8/11/2019 Economic Times - Appachi Supply Chain Article

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Supply ChainSpecial Feature

After an effort span-ning two decades todis-intermediate its co-pra supply chainrid-

ding it of exploitative struc-tures and agentsand infuse itwith technology platforms forquick, transparent transac-tions, FMCG major Marico isnearing its holy grail: the envi-able situation of dealing withthe smallest possible vendora marginal farmer with a fewcoconut palms in his backyard.

For a company that is the larg-est buyer of copra in Indiaabout 100,000 tonnes a yearand is striving to meet steadilygrowing demand for its popu-lar range of Parachute coconutoils, reliable, resilient and sus-tainable in-bound raw materialchains are a lynchpin for a cri-sis-free future. Supply chainis also a critical driver of effi-ciency in todays complex busi-ness environment, given theexisting cost structures andchallenges, says SaugataGupta, CEO of Marico.

The difficult years spent tobroad-base supply has evi-dently borne fruits for the com-pany feted for its supply chaininnovations. The recent unveil-ing of a pilot collection centrenear Madurai in Tamil Naduwhere farmers can troop inwith their raw coconutsis amilestone. Earlier, Maricowould buy only copracoco-nuts sun-dried by its vendors.This migration from copra tococonut is significant.

One-Stop ShopThis collection centre, one ofthe thousands it has, has ma-chines to de-husk, de-shell anddry coconuts. Farmers disin-clined or unable to converttheir coconuts to copra can selltheir produce here. It will be agame-changer, says JitendraMahajan, EVP and global head-procurement and operations,Marico. Once we refine thetechnology, bring down costs,we will proliferate.

For Mahajan, the Maduraicentre is a turning point instreamlining the supply chainand establishing a relationshipwith the smallest farmer pos-sible, without engaging in con-tract farming. Marico has suf-fered during two bull runs incoprain 2003-05 and in 2008-09as middlemensalted awaycopra in warehouses. From Rs18,000 a tonne in 2001-02, t heprice peaked at Rs 52,000 atonne in 2005. To break thisstranglehold, we set a goal ofreaching out to the largest pos-sible mass of people willing tosell, says Mahajan. Farmersdont usually hoard. Their aim,always, is to sell t heir produceas quickly as possible and in-vest in the next crop.

The procurement headdoesnt want to reveal too muchabout his Madurai experiment,but does say it also addresses ahost of present day challeng-eslike manpower shortage,emblematic to Kerala. Themechanised dr ying-conver-sion process takes just a day atMadurai, a vast i mprovementfrom the manual six days, anduses one-third of manpower.

Marico has also been endeav-ouring to increase productivi-ty among its farmer-partners.Its cluster farming initiative,which started in Malappuramin north Kerala, has expandedto 61 clusters i nvolving 7,982farmers covering 1,737 hec-tares; yields have improved20%, covering 300,000 palms.

Trader PressureIts been a long haul for Marico.This dis-intermediating initia-tive, which began in 1991, is acase study at IIMAhmedabad.Professor Saral Mukherjee, inhis inimitable style, takes stu-dents of supply chain manage-ment through Maricos break-

throughs and setbacks.In the early years, Marico

sourced its copra from termi-nal markets of Keralaa bee-hive of agents and unions.There was the transporter, whodoubled up as trading facilita-tor; traders undertook fumiga-tion, drying and sorting; aworkers union also sorted; an-

other union filled copra intosacks, and stitched and loadedthem; and yet another unionstacked the sacks in trucks. Allthese activities cost around Rs500 a tonne and gunny bags cost

another Rs 300 per tonne.Knowing that sourcing fromterminal markets couldnt goon, Marico diversified intobuying directly from individu-al traders, who moved truck-loads of copra directly to its fac-tory. Simultaneously, thecompany started developing asourcing base in Tamil Nadu tode-risk itself from Kerala.

