Table of Contents

Executive Summary Page

Part One Executive Summary 2

Issue Identification

Part Two Short Term and Long Term Issues 3-4

Environmental & Root Cause Analysis

Part Three Environmental & Root Cause Analysis 5-7

Alternatives and/or Options

Part Four Alternatives and/or Options 7-8

Recommendation and Implementation

Part Five Recommendation & Implementation 7-9

Monitor and Control

Part Six Monitor and Control 9-10

Part One – Executive Summary
ITC is one of India’s largest private sector companies and is well diversified. It has business units operating in multiple industries including soybean, tobacco, paperboard, retail, hospitality and foods among others (The ITC eChoupal Initiative). Although ITC is extremely profitable and one of the most respected companies in the world, they do face margin issues within their International Business Division (IBD). The IBD is ITC’s exporting agricultural commodities division, which is operated out of India. India’s agricultural sector is home to 72% of the population and 60% of their workforce creating a market with extreme profit potential. However, the 100 million the IBD made in 1998 is a nominal contribution when compared to the 2 billion in revenue ITC collected from all divisions.
In March of 1999 Chief Executive S. Sivakumar was approached by ITC Chairman, Y.C. Deveshwar, to generate a new business plan for IBD that would make the division more profitable. There were many factors hindering India’s supply chain for agricultural goods, which would have to be dealt with if the new business model was to succeed. After a brainstorming session with ITC management in May of 1999 Sivakumar decided to implement digital technologies within the supply chain (The ITC eChoupal Initiative). This way the entire supply chain would not be reconstructed and key beneficial components would be kept.
The addition of electronics will be costly; however, increased profits among other benefits will far outweigh these costs. After eChoupal was successfully integrated into ITC’s soybean supply chain they recognized the growth potential eChoupal could have on their other divisions and how it could be used as an upstream marketing engine for impressive future growth for ITC Ltd.
Part Two: Issue Identification
ITC was able to implement eChoupal within the soybean supply chain in 1999. This made the IBD’s supply chain more efficient and ITC more profitable. It solved a multitude of issues associated with the original supply chain process. These included unfair financial practices committed by contracted commission agents (CA’s), inaccurate weighing of crops, incorrect payment methods from CA’s to farmers and the length of time associated with selling products in the mandi. Although many issues where solved in the soybean supply chain there are still factors hindering the full potential of the soybean supply chain and eChoupal as a whole.
1) Transferring eChoupal Technology to ITC’s other Three Product Groups (short and long term): eChoupal created a multitude of benefits in the soybean product group, thus it was evident ITC had to try and transfer this software to IBD’s other product groups: coffee and spices, aqua food and value-added horticulture products. This would be an extensive process that will be costly and time consuming. The Chairman of ITC, Y.C. Deveshwar is quoted as saying “the task of adapting the eChoupal concept for different crops and regions continues to test ITC’s entrepreneurial capabilities (The ITC eChoupal Initiative).
2) Inferior products produced by farmers (Short and Long Term): ITC’s future direction is still undecided; however, Mr. Deveshwar has insisted on IBD growth and increased profit. The goal is to reach $442.6 million by 2005. This goal can be surpassed by using eChoupal as an upstream purchase application. There are many products rural farmers have difficulty obtaining such as fertilizers because of fragmented distribution channels, agrichemicals because of high labour costs, seeds were hard to obtain due to long lead times, insurance policies are not always taken out because of lack of trust and credit was rarely taken out since most farmers would have their savings linked to the loan, meaning if the farmer had savings in the account then the bank would use the savings to pay the loan back (The ITC eChoupal Initiative).
2) Upgrading Digital Equipment, Training Farmers and Lack of Hubs (Short and Long Term): The computer kits provided to the Sanchalaks will have to be upgraded every few years for the software and hardware to stay current. This would be an ongoing expense and for it to justified the IBD would have to make a certain percentage of profit on soybean crops. Included with the upgrades will be continuous training for the farmers. The other issue is the lack of hubs. ITC is currently procuring 50% of their soybeans from their hubs and 50% from the mandi. ITC would like this ratio to improve to 80%/20% respectively (The eChoupal Initiative).
Part Three: Environment and Root Cause Analysis
