Distribution Supply Chain Management of Amul

SUBMITTED BY

Supreet Chabra 03Vikas Lulla 05

Nisha Nihalani 08Neeta Nihalani 07

THE COMPANY

AMUL means "priceless" in Sanskrit. A quality control expert in Anand suggested the brand name “Amul,” from the Sanskrit “Amoolya,” Variants, all meaning "priceless", are found in several Indian languages. Amul products have been in use in millions of homes since 1946. Amul Butter, Amul Milk Powder, Amul Ghee, Amul spray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice cream, Nutramul, Amul Milk and Amulya have made Amul a leading food brand in India. (Turnover: Rs. 25 billion in 2002). Today Amul is a symbol of many things. Of high-quality products sold at reasonable prices, of the genesis of a vast co-operative network, of the triumph of indigenous technology, of the marketing savvy of a farmers' organization and have a proven model for dairy development.

List Of Products Marketed:

Breadspreads:

Amul Butter Amul Lite Low Fat Breadspread

Cheese Range:

Amul Pasteurized Processed Cheddar Cheese Amul Processed Cheese Spread Amul Mozarella Cheese Amul Emmental Cheese Amul Gouda Cheese Amul Malai Paneer (cottage cheese) Utterly Delicious Pizza

Mithaee Range (Ethnic sweets):

Amul Shrikhand (Mango, Saffron, Almond Pistachio, Cardamom) Amul Amrakhand Amul Mithaee Gulabjamuns Amul Mithaee Gulabjamun Mix Amul Mithaee Kulfi Mix

UHT Milk Range:

Amul Taaza 3% fat Milk Amul Gold 4.5% fat Milk Amul Slim-n-Trim 0% fat milk Amul Chocolate Milk Amul Fresh Cream Amul Snowcap Softy Mix

2

Pure Ghee:

Amul Pure Ghee Sagar Pure Ghee

Infant Milk Range:

Amul Infant Milk Formula 1 (0-6 months) Amul Infant Milk Formula 2 ( 6 months above) Amulspray Infant Milk Food

Milk Powders:

Amul Full Cream Milk Powder Amulya Dairy Whitener Sagar Skimmed Milk Powder Sagar Tea and Coffee Whitener

Sweetened Condensed Milk:

Amul Mithaimate Sweetened Condensed Milk

Fresh Milk:

Amul Taaza Toned Milk 3% fat Amul Gold Full Cream Milk 6% fat Amul Shakti Standardised Milk 3% fat Amul Smart Double Toned Milk 1.5% fat

Curd Products:

Amul Masti Dahi (fresh curd) Amul Butter Milk

Amul Icecreams:

Royal Treat Range (Rajbhog, Cappuchino, Chocochips, Butterscotch, Tutti Frutti)

Nut-o-mania range (Kaju Drakshi, Kesar Pista, Roasted Almond, Kesar Carnival, Badshahi Badam Kulfi, Shista Pista Kulfi)

Utsav Range (Anjir, Roasted Almond) Simply Delicious Range (Vanilla, Strawberry, Pineapple, Rose, Chocolate) Nature's Treat (Alphanso Mango, Fresh Litchi, Anjir, Fresh Strawberry, Black

Currant) Sundae Range (Mango, Black Currant, Chocolate, Strawberry) Millennium Icecream (Cheese with Almonds, Dates with Honey)

3

Milk Bars (Chocobar, Mango Dolly, Raspberry Dolly, Shahi Badam Kulfi, Shahi Pista Kulfi, Mawa Malai Kulfi, Green Pista Kulfi)

Cool Candies (Orange, Mango) Cassatta Tricone Cones (Butterscotch, Chocolate) Megabite Almond Cone Frostik - 3 layer chocolate Bar Fundoo Range - exclusively for kids SlimScoop Fat Free Frozen Dessert (Vanilla, Banana, Mango, Pineapple)

Chocolate & Confectionery:

Amul Milk Chocolate Amul Fruit & Nut Chocolate Amul Eclairs

Brown Beverage:

Nutramul Malted Milk Food

Amul Plants

1. First plant is at ANAND, which engaged in the manufacturing of milk, butter, ghee, milk powder, flavored milk and buttermilk.

