Operational optimization at APMC Procurement

Abstract:
Agri-business, as the present scenario is concerned follows decade old practices of procurement, packaging and dispatch. Still, all the jobs are done manually by labourer varying from filling of sacks with grains to dispatch of the sacks. Taking into consideration the acute shortage likely to be faced by this sector we need to come up with innovative and automatic systems of procurement and dispatch, removing manual labour and enhancing value at various steps of value chain. Due to lack of automation, the cost at each step of value chain is high, wait time by stake holders is large, no online systems of fund transfer, lack of statistical and legalised data are common problems. The study deals with feasible solutions to the listed problems with a special cost saving structure for bulk procurers like MNCs.
 
Introduction
Agriculture provides employment to nearly two-third of the population and contributes about 30% to national income. It also earns valuable foreign exchange and supplies raw materials to various key industries. Its percentage share in GDP of India is around 12.3%. It is a comparable figure to manufacturing sector which contributes to around 15.9% in the overall GDP of the country. The sector remains the principal source of livelihood for more than 58% of the population. Agriculture sector has touched a growth rate of 4.4% in the second quarter of 2010-11 thereby achieving an overall growth rate of 3.8% during the first half of 2010-11.(Source: Annual report Department of Agriculture and Cooperation, Ministry of Agriculture Govt. of India).Therefore this sector deserves to enjoy the same privileges and support from government as enjoyed by manufacturing sector. 

In India, in spite of so much potential of agricultural sector, the sector is facing various challenges like obsolete methods of farming, no grading or standardisation of grains, exploitation by intermediaries, exploitation by labour unions in APMC markets, no technological advancement in procurement and supply chain and labour crises. We will limit our research framework to the challenges faced by farmers and traders in APMC i.e. Agricultural Produce Marketing Committee.
 
APMC: It is an area reserved for farmers and licensed agricultural commodity traders which facilitates the physical auctioning of the grains along with further operations in supply chain like warehousing, logistics support to other locations and processing of procured goods.

Objectives
The main objectives of our study are,
1. Removal of labour at various steps of procurement (keeping in mind the acute shortage of labour being faced by this industry).
2. Introduction of automatic systems at various steps of procurement to add value in the value chain.
3. Reducing cost of procurement and dispatch by these automatic steps.
4. Online payment transfers.
5. Reducing wait time by farmers. 
6. Preparation of legalised and real time documentation via use of ERP under the centralise control of APMC.

Defining(DMAIC) the problem
 
Current scenario at APMC:
 
Step 1: The farmers carry their produce to the APMC markets, whichever he/she feels will fetch him/her the best rates. The farmer gets to know about the latest prevailing rates from the daily meetings held at village choupals. At choupal, different farmers gather together daily and discuss the daily happenings, latest trends, technologies etc. Therefore, it proves to be a chief source of information for farmers.
 
E-Choupal: It is an initiative of ITC Limited, a large multi business conglomerate in India, to link directly with rural farmers via the Internet for procurement of agricultural and aqua culture products like soybeans, wheat, coffee, and prawns. E-Choupal was conceived to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries. 
 
The programme involves the installation of computers with Internet access in rural areas of India to offer farmers up-to-date marketing and agricultural information. The farmer can directly sell their produce to ITC without involvement of the middlemen and can get a good price without any type of exploitation.
 
But ITC is not able quote sufficient rates to the farmers, thus farmers find it feasible to sell their goods in APMC markets.Farmers bring his produce to the APMC markets in the form of tractor-trolleys or in sacks whichever he desires. Financially sound farmers used tractors while the lower strata use sacks.
 
The main problems in this step are
a. Some farmers do not own tractor-trolleys, so they have to arrange that on rent, thus incurring more expenses. The more the farmer has to wait to sell his produce, more the rent he has to pay.
b. Sometimes farmers are unable to sell their produce on a particular day due to overloading of auctioning arena, therefore they have to wait till next working day to sell off their produce which adds to more cost in the form of rent.
c. Farmers who come to APMC have to maintain their personal expenses till the time they do not return to their homes. The expenses include food, hygiene etc. This again adds up to their expenses. More the time they have to wait, more are the expenses.
d. Farmers have to bear the cost of diesel which is utilised to bring the produce to APMC.
 
