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    P r oj e c t o n

    Supply Chain Management of

    Mother Dairy

    Section C

    Vishwas Alse 12 FN-156

    Loveraj Singh Sokhi 12 FN-069

    Arindam Sarkar 12FN-

    Anirvaan hosh 12!"-022

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    ContentsA#knowledgemen$ %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%&

    '(e#)$ive S)mmar*%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    ,n$rod)#$ion and is$ori#al .a#kgro)nd o/

    N!! %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%is$ori#al a#kgro)nd o/ "o$her

    !air*%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    ro#ess o/ ro#)remen$ and !is$ri.)$ion o/ milk%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    DistributionChannels: %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    34AL, 78N 8L%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    S:8 Anal*sis /or $he S);;l* 7hain o/ $he 7om;an*

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    Ackno wledg em entThe knowledge and contentment obtained from doing this project would not be completewithout the mention of the following people.

    We would like to take this opportunity to thank our faculty mentor Lt. Gen D.V. Kalra forhis superb guidance and cooperation in carrying out this project. The knowledge he shared onvarious aspects of Supply Chain anagement has helped us gain critical insights about thesubject. !t is no e"aggeration that we would not have completed the project as per ourobjectives without his valuable support.

    We would like to appreciate the library and other staff of M! for providing us with thevaluable resources which aided us in getting updated knowledge of the latest statisticalsoftware#s.

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    Executive Summary

    Supply chain management in any company is re$uired to achieve the topmost customersatisfaction in terms of fulfilling their demand by the effective use of available resourceswhich includes various distribution channels% inventory and labour.

    The historical perspective of Supply Chain anagement says that it is the confluence of three powerful streams which are indicated as below

    & Sourcing% procurement and supply management& aterials management& 'ogistics and distribution

    !n this study analysis is done on the above three aspects by taking the company other (iaryas an e"ample. We have done the SW)T analysis of the company in the SupplyChain anagement *erspective following the brief history about +((, as well as other

    (airy. The current concerns faced and the best practices followed by the company were alsostudied in detail.

    !nformation related to the financial statements of the company was gathered from highly placed sources and scrutini-ed to obtain relevant insights regarding its working capitalmanagement.

    Finally we have recommended some measures to be taken to improve the Supply Chainanagement process at other (airy.

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    Introduction and Historical background of NDDBThe +ational (airy and (evelopment ,oard was founded in /01% with the mission oforgani-ing poor milk producers% thereby transforming dairying into an instrument for theeconomic development of !ndia#s rural people. The formation of the +((, stemmed from

    the vision of the then *rime inister of !ndia% the late 'al ,ahadur Shastri% to e"tend thesuccess of the 2aira Cooperative ilk *roducer#s 3nion 4in the state of Amul5 to other partsof !ndia.

    +((, began its operations with the mission of making dairying a vehicle to a better futurefor millions of grassroots milk producers. The mission achieved thrust and direction with thelaunching of 6)peration Flood7 in /89% a program e"tending over :0 years and which usedWorld ,ank loan to finance !ndia;s emergence as the world;s largest milk producing nation.(uring this period% dairy commodity surpluses were building up in

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    assurance to the consumer in respect of Duality and Safety of products manufactured andmarketed by other (airy.

    The +ational (airy (evelopment ,oard 4+((,5 commissioned other (airy in the first phase of )peration Flood in /8=. Considering the success of (airy industry +((,

    established Fruit Gegetable *roject in (elhi in /BB with 7SAFA'7 as its umbrella brand.

    With a view to separating the commercial activities from developmental activities% the +((,merged other (airy and the Fruit Gegetable project into a wholly owned companynamed other (airy Fruit Gegetable 'td 4 (FG'5 in April :999. This becomes theholding company of other (airy !ndia 'td 4 (!'5 @ a marketing company and other(airy Foods *rocessing 'td 4 (F*'5 @ a processing company. (F*' is a multi>unitcompany% with units at various locations in !ndia. other (airy% (elhi is one of the units of

    (F*'.

