Case Analysis of Gujarat Co-operative Milk Marketing Federation Limited Submitted to Dr. Purva Kansal University Business School Panjab University, Chandigarh On 09 March 2013 In Partial fulfillment of Masters of Business Administration (MBA) By Aseem Soi Sarabjit Singh
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Case Analysis of Gujarat Co-operative Milk Marketing Federation Limited
Submitted to
Dr. Purva Kansal
University Business School
Panjab University, Chandigarh
On
09 March 2013
In
Partial fulfillment of
Masters of Business Administration (MBA)
By
Aseem Soi
Sarabjit Singh
Sahil Khanna
Vaibhav Trikha
EXECUTIVE SUMMARY
In today’s competitive world while entering in the market it is very necessary
to have good knowledge of the potential of a particular market. The growth
of a company is invariably determined not just by its strategy, but on how it
responds to the challenges it
encounters. Over the decades AMUL has successfully countered several
challenges that have come its way with innovative responses and continuous
improvement, which have enabled it to remain stable and even convert
some of these challenges into opportunities. It is the culture of endurance
that has accorded AMUL the insight and focus to deal with the current
economic environment. Drawing from its inner strength and beliefs, AMUL
responded by launching several initiatives across all its operations in various
geographies that are helping the group achieve growth even in current
times. It is also this very strategic culture that will propel AMUL to continue
on its growth trajectory in years to come.
The report provides a comprehensive insight into the company, including
business strategies and operations, by using strategic analysis models such
as industry life cycle,
porter’s 5 forces and also the key success factors index, SWOT analysis. We
have reported an assessment of the internal and external environment of
AMUL dairy, considered its strengths and weaknesses, opportunities and
threats, its competitive advantages that are valuable for the efficiency and
effectiveness of its operations. Based on the information obtained from the
above assessments, we analyzed its strategic matrix and generated several
strategic options to attain its strategic options more successfully has been
made. Lastly we have included in this report, the usefulness of applying
these management models for AMUL dairy.
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Table of Contents
Executive Summary 1
1The External Environment Analysis 3
1.1Pest Analysis 3
1.2Porter’s Five forces Model6
1.3SWOT Analysis 9
2Value Chain Analysis 11
3Amul’s Business Strategy 13
3.1Industrial Life Cycle 13
3.2BCG Matrix 14
3.3Ansoff Model15
3.Financial Ratios Analysis 17
3.5TOWS Matrix 18
4.1Porters’s Generic Strategies 20
4.2Future Options 20
4.3Implementations of New strategies 21
4.4Usefulness of strategic Management Models 22
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Internal Environment
Structure Culture
Resources
Task Environment
(Industry)
Societal Environment
Technological Forces
Political-Legal Forces
Sociocultural Forces
Economic Forces
Stockholders
Governments
Suppliers
Employees/ Labour Unions
Special interest groups
Customers
Creditors
Communities
Competitors
Trade Associations
1. The External Environment Analysis:
1.1 Pest Analysis
Political Factors:
The Indian processed dairy industry has grown and diversified enormously in the last few years.
To ensure the proper development and growth of this industrial sector, the Government of India
has instituted various laws and regulations.
Prevention of Food Adulteration Act, 1954
This Act is the basic statute that is intended to protect the common consumer against the supply
of adulterated food. This specifies different standards for various food articles. The standards are
in terms of minimum quality levels intended for ensuring safety in the consumption of these food
items and for safeguarding against harmful impurities and adulteration.
Milk and Milk Product Order (MMPO) 1992
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The Milk and Milk Product Order (MMPO), 1992, issued on June 9, 1992 seeks to ensure the
supply of liquid milk, an essential commodity, to consumers by regulating its processing and
distribution. Within eight years of its operation, the Central/State Registering Authorities have
till December 2000 registered 666 units with a total processing capacity of 65.8 million litres per
day (mlpd).
Export (Quality Control & Inspection) Act, 1963
The Export Inspection Council is responsible for the operation of this Act. Under the Act, a large
number of exportable commodities have been notified for compulsory pre-shipment inspection.
The quality control and inspection of various export products is administered through a network
of more than fifty offices located around major production centres and ports of shipment.
Economic Factors:
Amul Dairy” is working in the best area of Anand in Kaira District. This is very good for dairy
industry.Some benefits arising out of this location as follows:
1) Cheap Labour
2) Cheap Land
3) Cheap water supply
4) Constant Electric supply
5) Constant Water Supply
6) Suitable Nature and Environment
Social Factors:
Life Style Trend With more money on hand, more and more Indians are drinking milk and
buttering their bread. Rising income levels have led to a rapid increase in the consumption of
milk and milk products among Indian households.
Day by day the need of milk is continuously increase. In the year 1972 average requirement of
the milk per capita is 172 per gram. While in 2000 the requirement 215 gram per year. So there
will be more demand or milk and milk products in nearer future.
