Amul: The Taste of India

SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is chain of entities involved in the planning, procurement of input material and services, production of goods and services and distribution to the end user. It plays a vital role within organizations to operational efficiently. Amul, the dairy cooperative in the western India has one of the most complex and most efficient supply chain management in the world. The distinctive features of this paradigm involves managing a large decentralized network of suppliers and producers, simultaneous development of markets and suppliers, lean and efficient supply chain, and breakthrough leadership.

The Amul Distribution Model

Farmer

Village Dairy Cooperative society [VDCS]

Member Unions

Gujrat Co-operating Milk Marketing Federation [ GCMMF ]

Distributor

Retailer

End Consumer

Since, Amul focussed on development of the farmers and the objective of the network was to deliver profitable and equitable returns to a large number of farmers for a long period of time. This followed from the fact that the member farmers own essentially the network of

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Amul: The Taste of India cooperatives. And the weak economic status of these members created a long term need to develop social change. Consequently, the business model had to include both the costs and benefits of services that would be needed to deliver milk with high productivity as well as to assist farmers in improving their social environment which depended on high collection rate of milk. This required increasing membership with more Village Development Co-operative Societies (VDCS), raising the number of members per VDCS, and improving the milk yield (i.e., better cattle management), constant concern about the cost to farmers in the network and delivering quality to customers at low prices .Based on this, the role of the VDCS, GCMMF and the milk unions can be further elaborated using the three tier model which is as follows:

GCMMF
District Cooperative Milk Producers Union [Milk Union]

Village Development Cooperative Societies [VDCS]

The Amul three tier model

1. VILLAGE (VDCS)

DEVELOPMENT

CO-OPERATIVE

SOCIETIES

The milk producers of a village, having surplus milk after own consumption, come together and form a Village Dairy Cooperative Society (VDCS). The Village Dairy Cooperative is the primary society under the three-tier structure. It has membership of milk
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Amul: The Taste of India producers of the village and is governed by an elected Management Committee consisting of 9 to 12 elected representatives of the milk producers based on the principle of one member, one vote. The village society further appoints a Secretary (a paid employee and member secretary of the Management Committee) for management of the day-to-day functions. It also employs various people for assisting the Secretary in accomplishing his / her daily duties. The main functions of the VDCS are as follows: 1) Collection of surplus milk from the milk producers of the village & payment based on quality & quantity 2) Providing support services to the members like Veterinary First Aid, Artificial Insemination services, cattle-feed sales, mineral mixture sales, fodder & fodder seed sales, conducting training on Animal Husbandry & Dairying, etc. 3) Selling liquid milk for local consumers of the village Supplying milk to the District Milk Union Thus, the VDCS in an independent entity managed locally by the milk producers and assisted by the District Milk Union

2. DISTRICT CO-OPERATIVE MILK UNION (MILK UNION) The Village Societies of a District (ranging from 75 to 1653 per Milk Union in Gujarat) having surplus milk after local sales come together and form a District Milk Union. The Milk Union is the second tier under the three-tier structure. It has membership of Village Dairy Societies of the District and is governed by a Board of Directors consisting of 9 to 18 elected representatives of the Village Societies. The Milk Union further appoints a professional Managing Director (paid employee and member secretary of the Board) for management of the day-to-day functions. It also employs various people for assisting the Managing Director in accomplishing his / her daily duties. The main functions of the Milk Union are as follows: 1. Procurement of milk from the Village Dairy Societies of the District 2. Arranging transportation of raw milk from the VDCS to the Milk Union. 3. Providing input services to the producers like Veterinary Care, Artificial Insemination services, cattle-feed sales, mineral mixture sales, fodder & fodder seed sales, etc.
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Amul: The Taste of India 4. Conducting training on Cooperative Development, Animal Husbandry & Dairying for milk producers and conducting specialised skill development & Leadership Development training for VDCS staff & Management Committee members. 5. Establish Chilling Centres& Dairy Plants for processing the milk. 6. Selling liquid milk & milk products within the District. 7. Process milk into various milk & milk products as per the requirement of GCMMF. 8. Decide on the prices of milk to be paid to milk producers as well on the prices of support services provided to members.

3. GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION

Gujarat Cooperative Milk Marketing Federation (GCMMF) is India's largest food products marketing organisation. It is a state level apex body of Milk cooperatives in Gujarat which aims to provide remunerative returns to the farmers and also serve the interest of consumers by providing quality products which are good value for money. Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF) is the largest Organisation in FMCG industry engaged in marketing of Milk & Milk products under the brand names of AMUL and SAGAR with an annual turnover exceeding Rs 97.74 billion. GCMMF is a unique organisation. It's a body created by Farmers, managed by competent professionals serving a very competitive and challenging consumer market. It is a true testimony of synergistic national development through the practice of modern management methods. Some of the major functions of GCMMF can be summarised as follows: 1. Marketing of milk & milk products processed / manufactured by Milk Unions. 2. Establish distribution network for marketing of milk & milk products. 3. Arranging transportation, creating and maintaining the brand. 4. Providing support services to the Milk Unions & members like Technical Inputs, Management support & advisory services. 5. Supplying surplus milk from one Milk Unions to other deficit Milk Unions. 6. Arranging for common purchase of raw materials used in manufacture / packaging of milk products. 7. Decide on the prices of milk & milk products and arranging Finance for the Milk Unions and also providing them technical know-how. 8. Conflict Resolution & keeping the entire structure intact.
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Amul: The Taste of India

DISTRIBUTION NETWORK
Amul products are available in over 5, 00,000 retail outlets across the country and has over 3500 distributors. They have 47 depots with dry and cold warehouses to buffer inventory of the entire range of products. Over the years, Amul has also created a unique combination of four distribution highways for their ambient, chilled, frozen and fresh products. This rare capability has kept them ahead of competition. Macro-economic factors are continuing to influence shifts in consumer preferences, consumption occasions and are also instrumental in creating business. Most producers work with marketing intermediaries to bring their products to market. The marketing intermediaries make up a marketing channel also called distribution channel. Distribution channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption. The Head Office of GCMMF is located at Anand. The entire market is divided in 5 zones. The zonal offices are located at Ahmedabad, Mumbai, New Delhi, Kolkata and Chennai. Moreover there are 49 Depots located across the country and GCMMF caters to 37 Export markets. GCMMF has an excellent distribution network. It is its distribution channel, which has made it so popular. GCMMFs products like Milk and Milk products are perishable. It becomes that much important for them to have a good distribution. GCMMF distribution channel is

Product Agent Wholesaler Retailer Consumer

simple and clear. The products change hands for three times before it reaches to the final consumer. First of all the products are stored at the Agents end who are mere facilitators in the network. Then the products are sold to wholesale dealers who then sell to retailers and then the product finally reaches the consumers.

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Amul: The Taste of India

MECHANISMS NETWORK

TO

CO-ORDINATE

DISTRIBUTION

Robust coordination is one of the key reasons for the success of operations involving such an extensive network of producers and distributors at GCMMF. Some interesting mechanisms exist for coordinating the supply chain at GCMMF. These range from ensuring fair share allocation of benefits to the various stakeholders in the chain to co-ordinated planning of production and distribution. The spirit of cooperation is present in all transactions in the chain and is constantly strengthened by the vision and actions of Unions and the Federation. More importantly, the reason for setting up of this co-operative is not amiss to anyone in this large network organization. Employees, customers and distributors are constantly reminded that they work for the farmers and the entire network strives to provide the best returns to the farmers, the real owners of the cooperative. It may be remembered that coordination mechanisms have to link the lives and activities of 2.12 million small suppliers and 0.5 million retailers. There appear to be three critical mechanisms of coordination that ensure that decision making is coherent and that the farmers gain the most from this effort. These mechanisms are: Interlocking Control Co-ordination Agency: Unique Role of Federation Supplier enhancement and Network servicing

1. INTERLOCKING CONTROL
Each Village Society elects a chairperson and a secretary from amongst its member farmers of good standing to manage the administration of the VS. Nine of these chairpersons (from amongst those VS affiliated to a Union) are elected to form the Board of Directors of the Union. The Chairperson of the Union Board is elected from amongst these members. The managing director of the Union, 15 who is a professional manager, reports to the chairperson and the board. All chairpersons of all the Unions form the Board of Directors of GCMMF. The managing director of GCMMF reports to its Board of Directors. Each individual organization, the Union or GCMMF, are run by professional managers and a highly trained staff. It must be pointed that all members of all the boards in the chain are farmers who pour milk each day in their respective Village Societies.

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Amul: The Taste of India A key reason for developing such an inter-locking control mechanism is to ensure that the interest of the farmer is always kept at the top of the agenda through its representatives who constitute the Boards of different entities that comprise the supply chain. This form of direct representation also ensures that professional managers and farmers work together as a team to strengthen the cooperative. This helps in coordinating decisions across different entities as well as speeding both the flow of information to the respective constituents and decisions.

2. CO-ORDINATION AGENCY: UNIQUE ROLE OF FEDERATION

In addition to being the marketing and distribution arm of the Unions, GCMMF plays the role of a coordinator to the entire network within the State coordinating procurement requirements with other Federations (in other states), determining the best production allocation for its product mix from amongst its Unions, managing inter-dairy movements, etc. It works with two very clear objectives: to ensure that all milk that the farmers produce gets sold in the market either as milk or as value added products and to ensure that milk is made available to an increasingly large sections of the society at affordable prices. In addition, it has to plan its production at different Unions in such a way that market requirement matches with unique strengths of each Union and that each Union also gets a fair return on its capacity.