    The company is a highly trusted house hold name for its wide range of milk products likeilk% Flavoured ilk% !ce>Cream% (ahi% 'assi% Table ,utter% (airy Whitener% Hhee etc. The

    application for the award is being made for other (airy% (elhi unit.

    other dairy has taken up the concept of Total *roductive aintenance 4T* 5wholeheartedly. The number of employees involved in 2A!I/9 and again from //1>/0 to //8> //B from +ational

    productivity Council and a commendation Certificate for Jajiv Handhi +ational DualityAward% +ational :99=% )il and Has Conservation Award >:99=% !ndian !nnovation Award > :99= and Safety !nitiative Award > :991.

    )ver the years% other (airy has not only served the daily need of milk of the consumers of (elhi% it has also e"tended its milk to other States like Karyana% 3ttar *radesh% aharashtra%

    Andhra *radesh Hujarat and is e"panding its wings rapidly to serve the masses.

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    Strategically located other (airy booths across (elhi and +CJ make it convenient for youto pick up your daily re$uirement of ilk% Flavoured milk% ,utter% (ahi% 'assi% Cheese%

    Chaas and mouthwatering ice>creams. Today% other (airy has =%999 retail outlets

    and another B=1>odd booths.

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    "rocess of "rocurement and Distribution of milk

    other (airy sources its re$uirement of li$uid milk from dairy co>operatives and producerinstitutions. ilk is received from farmer co>operatives through insulated roadErail tankers atvery low temperatures in order to retain freshness.

    Pro cu re men t

    Fresh milk is sourced directly from state level co>operatives and other (airy own +ewHeneration Co>operatives 4+HC5. ilk received from individual producer is checked for all

    basic $uality parameters meeting company specifications re$uirements at respectivecollection chilling centers.

    ilk is then supplied to the (airy units through insulated ilk Tankers under refrigeratedconditions to maintain the freshness.

    Ch ec"in g #u ali ty

    At the dairy stringent hygienic standards are maintained. The milk in the

    tankers is first checked for $uality and freshness and then unloaded into huge insulatedstainless steel storage tanks. These tanks have a capacity of lakh liters each. )nce empty%

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    the tankers are thoroughly cleaned and saniti-ed using acid and alkali. The presence ofimpurities like urea% preservatives and germs like bacteria are checked. All these tests ensurethat only good $uality milk is accepted. Strict Duality checks are performed for all incoming

    ilk received at (airy units. These includes organoleptic 4Taster% )dor Appearance5%*hysico>chemical 4e.g. Temperature% Foreign matter% ? Fat% ? S+F% ?Acidity% ? *roteinetc.5% microbiological 4e.g. ,JT5% also presence of any adulterations in ilk 4e.g. Formalin%urea% starch% sugar% Hlucose% maltode"trin% nitrate% Salt% Kydrogen *er>o"ide% neutrali-er%ammonium compounds and Fat adulterations5.

    Commodities% ingredients packaging material used for our products are checked% approvedand released by Duality functions as per company specifications and re$uirements.

    Pro cessin g

    The products are manufactured in state of the art manufacturing facilities using innovative*rocess Technologies. The ilk received at the plant undergoes various processing steps

    before it reaches to the customer. 3nprocessed milk may contain small dirt particles invisibleto the naked eye. !n order to remove these% the milk has to be processed.

    At mother dairy% the processing of milk is done by process automation whereby state of artmicroprocessor technology is adopted to integrate and completely automate all functions ofthe milk processing areas to ensure high product $uality% reliability and safety. There are fourways of milk processing>

    First% Clarification in which milk is spun at very high speed% removing all dust particlesthat are visible to naked eye.

    Second% Standardi-ation is done% which helps to maintain milk uniformity by raising orlowering its fat and S+F 4solid not fat5 percentage to a desired level.

    Third% homogeni-ation is used% which improves palatability ofmilk.

    Finally% pasteuri-ation which kills all the pathogenic bacteria present in the milk and thus%making it safe for consumption.

    *rocess control parameters are monitored% recorded and reviewed as per the Duality *lan toensure right product right at first time.

    anufacturing processes are benchmarked against best>in>class standards towards continualimprovement for infrastructure and system re$uirements.