Step 2: When the produce arrives in APMC market, it is diverted to auctioning area where various traders and intermediaries gather together to offer their bids. These traders camouflage various multinationals and local buyers. They act as intermediaries( aaratiyas) to fulfil the purchase requirements of various multinational companies like Cargill India Ltd., local conglomerates like Ruchi Soya etc. These intermediaries provide the companies with the blend they demand and in return charge them with a commission, usually varying from .5% to 1.5% of the total purchase.

Problems faced at this step can be summarised as
a. The intermediaries form a consortium and deliberately bid low for the produce, and at the end of the day all the traders fulfil their requirements at a much lower price taking farmers down the hill.
b. The companies on whose behalf the intermediaries purchase the goods, is not provided with the adequate information like average price of purchase, quantity purchased because the entire system is manually operated and it is not possible to report the daily details at the end of the day. So traders take undue advantage of this and report more purchase price than they have actually purchased upon.
c. If the entire system would have been computerised and linked with ERP then companies will have real time update about the purchase at different stations.
d. Intermediaries don’t know for how much quantity they have already bid for, because farmers bring their produce in trolleys and it does not provide any standard weight. So the trader gets to know the exact quantity only when the purchase is actually weighed in sacks.
 
Step 3: The highest bidder gets the opportunity to take away the produce until and unless the farmer denies to sell. Then the produce is taken to the intermediaries private arena, usually it resides within APMC market. There the produce is emptied in the sacks and then weighed. Then these sacks are transferred to the respective places. Again making use of labour.
 
The problems in this step are:
a. Excess labour is required to empty the sacks. In India the labour availability is declining day by day, and over that the labour which is available is not very efficient. According to a statistics as produced by Planning Commission of India, the projected growth of labour force in India is around 1.62% for the period on 2012-2017 as compared to 2.02% in the year 2004-2005. This certainly leads us to a thought that we need to have a system which requires least number of labourers. 
b. The intermediaries follow malpractices to weigh the sacks and thus exploit the farmers.
c. The labour union at the intermediaries arena exploit the farmers via unfair labour charges, vasooli etc.
d. The sacks in which the produce is weighed are usually torn, these torn sacks make the produce fall which is not actually taken into weight. Thus farmers do not get the price of their produce.
e. As all the weighing receipts are made by hand, therefore the actual amount weighed is not reported. The farmer is paid for the actual amount that is weighed but the receipt is given for less amount and thus the amount does not go to official records and thus all the further taxes are thus not paid.
 
Step 4: Then the farmer is given a receipt of the total produce he has weighed to intermediaries. According to the total weight and the bidding price, the farmer is paid the requisite amount in cash.
The problems in this step are
a. It involves the entire cash transaction, therefore the risk factor increases.
b. As the transaction is entirely in cash, then the element of black money involved is too high.
c. The farmers are not literate enough to count the total cash. As the cash given is large amount varying from Rs. 20000 to few lakhs. So it is difficult for farmer to count the cash then and there. So the intermediaries take undue advantage of this and pay farmers less.
 
Step 5: The filled sacks are then opened to form an aggregate known as darra or blend. 

Step 6: The aggregate or darra is again filled up in sacks. 

Step 7: Then the sacks are stacked. 

Step 8:The stacked sacks are then loaded in a truck for transport to required location. This again involves labour ( the cost structure is given later).
 
Step 9: The transported sacks are again opened at the destination which again requires labour.
 
Research Framework
We will be concentrating on removing the operational flaws in step 3 to step 9  i.e.
1. Design a system which requires least labour, and if it requires then it should not be overburdened.
2. Design an entire system based on ERP which will be governed under APMC.
3. Have all the cash transactions mapped to online banking transactions.
4. Remove the excess labour in each of the steps by automatic procedures.
5. Remove the unnecessary wait time of the farmers.
6. To provide government with exact tax.
 
Analysis(DMAIC) for  Improvements:
1. The problem begins when the farmer enters APMC, as he does not have a proper recognition in the form of identity card or any other proof like bar code etc. Therefore it is very difficult to recognise him.
2. Farmers do not have a bank A/c in a nationalised bank which will be required in online transfer of funds into his account.
3. No infrastructure for technological advancement like less no. of dharma Kanta( weighing machine),  less arena space provided to intermediaries.
 