3. SUPPLIER ENHANCEMENT AND NETWORK SERVICING

Each Union has a separate Department that services the needs of the societies and also has the primary responsibility developing new societies in their district. The Societies Department is a single window contact point of the Village Society at the Unions. Their objective is to ensure that producers get maximum benefit and to resolve all their problems. They manage the procurement of milk that comes via trucks & tankers from the VDCS. They negotiate annual contracts with truckers, ensure availability of trucks for procurement, establish truck routes, monitor truck movement and prevent stealing of milk while it is being transported. Development of farmers, however, remains as their key role.

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Amul: The Taste of India

STEPS UNDERTAKEN BY AMUL TO IMPROVE SCM

With the changing times, Amul has undertaken many practices to improve its SCM. These steps vary from branding and advertising to strict quality checks at every point. Other such initiatives are educating the suppliers about the quality of milk, using technology to connect farmers with veterinary doctors, using technology to educate the farmers about cross breeding for better milk production, integrating IT to widen the reach with the help of Esupply chain management, using global philosophies such as Kaizen, Hoshin, Kanri etc. Few of the initiatives have been explained below.

E-SUPPLY CHAIN MANAGEMENT OF AMUL

Amul has installed over 3000 automatic milk collection system units (AMCUS) at village societies to capture member information, milk fat content and amount payable to each member. Each member is given plastic card for identification. The computer calculates amount due to the farmer on the basis of the fat content. The value of the milk is printed out on the slip and handed over to the farmer, who collects the payment from the adjacent window. Thus with the help of it farmer gets the payment within the minutes. On the logistic more than 5000 trucks move milk from the villages to 200 dairy processing plants twice a day according to a carefully planned scheduled. Every day Amul collects 7 million litres of milk from 2.6 million farmers (many illiterate), converts the milk into branded, packaged products, and delivers goods to over 500,000 retail outlets across the country ERP software named as enterprise wide integrated application system covers a operation like planning advertisement and promotion and distribution network planning. Each Amul office are connected via internet and all of them send daily reports on sales and inventory to the main system at Anand. At the supply end a computerized database has been setup of all suppliers & their cattle. Computer equipment measures & records qualities & quantities collected. Computer equipment measures & records qualities & quantities
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Amul: The Taste of India collected. At the distribution end stockiest have been provided with basic computer skills. Amul experts assist them in building promotional web pages.

TOTAL QUALITY MANAGEMENT:

As Amul deals with perishable food items so it makes sure that quality of each and every process and raw material is at par with decided standards. In todays stiff it is essential that Amul is at par with its competitors. For this purpose Amul has developed a unique system in which it also involves its partners and suppliers so that all the products are of uniform quality. The method used by Amul includes:

1. Kaizen 2. House keeping 3. Small group activities 4. Hoshin kanri

Shri B.M. Vyas, Managing Director, championed this movement realized way back in 1994 that with emerging competition, doing business would become more exciting yet extremely competitive which would require at times not only a whole set of new skills and competencies but quick adaptability to change without much stress or turbulence. The initiation of TQM was to work with the well-known quality management initiatives which have proven to be effective elsewhere to create a culture of transparency, openness and leadership in the organization.

1. Kaizen:Employees of GCMMF have done more than 1.60 lakhs Kaizen since May, 1995 which has impacted in bringing in a culture of continuous improvement. 2. .Housekeeping:The housekeeping initiatives have helped keeping the offices/warehouses neat, clean and more productive, be it is the Office premises or the godowns or even Computers.

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Amul: The Taste of India 3. Small Group Activities :150 SGAS have been carried out in cross functional groups to address the problem and pain areas of the organization i.e. issue of sales, marketing, HR or IT. The organization has implemented a customized ERP for seamless integration of its 40 odd sales offices from Jammu to Port-Blair and Head Office. All its wholesale dealers are computerized and GCMMF is moving on a B2B model for integration interface with its dealers be it for placing order for buying its products, sharing information or for tracking logistic of dispatch/receipt of goods. 4. Hoshin Kanri(Policy Development):GCMMF has also embarked upon for last 4 years, 'Hoshin Kanri' a employment initiative where more than 100 Officers/Heads participate twice in a year to review its business goals/processes and implement new initiatives. These are further cascaded to the wholesale dealers in different territories in a two day exercise called Vision Mission Strategy (VMS) Workshop. These initiatives have resulted common understanding of goals, eliminating communication barrier.

EFFECTIVENESS:The initiative of TQM six years back has made the organization efficient whether it be in launch of brands, or in implementing ERP's or expanding its distribution network. More striking feature of GCMMF's TQM experience is the integration of its business linkages at the village level to the forward linkage through its sales offices/wholesale dealers in the market.

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