    Di s p atchin g

    After processing% the milk is chilled and stored in silos and further chilled to about : (egreeCelsius by the glycol chilling system% and then dispatched to the ilk Shops in insulated road

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    milk tankers. *rior to the milk being dispatched in tankers% it is tested for $uality to make surethat it meets the $uality standards. When the tanker arrives at the shop the milk is transferredinto a large refrigerated tank. 8/ tankers in the morning and 81 tankers in the evening bring inmilk from the regional collection centres. After collection the same tankers are utili-ed forthe delivery of the processed milk to the vendors and outlets. other (airy has over B:9

    ilk (istribution )utlets in the +ational Capital Jegion. calculated seasonal demands the outlets

    place their orders accordingly. !n order to satisfy immediate demand% :9 to :1 tankers are provided with a buffer stock of 199 litres each day so that they can be mobili-ed to cater thedemand in an area. To coordinate its operations all the tankers are e$uipped with KAradios.

    The strength of other (airy lies in adherence to systematic *rocess approach in the

    complete distribution chain to deliver product with highest $uality standards to our customersand consumers. This includes%

    . Availability of standard guidelines norms for warehousing% handling% storage andtransportation re$uirements.

    :. ,enchmarking of Transportation vehicles for infrastructure and hygiene re$uirements. ,enchmarking of CFA#s and (istributors for infrastructure and hygiene re$uirements

    =. ,enchmarking of ilk Shops for infrastructure and hygiene re$uirements1. onitoring of $uality parameters 4e.g. hygiene% storage temperature5 of the distributionchain

    D i st r ibu t i on C h a n n e ls :(istribution Channels Token (istribution Also% termed as 6 'ohe ki bhains M 4 etal,uffalo5% is an automated milk vending machine. C)W Container on Wheels or C)W is amanual milk distribution program in which cycle>rickshaws are employed for milkdistribution. Jetailers The packaged milk is distributed via the retailer network throughoutthe city.

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    Mer ch an$i %in g:

    The products are marketed through a chain of our own ilk Shops% retail outlets and mobilevending units maintaining best>in>class hygiene standards. !t is ensured that products areavailable% displayed appropriately and cold chain conditions are maintained to retain product$uality freshness.

    #uality Control

    Stringent $uality control methodologies are employed in other (airy. The milk is testedfor adulterations and $uality at the time of collection from the farmers. The ilk that comesfrom the collection points to the other (airy plant is ensured to have a temperature of notmore than 8NC and is subjected to 1 product and $uality checks. The ilk $uality is checkedrepeatedly after each processing phase and the temperature is judiciously maintained less than1NC always. ,efore the milk leaves the plant for the deliveryEdistribution outlets the milk istested again. The temperature of milk in the delivery trucks is always maintained less than8NC.

    All the trucks that deliver milk have specified guidelines to bring back 99 litres of milk afterdistribution. This is done in order to test the delivered milk and to ensure that the tankers arenot adulterated during distribution. Since all the employed processing procedures areautomated% no contamination by human hands takes place. To ensure milk freshness thecollection and distribution points are always chosen such that the travel time between them is

    always less than 0 hours.

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    S$%& Analysis for t!e Su''ly C!ain of t!e Com'any(ost of the Analysis done as part of the SW)T framework were related to the Supply Chainanagement and are indicated as below

    !t is difficult for any dairy company to achieve $uality along with efficient supply chainmanagement strategy. other (airy was successful to a considerable e"tent in terms ofhaving strengths related to product differentiation which has become a key value addition tothe consumers.

    !ndia being the largest milk producer country in the world presents great opportunities to allthe dairy companies. Kowever a company has to overcome the )perational hurdles as well ascompetitors to have sustained profits. !ts main competitor% Amul% is the leading dairy productcompany in !ndia which has spearheaded the white revolution and made the country thetopmost milk producer companies in the world. The following are some of the facts and best

    practices about the company

    & !t has significant market share in the branded milk segment and offer#s highdistribution margin compared to other (airy.

