Logistics Management Term Project

Prof. S. Venkataramanaiah

Group I Faizan S, Haroon N, Satyajeet S, Aftab K, Faiz M, Nikhil G, Garga M

Contents
A. Problem Definition ..................................................................................................................... 3 B. Project Approach......................................................................................................................... 3 1. Commodity Procurement & Trading Industry ................................................................. 4 2. e-Choupal: Business Model...................................................................................................... 5 2.1. e-Choupal: How it works?................................................................................................ 6 2.2. e-choupal: Infrastructure................................................................................................. 6 2.3. e-choupal: Cost Benefits ................................................................................................... 7 3. Model for dairy development (GCMMF) ............................................................................ 8 3.1. Services provided to farmer members ....................................................................... 9 3.2. GCMMF Infrastructure and future Prospects ........................................................... 9 3.3. Protection from Intermediaries ................................................................................. 10 3.4. Costing Strategy................................................................................................................ 10 4. Incorporating milk business into ITC e-choupal .......................................................... 11 4.1. Infrastructure required ................................................................................................. 13 4.2. Logistic infrastructure required ................................................................................ 15 4.3. Milk processing at the district Hubs ......................................................................... 15 5. Supply chain Logistics system for e-choupal in MP .................................................... 17 5.1. Hub and spoke model implementation ................................................................... 22 6. Concluding remarks ................................................................................................................ 23

Leveraging ITC E-Choupals potential for new LOB1

A. Problem Definition
ITC E-Choupal is marred with, Increasing power of sanchalaks and samyojaks to manipulate farmers and extract rents Scope of E-Choupal operation (number of villages under Dewas Hub increased dramatically from 64 to 130 in less than a year) is creating real threats to execution management Inefficient Capacity Utilization of Warehouse (20000 metric ton warehouse has an average utilization of 60-70%)

B. Project Approach
Study the industry (Commodity procurement and Trading) in focus and identify the key driving factors Analyze the company (ITC) and its business model (E-Choupal)targeting the industry, with a focus on Logistics area Identify the issues (Logistical) with the existing business model and improvise the model addressing the identified problems Determine the feasibility of adding a new LOB (Milk products business) in the existing system Develop a model that would enable successful inclusion of this new LOB

1 2 3 4
1

Industry Analysis (Commodity procurement & trading)

ITC e-chaupal business Model Study of dairy industry (GCMMF) model

Incorporating the new LOB into ITC e-chaupal framework

LOB (line of business) Milk products business

1. Commodity Procurement & Trading Industry

India is second most populous country in the world with majority of its population living in villages & earning their livelihood through agriculture or agriculture related services. Agriculture contributes around 16.1% of the total GDP with 65% of its population living mainly in one of the 600,000 villages. Presence of diverse climate zones and a variety of soil and agro-climatic conditions have made possible the cultivation of almost every item from cash crops to food grains. Agriculture provides livelihood to about 65% of the labor force and accounts for 16.24% of India's exports. After USA, India has maximum area of arable land but productivity per hectare is extremely low. India is not even in the top ten in terms of productivity of rice and wheat. Despite green revolution Indian agriculture sector has not been able to achieve the world-class level in productivity. Major reasons behind this are, Highly fragmented nature of Indian farming with close to 33% of arable land held in units of less than 1.5 hectares per owner. Farmers dont enjoy the economies of scale in operations and modern farming equipment is very expensive for them. Quality is also a problem. The fragmented farms are constraining the risk taking ability of Indian farmer locking him up into a vicious cycle as shown below,

Indian farmers rely on Department of Agriculture (which are accumulated by the Department of Agriculture from various sources like Government Universities, Meteorological department, insurance companies etc.) for various inputs such as weather, modern and scientific farming practices and insurance cover. For seeds, fertilizers etc. farmers approach input retailer who source them from wholesalers, who are in direct contact with the manufacturers. After harvest, farmers bring their produce to Mandis (regional market yards) in small multiple lots throughout the year, where they are auctioned to the traders and agents of the processing companies in an open outcry method. The Government, to facilitate fair price discovery and enable aggregation of goods, regulates these market yards. Successful bidders then bag the produce, weigh it,

pay cash to the farmers, and transport the cargo to the processing units (to whom it would have been sold through a broker). Many intermediaries are involved in this whole activity, everybody acting as a principal with the next leg in the transaction chain as shown in figure,