In 2002, with of reverse auc-tions, price discovery and a feelof the quantity available be-came much easier. Thisprompted a month-long block-age by Kerala traders. Anothertactic adopted by angry trad-ers, to break and discredit theauction system, was to offer co-pra at lower prices than thoseaccepted by Marico, after auc-tion hours. Marico buyers,however, refused to renege onthe high prices contracted.

Professor Mukherjee saystraders even complained to top

management that the companywas incurring losses by buyingcopra at higher prices. We hadset up a transparent system,and we ensured the process isnever violated, says Mahajan.Once it was clear that no of-fline buying would happen,everything fell in place.

A web-based system was alsocrafted. Marico set up its firstcopra collection centre inPerambra, Kerala. It was an-other significant step in broad-basing supplies and also ena-bled Marico to rehabilitatesmaller agents as centre heads,paying them Rs 150 a tonne ascommission. It was important

to bring them in as they have aconnect with farmers and alsounderstand the commoditywell, says Mahajan. Today,over 50% of copra procurementby Marico is through its cen-tres; the rest comes from nor-mal trade.

naren.karunakaran@times-group.com

From Coprato CoconutIt began dis-intermediating its supply chainin 1991. The last link is being put in place

Tradition AndModernityIt handholds people in its back end. And

infuses modern techniques in the front

For weeks on end,Amishi Vadgama andTanvi Kareer scouredfor and absorbed the

patterns that embellish the 18thcentury mansions of t heChettinad region a blend ofsouth-eastern and Europeanarchitecturein Tamil Nadu.The duo was fascinated by thegeometry of the traditionalathangudi tiles. They alsoquickly mastered the designcues of parapets, cornices andcolumns that adorn the man-sions. Vadgama and Kareerare, however, not architects.

They are young designers atAppachi EcoLogic, and are fel-low travellers in a journey torevive traditional handloomweaving, promote farmer live-lihoods and popularise organic-cotton apparel in India.

Run by the husbandwifeteam of Mani Chinnaswamyand Vijayalakshmi Nachiarfrom Pollachi in Tamil Nadu,Appachi has put together aremarkable, integrated chainfor ethical fabrics, brandedEthicus. The chain starts byorganising marginal organic-cotton farmers of Kabini inKarnataka, and extends to in-terventions in ginning, spin-ning, weaving and retailing.

The project, while focused ontradition, infuses modern tech-niques in design, branding, po-sitioning and marketing. It hasbegun to stir the stagnancy anddespondence that handloomshad receded into.

A few months ago, when theMumbai-based ArtisansCentre held an exhibition-saleof Appachis sarees adornedwith motifs of Chettinad man-sions, they were lapped up byconsumers wanting to contrib-ute to sustainable agricultureand conservation. Each sareecost Rs 6,00 0 or more. But theyhave a silklike sheen due to in-novations in the way the yarnsare processed and twisted,says Radhi Parekh, founder-director, Artisans. Parekh hasteamed up with Chinnaswamy,and is a pivotal member of thesustainable fabrics ecosystembuilding up in India.

From Handholding...Building Indias first ethicalorganic-fabric brand has beena tempestuous endeavour forChinnaswamy. A scion of a tra-ditional cotton-ginning family,he chucked a Rs 40 crore com-mercial ginning business of sixdecades to start afresh in 2006.

I had no identity whatsoeverand, as a ginner, was just a face-less person in the textile chain,says Chinnaswamy, an MBAfrom Philadelphia University.I had to find and engage insomething meaningful to notonly sustain my interest andinvolvement in the sector, butalso ensure future generationsare keen to continue.

The answer wasnt very far offas he witnessed tribal farmersin the Kabini region strugglingwith sustenance. He ha ndheldthem through the process ofgrowing organic cottonpro-viding seeds and ot her inputs,freeing them from agent-mon-eylenders, certifying cottonand finally buying. He also ranprojects on water, sanitationand education in the villages.