ITC has had a 100 year relationship with the farmers of India during which they have become an integrated part of the entire supply chain. In the late ‘90’s the IBD of ITC was experiencing a lack of profits and had to implement a change in the soybean supply chain as it was responsible for 2/3’s of the division’s revenue (The ITC eChoupal Initiative). ITC has now successfully integrated eChoupal into the soybean supply chain improving it dramatically. The lead farmers whose houses served as choupal’s, have now been designated as Sanchalak’s and are equipped with the eChoupal system. Farmers now come to the eChoupal with an ability to view important information such as weather, best practices, crop information, market information, Q & A forms and a news page (The ITC eChoupal Initiative). This has now enabled the farmer to make informed decisions on where and when to sell the harvest.
ITC has set up hubs throughout Madhya Pradesh (MP), which is home to 4 of the 5 million tons of India’s soybean crop (The ITC eChoupal Initiative). They have five processing units and 39 warehouses equating to 44 points to which the farmer can sell their soybeans. This combined with the 51 large soybean mandis in the state provides farmers with a large market of potential buyers (The ITC eChoupal Initiative). The 1,695 eChoupals ITC has throughout MP covers 8,400 villagers while reaching 80% of the soybean and wheat-growing areas in the state (The ITC eChoupal Initiative). These eChoupals provide essential information to the farmers and help in their decision on where to sell their products.
As the supply chain had been modified so had the commissions paid to Sanchalaks and Samyojaks, formerly known as commission agents. Sanchalaks were now paid a .5% commission on the sale of soybeans as they were procuring them for ITC. Without the Sanchalaks the farmers would be selling the harvest at the mandi, which is something the eChoupal system was slowly trying to deter. The Sanchalaks were also given opportunities to earn a larger commission of 2%-3% on orders placed for input items which were provided by ITC. Samyojaks were also kept in the supply chain albeit with a slightly different role. They were responsible for setting up the eChoupals, facilitating ITC’s purchasing transactions and assisting in selling transactions (The eChoupal Initiative). In addition to these roles Samyojaks were involved in establishing new eChoupals by acting as a liaison between villagers and ITC and conveying the benefits to villagers of the new system. Additional roles included managing warehouses, which were attached to ITC processing facilities that stored soybeans.
The eChoupal and ITC’s inputs sales enabled farmers to sell the harvests to ITC and purchase everything necessary to produce a high quality crop. They were also schooled on what specific products would do and when they should be used. This helped the farmer and ITC in becoming more profitable. High quality crops were naturally able to produce higher returns and with eChoupal, farmers could see market prices and thus, were willing to invest more into their crops. The ability for eChoupal to market ITC products has repositioned the International Business Division and has opened an entire new market full of potential.
Part Four: Alternatives and/or Adjustments
The IBD of ITC has come into a potential transition phase. S. Sivakumar had made a significant change in the soybean supply chain with the addition of eChoupal. The addition and success of this information platform has opened up the potential for it to be successful with their other product groups: coffee and spices, aqua food and value-added horticulture products. eChoupal has also opened up the possibility of being a medium for a marketing channel allowing farmers to purchase products from ITC. This was Deveshwar’s philosophy of a “commitment beyond the market” (The ITC eChoupal Initiative).
Alternative One: Growth and profit were the main objectives for the soybean eChoupal initiative. After witnessing the benefits of the soybean eChoupal the IBD created pilots within their other three products offerings. These pilots are still ongoing and if initial findings are positive they could make necessary adjustments based on their findings and test them further in other markets throughout India. If successful, the third stage would be to grow the project throughout India in order to reach as many markets as possible. ITC refers to this approach as the “Roll Out, Fix It, Scale Up” (The eChoupal Initiative). By including the eChoupal in all product lines ITC would be able to generate value by three other mechanisms: traceability, ability to match farmer production to consumer demand and facilitation of an electronic marketplace (The eChoupal Initiative). These mechanisms could be applied to the IBD’s product groups in their own specific ways. All of these tactics coincided with S. Sivakumar objective of increasing profits.