2. e-Choupal: Business Model

The e-Choupal model is an innovative initiative by ITC to revolutionise the way farmers sell their produce. This system has been designed to solve the following issues: Weak infrastructure Inefficiencies in supply chain Lack of proper information to farmers Large number of intermediaries

Due to these issues, farmers were at a loss as they were unable to get proper price of its product. e-Choupal sets things in order as it helps the farmers in the following way: Improve farm productivity by disseminating latest information related to weather, best practices in farming, etc Improve revenue for goods produced by providing better price than mandi (~2.5% higher) and also expert opinion on expected future price movements Minimise transaction cost through transparent pricing and weight measurement practices

On the other hand, ITC benefits from net procurement costs that are 2.5% lower (saved in commission and transport cost). In addition to this, it also has a direct

control on the quality of product they buy. Internal Rate of Return of an echoupal project comes out to be around 21.5%.

2.1. e-Choupal: How it works?

ITC identifies and train a local farmer to manage e-choupal in the village. This farmer, called as Sanchalak, is provided with a computer connected to internet via telephone line or by VSAT connection and serves surrounding villages in the range 5 kilometres. Information related to the price of produce, weather forecast and best practices in farming are provided to farmers through sanchalak. Once the farmer decides to sell his product to ITC, they go to the nearest Hub called as Choupal Sagar. This hub is managed by a Samyojak and it typically serves around 30-40 e-choupals. The choupal sagar also acts as a warehouse from where the goods are transported either to regional warehouse or directly to customers

2.2. e-choupal: Infrastructure

ITC infrastructure: Each e-choupal costs between Rs.70,000 to Rs 1,30,000 to set up and about 2000-2500 rupees per month to maintain. Following setup is required to start an e-choupal: Choupal Cost with VSAT Installation Basic Cost of Choupal VSAT UPS Solar Charger panel Total cost 60000 50000 4000 10000 124000

Physical Reach Choupals are within walkable distance ~ 5 kms Multipurpose Warehouse hubs within tractable distance

Key Intermediaries Sanchalak: 1 per 5-6 villages, 2000/state Samyojak: 1 per 30-40 choupals

2.3. e-choupal: Cost Benefits

Following table gives a comparison of transaction costs incurred by farmers and processors in older system (Mandi) and eChoupal initiative: Cost Category Trolley Freight to Mandi Farmer Incurs Labour Kachha Adat Handling loss Total Farmer Commission to Agent Cost of Gunny Bags Freight to factory Handling Cost Disbusrment cost Total Processor Total Cost *Price in Rs/Mton As can be seen, the total transaction cost is reduced by more than 50% and farmer now have to share a lesser proportion of the total cost. Hence e-choupal proves to be a win-win situation for both farmer and processor. Mandi eChoupal 120 50 150 50 370 120 0 0 0 120

