AMUL : SCM and Logistics Overview

Yash Kothari

Amol Panditrao

Rinkesh Shah
Dairy Industry in India
During the last three decades, our nation’s milk producers have transformed Indian dairying from
stagnation to world leadership. During this period and before, science and technology (S&T) have
played a critical role in supporting our farmers’ efforts. During the next decade, that role will be
further enhanced as we face a number of new challenges.

The dairy cooperative movement has been central to the development of dairying in India. The
inspiration for this movement was the success of the Khaira District Cooperative Milk Producers’
Union better known as Amul. Founded in 1946 in response to the exploitation of district’s dairy
farmers, Amul grew rapidly from its initial base of two societies and two hundred litres of milk.

Milk production is, of course, only half of the story. The other half is the sale of milk and milk
products that provides the highest returns to our dairy farmers. Here too, S&T have played an
important role in development of products, processes, packaging, handling, transport and storage.
Among the major

Breakthroughs have been:

1. Automation of khoa production, moving this process from the backyard to the modern dairy.
2. Design of the process technology and equipment for manufacture of peda, gulab jamun,
cchhana podo, long-life panneer and other Indian milk products.
3. Development of continuous lines, including packaging, for fermented milk products like
longlife lassi, shrikhand, dahi (yogurt)and misti doi.
4. Process technologies for production of Cheddar, Mozzarella and Emmental cheese as well as
a variety of cheese spreads using both cow and buffalo milk.
5. Preservation of starter cultures for fermented milk products.
6. Process of manufacture of dry mixes for gulab jamun and frozen deserts.
7. user-friendly milk testing kits.

As satisfying as the achievements have been, the real challenges lie ahead. Among the most
important are:

1. Ensuring steady growth in productivity while ensuring that dairying remains concentrated in
our landless, marginal and small farmer communities.
2. Using advanced breeding technologies to accelerate the development of our high potential
Indian cattle and buffalo breeds.
3. Developing quality control methods that are sensitive to the fact that our milk comes from
large numbers of small producers.
4. Ensuring increasing reduction in losses from endemic and epidemic diseases at costs our
farmers can afford.
5. Expanding the variety, improving the quality and maintaining the relative price of India’s
dairy products so that they can meet competition from around the world.
6. Ensuring that the growth of the dairy industry contributes to enrichment of our environment
while continuing to benefit low-income producers without compromising our nation’s need
for milk

AMUL: THE TASTE OF INDIA

The birth of AMUL
The seeds of this unusual saga were sown more than 65 years back in Anand, a small town in the
state of Gujarat in western India. The exploitative trade practices followed by the local trade cartel
triggered off the cooperative movement. Angered by unfair and manipulative practices followed by
the trade, the farmers of the district approached the great Indian patriot Sardar Vallabhbhai Patel
for a solution. He advised them to get rid of middlemen and form their own co-operative, which
would have procurement, processing and marketing under their control.

In 1946, the farmers of this area went on a milk strike refusing to be cowed down by the cartel.
Under the inspiration of Sardar Patel, and the guidance of leaders like Morarji Desai and
Tribhuvandas Patel, they formed their own cooperative in 1946.

This co-operative, the Kaira District Co-operative Milk Producers Union Ltd. began with just two
village dairy co-operative societies and 247 litres of milk and is today better known as Amul Dairy.
Amul grew from strength to strength thanks to the inspired leadership of Tribhuvandas Patel, the
founder Chairman and the committed professionalism of Dr Verghese Kurien,who was entrusted the
task of running the dairy from 1950.

GCMMF Organisation
Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) is India's largest food product
marketing organisation with annual turnover (2010-11) US$ 2.2 billion. Its daily milk procurement is
approx 12 million lit (peak period) per day from 15,712 village milk cooperative societies, 17
member unions covering 24 districts, and 3 million milk producer members.

