Case Study of AMUL

Every day Amul collects 447,000 litres of milk from 2.12

million farmers (many illiterate), converts the milk into
branded, packaged products, and delivers goods worth Rs
6 crore (Rs 60 million) to over 500,000 retail outlets
across the country.

Its supply chain is easily one of the most complicated in

the world. How do managers at Amul prevent the milk
from souring?

Walk in to any Amul or Gujarat Cooperative Milk Marketing

Federation (GCMMF) office, and you may or may not see a
photograph of Mahatma Gandhi, but you will certainly see
one particular photograph. It shows a long line of Gujarati
women waiting patiently for a union truck to come and
collect the milk they have brought in shining brass
matkas.

The picture is always prominently displayed. The message

is clear: never forget your primary customer. If you don't,
success is certain. The proof? A unique, Rs
2,200crore(Rs22billion)enterprise.

Organization structure

It all started in December 1946 with a group of farmers

keen to free themselves from intermediaries, gain access
to markets and thereby ensure maximum returns for their
efforts.

Based in the village of Anand, the Kaira District Milk

Cooperative Union (better known as Amul) expanded
exponentially. It joined hands with other milk
cooperatives, and the Gujarat network now covers 2.12
million farmers, 10,411 village level milk collection centers
and fourteen district level plants (unions) under the
overall supervision of GCMMF.

There are similar federations in other states. Right from

the beginning, there was recognition that this initiative
would directly benefit and transform small farmers and
contribute to the development of society.

Markets, then and even today are primitive and poor in

infrastructure. Amul and GCMMF acknowledged that
development and growth could not be left to market
forces and that proactive intervention was required. Two
key requirements were identified.

The first, that sustained growth for the long term would
depend on matching supply and demand. It would need
heavy investment in the simultaneous development of
suppliers and consumers.

Second, that effective management of the network and

commercial viability would require professional managers
and technocrats.

To implement their vision while retaining their focus on

farmers, a hierarchical network of cooperatives was
developed, which today forms the robust supply chain
behind GCMMF's endeavors. The vast and complex supply
chain stretches from small suppliers to large fragmented
markets.

Management of this network is made more complex by the

fact that GCMMF is directly responsible only for a small
part of the chain, with a number of third party players
(distributors, retailers and logistics support providers)
playing large roles.

Managing this supply chain efficiently is critical as

GCMMF's competitive position is driven by low consumer
prices supported by a low cost system.

Developing demand

At the time Amul was formed, consumers had limited

purchasing power, and modest consumption levels of milk
and other dairy products. Thus Amul adopted a low-cost
price strategy to make its products affordable and
attractive to consumers by guaranteeing them value for
money.

Introducing higher value products

Beginning with liquid milk, GCMMF enhanced the product

mix through the progressive addition of higher value
products while maintaining the desired growth in existing
products.

Despite competition in the high value dairy product

segments from firms such as Hindustan Lever, Nestle and
Britannia, GCMMF ensures that the product mix and the
sequence in which Amul introduces its products is
consistent with the core philosophy of providing milk at a
basic, affordable price.

The distribution network

Amul products are available in over 500,000 retail outlets

across India through its network of over 3,500
distributors. There are 47 depots with dry and cold
warehouses to buffer inventory of the entire range of
products.
GCMMF transacts on an advance demand draft basis from
its wholesale dealers instead of the cheque system
adopted by other major FMCG companies. This practice is
consistent with GCMMF's philosophy of maintaining cash
transactions throughout the supply chain and it also
minimizes dumping.

Wholesale dealers carry inventory that is just adequate to

take care of the transit time from the branch warehouse
to their premises. This just-in-time inventory strategy
improves dealers' return on investment (ROI). All GCMMF
branches engage in route scheduling and have dedicated
vehicle operations.

Umbrella brand

The network follows an umbrella branding strategy. Amul

is the common brand for most product categories
produced by various unions: liquid milk, milk powders,
butter, ghee, cheese, cocoa products, sweets, ice-cream
and condensed milk.

Amul's sub-brands include variants such as Amulspray,

Amulspree, Amulya and Nutramul. The edible oil products
are grouped around Dhara and Lokdhara, mineral water is
sold under the Jal Dhara brand while fruit drinks bear the
Safal name.

