Saturday, October 4, 2014

E-Supply Chain Management - Amul

In the India of the 1940s, when the country was still grappling under the British colonial rule, a certain other underprivileged section was being exploited by its own people. These small time milk producers were being offered ridiculously low prices for the produce by the only milk supplier in the area, Polson Dairy. Since milk is a persishable product, which often went sour in the harsh summers, the could see no other alternative to Polson. Also, milk prices were arbitrarily determined. These dairy farmers, encouraged by eminent Indian freedom fighter Sardar Patel, formed a milk producers' co-operative union that dealt directly with the Bombay Milk Scheme, their final buyer. This is the story of 'Amul'.

Amul, which is an acronym for Anand Milk Union Limited, is a Sanskrit word meaning valuable. These cooperatives were formed for each village. Milk collection was decentralized keeping in mind the marginal farmers who delivered, at most, 1–2 litres of milk per day. The cooperative that started out with milk, then branched into other milk products like butter, cheese, ice creams, milk powder, etc.  

Inventory management is a challenge for this model because the product is perishable. Yet, Amul is regarded as having one of the best supply chain systems in the world. With over 3,500 distributors in the network, there are also 47 setups with dry and cold warehouses for the range of products.

Supply chain process:

  • Production: Amul has a multi-tier model known as the Amul Model:
    • Milk collection happens at the Village Dairy Society
    • Milk procurement and processing at the District Milk Union
    • Milk and milk products marketing at the State Milk Federation.

This helps in eliminating not only internal competition but also ensuring that economies of scale are achieved. Milk collection from the village societies happens twice every day, in the morning and evening. This is then stored in chilling centers and sent to the laboratory for testing.

After going through several rounds of testing, pasteurizing and standardizing, separation, quality checks and packing, the milk containers are sent to the storage unit.

  • Storage: Milk is sent to the cold storage of the dairy, where it is stored until it is dispatched. About 40,000 litres of milk are dispatched from the cold storage of the dairy plant everyday. The damaged pouches are kept aside, while the milk is once again sent to the storage tank.
  • Distribution: The product changes hands several times before reaching the consumer. They are stored with
    • Distributors
    • Who sell it to wholesalers
    • Who sell it to retailers
    • Who sell it to the consumer

What differentiates Amul from other supply chains is the application of technology based supply chain system even at the grass root level. At the supply end, a computerized database has been setup for details of the farmers and their cattle, and the quality and quantity of milk collected. Amul has installed over 3,000 automatic milk collection system units at village societies to store farmer information, milk fat content and amount payable to each farmer. Each farmer is given an ID card. The amount payable to the farmer is calculated on the basis of the fat content. The value of the milk is printed out on a slip, so that the farmer can collect the payment from the adjacent window. Thus, the farmer gets the payment instantly. More than 5,000 trucks transport milk from the source to 200 dairy plants twice a day. Each Amul office sends daily reports on sales and inventory to the main system at Anand. Distributors are connected to Amul's network, so that they can place their orders through the system. This is an apt example of Just-in-Time system.

The establishment has come a long way: innovating, winning accolades and even transitioning into the use of technology. Amul is the largest producer of milk and milk products in the world. It has set world best practices for dairy producers.Amul’s wide success can be attributed to its robust supply chain network, low cost policies, strong distribution network, and service availability. 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 US$ 1 million to over 500,000 retail outlets across the country.

The establishment of Amul is popularly known as White Revolution. It serves as the inspiration for the notable Indian film Manthan, which was financed by over five lakh rural farmers in Gujarat who contributed Rs 2 each to its budget.


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