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The consumption of milk is highest in north India that is 278 gram per day, while in west region
174 gram per day. In eastern and southern area combines 215 grams per day require. 46% of the
total milk is consumed in liquid form and 47% is converted into ghee, paneer and ice cream and
only 7% milk goes for western products like powder, cheese etc.
The 98% of the milk produced in the rural area which is cats of 72% of the population whereas
the urban sector with 28% populations.Even in urban India India as high as 83% of the
consumed milk comes from the unorganized sector.Presently only 12% of the milk is represented
by packaged and branded pasteurized milk.
Technological Factors:
Some areas of Indian dairy industry can be strengthened by the induction of specialized
technologies and equipment from overseas. These include:
Raw milk handling: It needs to be upgraded in terms of physico-chemical and microbiological
attributes of the milk collected. The use of clarification and bactofugation in raw milk processing
can help improve quality of the milk products.
Milk processing: Better operational efficiencies are needed to improve yields and reduce
wastage, minimize fat/protein losses during processing, control production costs, save energy
and extend shelf life. The adoption of GMP (Good Manufacturing Practices) and HACCP
(Hazard Analysis Critical Control Points) would help manufacture milk products conforming to
international standards.
Packaging: Another area is the range of packing machines for butter, cheese and the like. Better
packaging can help retain nutritive value of products packed and extend shelf life. A cold chain
distribution system is needed for proper storage and transportation of dairy products.
Value-added products: There's immense scope for value-added products like desserts, puddings,
custards, sauces, mousse, stirred yoghurt, nectars and sherbets.
IT Technology “Smart dairy Solution” a comprehensive solution portfolio that addresses the
unique needs of Dairy plant management. It provides a simple but complete business solution to
efficiently meet a wide variety of general and Dairy-specific business requirements
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1.2 INDUSTRIAL ANALYSIS: PORTER’S FIVE FORCES MODEL
1) Threats Of New Entrants :
i. Economies of Scale: GCMMF enjoys economies of scale, which is difficult to match by
any other competitor. It is because of his reasons that no regional competitor has grown
to a national level.
ii. Cost and Resources advantages: Amul dairy is co-operative society. That means
“cooperation among competitive is the fundamental principle. Amul dairy is managed the
norms of GCMMF and market the products under the brand name „Amul‟ which has
very good reputation at domestic and international level. Here the raw material
procurement is very difficult for the new entrants. Consequently capital requirement is
also high. Still new entrants are moderate.
iii. Brand preferences and consumer loyalty: there is an immense level of Brand preference
of Amul in the mind of the people. The level of preference specifically in the liquid in the
milk sector is that would go to other retailer if the retailer does not have milk.
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Rivalry:Competitive rivalry is very
high due to the presence of local players
and other established and
upcoming brands
New Entrants :
Threats of New Entrants, as there are no
entry barriers
Customers:Customer has the bargaining power due to
the presence of various
competitors
Substitute Products
High availability of other
product causing the threat of substitution
Suppliers:Rural milk
producers are the major
suppliers which makes their bargaining
power limited
iv. Access to distribution channels: The distribution channel of GCMMF is a very planned
and perfect one. For any new entrant to enter it would be a very difficult task. For
GCMMF the result is years of hard work and its investment in its employees as well as at
different levels in the distribution network.
v. Inability to much the technology and specialized know- how of firms already in the
industry: The technology used by Amul is imported from Denmark. It is a state of art
technology in India, a firm would require a huge amount of resources.
vi. Capital Requirements: the total investments required in the industry is huge and is a
decision worth considering even for MNC‟s . The investments decision cover the
processing costs as well as marketing costs. To compete with the brand Amul in India is
difficult as Amul is synonymous to Quality.
vii. Amul dairy is co-operative society. That means “cooperation among competitive” is the
fundamental principle. Amul dairy is managed under the norms of GCMMF and market
the products under the brand name ‘Amul’, which has good reputation at domestic and
international level. Here, the raw material procurement is very difficult for the new
entrants. Consequently Capital requirement is also high. Still new entrants are emerging
such as domestic and international players. So the treats of new entrants are moderate.
viii. Government rules and regulation are not favourable for new entrants. Raw material is
also depending on the villagers who are mostly depend on good rain. In the seasonal
uncertainties will also restrict the new entrants to establish the new plant.
2) Bargaining power of supplier :
i. The objective of Amul dairy is not profit making. As it is a part of co-operative society, it
runs for the benefit of farmers those are the supplier of milk and users of milk product.
According the concept of the cooperative society supplier has bargaining power to have
a good return on his or her supply. However, supplier has limited rights to bargain with
the cooperative society because it made and run for the sake of mass not for individual
benefit.
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ii. There is moderate bargaining power of the supplier. In olden days there were not any
kind of cooperative societies as the farmer was exploited. But, nowadays the farmer’s
right has been protected under the cooperative rules and regulations, which ultimately
result in moderate power of bargaining from the supplier.
