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

Logistics Management – Term Project

Prof. S. Venkataramanaiah

ContentsA. 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-Choupal’s potential for new LOB1

A. Problem DefinitionITC 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 LOB (line of business) – Milk products business

Industry Analysis (Commodity procurement & trading)1ITC e-chaupal business Model2Study of dairy industry (GCMMF) model3Incorporating the new LOB into ITC e-chaupal framework4

1. Commodity Procurement & Trading IndustryIndia 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 don’t 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 e-choupal 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: InfrastructureITC 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 60000

VSAT 50000

UPS 4000

Solar Charger panel 10000

Total cost124000

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 BenefitsFollowing table gives a comparison of transaction costs incurred by farmers and processors in older system (Mandi) and eChoupal initiative:

  Cost CategoryMandi

eChoupal

Farm

er In

curs

Trolley Freight to Mandi 120 120

Labour 50 0

Kachha Adat 150 0

Handling loss 50 0

Total Farmer 370 120

     

Pro

cess

orIn

curs

Commission to Agent 100 50

Cost of Gunny Bags 75 75

Freight to factory 120 0

Handling Cost 40 40

Disbusrment cost 0 50

Total Processor 335 215

  Total Cost 705 335

*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.

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 Co-operative 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 society’s 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 federation’s 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 membersThe 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 profit–no 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 ProspectsThe 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 sugar-free 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 StrategyThus 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-choupale-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:

ITC MMF Dist. Hub

ecec

ec

ec

ec

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.

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.

e-chaupal

(Village)

District ITC Hub

ITC Milk Marketing

Market

ITC Milk Marketing

District ITC Hub

E-Chaupal

Member producers (farmers)

Support servicesCattle feedVet servicesRural health

Sales Revenues

Bonus

Money

mi

lkm

ilk

mi

lkm

ilk

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 e-chaupals, 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 milk-produce perishes within hours if not properly stored, additionally the chances of milk contamination increase with the time. Hence intermediate storage at the e-chaupal 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 requiredThe 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 requiredMilk 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 HubsThe 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 Equipment required Quantity H.P Capacity/ Make

1 Roller conveyor 1 - 5 mts2 Dump tank 1 - 1000 lts3 Milk pump 1 2.5 5000 lph4 Float balance tank 1 - 100 lts5 Milk pump 1 2.6 5000 lph6 Simple filter 1 - -7 Pasteuriser 1 - 5000 lph8 Holding vessel 1 - -9 Control panel 1 - -

10 Milk transfer pump 1 210 5000 lph11 Hot water generator 1 set 1.5 100000 KCal/hr12 Hot water pump 1 1.5 -13 Electrical panel 1set - -14 Remote control panel 1 - -15 IBT agitator 1 3 -16 Ice bank tank 1 - -17 IBT coils 1 - -18 Liquid separator 1 - -19 Chilled water pump 2 6 Beacon20 Frion Compressor 2 - FK 75021 Motor for compressor 2 15 Kirloskar22 Frion recoveror 1 - -23 Pouch filling machine 1 2.5 2500/hr24 Air compressor 1 7.5 Elgi Kirloskar25 Air cooling unit 2 2 -26 Cream separator 1 1.5 1000 lph27 Can steaming block 1 - -28 Can scrubber 1 1 200 cans / hr29 Can wash through 1 - -

30 Ghee boiler 1 1 250 kg/hr31 Ghee storage tank 1 1 500 kg32 Ghee transfer pump 1 1  33 Raw milk storage tank 2 2 5000 lts each

5. Supply chain Logistics system for e-choupal in MPThis table shows the growth of e-choupal over the years

Item 2001

2002

2003 2004 2005 2006 2007 2008 2009

e-choupalsNo of e-choupals

91 484 1348

3398 4930 5936 6400 6426 6476

No of hubs 6 11 35 90 127 139 150 140 130States covered

3 4 4 7 7 9 9 9 10

Villages networked

420 2280

6340

15975

23180

27900

30080

30200

30430

Farmers in coverage area(mil)

0.06

0.3 0.9 2.2 3.2 3.9 4.2 4.2 4.3

Source: ITC ABD

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 ITC’s purchase at mandis which has ranged between 2-9%

CY 2006-07 CY 2007-08Procurement category Quantity, t Rs Mill Quantity, t Rs MillITC procurement from traders

146,498 1989.2 140,632 2493.2

Percent from traders to total 32.53% 33.13% 34.18% 35.17%ITC procurement from farmers

303,805 4014.8 270,792 4596.8

Percent from farmers to total 67.47% 66.87% 65.82% 64.83%Total ITC procurement 450,304 6003.9 411,424 7090.1

ITC soyabean as share of :All MP mandis 6.74% 5.34%57 Mandis corresponding to 11.70% 9.02%

ITC hubsSource: 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.

Farmers TradersConsignment size in tons

No of deals

Weight, tons

Average weight of deal, tons

No of transactions

Weight, tons

Average weight of deal, tons

0-2 3280 3444 1.05 0 0 02-5 10,470 36238 3.46 0 0 05-7.5 1618 9648 5.96 142 644.59 4.537.5-10 625 5207 8.33 113 1009.4

48.93

10-15 45 493 10.95 1009 14037.48

13.91

15-20 1456 24159.67

16.593

20-25 67 1573.99

23.4924

>25 93 2501.8 26.9

4Total 16,038 55,03

03.43 2880 43926.

9915.25

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 company’s 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

CY 2008-09 supply chain costs

Mandi supply chain

e-choupal Mandi supply chain

e-choupal

Farmer

ITC Farmer

ITC Farmer

ITC Farmer

ITC

Freight 120 120 120 0 100 100 100 0Labour handling

50 40 0 40 50 50 0 50

Commission 150 100 0 50 270 180 0 50Handling loss 50 0 90 0 0Bagging - 75 - 75 - 75 - 75Cash Disbursement costs

- - - 50 - - - 87

Totals for farmer and ITC

370 335 120 215 510 405 100 262

Total for the supply chain

705 335 915 362

MSP for wheat

7000 10800

Farmer’s savings as % of MSP

3.57% 3.80%

Cost item in logistics chain

Details CY 2008-09

At e-choupal and hubSamyojak commission Not at choupal sagar 1.60%

At choupal sagars 0.60%Sanchalak commission Per tone 50Mandi cess On purchase price 2.2%

Hub to storageTransport(purchase point to storage point)

Per ton 350

Labour handling charges 4 rs per pag@ 11 bags/ton 44Storage rental Per month per ton 40

Fumigation 45 days 11Hub storage to portTransport(storage to rail head)

Per ton 150

Transport(rail head to port)

Per ton 800

C&F costs Bulk shipment(per ton) 300Moisture loss(for soyabean)

Per month 0.25%

Transit loss(for DOC, plant to port)

On the dispatched capacity

0.75%

Handling loss(for DOC, at port)

On the quantity received at port

0.5%

Specifically for DOC container shipments, Dhakchakiya to MumbaiTransportation from plant to portPlant to rail head Per ton 170Rail head to port Per ton 740Transit loss 0.75% 135C&F costs at PortFreight average Per ton 703Surveyor Per ton 33Fumigation Per ton 12Terminal handling and documentation charges

Per ton 330

Price reductions quality(average post survey)

1.25% per ton 236

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 don’t 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 isn’t 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.