Tuesday, February 26, 2013

ITC revolutionized its supply chain network

In this week’s reading about the supply chain networks, the article “Smarter Medicine” draws my interest towards the similar case that revolutionized the whole supply chain. “Smarter Medicine” is very interesting case about intelligently addressing the basic problems in a supply chain, which is network management. I came across a similar case of eChopal that tells somewhat similar story of innovation in supply chain networks.
eChopal initiative was taken by ITC, a corporate giant in India to empower the farmers back in 1998-99. Company is a very big consumer of raw soybean and produce soybean products that are sold in domestic and international markets.  Back in those days company was facing the challenge of soybean raw materials ineffective supply chain. There were many problems such as lack of fine inputs, farming practices, inconsistent availability and fragmented farms that are dependent on mansoon rains. The main challenge before ITC management was to find ways to secure the competitiveness of the entire value chain so their business achieves full potential within limited budget.
In the decades old traditional system, farmers used to bring their grown product to an agricultural marketplace where potential buyers i.e. middleman rate their product.  “These middlemen used unscientific and sometimes outright unfair means to judge the quality of the product to set the price.” [2] The middleman intentions were to make most of the profit as illiterate farmers had no idea about the worth of their commodity. After putting so much time and effort in growing and transporting the commodity to market, farmers had no choice but to sell even on loss.
In villages, farmers after a long day of work gather in evening at a common place to chitchat about the daily affairs of business and life. ITC took advantage of the cultural norms of the rural people. ITC introduced eChopal system in which they setup a kiosk in villages. In every kiosk a computer with internet connection and a printer was setup. ITC linked the domestic prices of soybean to the international market and this information was made available on these computers. They carefully selected capable, trustworthy and influential people from each village and offer them commission based incentive to operate these kiosks.
Previously ITC was buying the soybean mostly from middlemen as farmers could not afford to bring their crop directly to ITC. Now ITC established the collection centers at carefully selected locations to purchase the soybean directly from the farmers. They even reimbursed the transportation costs to farmers. In marketplace, farmers were losing 5% of their crop in weighting errors but ITC make sure the farmer get the fair value for the actual weight of the crop. Dealing with middleman, farmers might have to wait for days, even weeks to get their money but ITC make sure that farmers are paid immediately. It was very important for the farmers’ business that is generally low on cash and where delays in any activity may adversely affect the crop production.
The setup of eChopal facilitated the new kind of supply chain network in which the technology was at the curx. Farmers now have the direct access to international market trends. In addition they had access to weather forecasts, best practices, crop information and FAQs. They now have the opportunity to learn from each other as well as from ITC professionals. Collection at hubs minimized the influence of middleman. Hubs also served the additive purpose of selling seed, fertilizers and equipment. Soil-testing in labs at these hubs and free advice from researchers helped the farmers to get better yields. By selling back the finished products of ITC at low prices, they established the sense of belonging and care among farmers.
The features such as knowledge, real-time access, transparency and above all trust made this ITC supply chain network a success.

[1] ITC eChoupal Initiative - Harvard Business Review

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