100 75 120 40 0 335 705

50 75 0 40 50 215 335

Processor Incurs

3. Model for dairy development (GCMMF)

As announced by the ITC limited Chairman Y C Deveshwar on june 29, 2011 the company is looking forward to get into dairy products. For this model the preliminary testing are already underway at Munger in Bihar. Once the testing is successful the ITC would extend the model across country. It aims to enter the complete dairy supply chain from procuring milk to processing food from it. We have tried to explore the feasibility of the e-chaupal network for such an initiative. To understand the milk procurement part (where e-chaupals would be instrumental) we have tried to study the model currently in use by Gujarat Cooperative Milk Marketing Federation (GCMMF). This model has been proven successful over time and hence the natural inclination to assume it as the guiding principle. The GCMF model is a three tire model which begins with the dairy cooperatives at the village level, a milk union at the district level and a milk federation of such unions at the top most level. Milk union at the district level and member union at the state level federates the dairy cooperative societies at the village level. GCCMF collects milk twice daily from farmers, who milk their cows twice daily. GCCMNF also provides farmers with regular payments, cattle feed, fodder, animal breeding and veterinarian services. By paying 11 rupees (10 rupees for the share certificate and 1 rupee for registration) anyone owning a cow or buffalo can become a member of the village cooperative society. Each year, applicant must agree to provide generally between 600 and 700 litres to the society. The farmer members elect a managing committee that then chooses a chairman. The managing committee appoints a secretary to discharge the societys administrative functions. The district level union processes the milk procured from individual societies at the second tier. Each of the 13 unions has a board of directors chosen by an electoral college drawn from the chairpersons of its affiliated societies, who in turn elects its chairman. GCCMF is the final tier, responsible for marketing the milk procured and processed into various value-added products at the union dairies, under the Sagar or Amul umbrella brands. The federations board consisting of chairpersons of all 13 district unions appoint the managing director, who is accountable to the nearly 2.7 million strong Amul dairy society members.

The objectives of such a model are as follows: 1. Elimination of inefficient middleman offering direct linkage between producer and customer

2. Producer is given better control of the milk procurement, processing and marketing 3. professional management in the whole system Policy decisions at all three levels are made by elected representatives of the farmer members. These are then implemented by professional managers and skilled personnel employed by the farmer members, eliminating all middlemen in the structure. the dairy cooperative involves farmers in the development process by placing the farmer members in command. This cooperative structure is democratic in nature, from keeping the farmers are in control to the milking of their animals to the final marketing by the federation. For every rupee that GCMMF earns, roughly 75 paisa goes to the farmers. The mandate is clear production by the masses, for the masses, at its efficient best. The farmer members are given the option of democratically governing the entire cooperative structure, ensuring that the higher tier organizations are geared to serve the purpose of the lower levels and that the gains at all levels flow ultimately back to the farmers in a significant measure. The core feature of this structure is farmer involvement in decision-making at all three stages procurement, processing and marketing of milk and milk products. The value addition at procurement and processing stages can be realized only with effective marketing of products, thus making it an essential feature for success.

3.1. Services provided to farmer members

The dairy unions affiliated to GCMMF provide various inputs that contribute to enhancing the productivity and quality standards, such as: breed improvement and animal healthcare programs extension activities supplies of balanced cattle feed on a no profitno loss basis quality fodder seed distribution at subsidized cost a network of artificial insemination centers aimed at genetic upgrading of the animals using frozen semen of pedigree bulls; these centers are managed by educated unemployed rural youth who provide breeding services to the farmers frozen semen, liquid nitrogen and other consumables 24-hour mobile veterinary services for emergencies

Uniqueness of the model is its integrated approach to dairying and addressing farmers needs at all levels. Every third liter of milk from a cow or buffalo in Gujarat is processed in a GCMMF union dairy.

3.2. GCMMF Infrastructure and future Prospects

The GCMMF plants are ISO certified meeting all the quality requirements through good processing and primary processing infrastructure. The private dairy processing plant also is ISO certified; however, the primary processing at

the village level is not very strong. The Andhra Pradesh MACS have developed adequate processing facilities and plan to expand significantly in the coming years. Milk quality was an issue previously for the Orissa State Cooperative, but the situation has improved in recent years. The GCMMF is investing in dairy development activities, such as ensuring the availability of feed and fodder and veterinary services, as well as being in a position to increase its procurement in the coming years, in order to meet the future growth. GCMMF also leads the country in modern products, such as sugarfree ice cream.