2. Second plant is at MOGAR, which engaged in manufacturing chocolate, nutramul, Amul Ganthia and Amul lite.

3. Third plant is at Kanjari, which produces cattelfeed.

4. Fourth plant is at Khatraj, which engaged in producing cheese.

4

THE CHANNEL NETWORK

Distribution

5

GCMMFHead office

MU…1 MU...n

VCS…1 VCS…n

Village…1 Village…n

Procurement Channel (Upstream flow)

THE ANAND PATTERN

6

This structure consists of a Dairy Cooperative Society at the village level affiliated to a Milk Union at the District level which in turn is further federated into a Milk Federation at the State level.

1. Village dairy co operative societiesThese are societies formed at the village levels by milk producers. These societies function more or less as collection centers where members come & deposit their milk. These societies also arrange for distribution of cattle feed & provide veterinary services, guidance & other extension services to the farmers. These are the main agencies responsible for increasing production at the village level.

2. District/dairy co operative unionThese operate at the district taluka level. The village societies are the members of such unions. The unions arrange for collection of milk from the societies/collection centers & deliver it to the dairy. They also arrange for pasteurization of milk at certain centers before it is distributed.

3. Dairy federationsAll the dairy unions are affiliated to the dairy federations. The main role of the dairy federation is to provide R&D, marketing, distribution, pricing & promotional support to the dairy unions.

7

Distribution channel

First leg (from manufacturing units)

8

GCMMFHead office

Depot...1 Depot...n

WD…1 WD…n

Retail…1 Retail...n

Second leg

Third leg

Manufacturing

Downstream flow

The Distribution Network

Downstream Channel, it is the distribution part of the supply chain, from the manufacturing units to the retailers.

• First leg of transport is from the manufacturing unit to the company depots. This is done using 9 and 18 MT trucks any lesser quantity will be uneconomical to the company there fore is some time the quantity ordered is lesser then club loading is done which means that the product ordered is supplied with some other products.

• Frozen food the temperature of these trucks is kept below -18˚C• Dairy wet the temperature of these trucks is kept between 0-4˚C

• Second leg is from the depot to the WD’s, this transport is carried out in insulated 3 and 5 MT TATA 407’s here a permanent dispatch plan (PDP) is prepared where the distributor plans out the quantity of various products to be ordered on a particular date.

• Third leg this is the flow of good from WD’s to retailers, a beat plan is prepared and transportation is done on auto-rickshaws, rickshaws and bicycles.

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. All GCMMF branches engage in route scheduling and have dedicated vehicle operations Depots with dry and cold warehouses to buffer inventory of the entire range of products

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.

Policy regarding unsold/spoilt goods• If product crosses the shelf life, the retailer bears the costs.• If the product gets spoilt during the transportation or if there is any customer

complaint, Amul bears costs.• Unsold goods are not returned to the manufacturer. • No reverse logistics.

9

SCM AND MARKET LOGISTICS

10

THE BUSINESS MODEL

The strategy, design and practices in AMUL’s network are strongly driven by the objective of establishing and operating an efficient supply chain from milk production and procurement to product delivery to customers. Management of this network is built around two key elements –

1. Coordination of the diverse elements of the network and2. Use of appropriate technology that includes product, process and information

technology and managerial practices and systems.

Simultaneous Development of Suppliers and Customers: From the very early stages of the formation of AMUL, the cooperative realized that sustained growth for the long-term was contingent on matching supply and demand. The member-suppliers were typically small and marginal farmers with severe liquidity problems, illiterate and untrained. AMUL and other cooperative Unions adopted a number of strategies to develop the supply of milk and assure steady growth.

