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GRIP Framework

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SES Framework Can Help To Study l GRIP Framework

–  Governance of the Network –  Risks from various sources including Social

Groups & Governments –  Innovations: Indian Food & Retail –  Performance

l  Food Supply Chain Design avoiding social & political risks and using innovations in regulations, logistics, etc.

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State of Indian Food Sector

Consequences 1.Surplus food wasted away 2.Low incomes to farmers 3.Inefficient supply chain 4.Not meeting the young consumer preferences (processed hygienic food)

Opportunities for 1.Cold chain infrastructure builders 2.Processed food manufacturers 3.Food packaging & logistics providers 4.Food retailers and exporters 5.IT and data analysts 6.Research Institutions

Strengths 1.Vast natural resources (cultivable land, water, seasons) 2.Established farming system 3.Growing economy 4.Supporting government policies (FDI, APEDA, subsidies) 5. Vital outsourcing hub

Weaknesses 1.Small scale conventional farming 2.Primitive post-harvest methods 3.No channel master & many farmers to consumers intermediaries

4. Hardly any Food processing industry 5. Inadequate storage & transport (logistic )infrastructure

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Benchmarking Indian Food Chain Economic Integration

Resources &

Managem

ent

Product & Value Chain Innovation

Con

nect

ing

Tech

nolo

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Resources

Resources Management

Supply Chain Product Offering

Logistics

Economic Policies

Information Technology

Trade Tariffs

FOOD SUPPLY CHAIN

No Cold Chain

No Supply Chain Visibility

Packaging Duties High Protectionist

Too many intermediaries Few Processed Products/Labs

Abundant

Inefficient and Fragmented

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Inefficiencies in the Food Sector

l  About 30 % of all foods produced in India are wasted l  The producer’s share in the domestic consumer’s retail

price is 25 % . It is 50% in developed countries l  Only 25 % of food grains use modern storage facilities l  Annual post-harvest losses are estimated to total 10 % of

total food grain production. l  India produces a wide range of both topical and temperate

fruits and vegetables and is the world’s largest producer –  less than 2 per cent of production is processed –  25 % is lost as “wastage”.

l  Warm tropical climate, high temperature and high humidity conditions make cold chain mandatory

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Innovation

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Competitive Indian Food Retail

l  Innovations along four dimensions need to converge for Indian Food Retail to turn into a highly competitive vertical –  Supply Chain Innovation –  Institutions –  Resources –  Delivery Services : Logistics and IT

We call this the SES framework for Excellence in Innovation

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Wider Innovation Policy Needed l  Traditional science policy is scientific discovery &

invention followed by commercialization. l  A Wider innovation Framework should include both the

new to the market as well as new to the world innovations l  Innovations in Management (like Outsourcing) and

Institutions (Social, Policy,Regulation and Governance) need to be incorporated

l  Science, Technology, Engineering, Regulations & Policy, Management (STERM) contribute to innovations in services and determine the sector’s competitiveness

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Innovations In Food Supply Chain

l  Product and Value Chain Innovation –  Seed-Feed agriculture, Food Processing, Protein rich food,

Nutritious food Affordable , Accessible Awareness created for all sections of populations.

–  Low cost high quality food, Certified food like Halal , Organic etc. Store formats, Home delivery, e-retail, International markets through JVs

–  Market Channel Innovation :Joint Inventory management, CPFR, RFID, Category management, Operational Innovation; Outsourcing

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Innovations In Food Supply Chain l  Regulatory Innovation

–  Green, VAT, Customs for perishable goods, Trade, Hygiene, Regulations on packaging, formulations, pricing, procurement like APMC act, Essential commodities act, Minimum support price for PDS

l  Delivery Services & Technologies: Logistics and IT –  Cold chain, Packaging, Manual handling, Sensor networks for

visibility, Delivery with bad infrastructure, Distribution backbone, product recalls,

l  Resources and Resource Management –  Water, Power, Post harvest research, Food clusters, Food courts,

Product development and Testing laboratories, Talent

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Seed-Feed: Value Driven Agriculture

l  Current Scenario, Supply driven : The farmer is unaware of the market, Crops something and tries to sell in a mandi or to an agent and expects a fair price & immediate payment.

l  Desirable Scenario: The farmer crops to market demand the right (Optimal) grade of produce and sells to right customers to get maximum income

l  Need to transform the way agriculture works, create business orientation among the farming community

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Food Product Market Estimation l Estimate your market right

How many people will buy orange juice packets if it is as cheap as a coffee or tea on a road side stall and costs only Rs 5 Look at the reduction in the disease

burden

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How to achieve astounding 'breakout growth'

l  Sell value chains not products l  Start by asking what should be the scale

of operations to support low enough prices required to spur higher growth and penetration in the packaged food

market?

