ITC ECHOUPAL INITIATIVE A CHALLENGE OF INCLUSIVE GROWTH

ITC ECHOUPAL INITIATIVE: A CHALLENGE OF INCLUSIVE GROWTH

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

Dahod – 25 KM S Olivia Momosor

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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices http: //www. itcportal. com/the_itc_profile/history_evolution. html Olivia Momosor

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

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

Information Systems Strategy Triangle Business Strategy: -“A Commitment beyond the market” - Create economic freedom - Reengineer supply chain - Fix market inefficiencies - Information sharing - Differentiation IS/IT Strategy: 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 e. Choupal network Olivia Momosor ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices - e. Choupal 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

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

Porter’s Competitive Forces Model Threat of New Entrants? Low-Moderate Bargaining Power of Buyers? High Bargaining Power of Suppliers? Moderate-High Steve Hartman ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Threat of Substitute Products? Moderate Industry Competitors? Low

Four Actions Framework ELIMINATE: • Intermediaries • Farmer’s Risk Aversion • Time Pressure (Perishable) REDUCE: • Inefficiencies in the Market • Inconvenience to the Farmer • Instability of Income Steve Hartman ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices RAISE: • Crop Yield • Quality of Product • Level and Quality of Information CREATE: • New Marketplace • Trust and Transparency Throughout the Supply Chain

1. What was ITC’s motivation for creating the e. Choupal? 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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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 Farmers at mercy of CA’s offer Manually operated scales resulted in 0. 5% loss Cash payment delayed after unofficial credit period CA brought produce to ITC processing facility Tracey Abdo No way to store unsold produce Then hauled to winning bidder’s shop for weighing Often had to wait 2 -3 days to get into market 1700 farmers per day CA receives reimbursement for soybeans ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

2. (a) What were the old & new physical flows & information flows in the channel? 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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

2. (a) What were the old & new physical flows & information flows in the channel? New Physical Flows Eliminate the “middle-man” – the mandi Farmers sold directly to one of 44 ITC hubs Same ITC distance as mandi hubs serve as “one-stop shop” Herbicides, ITC sowing seeds, gas lanterns, soy bean oil saved $5/ton on freight cost In return, reimbursed farmers for travel time, resulting in $8/ton increase fore farmer. Tracey Abdo ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

2. (a) What were the old & new physical flows & information flows in the channel? New Information Flows Transparency of Information Access to information via e. Choupal 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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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

3. (a) What barriers did ITC face in embarking on this project? The current supply chain must be broken Village A Mandi B Factory C 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 Olivia Momosor ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

3. (b) How did the principles espoused by ITC overcome the obstacles facing the e. Choupal? e. Choupal 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 supply government of the Incorporated new chain intopotential already existing of the benefitsby to the farmers and the economy Choupal placing the e. Choupal kiosks in lead farmers homes Sanchalak – lead farmer who received basic IT training, served as Olivia Momosor the liaison between ITC and the famers ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

3. (b) How did the principles espoused by ITC overcome the obstacles facing the e. Choupal? Continued… Time pressure and corruption were extinguished through the transparency of the e. Choupal 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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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

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 Expand Into Other Regions and Markets Create a barrier to entry for competitors 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 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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

Recommendations 1. Continue to Develop Infrastructure Create 2. a barrier to entry for new competitors Expand into Other Markets and Industries Maintain 3. principles of trust and transparency Continue to Innovate and Develop Information Technology Steve Hartman ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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 Culture http: //www. youtube. com/watch? v=qk. HWdhobgi. M Steve Hartman ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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 Olivia Momosor Top 50 Asia’s best performing companies by ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

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

Questions?