First, for the short term, the procurement prices were set so as to provide fair and reasonable return.

Second, aware of the liquidity problems, cash payments for the milk supply was made with minimum of delay.

For the long-term, the Unions followed a multipronged strategy of education and support. Only part of the surplus generated by the Unions is paid to the members in the form of dividends. A substantial part of this surplus is used for activities that promote growth of milk supply and improve yields. These include provision of veterinary services, support for cold storage facilities at the village societies etc. In parallel, the Unions have put in place a number of initiatives to help educate the members.

Managing Third Party Service Providers:Well before the ideas of core competence and the role of third parties in managing the supply chain were recognized and became fashionable, these concepts were practiced by GCMMF and AMUL. From the beginning, it was recognized that the core activity for the Unions lay in processing of milk and production of dairy products. Accordingly, the Unions focused efforts on these activities and related technology development. Marketing efforts (including brand development) were assumed by GCMMF. All other activities were entrusted to third party service providers. These include logistics of milk collection, distribution of dairy products, sale of products through dealers and retail stores, some veterinary services etc.

Coordination for CompetitivenessRobust 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 various stakeholders in the chain to coordinated planning of production and distribution. More importantly, the reason for setting up of this cooperative is not amiss to anyone in this large network organization.

11

Employees, third part service providers, 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 two critical mechanisms of coordination that ensure that decision making is coherent and that the farmers gain the most from this effort.These mechanisms are:

Inter-locking Control: - The objective 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.

Coordination 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:

1. To ensure that all milk that the farmers produce gets sold in the market either as milk or as value added products and

2. To ensure that milk is made available to increasingly large sections of the society at affordable prices.

Supplier Enhancement and Network servicing:- 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 VS’s. 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.

Technology for Effectiveness:- Technology or knowledge that was embodied in products, processes, and practices became an important factor in delivering effectiveness to the network of cooperatives. One distinguishing feature of AMUL (in comparison with other similar cooperatives globally) is the large variety in their product mix. Most of its plants are state of art and automated.AMUL’s innovations in the areas of energy conservation and recovery have also contributed to reduction in cost of its operations. AMUL also indigenously developed a low cost process for providing long shelf life to many of its perishable products.

12

The extent of IT usage includes a B2C ordering portal, an ERP based supply chain planning system for the flow of material in the network, a net based dairy kiosk at some village societies (for dissemination of dairy related information), automated milk collection stations at village societies and a GIS based data network connecting villages societies to markets. Milk collection information at more than 10,000 villages is available to all dairies (or Unions) to enable them make faster decisions in terms of production & distribution planning, and disease control in more than 6,700,000 animals. This is linked with information at all 45 distribution offices and 3900 distributors. This network is being extended to cover all related field offices in the network. The GCMMF cyber store delivers AMUL products at the doorsteps of the consumers in 125 cities across the country.Now, going back to the supply chain of Amul, Amul has gone the e- commerce way. The 1st

initiatives taken for an ERP system was in ’94. Tata Consultancy Services was hired to guide inits implementation. The implementation project was named as Enterprise- wise IntegratedApplication System (EIAS). Automatic Milk Collection System units (AMCUS) at village societieswere installed in the first phase to automate milk producers logistics. Amul also connected its zonaloffices, regional offices and member’s dairies through VSATs for seamless exchange ofinformation. Amul is also using Geographic Information Systems (GIS) for business planning andoptimization of collection processes. Indian Institute of Management – Ahmedabad supplementedAmul’s IT strategy by providing an application software – Dairy Information System Kiosk(DISK)to facilitate data analysis and decision support in improving milk collection. There are plans tointroduce features like Internet banking services and ATMs which will enable the milk societies tocredit payments directly to the seller’s bank account. Distributors can place their orders on thewebsite www.amul2b.com especially meant for accepting orders from stockists and promotingAmul’s products via e-commerce

TQM (Total quality management) at the grassroots has been a strong movement to develop leadership, operational and strategic capabilities in the entire network – farmers, village cooperatives, dairy plants, distributors and wholesalers and retailers. Key elements of this TQM movement have been:

Friday Departmental Meetings : Each Friday, at a prescribed time, every one in the network (from the farmers to the carry & forwarding agents) joins their respective departmental meeting to discuss quality initiatives and share policy related information.