Appachi started with 50 acres.Soon, Chinnaswamy was sit-ting on 20 metric tonnes of or-ganic cott on and no buyer. Hehad already paid farmers 23%premium over market price. Itwas extra-long staple specialitycotton; and because of the smallvalue and tonnage, I couldnt

even export it, he recalls.Chinnaswamy was left

with no alternative but

to convert the cottonto yarn at some ofthe mills he knew.

Now, he was sittingon mounds of quality

yarn. Pushed to a wall,wife Nachiar, with a mas-

ters in textiles from SNDT,Mumbai, suggested weavingtheir own sarees.

The duo began exploring the

intricacies of weaving and werehit by a story similar to that ofexploited marginal farmers.Individual weavers, workingon looms at home, were reel-ing under the viles of masterweaver-agents appointed bylarger retailer-buyers.

Master weavers gave yarn toweavers and a poor price. Thisleft weavers with no alternativebut to weave loose sarees, andsalt away yarn for themselves.This impacted quality, dimin-ished patronage from consum-ers for handloom, and led togeneral distrust and decline.No one wanted to walk the lastmile with weavers and find outwhat precisely their problemsare, says Chinnaswamy.

He gave yarn to weavers innorth India, but they deliv-ered sarees after six months.Appachi got into weaving. Theduo started looking in theirbackyard, in Tamil Nadu, andfound looms were going out ofbusiness. A search led them toChennimalai, once a thrivingloom town with 40,000 looms.They picked up 42 looms froma stack of 2,000 old, dismantledlooms piled up in a warehouse.

Appachi now has its own weav-ing centre in Pollachi. As a trib-ute to the skills of its workers,every piece of clothing sold byAppachi has a tag with a nameand picture of the weaver.

...To PositioningThe seed-to-saree cycle takes a

year to complete, but this yearAppachi broke even. Much ofthe focus is now on brandingand positioning. The idea is togo beyond certification, whichmost organic products are lim-ited to, and engage consumers.

Parekh often combinessales with an educationalcomponenta film or a talkseries on know your heritage.Chinnaswamy organises thecotton trail, which takes buy-ers from the Kabini Elephantcorridor, around which hiscotton is grown, through theprocess of manufacture acrossTamil Nadu, ending at thefoothills of Anamalai TigerReserve, near Pollachi, wherea product is woven and finished.

Parekh explains that while or-ganic-cotton fabrics cannot gomass, they can move out of t hepresent small niche. It alreadyhas experts like RajeshwariSheth of Anveshana brandand innovation network that

works with PepsiCo, Samsungand Unilever, among otherstrying to take Ethicus to mar-ket. We are also exploringbrand associations with simi-lar global brandslike Muji ofJapan, she says. The tribe ofMuji and Appachi is growing.Its good for communities, en-vironment and the economy.

One is Indias largest coconut buyer, another is a leading beerproducer and the third the countrys first ethical-clothing brand.What binds the three is that each has infused sustainability right

through their supply chain. Each has gone down to the very first stepof that chain and linked it with the last step through engagements

that do right by the people, the business and the planet

NAREN KARUNAKARAN

NAREN KARUNAKARAN

WHENEVERYONEGAINSIN THESUPPLY CHAIN

Slicing off Layers

1991Moves buying office from Mumbai

to Kozhikode; buying mostly from

Kerala terminal markets

1994Starts developing vendor base

in Tamil Nadu; gathers steam

between 1999 and 2003

1998Stops sourcing from terminal

markets, which accounts for 45%

of its purchases. Instead, contracts

with individual traders2002Stops daily price negotiations

with traders. Instead, starts thrice-

a-day reverse auctions. Lowest

bidder informed of accepted

quantity and destination factory.

Despite blockage by traders,

company persists with auction and

sourcing from TN

2003First company-owned copra

collection centre opened in

Perambra, Kerala

2003-05Introduces Web-based auctions to

replace telephone-based auctions.