3.3. Protection from Intermediaries

From the adverse effects of free world trade Cooperatives can protect the poor farmer and the consumer. Both the producers and the consumers would be subjected to exploitation by the private sector in the absence of a strong cooperative sector as used to happen in the pre-cooperative days. Weaker sections of milk producing population is likely to have an adverse effect if unbridled privatization takes place, leading to reduced employment opportunities and higher cost of inputs. To protect the farmers from economic exploitation by our middle-men, the Amul model came into existence. Amul parlors set up as the retail stores, enable farmers enable them to interface directly with consumers, involving them in 100% of value-chain while also enabling them to counter the might of organized retailing.12-million farmer households have been transformed by dairy cooperatives inspired by Amul model in more than one lakh villages across India. Following are the benefits of Amul Model: Improved delivery mechanism and transparency of business operation Due to this model, Amul is able to collect six million liters of milk everyday Huge reduction in processing time for effective payment to the farmers from a week to couple of minutes after implementing the electronic collection unit Processing of 10 million payments daily amounting to transaction worth USD 2 million in cash daily Controlling the movement of 5000 trucks to 200 dairy processing plants twice a day in most optimum manner Automated milk collection system units for collection of milk Data analysis software for forecasting milk production and increasing productivity.

3.4. Costing Strategy

Thus GSMMF adopted a low-cost price strategy during inception since consumers had limited purchasing power, and modest consumption levels of milk and other dairy products, keeping manpower cost and dealer commission low so as to achieve cost benefit. GCMMF transacts with its wholesale dealers on an advance demand draft basis instead of the cheque system adopted by other

major FMCG companies, keeping in consistency with GCMMF's philosophy of maintaining cash transactions throughout the supply chain and it also minimizes dumping. Wholesale dealers carry inventory that is just adequate to take care of the transit time from the branch warehouse to their premises following just-in-time inventory strategy and thereby improving dealers' return on investment. GCMMF's competitive position is driven by low consumer prices supported by a low cost system and this is achieved by managing this supply chain efficiently. All GCMMF branches engage in route scheduling and have dedicated vehicle operations. GCMMF ensures that the product mix and the sequence in which Amul introduces its products is consistent with the core philosophy of providing milk at a basic, affordable price despite competition in the high value dairy product segments from firms such as Hindustan Lever, Nestle and Britannia.

4. Incorporating milk business into ITC e-choupal

e-chaupal has been dealing with the dry-solids (grains, tobacco leaves) and its systems are not designed to handle a perishable liquid like milk. In order to brace itself to handle this it needs to put in place some physical infrastructure to handle this new LOB. This new step will necessitate some amounts of investments in building the basic infrastructure for storing and processing milk and milk based products, which is presently not available at the e-chaupal level or at the district hub level. Furthermore ITC will have to develop the necessary support functions for vets, cattle-feed and rural health schemes for proper functioning of the supply-chain. The ITC-echaupal network is already present at the village levels, and hence it is the best available resource to be leveraged for the milk business. We propose that the current Hub-and-spoke model be continued for this new LOB. However the locations need to be finalzed dependign on the multitude of factors like transportation costs, availability of milk, consumption of milks etc.

The three level model in use by GCMMF can be easily extended to e-chaupal network with the village level cooperative function being take over by the sanchalak driven e-chaupal, while the district milk union function be performed by the district ITC Hub. The top-marketing function will be carried out at either the state ITC offices or at the corporate level. This is summarized in the diagram below: e-chaupal (Village) District ITC Hub ITC Milk Marketing

A detailed understanding is presented below which highlights the hub and spoke model being used by the existing e-chaupal network being extended for the proposed new LOB. Here the ITC Milk-marketing federation will carryout the milk-marketing functions (like GCMMF) and the main functional units will be at the district Hubs, which will carry out functions of milk processing and milk collection from the collection points located at the e-chaupals. ec

ec ec

ITC MMF

Dist. Hub ec ec

In the proposed system, the member producers will be able to bring their extra milk produce to the ITC e-chaupal milk collection points. Milk producer will also be able to avail of other services at the collection points Quality grading of Milk, Information on best practices to handle milk, information and materials for cattle feed, request for vet services which shall be arranged by ITC in coordination with the local vet hospitals.

