A STUDY ON SUPPLY CHAIN MANAGEMENT OF AMUL INDIA Ltd.
Assignment of SUPPLY CHAIN MANAGEMENT
Submitted to: Prof. Sushmita Paul (Faculty)
Submitted by:Abhishek Srivastava PGFB0902
Jaipuria Institute of Management, Noida TABLE OF CONTENT
S.No.
Topic
P.No.
1.
Company background
3
2.
Conceptual framework-SCM at Amul
5
3.
Problems & issues in context to SCM faced by Co.
8
4.
Analysis and findings
10
5.
Recommendations
12
6
Conclusion
14
7.
Bibliography
15
2
Company background: Amul means priceless in Sanskrit. The company has been comes into the picture in year 1946. A range of products such as butter, milk powder, cheese, chocolates etc. have made Amul a leading food brand in India. Amul or Gujarat Co-operative Milk Marketing Federation (GCMMF) is probably one of the best cases where the raw material as well as finished product is perishable. As many as 2.2 million farmers’ supply the raw material i.e. milk. The advantages are probably that the raw material supply is assured, come what may but on the flip side whatever happens to the finished goods market, raw material has to be procured and used up in the in the stipulated period. Inspired by Sardar Vallabhbhai Patel and executed by Morarji Desai a handful of farmers formed the Kaira District milk co-operative (KDMC) in 1946. About 250 l of milk collected daily from the farmers of two village co-operative societies was pasteurized and sent tot the Bombay milk scheme. In 1973, a need was felt to professionally market the products being packed at several dairy plants in the state and GCMMF was born. The growth process continued and the Anand pattern become a benchmark. In 1994, when all over India, quality and TQM philosophy was being implemented, GCMMF was being one of the frontrunners. Kaizen Programme was implemented in May 1995 to improve employee
participation and increase a feeling of belonging. This was followed by Hoshin ‘ kanry’, which means a methodology for strategic direction setting. It provides a step
by step planning, implementation and review process for managed changed.
3
AMUL fact file:Type:
Cooperative
Founded:
1946
Headquarters:
Anand (Gujarat), India
Key people:
Chairman, Gujarat cooperative milk marketing federation Ltd. (GCMMF)
Industry:
Dairy
Milk Production:
100 million ton (2008-09)
Revenue:
Template: Revenues $1billion USD (In 2008-09)
Employees:
2.41 million milk producers
Slogan:
Taste of India
Website:
www.amul.com
AMUL logo and its importance:-
Symbol of Amul (anand milk union ltd.) is ring of four hands, which are coordinated each other. The actual meaning of this symbol is coordination of hands of different people by whom this union is at top. The first hand is of farmer, second hand of processor, third hand of marketer, and the fourth hand of customer. It’s the joint effort & productive team work that has enabled its success.
4
Conceptual framework
SCM at AMUL (GCMMF):The supply chain of Amul can be described in the following steps:•
Some 2.2 million farmers from 12 districts of Kaira (kheda), Sabar Kantha, Baroda, Panchmahal, Rajkot, Bharuch, Mehsana, Banas Kantha, Surat, Ahmedabad, Valsad and Gandhi nagar reach the milk collection centers every day in the morning and afternoon to sell the milk their buffaloes have given in the morning and in the noon
•
The total milk procurement in the last year 2002 was an average 47.32 l per day where the peak the peak procurement touched a high of 62 l. All the milk procurement centers are equipped with computers and electronic milk testers (EMTs). EMTs ensure efficient testing and measurement of milk constituents. The computers run the automatic milk collection system, which ensures immediate preparation of milk payment bills, transparency of operations and greater efficiency of milk collection.
•
The milk is then sent to chilling depots in each village of the member unions. There are 10852 villages under GCMMF and each one has a village Cooperative society. VDC also runs the automatic milk collection system.
•
The milk is then sent to the 12 member unions. All of them run an ultra modern dairy that processes this raw material, which has traveled from faraway villages to the district headquarters.
•
The various products made under the flagship of AMUL such as butter, milk powder, cheese, dahi, ready made foods such as gulab jamun, pizza etc. Are manufactured at these various plants and distributed through the various distributors across the country and abroad through GCMMF.
