and the third the country’s first ethical-clothing brand. What binds the three is that each has infused sustainability right

through their supply chain. Each has gone down to the very first step of that chain and linked it with the last step through engagements

that do right by the people, the business and the planet

NAREN KARUNAKARAN

NAREN KARUNAKARANWHEN EVERYONE GAINS IN THE SUPPLY CHAIN

Slicing off Layers

1991 Moves buying office from Mumbai to Kozhikode; buying mostly from Kerala terminal markets

1994Starts developing vendor base in Tamil Nadu; gathers steam between 1999 and 2003

1998Stops sourcing from terminal markets, which accounts for 45% of its purchases. Instead, contracts with individual traders

2002Stops daily price negotiations with traders. Instead, starts thrice-a-day reverse auctions. Lowest bidder informed of accepted quantity and destination factory. Despite blockage by traders, company persists with auction and sourcing from TN

2003First company-owned copra collection centre opened in Perambra, Kerala

2003-05Introduces Web-based auctions to replace telephone-based auctions. Sophistication of transactions gradually improves

2006Integrates Web-based auctions with email-based transactions. Starts e-payments to vendors a day after receipt of copra at factory. Also introduces SMS–based transactions. By year-end, 95% vendors opt for e-payments

2013Launches pilot collection centre to convert coconut to copra

U ntil 2005, procuring bar-ley in India was akin to a bad hangover for British brewer SABMiller. It ei-

ther bought in the open market or imported. It wanted to reduce its dependence on imports, but the lo-cal produce was not up to its mark.

A similar quandary in Africa a few years ago had led SABMiller to tweak its business model there. It partnered local farmers to grow barley and created a new beer brand. It stabilised barley supply for itself and improved the living standards of barley farmers.

So, in 2005, SABMiller started Saanjhi Unnati, or partners in progress, in India: a programme with farmers aimed at securing a long-term, reliable source of malt-quality barley.

To start with, SABMiller set up three centres in three tehsils (blocks)—Sri Madhopur, Chomu and Jobner in Rajasthan—involv-ing 1,574 farmers. At these centres, farmers could sell their produce to the company in cash, they could buy seeds at subsidised rates, they could buy other inputs like fertilis-ers and pesticides, they could seek farming advice.

“It’s been a win-win for all,” Ajit Jha, director of corporate affairs, SABMiller India. Farmers used to perceive barley as an unstable crop because of price volatility at the

Chomu mandi. “Saanjhi Unnati improved the quality of barley (seeds) and helped improve yields by 40-50% and farmers got a ready buyer,” adds Jha.

Today, about 48% of the barley needs of the company’s 10 brewer-ies across nine states is met via Saanjhi Unnati. Another 14% is bought via traders, 37% from malt-sters (entities that process barley) and 1% is imported.

In Chomu district of Rajasthan, pre-fixed prices brought greater stability for the small section of farmers growing barley—a 125-day a year crop. “Farmers were not able to make the right choices, due

to limited resources, on crop rota-tion and what to grow in the non-barley season,” says Jha. Aided by Saanjhi Unnati centres, farmers in Rajasthan now alternate barley with groundnut and those in Haryana with paddy.

For farmers like Bansidhar Yadav (65) from Chimanpura vil-lage, in Chomu district, Saanjhi Unnati has made the process of buying seeds and selling barley less painful. There is a pick-up and drop service for the produce and seeds. However, the high irrigation cost is denting his returns.

Another farmer Nathulal Yadav, who has been in the programme for four years, speaks highly of the “good quality Rajkiran variety seeds” supplied by SABMiller. “The dry fodder generated is more and animals find it tasty too,” he says. “Also, my cow began giving more milk and there are no miscar-riages during pregnancies.”

Jha says the programme benefits 10,000 farmers who grow 50,000 tonnes of barley for SABMiller India. The number of centres has inreased to 32, covering Rajasthan, Haryana, Punjab, Uttarakhand and Madhya Pradesh.

Prepped up by Saanjhi Unnati’s success, SABMiller India has started prodding farmers to grow varieties of barley that are more suited for beer. “In five to seven years, we expect to meet all our barley needs from this pro-gramme,” says Jha.

Farmer’s TrustFarmer partnerships give it barley. And farmers earn higher incomes

SHELLEY SINGH & AKSHAY DESHMANE

SABMiller

Ethicus

Marico

SustainabilityIndIa Inc &

Covers 1,200 organic-cotton farmers across 1,875 acres

Prices fixed every Saturday; farmers have a say through a price-fixing committee

Electronic weigh scales have eliminated 8-10% wastage

Premium for Grade A cotton, for contamination-free produce, even to farmers whose farms are in transition to organic

Now operates through the sole APMC yard where organic cotton is traded

Appachi Project

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