E-SCM of Amul

A Project Report on

AMUL’S E-SUPPLY CHAIN MANAGEMENT

Submitted By :

Abhishek Anand - (11FN-003)

Atul Garg – (11FN-126)

Anurag Khan – (11IB-012)

Rohit Chandak – (11FN-081)

Index

Executive Summary ....................................................................................................................3 Objective .....................................................................................................................................4 Introduction ................................................................................................................................5 Strategy of Amul .........................................................................................................................6 Introduction To E-Supply Chain Management........................................................................7 E- Supply Chain Management Of Amul .................................................................................9

Components of E-SCM .............................................................................................................. 9

E-SCM Diagram of Amul........................................................................................................ 10

Working of E-SCM................................................................................................................... 11

Amul’s Supply Chain Management ......................................................................................... 12

Amul Supply Chain Management Practices .......................................................................... 13 The Distribution Network ....................................................................................................... 14 The Business Model ................................................................................................................. 15 Supply & Distribution ............................................................................................................. 19 Strong Initiatives in E-commerce ........................................................................................... 21 Benefits of E-SCM .................................................................................................................... 22 Future Plans ............................................................................................................................. 23 Conclusion ............................................................................................................................... 24 References ................................................................................................................................ 25

Executive Summary

Firms that desire to do business in large emerging markets need to develop a new paradigm for looking at opportunities in these markets. The success of many such firms has depended on how well have they formed or managed to become a part of an existing network of suppliers and consumers. These economies are complex and have unique characteristics that range from underdeveloped markets to small and fragmented supplier base. Clearly, traditional business models are not adequate for this environment. Successful firms participate in the development of both these elements of the supply chain. The prize, needless to mention, is significant sales in a large market. AMUL is a dairy cooperative in the western India that has been primarily responsible, through its innovative practices, for India to become the world’s largest milk producer. The distinctive features 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. This report draws various lessons from the experiences of AMUL that would be useful to firms contemplating entry into emerging market.

Objective

The report analyses the interaction of two topics: Supply Chain Management (SCM) and the Internet. Merging these two fields is a key area of concern for contemporary managers and researchers. It has been realized that the Internet can enhance SCM by making real time information available and enabling collaboration between trading partners. The objective is to collect, organize and synthesize existing knowledge relating to E-SCM for AMUL.

Introduction

The Kaira District Co-operative Milk Producers Union Limited, popularly

known as Amul Dairy is a US $ 500 million turnover institution.

It is a institution built up with a network of over 10000 Village Co-operative

Societies and 500,000 plus members.

Formed in the year 1946 Amul is the leading food brand in India.

Amul initiated the dairy co-operative movement in India and formed an apex

co-operative organization called Gujarat co-operative Milk Marketing

Federation (GCMMF) and today 70,000 villages and 200 districts in India are

part of it.

GCMMF markets its products through 50 sales offices throughout India and

distribution is done through a network of 4,000 stockiest who in turn supply

500,000 retail outlets.

Managed by an apex cooperative organization, Gujarat Co-operative Milk

Marketing Federation Ltd. (GCMMF), which today is jointly owned by some

2.41 million milk producers in Gujarat, India

Amul is the largest food brand in India with an annual turnover of US $1068

million (2007-08)

Currently Amul has 3.11 million producer members with milk collection

average of 6.04 million litres/day.

Amul is the largest producer of milk and milk products in the world.

Strategy of Amul

Amul’s strategy is broadly divided into two components:

The first one is the collection chain and the second one is the Supply chain. The

collection chain starts from weighing the milk to determination of the fat content in

the milk to finally calculation of the purchase price. While the supply chain starts

from storing the milk to processing the milk to finally distributing the milk.

Introduction To E-Supply Chain Management

Enhanced competitiveness requires that companies ceaselessly integrate within a network of organisations. Firms ignoring this challenge are destined to fall behind their rivals. This integration of companies within a network has led to put more emphasis on Supply Chain Management (SCM). “SCM is the management of upstream and downstream relationships in order to deliver superior customer value at less cost to the supply chain as a whole” .The integral value of the SCM philosophy is that “total performance of the entire supply chain is enhanced when we simultaneously optimise all the links in the chain as compared to the resulting total performance when each individual link is separately optimized. In order to achieve coordination/integration of all the links in the supply chain, information is critical. Recent technological developments in information systems and information technologies have the potential to facilitate this coordination, and this, in turn, allows the virtual integration of the entire supply chain. The focus of this integration in the context of Internet-enabled activities is generally referred to as e-SCM. Merging these two fields (SCM and the Internet) is a key area of concern for contemporary managers and researchers. Managers have realised that the Internet can enhance SCM decision making by providing real-time information and enabling collaboration between trading partners. Many companies have implemented point -of-sales scanners, which read, on real time, what is being sold. These companies do not only collect information on real-time to make decisions about what to order or how to replenish the stores; they also send this information, through the Internet, to their suppliers in order to make them able to synchronise their production to actual sales.