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Food Manufacturing : Opportunities

l  Halal hub (Export to South-East Asia, Middle East, ..);Vegetarian hub ;Organic food hub (Europe and USA); Sea food hub

l  Food processing SMEs in Rural India l  Distribution System l  Cold chain management l  Post-harvest technologies

l Potential for Huge employment creation

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IT in Food Supply Chains

Farmer Processing

Distribution Centre

Stores Transport

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Big data Analysis in Agriculture l  Advise from Agro-Meteorological Data

–  Hydrology: Surface Subsurface water budget –  Meteorology: atmosphere conditions –  Pedology: Soil type and Condition –  Phenology: Biological stages of plant development

l  Weather model ( precipitation, Humidity, temperature, Wind) l  Soil Moisture, Soil temperature, Evaporation l  Advise for field preparation, sowing, weeding, irrigation,

harvesting, chemical application.

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Retailing: Disruptive Changes

l  Retailers can gain an understanding of how shoppers move around the stores – where they go, in what order, how long they stay, when they come to the store, and how all of these questions map to actual sales.

l  Retailers need to develop predictive models for price discounting, advertising, and couponing. –  Forecasting based on past data, batch size calculation

using square root formula are being replaced by real time visibility and delivery on demand

l  Develop technology platform, tracks connections between people, products, brands and uses this to make product recommendations to customers.

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Integrated Distribution Centers

l  Logistics backbone Network for India l  Distribution center location, design and operation

–  Distribution center architecture and warehouse design –  Transportation scheduling from DC to consumption –  Green Shared IT and Logistic Resources –  Built under PPP

l  Plant locations are now at the forks and not at the hubs creating outbound logistics (Finished Goods) problem

l  Trucks and other moving equipment manufacture

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Innovate How to efficiently use existing Infrastructure

Take advantage of the vast network and logistical capabilities of the existing institutions such as Post office, Road transport corporations, Banks, etc to bring a host of services to rural populations.

Do not wait for the infrastructure to be available

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Risk

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Food Adulteration getting deadlier by the day

l  Unscrupulous dairy farmers invented synthetic milk - a deadly cocktail of urea, caustic soda and vegetable oil.

l Fruits, particularly mangoes, are ripened with calcium carbide. There are reports of fish being made to appear fresh with formalin.

l  Adulterants calcium carbide and formalin are banned and are known to be toxic. Some of them are carcinogens or cancer causing substances.

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Bird flu outbreaks in the World

Similarly H1N1 and other communicable diseases

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Organized Retail runs into stiff opposition from vested Social Groups

l  The organized Retail outlets both Local and Global run in to problems with the Kirana shops and Hawkers (Political) social networks.

l  Reliance Fresh was vandalized and is barred from opening shops in some states

l  Disquiet at the scale, impact and governance of global companies

l  Bangalore Traders Action Committee and Swadeshi Jagran Manch activists protested against opening of Metro centre in Bangalore Mandi

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Why Foreign wholesalers struggle in India?

l  Despite a compelling value proposition and a tremendous need for an intermediary, the wholesalers struggle in India

l  For businesses seeking a national presence, it is important to investigate what policy spheres come under the purview of the central government and what involves the local discretion.

l  In India, the central government oversaw FDI, while state governments had sole control of several other areas, including agricultural marketing.

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Governance

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Three Types of Network Governance

l  The Network Governance model –  Highly Centralized External Broker (Li & Fung, Olam Intl.)

–  Participant Shared Governance by Elected Board (Healthcare , Dairies, Cooperatives)

–  Participant Shared Governance with a Lead Player l  Producer-driven (Cisco, Nike) l  Buyer-driven (Wal-Mart, Carrefour, Levi)

l  All three governance forms are in practice & None proved superior.

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Producer-driven Chains l  In producer-driven chains, the lead firm, often a large

multinational manufacturer plays a central role in coordinating a distributed network of suppliers.

l  The lead firm controls R &D, product design & innovation. l  This type of chains are characteristic of capital- and

technology-intensive industries, such as automobiles, ICT & semiconductors.

l  Food manufacturers play a major role in organizing producer driven supply chains. –  Although challenged by large retailers, their power lies in supplying

and processing key commodities, such as high-value bean crops (e.g., coffee, cocoa) or key ingredients for a wide variety of processed foods (e.g., processing tomatoes).