13

Training for Transformational Leadership so that individuals are able to control their thoughts, feelings and behavior and take more responsibility in one’s life and surrounding environment.

Application of Hoshin Kanri principles to bring about a bottom-up setting of objectives – aligning policies for effective management of Unions & village societies on hand with those of channel member on the other hand. ISO/HACCP certification was obtained for all the Unions and each village society is in the process of obtaining the same.

Training for farmers and their families emphasizing the need for good health care for not only cattle during its pregnancy and feeding but also for expecting and feeding mothers and the whole family. This effort has brought about a significant social change towards such issues in villages that have cooperative milk societies.

Retail Census: GCMMF undertakes a census of all retail outlets (over 500,000) to evaluate customer perceptions and distribution efficacy of their network. This is being done by wholesalers in their respective territories at their own cost. This information is used for policy deployment exercise.

14

The network

Milk is procured from the villages and collected at Village Cooperative Societies (VCS), from there the milk is taken to manufacturing units where the milk is processed into various products.

The products are then transporters to the company Depots located in various parts of the country. The products are then sent to Wholesale Distributors (WD) and from there to the retailers.

The fact sheet

Milk is procured twice a day from 2 million from Gujarat alone The payment is made under twelve hours of procurement There are 10000 village cooperative societies There are 3600 wholesale distributors in the country 45 depots The C&F agents are not fixed and are decided by the local company

offices There are aproxx. 4,50,000 retailers spread all over India Total house hold consumers covered are 100,000 The milk procured per day is 5 million liters Where the total capacity of operation is 7 million liters per day The peak processing till date has been 6 million liters per day These co operative societies are bound to supply there produce only to

GCMMF Amul products are available in over 500,000 retail outlets across India

through its of over 3,500 distributors. 47 depots with dry and cold warehouses to buffer inventory of the entire

range of products

15

AMUL PARLOURS (DIRECT DISTRIBUTION)

With products being highly perishable, the supply chain ought to have to maintain correct temperature, humidity etc and the chain should move fast.

To reach out its consumers more directly and let them the total brand experience, Amul has come up with Amul parlors. These are called “Utterly delicious parlors”. They have come up in major cities like Ahmadabad, Bangalore, Baroda, Delhi, Mumbai, Hyderabad and Surat already, and many more starting up real soon. Till date there are about 400 Amul parlors across the country. These parlors are set at prominent locations such as campuses of Infosys, Wipro, IIM-A, IIT-B, temples, Metros etc.

Amul has franchisee plans in regards of the Amul parlors. This might start pretty soon, since the talk is almost at the end.

Facts– 2300 Amul Parlors in 2007-08– Goal of setting up 10,000 outlets by March 2010

16

Selection, Motivation & Evaluation of Channel Members

Selection:

The company takes into consideration a host of factors while selecting the channel members. This is because GCMMF believes that selection of channel members is a long run decision & the rest of the decision regarding the supply chain depends upon the efficiency & coverage by the channel members. The following are the host of factors considered by the company in selecting the channel members:

Authentication is required by the regarding the identity of the channel members, which includes the name & address, photograph of the location.

Proof of solvency which requires name & address of the channel member’s bankers

Safety of the inventory, which means that the distributor/ dealer should get the stock of the company insured.

Inventory or the perishable goods kept by the distributor/ dealer should be in good condition which means a detail of storage space & Refrigeration facility is to be provided. Refrigeration system should have deep freezers, cold room & walk in coolers.