The producer will be charged some token fees to be a part of the ITC milk federation, in return he shall be issued a RFID based membership-card which will help in keeping track of the daily amount of milk provided at the collection centres. Further ITC would be able to link the information on quality of milk,

daily quantity of milks submitted by that member. It also helps in keeping track of which type of milk he brings, information on kind of cattle (and their health/diseases), what he feeds to his live-stock etc. can also be captured. The local sanchalak will be responsible for quality inspection of incoming supplies, ITC will provide arrangements for temporary storage of milk at the echaupals, and the required logistical arrangements from e-chaupals to district hub for processing of milks. The milk so collected at the e-chaupal collection centre will be temporary stored (in proper environment) for some time (2-3Hours) before the lorry from the dist. Hub collects it. We cannot follow a system where in like grains farmers directly bring their produce to the distt hub saving company of the transportation costs since milkproduce perishes within hours if not properly stored, additionally the chances of milk contamination increase with the time. Hence intermediate storage at the echaupal level is required from where ITC collection vans to collect the milk. The payments for the sanchalak (to give to milk producers) will be processed from the dist Hub on a monthly basis (existing system). Sanchalak himself is eligible for commission on the quantity and quality of produce procured.

4.1. Infrastructure required

The constant challenge in dairy industry is to procure raw milk that is both clean and sanitary. Preserving quality of milk is a problem of asepsis at farms, and the solution lies is hygienic milking, and the cooling and holding of milk at low temperatures to retard the growth of bacteria. Furthermore it may take 2-3 hours before the milk is collected by the dairy. At any milk handling plant the following needs arise for which the company has to provide with sufficient tools and infrastructure: Ascertain the quality of incoming milk To store the milk in low temperature environment Consistent hygiene to be maintained Loading & Unloading facilities IT for tracking, billing, and informing Other necessities like (potable water, dehumidifiers, can washing etc)

We expect that sanchalak can be easily trained to ensure the quality inspection of the milk brought by the producers, for this he can be easily trained to carry out the lactmeter, organoleptic tests (based on sight, smell and taste), & COB tests. At the distt Hub there will be requirement for a small lab to carry out further tests like for acidity, resazurin, gurber-butterfat, etc. At the e-chaupal milk collection centre level, ITC will have to build special rooms for handling and storing milks a possible design which is being in use at GCMMF for 800 liters per day capacity is provided below:

A Refrigeration B Reception platform C Weighing of milk D Office cum e-chaupal IT room E Window

F Lavatory G Can washing H Gutter I Movable partition J towards pavement K Gradient 1%

Equipments required: 1. Collection cans (depending on milk handling demand) these can be of plastic/aluminium, the design should be such that maximum of them fit on the lorry so suggest to go for square-base cans instead of regular cylindrical cans. 2. Bulk collection tankers the milk collected at the collection centre should be transferred to bulk storage tankers for temporary storage. This is required because of two reasons the cans need to be reused frequently and hence need to be washed as soon as they arrive, refrigerating milk is easier when in bulk instead of when in smaller containers as they require more storage (refrigeration) space. 3. Milk cooling equipments ideally milk needs to be stored at freezing point to retard the bacterial growth, however it is very costly and difficult to do so. Hence a temperature of below 10deg C is maintained to prolong the bacterial growth (till they are pasteurised). The cooling equipment can be of spray-coolers (which require continuous availability of water) or of surface cooler type (which reuses the water). Nowadays the large fridge are also being used for the storing

purpose but they require continuous availability of electricity, which is a challenge in rural India.