Pros: This approach could potentially redesign the supply chain process of the IBD’s other products lines making them more profitable in the process. They could remove unproductive parts of the supply chain and unfair business practices which plagued the soybean chain. By removing these, the chain would reap benefits and become more profitable immediately. The approach will follow ITC’s philosophy of contributing and securing the competiveness of the supply chain it is a part of.
Cons: The three other markets entailed different dynamics and other regions of India have differing economic conditions. Because the program was successful with soybeans doesn’t mean it will be with the IBD’s other products. Also, to run all three programs would also be an enormous expense as they would need similar computer kits to the ones used in the soybean market.
Alternative Two: The second alternative would involve a more strategic and long term growth plan. The IBD would grow using the eChoupal in all products offerings; however, it would also include eChoupal as marketing tool. The basis for eChoupal marketing would be based on three features: superior product and distinctive functional benefits, process benefits, and relationships (The ITC eChoupal Initiative). The eChoupal marketing channel would market products to farmers that were necessary in crop production. Considered inputs, these products would be upstream purchases by the farmer and products would include fertilizer, agrichemicals, seeds, insurance and credit. This strategy would be a long term one and would require more attention once the initial stage of eChoupal growth was stable.
Pros: Following this method would produce superior products, simplify transaction processes and strengthen relationships all while increasing profits. There was simply too much money spent on these inputs by farmers every year for ITC to ignore. Systems that were already set up could be used to facilitate the transactions. The Sanchalak’s could gather orders from his farmers, the Sanchalaks could order based on demand he saw from his fellow farmers and the third system was by shopping at the ITC facilities. Sanchalaks and ITC would receive commissions on all forms.
Cons: This would be an extensive project and would require additional staff and training.
Part Five: Recommendation and Implementation
For ITC and the IBD I’m recommending alternative two. The pilots for integrating eChoupal in IBD’s three other categories are underway. After the first pilot tests are complete I suggest the make the necessary adjustments and bring the eChoupals back to market. After they are validated in larger villages I advise the IBD increase the numbers in all product groupings and spread them across as many villages as possible. They must start with the ones providing the most profit so costs can be offset most effectively. As the markets adjust to the others their profits should also rise accordingly. As profits rise additional eChoupals will be established, which should begin to reduce the amount of soybeans purchased from the mandies.
I also recommend they use eChoupal as a marketing channel. Farmers throughout India spend an enormous amount of money on products to produce their crops and to insure them. The eChoupal system was technically already set up to distribute input products to farmers throughout India. Sanchalaks and Samyojaks will both play large rolls in this channel. As mentioned in the alternative the Sanchalak will either aggregate demand from their farmers, buy products based on calculated demand and/or shop at ITC facilities after harvests were sold. This system will also increase profits for both farmers and ITC. Farmers’ products will be of high quality because of the products bought from ITC and how they are grown thus demanding a higher price from ITC and a higher price from ITC’s customers. This alternative allows ITC to grow in two directions giving them a far greater profit potential than initially realized.
Part Six: Monitor and Control eChoupal is based on trust and it also allows for many communication lines. Sanchalaks and Samyojaks were left in the supply chain because of their ties to the villagers and the villagers trust in them. The constant communication between the IBD, ITC, the Sanchalaks and the Samyojaks helps control the process within itself and reduces the amount of resources necessary to monitor the chain. This however, doesn’t mean the supply chain should not be monitored and controlled by other means.
It is important for S. Sivakumar and his subordinates to have constant communication with their processing units and warehouses as these were points of contact with the farmers, Sanchalaks and Samyojaks. If issues were noted they could be mentioned to staff at these outlets. Meetings will be scheduled quarterly with all processing plants and warehouses will be able to contact necessary staff from the IBD whenever necessary. The eChoupal itself will be monitored daily as questions and concerns can be posted daily.
If this recommendation is implemented properly and ITC’s philosophies are followed by all supply chain personnel, I believe the revenue goal of $422.6 million will be surpassed.

References
1) The ITC eChoupal Initiative