Gaining Importance

Sanwaria Agro Oils, a soya oil manufacturer, is highly dependent on the production of soya beans as a raw material. Therefore, timely raw material procurement is a major factor in sustaining optimum capacity utilisation and lowering the production cost.

Increased demand and consumption of soya beans and soya products has prompted edible oil manufacturers such as Sanwaria Agro Oils to escalate their production capacity.

The total area under soya cultivation in India has increased from 6.34 million hectares in 2001���02 to 8.88 million hectares in 2007���08. The all-India production of soybeans has doubled in the same period from 5.96 to 10.0 million tones.

Consequently, the yield per hectare has increased from 940 kg/hectare in 2001���02 to 1124 kg/hectare in 2007���08. India is one of the largest consumers of edible oil, but the per capita consumption of oil is among the lowest in the world.

Soya beans are usually traded in conventional markets known as ���mandis���, where farmers bring their produce to bargain for a suitable price. Given the nature of this market, a procurement plan becomes essential for edible oil manufacturers to ascertain an uninterrupted raw material supply at an optimum price.

Timely raw material procurement at the right quality, quantity and price are the basic necessities for edible oil manufacturers. Hence, it is important for producers to have a time-tested procurement channel to avoid any delays or fluctuations in the supply of raw material.

With its robust raw material procurement capabilities, Sanwaria Agro Oils has an established presence in the soya industry. The company has established 60 direct procurement centres (choupals). The top management teams (including promoters) are personally engaged in sourcing raw materials from auction centres in Madhya Pradesh and also through direct procurement agents.

Direct involvement of the management and timely payments made to the farmers have resulted in the forging of stronger alliances between the company and the soya farmers. This initiative has also generated goodwill for the company in the region. In a scenario where demand for soya beans is increasing, this strong relationship and goodwill with farmers helps the company to ensure an uninterrupted supply of soya beans for production, resulting in better utilisation of the production facilities.

With an innovative model of direct procurement centres in place, the company���s management has benefited in the following ways:

Economies of Scale
Sanwaria Agro Oils is expanding its capacities, and the assured supply that is possible due to the procurement channel gives the company economies of scale. This is an important factor in improving the profitability of edible oil manufacturers in India.

Sustainable profitability through cost control
Incessant raw material supply allows the company to sustain its profitability and improve its operating margins through optimum capacity utilisation. It also enables them to curtail costs in
tough times.

Moving towards the higher value chain
Sanwaria Agro is now moving from selling loose oil to selling branded oil. In order to increase its retail presence, the company plans to focus on the retail and branded product market. As part of its retail strategy, the company will expand its retail product basket by foraying into mustard oil, cottonseed oil, soya flour, soya nuggets and other value-added soya products.

The direct procurement centres streamline the process of sourcing and obtaining raw materials, thus paving the way for the optimal use of production facilities and affording better returns.