Amul Supply Chain Management Practices

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AMUL SUPPLY CHAIN MANAGEMENT PRACTICES AMUL is a dairy cooperative in the western India that has been primarily

responsible, through itsinnovative practices, for India to become the worlds largest milk producer. The distinctivefeatures of this paradigm involves managing a large decentralized network of suppliers and producers, simultaneous development of markets and suppliers, lean and efficient supply chain,and breakthrough leadership.Every day Amul collects 447,000 litres of milk from 2.12 million farmers , converts the milk into branded, packaged products, and delivers goods worth Rs 6 crore (Rs 60 million) to over 500,000 retail outlets across the country.To implement their vision while retaining their focus on farmers, a hierarchical network of cooperatives was developed, this today forms the robust supply chain behind GCMMFsendeavors. The vast and complex supply chain stretches from small suppliers to large fragmentedmarkets.Management of this network is made more complex by the fact that GCMMF is directlyresponsible only for a small part of the chain, with a number of third party players (distributors,retailers and logistics support providers) playing large roles. Managing this supply chainefficiently is critical as GCMMF's competitive position is driven by low consumer pricessupported by a low cost system of providing milk at a basic, affordable price. 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 thecheque system adopted by other major FMCG companies. This practice is consistent withGCMMF's philosophy of maintaining cash transactions throughout the supply chain and it alsominimizes dumping. 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' returnon investment (ROI). All GCMMF branches engage in route scheduling and have dedicatedvehicle operations. THE BUSINESS MODEL

from the very beginnFng, in the early 1950s, AMUL adopted the network as the basic model for long-term growth. The network explicitly includes secondary services to the farmer-suppliers. Several of the entities in the network are organized as cooperatives linked in ahierarchical fashion. Customers: In comparison with developed economies, the market for dairy products inIndia is still in an evolutionary stage with tremendous potential for high value products such asice cream, cheese etc. The distribution network, on the other hand, is quite reasonable withaccess to rural areas of the country. Traditional methods practiced in western economies are notadequate to realize the market potential and alternative approaches are necessary to tap thismarket. Suppliers: A majority of the suppliers are small or marginal farmers who are often illiterate, poor, and with liquidity problems as they lack direct access to financial institutions. Again,traditional market mechanisms are not adequate to assure sustenance and growth of thesesuppliers. Third Party Logistics Services: In addition to the weaknesses in the basic infrastructure,logistics and transportation services are typically not professionally managed, with little regardfor quality and service. In addition to outbound logistics, GCMMF takes responsibility for coordinating with the distributors to assure adequate and timely supply of products. It also workswith the Unions in determining product mix, product allocations and in developing production plans. The Unions, on the other hand, coordinate collection logistics and support services to the member-farmers. In what follows we elaborate on these aspects in more detail and provide arationale for the model and strategies adopted by GCMMF. 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. This practice continues today with many village societies making payments upon the receipt of milk. For the long-term, the Unions followed a multi- pronged strategy of education and support. For example, only part of the surplus generated by the Unions is paid to the members in the form of dividends Managing Third Party Service Providers: Unions focused efforts on these activities and related technology development . The marketingefforts were assumed by GCMMF. All other activities were entrusted to third parties. Theseinclude logistics of milk collection, distribution of dairy products, sale of products throughdealers and retail stores, some veterinary services etc. It is worth noting that a number of thesethird parties are not in the organized sector, and many are not professionally managed. Hence,while third parties perform the activities, the Unions and GCMMF have developed a number of mechanisms to retain control and assure quality and timely deliveries. This is particularly criticalfor a perishable product such as liquid milk. Coordination for Competitiveness Coordination is one of the key reasons for the success of operations involving such anextensive network of producers and distributors at GCMMF. Some interesting mechanisms existfor coordinating the supply chain at GCMMF.These mechanisms are: Inter-locking Control The objective for developing such an inter-locking control mechanism is to ensure that theinterest of the farmer is always kept at the top of the agenda through its

representatives whoconstitute the Boards of different entities that comprise the supply chain. This form of directrepresentation also ensures that professional managers and farmers work together as a team tostrengthen the cooperative. This helps in coordinating decisions across different entities as wellas speeding both the flow of information to the respective constituents and decisions. Coordination Agency: Unique Role of Federation Its objective is to ensure that all milk that the farmers produce gets sold in the market either asmilk or as value added products and to ensure that milk is made available to an increasingly largesections 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 VSs.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 beingtransported. GCMMFS SUPPLY CHAIN

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