It is the Apex organisation of the Dairy Cooperatives of Gujarat, popularly known as 'AMUL', 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. Its success has not only been emulated
in India but serves as a model for rest of the World. It is exclusive marketing organisation
of 'Amul' and 'Sagar' branded products. It operates through 47 Sales Offices and has a dealer
network of 5000 dealers and 10 lakh retailers, one of the largest such networks in India. Its product
range comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizza cheese, Ice-cream,
Paneer, chocolates, and traditional Indian sweets, etc

The Amul Plant at Anand featuring the Milk Silos

GCMMF is India's largest exporter of Dairy Products. It has been accorded a "Trading House" status.
Many of our products are available in USA, Gulf Countries, Singapore, The Philippines, Japan, China
and Australia. GCMMF has received the APEDA Award from Government of India for Excellence in
Dairy Product Exports for the last 13 years. For the year 2009-10, GCMMF has been
awarded "Golden Trophy' for its outstanding export performance and contribution in dairy products
sector by APEDA.
Amul : An overview
Year of Establishment 1973
Members 17 District Cooperative Milk Producers' Unions (13
Members & 4 Nominal Members)
No. of Producer Members 3.03 Million
No. of Village Societies 15,712
Total Milk handling capacity per day 13.67 Million litres per day
Milk Collection (Total - 2010-11) 3.45 billion litres
Milk collection (Daily Average 2010-11) 9.2 million litres (peak 12 million)
Milk Drying Capacity 647 Mts. per day
Cattlefeed manufacturing Capacity 3690 Mts. per day
Sales Turnover -(2010-11) Rs. 9774 Crores (US $2.2 Billion)

Product Mix
Breadspreads Amul Butter, Amul Lite, Delicious Table Margarine
Cheese Range Amul Pasteurized Processed Cheddar Cheese, Amul Processed
Cheese Spread, Amul Pizza (Mozarella) Cheese,Amul Emmental
Cheese, Amul Gouda Cheese, Amul Malai Paneer (cottage cheese),
Utterly Delicious Pizza
Fresh Milk Amul Gold Full Cream Milk 6% fat, Amul Shakti Standardised Milk
4.5% Fat, Amul Taaza Toned Milk 3% fat,Amul Slim & Trim, Amul
Cow Milk
UHT Milk Range Amul Gold 4.5% fat Milk, Amul Shakti 3% fat Milk, Amul Taaza
1.5% fat Milk, Amul Lite Slim-n-Trim Milk, Amul Fresh Cream
Milk Powders Amul Full Cream Milk Powder, Amulya Dairy Whitener, Sagar
Skimmed Milk Powder, Amulspray Infant Milk Food, Sagar Tea and
Coffee Whitener
Milk Drink Amul Kool Flavoured Milk, Amul Kool Café, Amul Kool
Koko,Amul Kool Millk Shaake, Amul Kool Chocolate
Milk,Nutramul Energy Drink
Health Drink Stamina Instant Energy Drink
Brown Beverage Nutramul Malted Milk Food
Curd Products Amul Masti Dahi (fresh curd), Amul Masti Spiced Butter Milk,Amul
Lassee, Amul Flaavyo Yoghurt
Pure Ghee Amul Pure Ghee, Sagar Pure Ghee
Sweetened Amul Mithaimate
Condensed Milk
Mithaee Range Amul Shrikhand, Amul Mithaee Gulabjamuns, Amul Basundi,Avsar
(Ethnic Sweets) Ladoos
Ice-cream Sundae Range, probiotic,,sugarfree and probiotic
The Amul Model
The Amul Model of dairy development is a three-tiered structure with the dairy cooperative
societies at the village level federated under a milk union at the district level and a federation of
member unions at the state level.

The Amul Model

SCM AND MARKET LOGISTICS

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
 These co operative societies are bound to supply there & produce only to GCMMF

SCM and Market Logistics

Enterprise resource planning: the company at has implemented an ERP program as low as Rs. 3
corers in collaboration with TCS ltd. The company uses it, the data right from the procurement from
the farmers till the delivery of goods to the retailers is fed into the system. The software enabling
the channel members to use for the synchronized working and best possible utilization of the
available resources maintains details regarding the inventory management.

Market logistics deals with the implementation of the SCM of the company.

Upstream Channel in which milk is procured from the farmers to the manufacturing units.

1. In the first step, the milk is taken to the VCS by the farmers on foot or bicycles in
small quantities
2. The second step involves the transportation of milk from the co-operatives to the
manufacturing units this is done in special trucks which are equipped with tankers to
carry milk.

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

1. 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.
a. Frozen food the temperature of these trucks is kept below -18˚C
b. Dairy wet the temperature of these trucks is kept between 0-4˚C
2. 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.
3. 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.
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.

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.

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 photograph
o Summary of the monthly potential sales of markets
o Summary of the product wise monthly sales potential of institutions

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%

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.