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
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
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
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
Threat of Substitute Products?
Moderate Industry
Competitors? Low
Steve Hartman
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
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 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
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 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
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 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
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
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
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 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
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 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
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 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
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
NSteve Hartman
ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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
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 Culturehttp://www.youtube.com/watch?v=qkHWdhobgiM
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
Top 50 Asia’s best performing companies by Business Week
Olivia Momosor
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
Questions?