Details of the delivery vehicle, which includes Light Commercial Vehicles, Matador, 3 Wheeler Van, Tricycle Van & Hand/Push cart. The number & model of each of the vehicle needs to be furnished to the company.

GCMMF acknowledges the fact that it needs to be sensitive to the market demands. For this it requires that a number of salesmen needs to be present on the field. The salesmen too are divided into various categories like the Field salesmen & Counter salesmen. Also the details of Clerical Staff & Mazdoors are to be provided. The technical competence of the salesmen needs to be mentioned

Details of the product kept of other companies have to be provided. The annual sales of these products too have to be mentioned. Also details of complementary products & product lines need to be mentioned.

Dealers of the company must carry a good reputation. This is due to the fact that the company believes reputation of the dealer affects the clientele.

Market coverage by the distributors needs to be defined which includes details of Geographic coverage & Outlets per market area.

The company also requires the dealers to furnish any Advertising & Sales initiative undertaken by them on behalf of the company.

17

Motivation of Channel Members

GCMMF strongly believes in maintaining a good relationship with the channel members so that they are genuinely motivated to work for the company. Also if the channel members are motivated, they can also initiate advertising & sales promotion schemes on behalf of the company. However to keep the channel members motivated to work, the company has to incur certain costs but the benefits of it are felt in the long run. The following are the motivation programs run by the company:

Distributors

One of the main factors, which keep the distributors motivated, is the margin. Usually the margins offered by the company are 8% & it is raised to 8.5%. Volume wise this comes out to be a big figure since Amul’s product has a good demand in the market. However compared to the other companies the margins are still lower since the new players in the market offer a much higher margin. But the very fact that Amul’s products have good demand in the market motivates the distributors to stock it.

Amul being a cooperative cannot afford to give heavy monetary incentives. Amul’s products are considered to be value for money since the company does not believe in charging high margins. In fact all monetary incentives are just the short run means to promote the company’s product. In order to keep the Channel members motivated in the long run, Amul builds on the concept of “Trade Marketing” which makes the dealers & the distributors believe that the company’s products are worthy of being pushed in the market.

The company is organizing various Total Quality Management initiatives & workshops. Here various counseling measures are undertaken by the company to improve the overall working of the distribution network.

Vision and mission statement: the company cascades down the vision to the various channel members, this is done through various events organized by the company at different locations where the values of the company are made clear and enforced to the channel members. Also the fact that Amul being a cooperative society cannot afford to spend exorbitantly on such events therefore it has a very traditional way of organizing these get together which leaves an impact on the members.

Amul yatras: this includes taking the channel members on a guided tour of the manufacturing and procuring facilities in Gujarat. So that the channel members can have an experience of the working of the company and can pick up some quality measures that can help them to synchronize and improve their own functioning at various levels. This in turn help the company to co ordinate the entire value chain, as the channel members understand the various constraints and liberties the company goes through. The company has already got the Rajiv Gandhi award for quality.

18

The Retailers

Trade schemes: these are undertaken by the company only for the hard selling items e.g. Ice creams, flavored milk etc. for these the company raises the margins by 2%, also schemes like good packaging incase of butter and cheese is undertaken by the company. However this is only a short-term initiative to push the products of the company.

Glow boards: the company puts up glow boards at the retailer and pays the major portion of the cost.

Schedule of the salesmen: they provide the retails with this schedule so the retailers can pre estimate the quantities of the various products needed.

Infrastructure facilitation: the company facilitates the retailers to buy freezers and fridges by formulating an easy payment program and a commitment to buy back the equipment at a reasonable price when the value of the equipment has depreciated.

Evaluation of channel members

Beat plan: this plan is generated for the various product categories i.e. diary dry, diary wet, Dhara and ice cream. A weekly schedule is prepared for various markets and the retailers the turnover for each of the product is calculated for the wholesale dealers.