By insisting on an umbrella brand, GCMMF not only

skillfully avoided inter-union conflicts but also created an
opportunity for the union members to cooperate in
developing products.

Managing the supply chain

Even though the cooperative was formed to bring together
farmers, it was recognized that professional managers
and technocrats would be required to manage the network
effectively and make it commercially viable.

Coordination
Given the large number of organizations and entities in
the supply chain and decentralized responsibility for
various activities, effective coordination is critical for
efficiency and cost control. GCMMF and the unions play a
major role in this process and jointly achieve the desired
degree of control.

Buy-in from the unions is assured as the plans are

approved by GCMMF's board. The board is drawn from the
heads of all the unions, and the boards of the unions
comprise of farmers elected through village societies,
thereby creating a situation of interlocking control.

The federation handles the distribution of end products

and coordination with retailers and the dealers. The
unions coordinate the supply side activities.

These include monitoring milk collection contractors, the

supply of animal feed and other supplies, provision of
veterinary services, and educational activities.

Managing third party service providers

From the beginning, it was recognized that the unions'

core activity lay in milk processing and the production of
dairy products. Accordingly, marketing efforts (including
brand development) were assumed by GCMMF. All other
activities were entrusted to third parties. These include
logistics of milk collection, distribution of dairy products,
sale of products through dealers and retail stores,
provision of animal feed, and veterinary services.
It is worth noting that a number of these third parties are
not in the organized sector, and many are not
professionally managed with little regard for quality and
service.

This is a particularly critical issue in the logistics and

transport of a perishable commodity where there are
already weaknesses in the basic infrastructure.

Establishing best practices

A key source of competitive advantage has been the

enterprise's ability to continuously implement best
practices across all elements of the network: the
federation, the unions, the village societies and the
distribution channel.

In developing these practices, the federation and the

unions have adapted successful models from around the
world. It could be the implementation of small group
activities or quality circles at the federation. Or a TQM
program at the unions. Or housekeeping and good
accounting practices at the village society level.

More important, the network has been able to regularly

roll out improvement programs across to a large number
of members and the implementation rate is consistently
high.

For example, every Friday, without fail, between 10.00

a.m. and 11.00 a.m., all employees of GCMMF meet at the
closest office, be it a department or a branch or a depot to
discuss their various quality concerns.

Each meeting has its pre-set format in terms of Purpose,

Agenda and Limit (PAL) with a process check at the end to
record how the meeting was conducted. Similar processes
are in place at the village societies, the unions and even
at the wholesaler and C&F agent levels as well.

Examples of benefits from recent initiatives include

reduction in transportation time from the depots to the
wholesale dealers, improvement in ROI of wholesale
dealers, implementation of Zero Stock Out through
improved availability of products at depots and also the
implementation of Just-in-Time in finance to reduce the
float.

Kaizens at the unions have helped improve the quality of

milk in terms of acidity and sour milk. (Undertaken by
multi-disciplined teams, Kaizens are highly focussed
projects, reliant on a structured approach based on data
gathering and analysis.) For example, Sabar Union's
records show a reduction from 2.0% to 0.5% in the amount
of sour milk/curd received at the union.

The most impressive aspect of this large-scale roll out is

that improvement processes are turning the village
societies into individual improvement centers.

Technology and e-initiatives

GCMMF's technology strategy is characterized by four

distinct components: new products, process technology,
and complementary assets to enhance milk production
and e-commerce.

Few dairies of the world have the wide variety of products

produced by the GCMMF network. Village societies are
encouraged through subsidies to install chilling units.
Automation in processing and packaging areas is common,
as is HACCP certification. Amul actively pursues
developments in embryo transfer and cattle breeding in
order to improve cattle quality and increases in milk
yields.

GCMMF was one of the first FMCG (fast-moving consumer

goods) firms in India to employ Internet technologies to
implement B2C commerce.

Today customers can order a variety of products through

the Internet and be assured of timely delivery with cash
payment upon receipt.

Another e-initiative underway is to provide farmers access

to information relating to markets, technology and best
practices in the dairy industry through net enabled kiosks
in the villages.

GCMMF has also implemented a Geographical Information

System (GIS) at both ends of the supply chain, i.e. milk
collection as well as the marketing process.

Farmers now have better access to information on the

output as well as support services while providing a better
planning tool to marketing personnel.