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    & The Supply chain efficiency of Amul is superior to all the dairy product companiesand it has also inspired companies in other sectors. As a conse$uence it has a larger

    penetration compared to other (airy.& The brand image of Amul is high compared to other (airy and it can be attributed o

    the advanced arketing and Advertising Strategies of the company.& !t resolves the union struggles very easily by giving them opportunities in the

    development of the products

    3sing indigenous technology Amul has a strong business inclination towards serving largenumber of small and marginal suppliers

    other (airy has done well in having good service reliability which made it a market leaderin (elhi +CJ. !t should continue challenging with the e"isting as well as upcomingcompetitors to achieve a uni$ue position as he leading company in the sector in the +CJmarket.

    SA)A*

    Safal as a Fruit and Gegetable 3nit other (airy F G *vt. 'td. 4Safal5 is a S,3 of other(airy. !t was set up in /BB as a pilot project with the aim to provide remunerative prices tothe farmers across the country thereby giving a thrust to the co>operative culture. !t achievesthis mission by establishing a direct linkage between farmers and customers.

    Safal is the market leader in the organi-ed F G retail business in (elhi +CJ where it sellsother (airy Fruit Gegetable *vt. 'td an average of 99 TEday through a network of

    =99O e"clusive retail outlets under brand name SafalE Safal *ure Geg% supported by a state>of>the>art large and ultramodern C(F located in angolpuri% (elhi. Jetail )utlets are also

    present in ,angalore under the brand name Safal (aily Fresh.

    Safal has also a prominent presence in

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    Pro cu re men t Mo$ el

    *rimarily all the items procured at the C(F 4Collection and (istribution Facility%angolpuri5 are divided into two groups. +ational items are procured from different regions in !ndia . : items % that are%mango%

    papaya% banana% orange% peas% apple% grapes% mausami% guava% potato% onion and tomato.:. Jegional items All other items e"cept : +ational !tems are procured from areas in and

    around 19>:99 km range of the (elhi>+CJ region.

    Safal+s Su''ly C!ain(

    As the vision and mission of the company deals only with providing benefits to the farmers

    directly% by eliminating the middle man in between. So% the produce is procured in fourdifferent ways!. The first and most preferred procurement option is to buy directly from the farmers

    and in case% if one farmer is not able to supply the desired $uantity with desired$uality% then from farmers# Associations.

    !!. !!. The second preferred option is to employ a middleman between farmer andcompany% called as a vendor. other (airy Fruit Gegetable *vt. 'td

    !!!. !!!. The last preferred option is to procure from the andi% through a vendorP whichis e"plained in the following diagram

    Vendor

    FarmerFarmers

    association

    CDF Safal BoothConsumer

    CommissionAgent

    AzadpurMandi

    Vendor

    Safal is only concerned with the A>grade produce procurement from vendors% thusminimi-ing company#s risk.

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    Core st ren gth s

    Safal#s two>decade>old e"pertise in supply>chain management is hard to match. !ts entiresupply chain has been online since inception. This system is now being upgraded with a newenterprise resource planning software. !n the first phase% it will connect Safal#s various unitsPand in the ne"t% it will help connect the village collection centres.

    Safal#s weekly payments are done through the farmers# association bank account% from whereindividual farmers are issued che$ues. 7There is complete transparency. We know how muchwe will get and when% unlike in the mandi where payment schedules are not fi"ed andcommissions to agents are as high 9> 1?%7 says 11>year>old +ilamber Tiwari of 2hedavillage in 3ttarakhand% who has been associated with Safal for almost : years now.

    The rates are decided according to the demand>supply situation% but the procurement rate is

    usually higher than the mandi rate. Farmer benefit is the prime motive% and everythingrevolves around that.

    !t is their scale and procurement process that help them give the best pricesQlower thanmarket rates for customers and higher than mandi rates for farmers. Safal#s success lies in therelationships and linkages it has established with farmers over the years. This ensures Safal is

    preferred over other buyers even if it is picking up less than 9? of a farmer#s entire produce.!n fact% Safal has emerged as a partner and advisor to farmers% right from the crop>planningstage to when the produce is harvested and sold.

    Safal#s e"pansion plan is based on leveraging its all>!ndia supply chain strength and its low>cost model of using rented and leased premises to sell its over :1 fruit and vegetablevarieties. With 8 1 direct procurement sources% :%999 associate growers and more than

    99%999 footfalls at its outlets everyday% Safal looks well>poised to take on the private players.