Implementation (DMAIC) of the innovated (new) system:
1. A database needs to be formed about each farmer visiting the APMC market. The database will include certain critical information about the farmer, namely
a. His bank A/C number. If he does not have an account, then he will be compelled to make an account. So that all the monetary transactions can happen via this account.
b. His demographic information along with his personal information. This will collect huge data warehouse and subsequently effective information can be mined out.
c. The personal information will also make the farmer traceable in case some transactions have gone wrong because there is always a space for errors and omissions.
 
2. This entire information needs to be mapped on a smart card. This smart card needs to be synced with the ERP of APMC so that further transactions can be carried out. This smart card will be used wherever certain information needs to be entered e.g. the bidding price at which produce is sold, the weight of produce received by intermediary, providing banking details about the farmer etc.
 
3. ERP system to be installed at various checkpoints along with adequate hardware e.g.,
 
When the farmer enters APMC market, then his entry will be recorded at the gate of APMC market. This will give an estimate about how many trolley have actually entered into APMC and thus the intermediaries can plan their bid and procurement according to that. NCDEX in India is presently working on a similar model using its e-Mandi project being implemented in Karnataka.
 
When the bidding procedure takes place then the final bid is to be recorded. Currently all the bids are manually recorded which includes name of intermediary who won the bid, price of the bid etc. This step wastes quite a lot of time and energy and also creates lot of paper work. Several copies are produced (1. For farmer, 2. For intermediary 3. For APMC), which causes unnecessary redundancy and confusion.
 
Instead, if a PDA is used at the bidding arena ( offcourse it requires internet connectivity to the APMC server and to each intermediary.) then, when a particular lot is to be placed for bidding, then the bidder just have to place the smart card on PDA and then all the information about the farmer will be recorded. And he just has to enter the final bidding price and name of the intermediary to which it has been sold. Rest all the work will be done by PDA, One soft copy of the entry will be sent to APMC and the data will sync with APMC data with the help of ERP. One soft copy will be sent to intermediary. 
 
Farmer will be given one hard copy, where the complete address of the intermediary, the final amount of bidding and other basic information will be stated. This will also track the overall purchase by the intermediary. If he has fulfilled his target then he can stop bidding on subsequent lots.
 
4. Then the farmer will take the produce to the Dharm Kanta(weighing scale), where he will weigh the produce along with the weight of the trolley. All the recording of the data will be done via smart card and ERP. As the dharm kanta is at APMC market, therefore the cost to weigh is  very low for farmers. The farmer will produce his smart card at the Dharm Kanta, and all the information will be recorded. Finally the weight of the produce and trolley will be recorded. This is done because, when the farmer will empty his produce at the intermediary, then he will again weigh the empty trolley and thus the  final actual purchase made by the intermediary will be recorded i.e.
Weight of trolley along with produce-weight of empty trolley= purchase made by intermediary.
 
5. (At intermediaries Arena): After the bidding and after weighing the loaded trolley, the farmer will take the produce to the intermediary’s arena. The labour contractor at intermediaries arena will have a PDA there where he will record the entry of the particular farmer and trolley at his place by his smart card and after the entry he will empty the trolley. To handle so much produce, the intermediary should have a big storage (might be underground) where the farmer will empty the trolley.
 
After he empties the trolley, he will take the empty trolley to weigh so that final purchase made by the intermediary can be recorded. The final purchase amount is then sent to APMC and to the intermediary by ERP where all the information will be updated. The traditional system is very laborious as told earlier.  The new system does not require any sort of labour and it is also very quick because on an average it requires approximately 30 mins to empty the trolley. This does not include the time the farmer has to wait before his turn comes. Sometimes farmers have to wait for about 12 hrs. to weigh their produce. Therefore the new system will remove all the time lags.
 
The current system also involves misreporting of the figures as told earlier i.e. Suppose the intermediaries weigh quantity x, they report only x/2 on record. They make payment of quantity x but record only x/2 in order to save the taxes on remaining x/2 amount.
 
6. (The final payment for the produce purchased): Each intermediary should have an ERP based system installed in his place. The ERP will sync the following data
a.The bidding amount by the bidder, as transferred by his PDA.
b.The total amount of produce weighed, as transferred by dharm kanta.
 
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The farmer just have to show the smart card at intermediary’s payment arena. As he shows, all the data will be synced and payment voucher will be prepared. The final amount will be transferred to the bank account of the farmer by the ERP as recorded in the smart card . The subsequent voucher will be printed and will be given to farmer along with payment receipt. Currently all the payment vouchers are prepared either manually or by payment software which do not provide the facilities as provided by ERP. The payments are made by cash in the current system, this involves risk as well as significant component of black money and misreporting of data.
 