5
FARMERS 2.2 million
VCS 10675
MEMBER UNIONS 12 units
GCMMF 700 Emp
DISTRIBUTORS 3000+
RETAILERS 500000+
END USERS
Fig: - The flow of materials and information at AMUL
One reason that Amul is the giant it is because it’s built on the back of a co-operative movement. It encourages women and farmers to collect milk from their cows and pass it on to them for a price. By managing milk supplies from the cattle farmer and sending it straight to the factory, it’s been able to eliminate the middleman. Complexity and dynamics of the supply chain make it very difficult to assess the interaction effects. Increased cooperation among network members has resulted in a number of changes at all levels -- operational, tactical and strategic, and has led to the emergence of practices and strategies for improving the chain's performance. Most prominent among these include the following: (i) Information sharing, often dynamically, to improve planning and execution. Sharing of POS data is a classic example for minimizing the distortions due to bullwhip effect and reducing perceived variability of demand by the partners in the chain. Typically, information sharing extends to costs as well.
6
(ii) Focus on core competence of each player in the chain. The objective is to ensure that each task is performed by the entity best suited for it. As a result, firms have become willing partners in ceding control to a network partner for improving performance. VMI in many industries is a direct result of such change in management thinking. Similarly, the role of third parties for providing specific expertise such as logistics has grown substantially with emphasis on supply chain. (iii) Capacity improvement: It helps network partners in improving their capability and making them competitive.
Milk procurement Total milk procurement by our Member Unions during the year 2009-10 averaged 93.02 lakhs kilograms (9.30 million kgs) per day representing a growth of 6.68% over 87.19 lakhs kgs (8.7 million kgs) per day achieved during the year 2008-09. The highest procurement as usual was recorded during January, 2010 at 122.5 lakhs kgs per day
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.
Managing third party service providers Its core activity lay in milk processing and the production of dairy products and all other activities such as logistics of milk collection, distribution of dairy products, sale of products through dealers and retail stores, provision of animal feed, and veterinary services were entrusted to third parties.
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Problems and issues with respect to supply chain faced by the AMUL
Managing this supply chain efficiently is critical as GCMMF's competitive position is driven by low consumer prices supported by a low cost system. In the past years the concept of just-in-time was not introduced, all GCMMF branches were engaged in route scheduling and have dedicated vehicle operations. Even though the cooperative was formed to bring together farmers, professional managers and technocrats would be still required to manage the network effectively and make it commercially viable. It is worth noting that a number of 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. Its network which consists of large number of members requires regular roll out improvement programs and high implementation rate of these programs. Having a strong supply chain is only the beginning, the remaining part includes making consumer products that sell well and that the same consumers are able to be impacted by marketing and advertising movements. The organization was also suffering from the high middleman cost which was tackled by managing milk supplies from the cattle farmer and sending it straight to the factory. Due to the perishable nature of the product, it has to invest in cold storage which is an extra burden in distribution and warehousing. 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. In addition to the weaknesses in the basic infrastructure, logistics and transportation services are typically not professionally managed, with little regard for quality and service. 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
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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.
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ANALYSIS and FINDINGS Following are the major issues analyzed with respect to the SCM of Amul:
Larger lead time:A number of third parties are not in the organized sector, and many are not professionally managed with little regard for quality and service. Due to the old and obsolete means of transportation, failure of machinery etc. leads the delay in reaching to retailers and end users. In the past years the concept of just-in-time was not introduced, all GCMMF branches were engaged in route scheduling and have dedicated vehicle operations. Due to the perishable nature of the product, it has to invest in cold storage which is an extra burden in distribution and warehousing. As a result need of JIT were felt and the concept has introduced to avoid any kind of delay and destruction of products. Introduction of just-in-time inventory strategy improves dealers' return on investment (ROI).
Gap between demand and supply:Due to the unprofessional and inexperienced 3PL providers there is vast gap between demand and supply. In the peak season, the company fails to satisfy the retailers’ demand on certain products. Since the lead time was high so company were unable to get raw material on time and also were unable to produce final product to match with the quantity demanded by retailers and consumers. Amul decided to focus on farmers facing business processes such as supply, distribution and its own internal operations. The main goals of the supply chain initiative were improving forecast accuracy to match supply with demand, delivery performance to avoid stock-outs thereby creating a dependable and reliable brand image without excessive spend. These steps were taken to reduce dependency on cold storage.