    Concerns

    !n :9 9% the Js 9%999>crore Hujarat Cooperative ilk arketing Federation 4HC F5 thatmarkets Amul beat other (airy in the branded packaged milk% other (airy;s main

    business. !n spite of maintaining a world class supply chain% other (airy% it lost its marketshare to Amul even in its own turf% (elhi. The key problems identified are

    a. &orro'e$ Goo$s: 3nlike Amul% other (airy does not have its own cooperative tosource milk. !t finds it difficult to ensure consistent and $uality milk supply. Amul%with its own cooperatives% sells fresh milk in (elhi. ,ut other (airy procures milkfrom other cooperatives. This led to both $uality and $uantity issues. To make up for

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    the shortage% other (airy mi"ed fresh milk with milk produced from powderedmilkQimpacting taste.

    b. Competition from M ( Cs: Food giants like *epsi% 2rafts% K3' and +estle are eyeingthe fast @ growing health food and drink market. +estle has come up with a variety ofmilk and milk products in the market which are targeted towards niche segment ofhealth conscious people. These products are priced much higher but are positionedwith benefits like 'ess fat Content and no re$uirement for refrigeration and boiling

    before consumption.c. Lo' profitability: Around 01? of the company#s revenues come from li$uid milk

    business which operates on low @ profit margin. B1? of the money that is earned byother (airy is paid back to the dairy farmers as procurement price.

    d. )egional appeal: The company is a strong brand in +CJ but has very limited presence in other parts of the country% unlike its closest rival Amul.

    e. !ie$ *an$s: A subsidiary of +((,% a Hovernment body% other (airy has limited

    freedom in critical decisions like setting tariffs and procurement price.f. +,ailability of Pro$ucts: Availability of other (airy products has also been an

    issue. Stocking is a perpetual problem. R other (airy has such a good distributionchannel Rin +CJ Qit has not made great use of it%. other (airy;s archaic supply%logistics and poor forecasting tools were to blame. Stocking is a combination ofcapacity and inventory management parameters. Work is now on to improve both.

    Best "ractices

    a. other (airy has the heritage of producing $uality and safe products by makingHood anufacturing *ractices 4H *5 a part of their heritage. A goo$manufacturing practice 4GMP 5 is a production and testing practice that helps toensure a $uality product. H * guidelines are not prescriptive instructions on howto manufacture products. They are a series of general principles that must beobserved during manufacturing. When a company is setting up its $uality programand manufacturing process% there may be many ways it can fulfill H *

    re$uirements. !t is the company;s responsibility to determine the most effectiveand efficient $uality process.

    b. Cleaning Sanitation of the processing e$uipment is ensured using automaticCleaning in *lace 4C!*5 systems by applying L1T# principles vi-. Technology%Time% Temperature% Turbulence and Testing. Clean-in-Place 4C P5 is a method ofcleaning the interior surfaces of pipes% vessels% process e$uipment% f ilt e rs andassociated fittings% without disassembly.

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    c. Critical control points 4CC*5% )perational *rere$uisite *rograms 4)*J*5 areidentified for each process using scientific methodology and appropriate controlmeasures are applied to ensure compliance of Duality and Food Safetyre$uirements.

    d. other (airy has an enterprise>wide SA* software footprint that supportsincreased visibility and greater control across its fast>paced operations @ where

    procurement% processing% and distribution can all occur on a daily cycle.!mplementation of best practices by SA* like C>level e"ecutive support% full>timeassignment of team members from each function and division% minimalcustomi-ation% have been carried out at other (airy.

    e. other (airy is an !S) /99 :99B 4D S5% !S) ::999 :991 4FS S5 and !S)=99 :99= 4< S5 certified organi-ation. other (airy has Certificate of

    Approval from Cost of goods sold

    ** *roperty *lant and Accounts *ayable Turnover Jatio 4 Cost of goods SoldEAccounts payable5

    AJTJ> Accounts receivable turnover ratio 4Sales JevenueEAccounts Jeceivable5

    !+GTJ> !nventory Turnover ratio 4Cost of Hoods SoldE!nventory5

    ** *roperty *lant and Accounts payable turns 4 01EA*TJ5

    ** *lant *roperty and

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    !+GT> !nventory turns 4 01E!+GTJ5