Information Flow

Tier 2 Tier 1 Manufacturer

Customer/

Customer

Supplier Supplier Logistics End customer

Purchasing Mktg/ Sales

PRODUCT FLOW

Production

Finance

R&D

CUSTOMER RELATIONSHIP MARKETING

CUSTOMER SERVICE MARKETING

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

PROCUREMENT

PRODUCT DEVELOPMENT & COMMERCIALIZATION

RETURNS

Figure 1. Supply Chain Management

Source: (Cooper, Lambert et al. 1997)

SCM PROCESSES

Fulfilment

.....

CRM

Returns

Procurement

Industry structure and e-SCM

Impact on

competitive challenges peformance

ENABLERS

Supply chain Information flows Planning and

relationships and IS integration optimisation

Figure 2. A framework for e-SCM

E- Supply Chain Management Of Amul

Amul uses E- SUPPLY CHAIN MANAGEMENT

E-SCM may be described as the integrated management approach for planning and

controlling the flow of materials from suppliers to the end users using internet

technologies.

E-SCM refers to the complex network of relationship that organizations maintain

with trading partner to source, manufacture and deliver the products.

Components of E-SCM

E-SCM Diagram of Amul

Working of E-SCM

Amul has installed over 3000 automatic milk collection system units (AMCUS) at

village societies to capture member information, milk fat content and amount

payable to each member.

Each member is given plastic card for indentification

Computer calculate amount due to the farmer on the basis of the fat content

The value of the milk is printed out on the slip and handed over to the farmer ,who

collects the payment from the adjacent window

Thus with the help of it farmer gets the payment within the minutes

On the logistic more than 5000 trucks move milk from the villages to 200 dairy

processing plants twice a day according to a carefully planned scheduled

Every day Amul collects 7 million liters of milk from 2.6 million farmers (many

illiterate), converts the milk into branded, packaged products, and delivers goods to

over 500,000 retail outlets across the country

ERP software named as enterprise wide integrated application system covers a

operation like planning advertisement and promotion and distribution network

planning.

Each Amul office are connected via internet and all of them send daily reports on

sales and inventory to the main system at Anand,

Amul’s Supply Chain Management

Amul Supply Chain Management Practices

AMUL is a dairy cooperative in the western India that has been primarily responsible,

through its innovative practices, for India to become the world’s largest milk producer. The

distinctive features 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 GCMMF’s

endeavors. The vast and complex supply chain stretches from small suppliers to large

fragmented markets.

Management of this network is made more complex by the fact that GCMMF is directly

responsible 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 chain efficiently is critical as GCMMF's competitive position is driven by low

consumer prices supported 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

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.

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' return on investment (ROI). All GCMMF branches engage in route scheduling and

have dedicated vehicle operations.

The Business Model

From the very beginning, 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 a

hierarchical fashion.

Customers: In comparison with developed economies, the market for dairy products in

India is still in an evolutionary stage with tremendous potential for high value products

such as ice cream, cheese etc. The distribution network, on the other hand, is quite

reasonable with access to rural areas of the country. Traditional methods practiced in

western economies are not adequate to realize the market potential and alternative

approaches are necessary to tap this market.

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 these

suppliers.

Third Party Logistics Services: 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. In addition to outbound logistics, GCMMF takes

responsibility for coordinating with the distributors to assure adequate and timely supply

of products. It also works with 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 a rationale 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

marketing efforts 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. It is worth noting

that a number of these third 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 critical for a perishable product such as liquid milk.