4.2. Logistic infrastructure required

Milk collected at the collection centre cannot be stored for long it needs to be pasteurised and processed within 10 hours. For this purpose ITC needs to provide for collection vans which will collect the milk from the e-chaupal collection points and deliver to the district hub processing units. Usually the milk delivery cycle repeats twice in a day morning and in evenings. Same is the case for the delivery to consumers. Based on the quantity of the milk available at the collection centre the lorry size needs to be fixed so that they run at near-full load. The special (square base, stackable) containers should be used for this purpose as they improve the lorry usage. The lorry route too needs to be optimized so that it takes minimum cost/time to travel & collect. To reduce the waiting time at the collection points the lorry timings should be fixed, so that milk is kept ready for the lorry to collect without delay. Similarly at the dist hub automatic unloaders should be installed to reduce the unloading time. Elements can be drawn from the JIT approach to reduce the time in testing quality, quantity at the hub level.

4.3. Milk processing at the district Hubs

The milk processing plant shall have the following essential facilities. i) Raw Milk Receiption Dock (RMRD) - consisting of can conveyor, can washer, weighting balance, dump tank etc. ii) Processing Hall - cream separator, chiller, homogenizer, pasteuriser and other related machinery are installed. iii) Storage area- for milk storage tanks. iv) Products manufacturing area-depends upon the type of products and the quantity of milk handled, the required equipment needs to be installed. v) Packing area-for packing of liquid milk and other products. vi) Cold storage-for keeping the milk and milk products before sending to market. vii) Quality Control Laboratory-for testing the quality of milk and milk products.

viii) Utilities area-for installing boiler, generator set, water treatment plant, maintenance and store area for spares. ix) Waste water treatment plant area-for treating the dairy effluents before releasing to the fields. x) Quarters and office area-for all the essential staff. xi) Vehicle parking area-both for the milk procurement and distribution vehicles. xii) Input supply area- for providing veterinary service, supply of feed, fodder seeds, etc. S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Equipment required Roller conveyor Dump tank Milk pump Float balance tank Milk pump Simple filter Pasteuriser Holding vessel Control panel Milk transfer pump Hot water generator Hot water pump Electrical panel Remote control panel IBT agitator Ice bank tank IBT coils Liquid separator Chilled water pump Frion Compressor Motor for compressor Frion recoveror Pouch filling machine Air compressor Air cooling unit Cream separator Can steaming block Can scrubber Can wash through Ghee boiler Ghee storage tank Ghee transfer pump Raw milk storage tank Quantity 1 1 1 1 1 1 1 1 1 1 1 set 1 1set 1 1 1 1 1 2 2 2 1 1 1 2 1 1 1 1 1 1 1 2 3 6 15 2.5 7.5 2 1.5 1 H.P 2.5 2.6 210 1.5 1.5 Capacity/ Make 5 mts 1000 lts 5000 lph 100 lts 5000 lph 5000 lph 5000 lph 100000 KCal/hr Beacon FK 750 Kirloskar 2500/hr Elgi Kirloskar 1000 lph 200 cans / hr 250 kg/hr 500 kg

1 1 1 2 5000 lts each

5. Supply chain Logistics system for e-choupal in MP

This table shows the growth of e-choupal over the years
Item 2001 2002 2003 2004 2005 2006 2007 2008 2009

e-choupals No of e91 choupals No of hubs 6 States 3 covered Villages 420 networked Farmers in 0.06 coverage area(mil) Source: ITC ABD

484 11 4 228 0 0.3

134 8 35 4 634 0 0.9

3398 90 7 1597 5 2.2

4930 127 7 2318 0 3.2

5936 139 9 2790 0 3.9

6400 150 9 3008 0 4.2

6426 140 9 3020 0 4.2

6476 130 10 3043 0 4.3

When ITC set up e-choupal, it was set up first in Madhya Pradesh and the first commodity that was traded was soyabean. Now, although the number of commodities traded has gone up, soyabean still remains the largest traded commodity. This section describes the logistics system followed at e-choupal in Madhya Pradesh, with special reference to the soyabean crop. The reason is that Madhya Pradesh is the largest soyabean producing state in India and so the largest procurement of soyabean of ITC takes place in Madhya Pradesh. This table shows the amount of ITCs purchase at mandis which has ranged between 2-9% Procurement category ITC procurement from traders Percent from traders to total ITC procurement from farmers Percent from farmers to total Total ITC procurement CY 2006-07 Quantity, t 146,498 32.53% 303,805 67.47% 450,304 Rs Mill 1989.2 33.13% 4014.8 66.87% 6003.9 CY 2007-08 Quantity, t 140,632 34.18% 270,792 65.82% 411,424 Rs Mill 2493.2 35.17% 4596.8 64.83% 7090.1