Cumulative performance: the performance of the dealers is averaged out over a period of three years where a comparison is made of the present performance vis-à-vis the previous ones.

Target versus achievement: the performance and the targets are compared and therefore the gaps are identified which help in evaluating the WD and planning for the next year as well. This is done for each of the product category.

Other criterion

o Details of the bank guaranty o Photographs of the offices o Details of the WD salesmen and the product lines he deals in o The computerization facility available o The storage space o Refrigeration facility with photograph o Details of the delivery vehicle with photographo Summary of the monthly potential sales of marketso Summary of the product wise monthly sales potential of institutions

19

Conflicts And Co-Operation Among Channel Members

Conflicts

Ownership of assets: Previously the company used to give the cooling equipment on lease to the retailers, when the company wanted the stuff back; the retailer disagreed to comply and created issues of ownership.

Stocking issues: The company doesn’t want the retailers to stock the competing brand in the company leased fridges, which at times s hard to manage as retailers tend to do it often.

Replacement of products: The deterioration in the product calls for fail in replacement by the company this major issue of vertical conflict.

Credit policy: Compared to the market, the company’s credit period is less that specially incase of institutional sales is very important.

Packaging: The channel members for easy storing demand a better quality of packaging.

Replenishment: The replenishment of the stocks is not prompt in case of amul cheese and all hard selling items.

Margins: The Company provides least margins to all the channel members. For e.g. The retailer’s margin in case of butter is 8% as compared to Britannia’s 12%

20

Co-operation among channel members

Amul quality circles: The members of the local channel meet together every month to share issues and the achievements of the channel members. This is an ongoing activity facilitated by the company offices in different locations; this enables the channel members to learn together and reduces the horizontal conflicts among the WDs.

Pilot salesmen scheme: To reduce the financial burden of the distributors this scheme is run whereby half the cost of the salesmen is born by the company and the rest half by the distributor

Scheduling of sales: The WD’s provides Schedule of the distributor’s sales men to the retailers so that the retailers can plan out and place the orders in advance.

Agreement defining rights: The company makes the distributors sign an agreement where the areas of operation for each of the distributors are defined, therefore avoiding any conflict amongst the distributors regarding their areas of operation.

21

OBSERVATION, COMMENTS AND SUGGESTION

Observations

Amul has loyal cooperatives that provide milk only to them, over time the relationship of trust has built up with these people that amul leverages now.

Transport channel is another strength as the transporters have grown with the company overtime the bonding with them enables the company to give least margins when it comes to the distributors in the industry, lowering the costs.

The company believes that there is an ongoing demand in the market and therefore no promotions are needed to increase the sales, also the fact this would affect the cost of the product the company doesn’t undertake many promotion schemes.

The not being a profit driven organization, is able to provide products at the least price in the industry, and is able to give least channel margins as the channel members earn through volumes and not through high margins.

The company is enabled to push its new products into the market by hooking them onto the fast moving products like Amul butter; they force the channel members to carry the new products as well.

22

Comments and Suggestion:

Amul should go in for exclusive outlets in at least all the shopping malls coming up these days and any location where footfalls are large in number. The advantages of this channel will be:

i. Full range display ii. Easier to promote new products

iii. Easy to push impulse purchase productsiv. Brand building will be facilitated

Pushcarts should be increased in number in order to increase the market reach this can provide with e very effective channel for ice creams and flavored milks.

Trade promotion should be formulated for newly launched products instead of just tagging them onto best sellers.

The company should start a home delivery where a particular household will order full range of products required by it over a period of time. For this the company could provide a deliveryman with cycle to reach the different houses.

In order to motivate the channel members it is also very essential for the company to increase the margins for the hard selling items e.g. Amul dahi where it faces competition from Nestle & Mother dairy.

In order to remain sensitive to market demand, it is essential for the company to place additional salesmen on the field since the brand as such commands a high demand in the market but fails to match it with the supply.

23