7. The produce which the intermediary has purchased is blended by automatic mixture in the storage area and  consequently  sacks are packed  by packing machines which again do not require labour. To carry the produce, automatic elevators will be used.
Labour will only be required to load the sacks into the trucks.
                                                                                OR
The intermediary can directly load the dump truck via elevator and transfer it to the plant location where it is required. This will save the cost at two ends
a.The cost saved in to load the sacks in truck at intermediary’s end.
b.The cost saved at the location of the plant to carry down and empty the sacks.
 
8. All the records about the traders purchases, taxes will be in sync with APMC office. And consequently all the taxes can be deposited by ERP. Currently due to manual system, no proper records are reported and thus no proper taxes are deposited.
 
In a nutshell:
Particulars
Current System
New System
Database
No database
Complete database which can be used for census and other data collection by various organisations.
Bidding process
Manual  recording.
Automatic recording. Real time sync with APMC’s ERP and intermediaries ERP.
Weighing the produce
Emptying the produce from trolley and filling into sacks, which is done by labour involving a lot of time and cost.
 
The cost for filling and weighing comes out to be Rs. 40/ton which the farmer has to bear.
No labour involved as dharm kanta used, time saved. All data recorded by ERP.
No mis reporting and recording of data.
Payment
Made in cash. Significant black money is involved.
Farmers not able to count the cash.
Made via bank to bank transactions  and all the transactions are legalised.
Payment directly deposited into account so all the problems related to cash are removed.
Documentation
Manually done
Based on ERP, all the tax sheets and stock sheets are prepared by ERP and corresponding taxes are deposited.
Aggregating, blending or darra
Manually done by labourers
Done by automatic blender.
Packing the darra
Manually done by labourers
Done by packing machine.
Final step
Packed sacks are  loaded in trucks by carrying on shoulders.
Packed sacks are carried by conveyor belts or can be transported by dumping trucks thus saving cost.
 
Cost Saved: Quantitative Measurement(DMAIC) of the problem
 
Currently all the cost of bringing the produce to market, emptying the produce in sacks and weighing them is borne by the farmer himself. This leads to exploitation at each and every level,
 
Rs.40/ton for emptying and weighing.
Rs 20 per lot as a favour to the person who weighs the bags.
 
Other briberies.
As the system is full of loopholes it is very difficult to avoid the above cost, and this is not the end, the produce which is bought by the intermediaries has to be carried to the required place, the sacks are to be emptied to form a darra( the blend of grains) and then again packed, off course these costs are borne by intermediary himself, but it still adds up to further cost.
 
The cost structure is given below
Rs.20/ton to carry the sacks to required location after weighing.
Rs.7/ton to empty the weighed sack.
Rs.25/ton to form a darra or blend.
Rs. 20/ton to again fill the sacks.
Rs. 15/ton to take the sacks for stacking.
Rs. 35/ton to stack the sacks.
Rs 25/ton to transfer the sacks in trucks.
 
Total=Rs. 147/ton
 
In our new structure the following cost will be saved by the farmer as well as intermediaries, in some cases the cost is transferred from farmer to the intermediary, thus preventing the exploitation of the farmer.
Particulars
Current System
New System
Remarks
Labour removed or not
Cost to empty and weigh
Rs. 40/ton.
No cost
As weighing  will be done at APMC dharma kanta and it is emptied by hydraulic trolley, therefore no cost.
Removed
Favours
Rs 20
No
As the produce does not need to weighed by the human, therefore no question of favouring.
Removed
Cost save by farmer
Rs. 40/ton+ favours
 
 
 
Cost Saved by intermediary.
Cost to carry the sacks.
 
Rs.20/ton
No.
As the produce will be emptied directly onto the intermediaries arena so no need to carry the produce.
Removed
Cost to empty the sack.
 
Rs.7/ton
No
As there are no sacks involved, therefore no cost to empty.
Removed
Cost to form a darra(blending).
 
Rs.25/ton
No.
The storage where the produce is emptied will have a mixture system which will remove manual blending system.
Removed
Cost to again fill the sacks.
Rs. 20/ton
 

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Operational optimization at APMC Procurement

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