ITC soyabean as share of : All MP mandis 6.74% 5.34% 57 Mandis corresponding to 11.70% 9.02% ITC hubs Source: ITC ABD and MP state agricultural marketing board Notes: ITC buys soyabean at 57 hubs in MP. There are mandis at these locations and nearby. Mandi sales include ITC procurement at nearby hubs.

Most of the soyabean delivery is done from the months of September to January. In rare cases the farmers sell residual harvest in off season. However sometimes the traders engage in early delivery, suggesting traders start early procurement. The table below shows the soyabean shipments arriving at various hubs. Majority of the consignments are up to 5 tons.
Consignment size in tons 0-2 2-5 5-7.5 7.5-10 10-15 15-20 20-25 >25 Total Farmers No of deals 3280 10,470 1618 625 45 Weight, tons 3444 36238 9648 5207 493 Average weight of deal, tons 1.05 3.46 5.96 8.33 10.95 Traders No of transactions 0 0 142 113 1009 1456 67 93 2880 Weight, tons 0 0 644.59 1009.44 14037.48 24159.67 1573.99 2501.84 43926.99 Average weight of deal, tons 0 0 4.53 8.93 13.91 16.593 23.4924 26.9 15.25

16,038

55,030

3.43

Distribution of transaction sizes at hubs in 3 MP districts(2007-08)

The mode of transport used by the farmers and traders are bullock carts, tractor trailers and trucks. The carrying capacities are as follows: Bullock carts-2 tons Tractor trailers-4-5 tons Trucks-7 tons

Trucks larger than that are rarely used because of the conditions of roads. Only if a village is located closer to a national or state highway that a larger truck is used. Sometimes farmers pool their load on a larger vehicle Average distance from village to ITC hub: 23 km About 14% of e choupals were within 10 km or less from a hub-making it possible for a bullock cart to make a round trip. For larger distances bullock carts become unattractive Preferred mode of transportation for a farmer was tractor-trailer Cost per loaded journey for trailer=Rs 2.5-3.4 per ton km

Location of hubs and storage facilities Close to half of ITC-ABD are export driven. Most of the companys DOC exports is loaded on pallets from kandla port in Gujarat. The FOB value of DOC is such that road transport cant be used and so the preferred mode is rail for relatively long

haul to Kandla or Mumbai. The main rail loading location where there are hubs and processing units that ITC ABD uses as well are Indore(Dhakchakiya), Biora(Bhopal), Khandwa and Sagar in MP, and Kota in Rajasthan. Based on a review of some export transactions of DOC over a 3 year period, the average margins in the case of these exports varied between 10-18 percent of the purchase price and 3.8-4.9 percent in the case of domestic sales Transaction CY 2005-6 supply chain costs Mandi e-choupal supply chain Farmer ITC Farmer ITC 120 120 120 0 50 40 0 40 150 50 370 705 100 75 335 0 0 120 335 7000 3.57% 50 75 50 215 CY 2008-09 supply chain costs Mandi supply e-choupal chain Farmer ITC Farmer ITC 100 100 100 0 50 50 0 50 270 90 510 915 10800 3.80% 180 75 405 0 0 100 362 50 0 75 87 262

Freight Labour handling Commission Handling loss Bagging Cash Disbursement costs Totals for farmer and ITC Total for the supply chain MSP for wheat Farmers savings as % of MSP

Cost item in logistics chain At e-choupal and hub Samyojak commission Sanchalak commission Mandi cess Hub to storage Transport(purchase point to storage point) Labour handling charges Storage rental Fumigation

