Tuesday, January 21, 2014

Understanding Amul’s Supply Chain Model

Amul is a dairy cooperative based in the Anand district of Gujarat, India. The word amul is derived from the Sanskrit word amulya, meaning invaluable. The co-operative was initially referred to as Anand Milk Federation Union Limited and hence the name AMUL. What interests me to writing this is article about Amul is that it is an organization that achieves economies of scale through its simple supply chain while it thrives to redistribute wealth in the society and creating many opportunities for the rural and weaker sections of India.

Initially, the producers had to travel long distances to deliver milk to the only dairy, the Polson Dairy in Anand – often milk went sour, especially in the summer season, as producers had to physically carry milk in individual containers. These agents decided the prices and the off-take from the farmers by the season. In winter, the producer was either left with surplus unsold milk or had to sell it at very low prices.

Thus the Kaira District Cooperative was established to collect and process milk in the district of Kaira. Milk collection was also decentralized, as mos producers were marginal farmers who would deliver 1-2 litres of milk per day. Village level cooperatives were established to organize the marginal milk producers in each of these villages. The first modern dairy of the Kaira Union was established at Anand (which popularly came to be known as AMUL dairy after its brand name). The new plant had the capacity to pasteurize 300,000 pounds of milk per day, manufacture 10,000 pounds of butter per day, 12,500 pounds of milk powder per day and 1,200 pounds of casein per day.

With a turn over of $3.2 billion (2013), Amul is the largest food brand in India. Also, Amul is the largest producer of milk and milk products in India. The model of Amul is such that it benefits small producers like farmers, who together form an integrated approach to form an economically large scale business. The model eliminates middlemen, bringing producers in direct contact with the customers.

Every day, Amul collects 447,000 litres of millk from 2.12 million farmers, converts the milk into branded, packaged products and delivers the goods which are worth Rs. 60 million to about 500,000 retail outlets across the country.

Supply Chain of Amul

As shown in the figure, the supply chain of Amul consists of farmers who produce milk from their cattle. The farmers are organized into cooperatives called Village Cooperative Societies (VCS). These VCSs supply milk to thirteen different dairy cooperatives, called Unions, of which Amul is one. The milk or milk products made at these unions are supplied to the Gujarat Cooperative Milk Marketing Federation (GCMMF). The GCMMF is the marketing entity for the products of all the unions in the state of Gujarat. GCMMF has 42 regional distribution centers in India, serves over 500,000 retail outlets and exports to more than 15 countries. All these organizations are independent legal entities yet loosely tied together with a common destiny!

The ultimate goal of the GCMMF is to benefit the farmers through this hierarchical supply chain that includes different kinds of entities ranging from small suppliers to large fragmented markets. The success of Amul can be attributed to the quality of products, the economic pricing and the belief that it has instilled in its customers.


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