Coordination for Competitiveness

Coordination is one of the key reasons for the success of operations involving such an

extensive network of producers and distributors at GCMMF. Some interesting mechanisms

exist for 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 the

interest of the farmer is always kept at the top of the agenda through its representatives

who constitute the Boards of different entities that comprise the supply chain. This form of

direct representation also ensures that professional managers and farmers work together

as a team to strengthen the cooperative. This helps in coordinating decisions across

different entities as well as 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 as milk or as value added products and to ensure that milk is made available to an

increasingly large sections 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 being transported

GCMMF’S SUPPLY CHAIN

Supply & Distribution

At the supply end a computerized database has been setup of all suppliers & their

cattle.

Computer equipment measures & records qualities & quantities collected.

At the distribution end stockists have been provided with basic computer skills.

Amul experts assist them

in building promotional web pages.

Amul Cyber stores have been setup in

India, USA, Singapore and Dubai

Amul Cyber Store

Strong Initiatives in E-commerce

Amul has linked distributors to the network & also incorporated web pages of top

retailers on their website

Distributors can place their order on website amulb2b.com

Automated supply & delivery chain

Practices just in time supply chain management with six sigma accuracy

Benefits of E-SCM

Supports exchange of real time information

Platform independent

Web visibility & processing capability 24/7

Return on investment

It has open internet application architecture which allows for Rapid deployment &

scalability combining unlimited users in real time environment

Incorporates broadcast & active messaging

Future Plans

Introduce Internet Banking Services & ATMs which will enable Milk societies to

credit payments directly to seller’s bank account

Officials at amul are looking at upgrading the plastic cards which are being currently

used only for identification purposes, to smart cards which can be used to withdraw

cash from ATMs.

Expansion of distribution network, creative marketing, consumer education and

product innovation, we will leverage effectively on rising income levels and growing

affluence among Indian consumers.

Tapping the rising demand for new value-added products.

Conclusion

It has been demonstrated that the Internet can have an important impact on the management of the supply chain and it can improve the competitiveness of firms. The literature review undertaken on the topic has shown that e-SCM has been acknowledged as an outstanding topic in the supply chain literature in the most prestigious Operations Management and Logistics journals, especially after year 2000. However, our literature review has shown that there is a disjointed scattering of research activity that fails to clearly represent what we currently know about the effects of the Internet on SCM and what we still need to learn. In this paper we have attempted (1) to describe the impact that the Internet has on the different supply chain processes, (2) to review the existing literature on the topic, (3) to provide a framework for the analysis of e-SCM, and (4) to identify further lines of research. Further research should also put more emphasis on conducting empirical studies regarding the implementation of the Internet in the product development process. Another important area of research is the application of decision models and technologies on the Internet and the development of Application Service Providers (ASP) to obtain knowledge for the firms belonging to a supply chain. As more and more firms have high quality and real-time information available, the use of these decision technologies will increase, since they add significant value to the members of a supply chain. Although e-fulfilment has been one of the most covered topics there are still some further lines of research in this area: to study new strategies to respond to the challenge of the last mile problem, and to conduct more empirical studies to explore what companies are doing to respond to this challenge and which are the results of the different actions taken. E-procurement has been the most covered topic, especially the subtopics related with marketplaces and auctions. One promising line of further research is to investigate under which circumstances different Internet-enabled supply chain collaboration tools have a higher impact on performance.

References

1. Extracted from www.Wikipedia.com for E- supply chain management theory.

2. Extracted from Operation Management (6th Edition) by Russell & Taylor.

3. Extracted from www. www.amul.com for information about products and supply

chain management.

4. Extracted from http://articles.timesofindia.indiatimes.com/2010-02-

24/ahmedabad/28139283_1_lakh-litres-milk-banas-dairy-dudhsagar-dairy

5. Reference http://articles.economictimes.indiatimes.com/2011-12-

13/news/30511706_1_milk-procurement-gcmmf-daily-procurement

6. Reference http://www.indianexpress.com/news/amul-milk-to-be-dearer-by-rs-2-

litre/937050/

7. Reference http://articles.timesofindia.indiatimes.com/2010-02-

24/ahmedabad/28139283_1_lakh-litres-milk-banas-dairy-dudhsagar-dairy

8. Reference http://www.financialexpress.com/news/amul-gears-up-to-strengthen-

fresh-milk-base-in-delhi/86054/2

9. "MANAGING COMPLEX NETWORKS IN EMERGING MARKETS:THE STORY OF

AMUL" ; Pankaj Chandra, Devanath Tirupati; Working Paper No. 2002-05-06; Indian

Institute of Management-Ahmedabad