India is the second largest producer of tea in the world and over 75% of the tea is consumed within the country. The second most popular beverage in the world after water, tea comes in varying qualities and grades. Having been plucked from gardens across variety of regions, the tea makes its journey to our cups. In between, large tea buying companies package it for us, having procured it from auctions and bought leaf factories. It is this procurement process which is fraught with inherent inefficiencies in terms of transparency, presence of middlemen, price discovery and turnaround time, among other things.
In 2008, an e-auction process initiated by the Tea Board replaced the centuries-old public outcry system. However, this process had its limitations. For one, it was conducted only through the six registered auction centres in India. The sellers had to transfer the processed tea 14 to 21 days prior to the auction at the warehouses. As an owner of a bought leaf factory in Assam shared, “The current auction mechanism did not raise the volume sales for us. It took 2 to 3 weeks to send the tea for auction catalogue and another 2 weeks to receive the payment. We could auction our produce only when the auction date and time were issued and at the registered auction centre. Also, transporting our produce to the central warehouse which was far from the factory is time consuming.”
Five years later, in 2013, mjunction services limited, India’s largest B2B e-commerce company, designed an online trading platform for a tea packaging company, one of the largest buyers of the country, which addressed and resolved these operational inefficiencies of the existing online system.
mjunction and the large buyer recognized that the demand for tea at these auctions had dropped considerably. In order to resolve this, a direct contact between buyers and sellers must be introduced, which will also eliminate intermediaries and other agents. The tea producers also detested the regulation which required them to sell at least half of their produce through auctions. Even the inventory of unsold tea bore additional working capital.
mjunction’s online solution ensured that small tea producers got direct access to a large buyer. A bought leaf factory owner in Siliguri said, “With access to a large buyer, our cost of sampling and transport cost has reduced as we do not have to move our produce elsewhere before selling. Even the workers in our factories and the green leaf suppliers have benefitted through this as we are able to give them regular wages”.
The platform also brought about savings for the buyer with optimum price discovery and improvement in their hit rate. They got the first access to fresh tea from a wide base of suppliers, within a day or two of production. mjunction CEO Mr. Vinaya Varma shared that, “Earlier, this business was done independently by them, who eventually faced complexity in price negotiation and ambiguity on the efficiency and quality. mjunction simplified this entire procurement process and customized its web enabled platform to facilitate the discovery of market driven price”. Through mjunction’s tea trading platform, the buyer gets access to good quality tea from small tea producers in Assam, Dooars and the South India.
The IT platform makes the process scalable, enabling any number of sellers to deal with the buyer privately. Under a ‘supplier offer site’, suppliers offer their produce as per client requirement according to the given schedule. The platform allows them to offer tea through online competitive bidding in a transparent and convenient manner thereby instilling trust among the stakeholders. As more suppliers became aware of this system they wanted to be a part of it.
“There is an average of 60% YoY increase in the number of suppliers onboarded. The trading started off with 20 suppliers from the Dooars and Guwahati region in 2013-14 and increased to 50 in 2015. 25 more suppliers were added with few from the Southern regions as well by 2016. Now we have 110 suppliers in total. mjunction tea buying solution leverages its wider supplier base to deliver double digit savings in shortest period of time. ” Mr. Varma informed. The buyer procures 100-105 million kilograms of tea annually and mjunction contributes by helping them procure approximately 20% of it.
The quantity of tea procured in 2015-16 rose to 9 million kilograms as against the 8 million procured in 2014-15. Currently the buyer procures 20million kg through the platform. Mr. Varma added that: “We are in talks with many other large tea buyers which will bring about a better profitability for the small tea suppliers.”