3) Bargaining power of buyers :
Amul dairy is having state of the art technology bring down from Denmark German. And except
loose milk vendor mother dairy is the single district level seller of the milk. However the Amul
dairy is bound by the norms of federation. So, the pricing policy will be decided only by
GCMMF and customer would have not have bargaining power. In nutshell, the bargaining power
of the buyer is low.
4) Rivalry among competitors:The products of the most of dairy which are listed under the Gujarat cooperative milk
marketing federation are marketed under the one unique name ‘Amul’. Though, it is not having
competition from the domestic level. Amul dairy which is at the state level faces the competion
from Nestle, Britania, Gayatri dairy, sugam, Dairy dan. The major competitor of the Amul in ice-
cream category is HLL’s kwality wall’s.Although, dairy is not having tough competition from the
local players but international level it is exist.
5) Threats Of Substitute :Most of the milk and milk products substitute are very low. Milk powder can be taken as a close
substitute for the milk. In case of the ice-cream category the close substitute is cold drink and
soft drinks. So, the substitute of the milk and milk product is completely low.
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1.3 SWOT Analysis
Strengths Weaknesses
1. Wide Range of Products
2. Economies of Scale
3. Low cost manufacturing
4. Strong cooperative org.
5. Global Player
1. Poor Management of logistics
2. Low investment
3. Perishability
4. Lower yield management
5. Problem in distribution
Opportunities Threats
1. Growing global demand
2. Greater Productivity
3. Export potential
4. Robust economic growth
5. Supply Chain Management
1. Competitors
2. Rising environmental costs
3.Milk vendors
4. Adulteration
5. Lower cattle yield
Strengths:The strengths for AMUL are product differentiation, Economies of scale, low cost
manufacturing and strong cooperative organization. The demand profile is absolutely optimistic.
While the margins are quite reasonable, even on packed liquid milk.
Weaknesses:The Weaknesses for Amul are Poor management of logistics, low investment,
perishability, lower yield management. Perishability is being overcome partially by UHT
technology. UHT( Ultra high temperature) gives a longer shelf life to milk and milk products.
Opportunities:As a Global Enterprise, Amul will be meeting global demands and ensure greater
productivity and the opportunity to enhance integration in order to increase efficiency and
effectiveness in the business. It has already wide geographic positions and hence it will give it an
advantage to get access to gain presence in mature markets. Efforts to exploit export potential are
already on, as Amul is exporting to Bangladesh, Sri Lanka, Nigeria and the Middle East. By
following the new GATT treaty, opportunities have increased tremendously for the export of
agric-products in general and dairy products in particular.
Threats :Local competitors are the major problem faced by Amul. They sell their products at a
lower price, since being a low capital company, they have fewer expenses to take care of.
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Secondly, as the environmental costs are rising day by day, it’s getting tough to carry the same
pricing throughout. Thus cutting down the extra cost will surely help. Adulteration, also a major
threat to quality, takes place due to illiterate farmers from remote villages.
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2. Value chain Analysis
The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985.
To analyze the specific activities through which firm can create a competitive advantage.
1. Activities of Value Chaina. Primary Activities
i. Inbound logistics ii. Operations
iii. Outbound logisticsiv. Marketing & salesv. Services
b. Secondary activitiesi. Firm infrastructure
ii. Human resource managementiii. Technologyiv. Procurement
Earnings per Share (EPS) 3.9% 6.7% 40.9% 38.9% 17.0% 26.0%
From the above table, following can be interpreted about the financial condition of the company.
Current ratio and Net working capital which shows the liquidity of the company is growing subsequently in the given years indicating the strong operating conditions of the company, as the optimum current ratio for any company is supposed to be around 1.2.
As compared to the industry averages of milk products, which was around 9 in 1993 and around 17 in year 1998, Inventory turnover ratio and total asset turnover of AMUL indicate that the products are replaced quickly in the market. This shows that AMUL has efficient demand and supply management.
Debt- Equity ratio is decreasing over the years showing betterment of financial health of the company thus increasing its credibility.
Net profit margin is also getting better for amul indicating betterment of operations resulting in increasing bottomline as compared to sales.
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Earnings per share is also increasing year by year showing better returns for the investors and shareholders.
The summary of financial ratios analysis indicates that AMUL has significantly improved its operations in making value for its shareholders.
3.5 TOWS MATRIX
Strengths1. Wide Range of Products2. Economies of Scale3. Low cost manufacturing4. Strong cooperative org.5. Global Player
Weaknesses1. Poor Management of logistics2. Low investment3. Perishability4. Lower yield management5. Problem in distribution
SO Strategies-Increased productivity through cost effective manufacturing- Increase global demand through global exposure- Improve channel of distribution
WO Strategies- Increase of opportunity through new GATT treaty- Develop new process to improve the quality and shelf life of milk and milk products- Increase awareness of scientific development