SUPPLIERS: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.
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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. The 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, some veterinary services etc. Some other issues found in its supply chain are as follows:•
It has excellent ability to anticipate the right type of product at the right time through the years.
•
Amul is a cooperative where the milk suppliers are the shareholders. The owners decide what they should pay themselves for the raw material they supply. A unique situation where the owners of the company are also its largest vendors!
•
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.
•
Introduction of just-in-time inventory strategy improves dealers' return on investment (ROI).
•
In order to manage the network effectively and make it commercially viable professional managers and technocrats were introduced.
•
The company has core competency in milk processing and the production of dairy products and all other activities were entrusted to 3PLs
•
Infreight logistics solutions limited, Transport Corporation of India, Gammon India ltd. are some of its main 3PL providers.
•
Amul was one of the first FMCG 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. It 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.
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Recommendations & suggestions •
Amul should improve its distribution system, as it has already implemented on ERP in the company, still due to in disciplined behavior of its distributors, retailers suffers which ultimately affect the consumers.
•
We know that the time schedule of the distributors & their transportation system cannot be capsuled, but they can reduce their errors. E.g. drive carefully to prevent accidents.
•
Manpower should be more than 18 years of age. (in some of the areas, we have observed small children engaged in loading & unloading the trays from the truck)
•
Before offering any extra benefits or schemes to their retailers, Amul should aware them in advance, so that the incentives can be reached in the right hands at right time. otherwise distributors enjoy the benefits of retailers.
•
Codification of raw material should be done in an easily understand manner.
•
Reduce the solving time of the consumer/retailers’ complaints.
•
Payment to the milk suppliers should be made on time to ensure the proper inflow of milk.
•
Amul should also launch certain schemes for households. It has schemes for retailers but not for households. This section being the major user of milk and in order to enter into a new area such starting schemes can be very helpful.
•
For refrigerated and frozen food distribution, a world class cold chain would help in providing quality assurance to the consumers around the region.
•
Logistics and transportation services should be professionally managed to avoid wastes.
•
Use of internet for exploring the unknown terrain.
•
Active customer feedback should be taken regularly for increasing product line.
•
Employees of GCMMF should involved actively in all activities of the member unions.
•
Relationship with business associates like wholesaler should be made closer and deeper.
12
•
The company should take initiative to reduce 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.
•
Completely in tune with the ground reality an enquiry is initiated on the organizational climate. This gave detail about the core competencies and most importantly gave details about the handicaps and inadequacies.
•
Have recognized “change” as an essential factor governing business needs and hence
incorporates
changes
in
every
form
at
every
stage.
employees, suppliers and distributors also “change ready” always
13
Conclusion Amul has established itself as a uniquely appropriate model for rural development. Amul has spurred the white revolution of India, which has made India the largest producer of milk and milk products in the world. Amul products have been in use in millions of homes since 1946. Today Amul is a symbol of many things like of highquality products sold at reasonable prices & the genesis of a vast co-operative network. Its supply chain is easily one of the most complicated in the world. The supply chain linking farmer-suppliers of milk with the millions of consumers. Amul encourages women and farmers to collect milk from their cows and pass it on to them for a price directly eliminating cost of middleman. Introduction of just-in-time inventory strategy improves dealers' return on investment (ROI).Amul was one of the first FMCG 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. It 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.
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BIBLIOGRAPHY websites • • •
• • •
•
http://www.scribd.com/doc/26263301/Amul-Project http://www.scribd.com/doc/10260519/Amul http://www.authorstream.com/Presentation/anjusha786-138867-amulentertainment-ppt-powerpoint/ http://www.docstoc.com/docs/30663883/Amul-dairy-report citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.104.9685... http://streamlinesupplychain.wordpress.com/2009/11/15/what-walmart-can-learnfrom-amul/ www.amul2b.com
Books •
Kulkarni S & Sharma A.(2002),supply chain management, Gujarat cooperative milk marketing federation (Amul), TMH publishing co.ltd.95-109 Chidambaram S., Whitman L., & cheraghi S.H. (1999) a supply chain transformation methodology, San Antonio, T X USA: http//156.26.35.52/papers/70SC&W&SC.pdf •
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