Sophistication of transactions

gradually improves

2006Integrates Web-based auctions

with email-based transactions.

Starts e-payments to vendors

a day after receipt of copra at

factory. Also introduces SMSbased transactions. By year-end,

95% vendors opt for e-payments

2013Launches pilot collection centre to

convert coconut to copra

U

ntil 2005, procuring bar-ley in India was akin to abad hangover for Britishbrewer SABMiller. It ei-

ther bought in the open market orimported. It wanted to reduce itsdependence on imports, but the lo-cal produce was not up to its mark.

A similar quandary in Africa afew years ago had led SABMiller totweak its business model there. Itpartnered local farmers to growbarley and created a new beerbrand. It stabilised barley supplyfor itself and improved the livingstandards of barley farmers.

So, in 2005, SABMiller startedSaanjhi Unnati, or partners inprogress, in India: a programmewith farmers aimed at securing along-term, reliable source of malt-quality barley.

To start with, SABMiller set upthree centres in three t ehsils(blocks)Sri Madhopur, Chomuand Jobner in Rajasthaninvolv-ing 1,574 farmers. At these centres,farmers could sell their produce tothe company in cash, they couldbuy seeds at subsidised rates, theycould buy other inputs like fertilis-ers and pesticides, they could seekfarming advice.

Its been a win-win for all, AjitJha, director of corporate affairs,SABMiller India. Farmers used toperceive barley as an unstable cropbecause of price volatility at the

Chomu mandi. Saanjhi Unnatiimproved the quality of barley(seeds) and helped improve yieldsby 40-50% and farmers got a readybuyer, adds Jha.

Today, about 48% of the barleyneeds of the companys 10 brewer-ies across nine states is met viaSaanjhi Unnati. Another 14% isbought via traders, 37% from malt-sters (entities that process barley)and 1% is imported.

In Chomu district of Rajasthan,pre-fixed prices brought greaterstability for the small section offarmers growing barleya 125-daya year crop. Farmers were notable to make the right choices, due

to limited resources, on crop rota-tion and what to grow in the non-barley season, says Jha. Aided bySaanjhi Unnati centres, farmers inRajasthan now alternate barleywith groundnut and those inHaryana with paddy.

For farmers like BansidharYadav (65) from Chimanpura vil-lage, in Chomu district, SaanjhiUnnati has made the process ofbuying seeds and selling barleyless painful. There is a pick-up anddrop service for the produce andseeds. However, the high ir rigationcost is denting his returns.

Another farmer Nathulal Yadav,who has been in the programmefor four years, speaks highly of thegood quality Rajkiran varietyseeds supplied by SABMiller.The dry fodder generated is moreand animals find it tasty too, hesays. Also, my cow began givingmore milk and there are no miscar-riages during pregnancies.

Jha says the programme benefits10,000 farmers who grow 50,000tonnes of barley for SABMillerIndia. The number of centres hasinreased to 32, covering Rajasthan,Haryana, Punjab, Uttarakhandand Madhya Pradesh.

Prepped up by Saanjhi Unnatissuccess, SABMiller India hasstarted prodding farmers to growvarieties of barley that are moresuited for beer. In five to sevenyears, we expect to meet all ourbarley needs from this pro-gramme, says Jha.

Farmers TrustFarmer partnerships give it barley. And farmers earn higher incomes

SHELLEY SINGH &

AKSHAY DESHMANE

SABMiller

Ethicus

Marico

SustainabilityINDIA INC&

Covers 1,200 organic-cotton

farmers across 1,875 acres

Prices fixed every Saturday;

farmers have a say through a

price-fixing committee

Electronic weigh scales have

eliminated 8-10% wastage

Premium for Grade A cotton,

for contamination-free

produce, even to farmers

whose farms are in transition

to organic

Now operates through the

sole APMC yard where

organic cotton is traded

Appachi Project

ANIRBANBORA

8/11/2019 Economic Times - Appachi Supply Chain Article

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