Details

CY 2008-09

Not at choupal sagar At choupal sagars Per tone On purchase price

1.60% 0.60% 50 2.2%

Per ton 4 rs per pag@ 11 bags/ton Per month per ton 45 days

350 44 40 11

Hub storage to port Transport(storage to rail head) Transport(rail head to port) C&F costs Moisture loss(for soyabean) Transit loss(for DOC, plant to port) Handling loss(for DOC, at port)

Per ton Per ton Bulk shipment(per ton) Per month On the dispatched capacity On the quantity received at port

150 800 300 0.25% 0.75% 0.5%

Specifically for DOC container shipments, Dhakchakiya to Mumbai Transportation from plant to port Plant to rail head Per ton 170 Rail head to port Per ton 740 Transit loss 0.75% 135 C&F costs at Port Freight average Per ton 703 Surveyor Per ton 33 Fumigation Per ton 12 Terminal handling and Per ton 330 documentation charges Price reductions 1.25% per ton 236 quality(average post survey) Source: ITC ABD

5.1. Hub and spoke model implementation

ITC has been on an expansion mode since the first e-choupal was established in 2000. It announced a foray into 8 more states in 2008 and eventually will have an all-India presence. So we ran a hub and spoke model taking selected hubs and spokes from all over India. The hub and spoke model is for milk distribution but it can work equally well for any other commodity. Due to lack of data and due to the futuristic nature of the model we have used dummy data for supply and demand and dummy cities as hubs and spokes. However the hubs and spokes used are cities all over India and if ITC chooses not to select a city as the hub or the spoke, it can simply give a very high value to the city in the model. The basic assumption used is that supply =demand. In this model from all the cities or places that have been chosen as the supply centres and the cities that are chosen

as demand centres, and the model is run to decide on which cities will be hubs and which cities will be spokes based on the lowest logistics cost, and cluster them accordingly. The model is in the excel sheet hereby attached.

6. Concluding remarks
E-choupal as a concept is revolutionary. It identifies the inefficiencies in the mandi system and creates a model where there is a win-win situation for both ITC and farmers. For ITC it eliminates middle men and creates a direct interaction with the farmers thus freeing itself from the manipulative clutches of the middlemen traders. Farmers on the other hand get real time information on the produce prices and they are also freed from the clutches of the mandi cartel. They get a newfound respect and this creates trust between ITC and the farmers. Moreover, by integrating the supply chain e-choupal helps information flow be facilitated all across the supply chain and thus reduce the bullwhip effect and reduce costs. However the e-choupal idea also has some roadblocks which have to be removed in order to improve the system. The first and foremost is the regulatory requirements. ITC has not bypassed the mandi system entirely. In India, the agricultural produce procurement is done through agricultural produce marketing committee(APMC). Many states like Andhra Pradesh strictly follow APMC and the mandi system there is very strong. ITC has not yet lobbied for repeal of this instead it has collaborated and convinced the government that it will procure both from farmers and mandi. However unless this APMC is repealed foraying into major agricultural states like Andhra Pradesh might be difficult. The second problem that needs to be solved is infrastructural issues. Many villages dont have good roads or good power supply even now. As a result ensuring a uninterrupted power supply for running of the PC of sanchalak becomes a problem. Even having UPS does not help because many times there isnt enough power even to charge the UPS. SO addressing the power and infrastructural issues is important if true benefit from the e-choupals is to be obtained. However it is without doubt that e-choupal is the first major revolutionary step towards improving the agricultural supply chain. Indian agriculture, in spite of being one of the largest in the world, suffers from inefficiency, low productivity and high transit loss. The reason is ignorant and powerless farmers and an inefficient government procurement system. ITC, through its e-choupal project, helps in empowering the farmers, brings the latest agricultural knowhow and also removes the inefficiencies of the supply chain. This is laudatory and the future of both e-choupal and ITC looks bright.