    C:C> Cash to cash Cycle AJT O !+GT > A*T

    J) Jeturn on

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    & Accounts *ayable Turns reduce by =.1? > Kence other (iary is paying off it#sdebtors faster in :9 9 than :9 % hence not leveraging the money owed to creditors.!n :9 it is holding back payments slightly longer. Kence it is slightly better off in:9 : using their resources for their operating cash flow.

    &

    Accounts Jeceivable Turns reduce by 0.08? from :9 9 to :9 hence other (iaryis unable to receive money faster from debtors.& !nventory turn reduces by 0. ? from :9 9 to :9 hence inventory is lying longer in

    :9 than in :9 9. !t is unable to turnover its inventory throught he supply chainfaster.

    & Thus the C:C or time re$uired to convert cash to revenue is longer by /. ?s in :9than in :9 9. The cash to cash cycle remains positive in both :9 and :9 9. Kence

    other dairy is paying off its suppliers before the entire revenue from the sales ofgoods has completely materiali-ed.

    & This gets reflected in the J)< where we see a reduction in J)< by :9.1 ? from:9 9 to :9 .

    ,ecommendations

    a. !t can organise various events the way Amul does its 6yatraM which includestaking the channel members on a guided tour of the manufacturing and

    procuring facilities in Hujarat. So that the channel members can have ane"perience of the working of the company and can pick up some $uality

    measures that can help them to synchroni-e and improve their ownfunctioning at various levels. This in turn help the company to co ordinate theentire value chain% as the channel members understand the various constraintsand liberties the company goes through.

    b. !ncreasing the margin of the distributor and making it atleast at par with Amulcan help in attracting new and more efficient distributors as well as strengthenrelationship with them

    c. !ncreasing the local procurement of milk to provide an ade$uate supply. Thelimitations that other (airy faces in terms of procuring milk is due to itsdependence on suppliers rather than having its own Cooperative. This comeswith huge transportation costs and wastage of milk due to reduced shelf life.We recommend other (airy to work on the backward integration for this

    problem.

    d. !nvesting in high yield cowsEbuffalos for e"isting farmers using a icrofinance model Another issue which other (airy has faced over decades andwhich is also inherent in dairy farming in !ndia is the yield per cow. The yield

    per buffalo for !ndian cows is almost E times lower than that of any Kybridor American cows like Uersey. Focusing on another backward integration

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    techni$ue% we will suggest improving the $uality of buffalos by eitherintroducing hybrid or pure breed% speciali-ed technological e$uipment. Factorssuch as fodder% environment% space availableEhead of cattle etc. you need tomention that too as it may be less e"pensive for the farmers or for the other(airy owned dairy to keep. We suggest use of another option too by thefarmers who cannot afford to go commercial dairy farming instead of the

    present village dairy farming for milking higher yields. Since a majority ofsourcing is done by marginal farmers who lack the capital for ac$uiring thecostlier Kybrid breeds% other (airy could look at provision of micro>financing to these farmers.

    e. other (airy can also reap the benefits of Third *arty 'ogistics by tieing upwith any 'ogistics company.

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    ,eferences

    Supply Chain anagement by Sunil Chopra% *eter eindl and (G 2alra h ttp EE www. m o t h e rd a i r y . c o mE o t h e r( a i r y * a g e s E ho m e .a s p "h ttp EE www.v is a >a s i a .c o mE a pE s ea E c o mm e r c i a lE c o r p o r a t e s Ei n c l ud e s E u pl oa ds ES up p l y VC h a i n V a n a g e m e nt

    V G i s a .p dfh ttp EE www.s li d e sh a r e .n e tE a b h i a ur a Em a rk e ti n g > m a n a g e m e n t > B 1 8 1SA* ,usiness Transformation Study of other (airy http EE arrow.dit .i eE cgiE vi e wcont ent .c gi arti cl e 991 cont e" t nitl ot r

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