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Buyer-driven Chain l  Large retailers and brands (e.g. Target, Wal-Mart,

and Carrefour) play the lead role sourcing from decentralized networks of independent suppliers, defining product and process specifications and standards.

l  The buyer-driven chain tends to be characteristic of labor-intensive, consumer goods industries, such as apparel, footwear, agro-industry and consumer electronics.

l  In India, the big retailers such as Moore, Reliance and Big Bazar are still in their early stages and the regulations play as road blocks

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Governance in Food SCN l Generally, even big farmers have no place in

Governance except in cooperatives. l Governments help the farmers through

Mandi procuring at a comfortable price for PDS. –  Food Corporation of India acts on behalf of the

Govt. and owns warehouses, people and other accessories. But rated poor

l Amul, E-Chopal and other private players play lead role in procurement.

l Need attention and Improvement

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ITC---E-Choupal

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e-Choupal Infrastructure and Services

l  Internet kiosk in the house of a trained farmer (Sanchalak) within walking distance of target farmers

l  Warehousing hub managed by the erstwhile middleman, within tractorable distance of target farmers

l  Customized knowledge on farm and risk management l  Better supply chain for ITC -- lower transaction costs, better

value through traceability l  Relevant real-time information results in higher income

–  Commodity prices, local weather, news, customized knowledge despite heterogeneity, reduced transaction costs

l  Direct marketing channel for farm produce –  Screened for quality, demand aggregation for competitive

prices and efficient logistics

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Intermediaries roles are redefined

l  They are called samayojaks (coordinators), who assist ITC in setting up new e-choupals by conducting village surveys and by identifying the best sanchalaks.

l  They manage the physical transportation of sales made at the e-choupal, collect price data from local auctions, and maintain records.

l  These coordinators earn a 1% commission on product processed.

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The Selling Process for the Farmer l  The farmer carries a sample of his produce to a local kiosk

and receives a spot quote from the sanchalak. If he accepts the quote, he can then transport the produce directly to an ITC collection center and get payment within two hours.

l  The material handling systems at the ITC collection center ensure that tractors, trolleys, or trucks can directly unload their produce without spilling any grain, and a modern weighbridge ensures precise weighing. The transportation cost is reimbursed to the farmer.

l  If the farmer is located in a remote area, he has the option of selling his produce to the sanchalak or to a nearby collection center

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The ITC eChoupal Scale

l 6500 Choupals are serving over 4 million farmers and villagers across 40000 villages in 10 states.

l  ITC Limited plans to scale up to 20,000 e-Choupals by 2012 covering 100,000 villages in 15 states, servicing 15 million farmers.

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E-Choupal l  The Sanchalak (person selected and trained by ITC) of an E-

Choupal acts like a hub or an orchestrator who connects the various stakeholders in the ecosystem

l  According to social network theory, Sanchalaks fill structural holes (Static holes that can be strategically filled by connecting one or more ties to link together disconnected components)

l  Sanchalaks’ key role in innovation diffusion and information dissemination needs to be recognized

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Olam International: Orchestrator of Global Agri-food Networks

l  Olam International has evolved as a global leader in agricultural commodities with its base in Singapore from a small Nigerian company

l  Olam does not own farms, but orchestrates a network of many small producers.

l  Olam International Limited supplies raw and processed agricultural commodities, grown mainly by small and medium-size producers in developing and emerging countries, to well-established regional and international customers.

l  Olam directly engages in the sourcing, processing, transport, warehousing and distribution of a broad range of commodities, including cocoa, rice, timber, cashew nuts, cotton, coffee, sugar, sesame, sheanuts, and spices.

l  Olam is a supplier to many of the world’s most prominent brands offering reliability, consistency, trust, traceability, & other value-added services.

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Conclusions

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India - Moving up the Value Chain

India need to move to a more sustainable

growth model of concurrently maintaining a vast manufacturing base, efficient demand driven agriculture and world class business services for the market and welfare of 1.2 billion consumers and provide the world with high-value goods and services.

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In Summary: Truly breakout food industry is possible l  Creating awareness among farmers

–  Demand driven agri production –  Seed to feed culture

l  Relaxing regulatory hurdles –  On sale of agri produces –  Reducing taxes on processed food items

l  Creating of laboratories for nutritious food product development and testing, encouraging growth of strong food processing industry

l  Developing talent for rural supply chain management

l  Developing an IT enabled distribution backbone N.Viswanadham