1. ITC Echoupal initiative: A challenge of inclusive growth

2. 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

3. Dahod – 25 KM S
Olivia Momosor

4. 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 & Stationery
Olivia Momosor

5. Business Strategy ITC Vision ITC Mission
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

6. 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

7. 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:
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
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
Olivia Momosor

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 2.(a) What were the old & new physical flows & information flows in the channel?
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

15. 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

16. 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

17. 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
Farmers went to the Mandi to auction off crops
Commission agents (CAs) contracted with ITC to bid on their behalf
No control over price
Olivia Momosor

18. 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 famers
Olivia Momosor

19. 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

20. 4. How was value created in this model
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

21. 5. How should ITC develop this platform for the future
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

22. 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 N

23. Recommendations Continue to Develop Infrastructure
Create a barrier to entry for new competitors
Expand into Other Markets and Industries
Maintain principles of trust and transparency
Continue to Innovate and Develop Information Technology
Steve Hartman

24. 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
Steve Hartman

25. 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

26. 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

27. Questions?