PROCESS MAPPING OF DISTRIBUTION

PROCESS IN AMUL

University of Petroleum and Energy Studies

September - 2010

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 CONTENTS

S. No. CHAPTERS PAGE

I BUSINESS PROCESS 3

II PROCESS MAPPING 3-4

III INTRODUCTION 4-6

IV THE DISTRIBUTION NETWORK 7

V DISTRIBUTION CHANNEL 8

VI PROCUREMENT CHANNEL 9

VII THE NETWORK 10-11

VIII THE BUSINESS MODEL 12-15

IX COMMENTS AND OPPORTUNITIES 16-17

X REFERENCES 17

XI EXHIBIT 18-22

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 BUSINESS PROCESS

A business process is...

 A series of related activities that “flow” through an organization.

 Not limited to a single function or department.
 Something that can be viewed from end to end.

Process
Trigger Policy development Value-Added
Assessment
Input Output
Customer Service
Order Fulfilment
Application Procedure

Customer

PROCESS MAPPING

 Process mapping is a tool that is used to understand, analyse and document processes
and activities in an organization and assist in identifying opportunities for
improvement.
 A process map displays the sequential steps involved in converting a specific input
into the required output.

Typical reasons for conducting process mapping include:

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  To improve a process, the process must be understood clearly.
 Complexity of processes and lack of understanding constraints management’s attempts to
improve processes.
 Analytical skills and process mapping skills allow understanding and communicating
processes to management, staff and users.
 Identifies efficiency issues and where systems can support these

Process mapping is extremely valuable because it identify improvements in a number of aspects

in the work place, including the distribution network of the company.

The company we have chosen to understand the process mapping of the distribution process is
Amul.

INTRODUCTION

THE TASTE OF INDIA, AMUL comes from the Sanskrit word Amoolya, means
priceless. It was suggested by a quality control expert in Anand and it was choosen because it
was a perfect acronym for Anand Milk Union Limited. AMUL was formed under the dairy
cooperative movement in India in 1946.

Gujarat Cooperative Milk Marketing Federation (GCMMF) is India’s largest food

products marketing organization. It is a state level apex body of milk cooperatives in Gujarat
which aims to provide remunerative returns to the farmers and also serve the interest of
consumers by providing quality providing quality products which are good value for money.
AMUL is the brand under this organization.

AMUL is the largest food brand in India and World’s Largest Pouched Milk Brand with
an annual turnover of US $1050 million (2006-2007). Currently Amul has 2.6 million producer
members with milk collection average of 10.16 million liters per day. Besides India, Amul has

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entered overseas markets such as Mauritius, UAE, USA, Bangladesh, Australia, China,
Singapore, Hong Kong and a few South African countries.
Dr. Verghese Kurien, former chairman of the GCCMF, is recognized as the man behind
the success of Amul. On 10 Aug 2006 Parthi G Bhatol, chairman of the Banaskantha Union, was
elected chairman of GCMMF.
The various tools developed for the future use are:
 Increase innovation to differentiate and add value to milk;
 Develop more effective relationships and contracts in order to realize better value at farm
level;
 Increase efficiency across the supply when compared with competitors.

The GCMMF was established as a response to exploitation of marginal milk producers in the
city of Anand (in Kaira district of the western state of Gujarat in India) by traders or agents of
existing dairies. 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 in individual containers.

These agents decided the process and the off-take from the farmers by the season. Milk is the
commodity that has to be collected twice a day from each cow/buffalo. In winter, the producer
was either left with surplus unsold milk or had to sell at very low prices. India ranked nowhere
amongst milk producing countries in the world in 1946.

To overcome this problem few nationalist leaders advised the farmers to form a Cooperative
and supply directly to Bombay Milk Scheme instead of selling it to Polson. Thus the Kaira
District Cooperative was established to collect and process milk in the district of Kaira. 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.
Indigenous R&D and technology development at the Cooperative had led to the successful
production of skimmed milk powder from buffalo milk- the first time on a commercial scale
anywhere in the world.
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 But after 2000, the dairy industry in India and particularly in the State of Gujarat looks very
different. India for one has emerged as the largest milk producing country in the world (see
table 1). Gujarat has emerged as the most successful State in terms of milk and milk product
production through its cooperative dairy movement. The Kaira District Cooperative Milk
Producers’ Union Limited, Anand has become the focal point of dairy development in the entire
region and AMUL has emerged as one of the most recognized brands in India, ahead of many
international brands.

Starting with a single shared plant at Anand and two village cooperative societies for milk
procurement, the dairy cooperative movement in State of Gujarat had evolved into a network of
millions of milk producers called as farmers who are organized in Village Societies (VS). These
VS supply milk to thirteen independent dairy cooperatives called Unions. Milk and milk
products from these Unions are marketed by a common marketing organization called
Federation. Figure 1 and 2 together show the structure and the range of activities in this
extensive network. While Figure 1 describes the hierarchical nature of the cooperative structure,
Figure 2 presents the supply chain linking farmer-suppliers of milk with the millions of
consumers. GCMMF has 42 regional distribution centers in India, serves over 5, 00,000 retail
outlets and exports to more than 15 countries. In a recent survey GCMMF was ranked amongst
the top ten FMCG firms in the country while AMUL was rated the second most recognized
brand in India amongst all Indian and MNC offerings.

Interestingly, the Gujarat movement spread all over India and a similar structure was
replicated (all are at different levels of achievement but their trajectory appears to be quite
similar!). TWO national organizations, the National Dairy Development Board (NDDB) and the
National Cooperative Dairy Federation of India (NCDFI) were established to coordinate the
dairy activities through cooperatives in all the States of the country. The former provides
financing for development while the latter manages a national milk grid and coordinates the
deficit and surplus milk and milk powder across the states of India.

Today AMUL is a symbol of many things: Of high quality products sold at reasonable
prices; Of developing and coordinating a vast co-operative network; Of making a strong business
proposition out of serving a large number of small and marginal suppliers; Of the triumph of
indigenous technology and Of the marketing savvy of a farmers’ organization.

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 THE DISTRIBUTION NETWORK

Amul range of products continues to penetrate deeper and deeper across the country
simultaneously through four distribution highways created with specialist distributors handling
ambient milk products, chilled milk products, fresh milk products and frozen products. This
unique combination of managing distribution highways has always been huge competitive
advantage.

Distributors are considered to be Marketing Managers of Federation in true sense. To

develop Self Leadership amongst each individual distributor, a major initiative called SLDP
(Self Leadership Development Programme) has been implemented.

Distributors along with their stake-holders undergo a Vision Mission Strategy (VMS)
workshop at their level which would eventually integrate each of them in the process of
organization’s strategic planning and enable them to manage their own business efficiently by
meeting the challenges of competitive environment. In the process, Distributor prepares his
Mission statement and business plan for next few years.

To get exposure to the network of cooperative Institutions, Amul Yatra was organized for
channel partners. Distributors and major retailers from across the country come to Anand in
Amul Yatra programme. So far more than 7700 distributors and other channel partners have
visited Anand in Amul Yatra.

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 DISTRIBUTION CHANNEL

Manufacturing
GCMMF

Head office

First leg (from manufacturing units)

Depot...1 Depot...n

Second leg

WD…1 WD…n

Third leg

Retail...n
Retail…1

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Downstream flow
 PROCUREMENT CHANNEL

GCMMF
Distribution
Head office

MU…1 MU...n

VCS…1 VCS…n

Village…1 Village…n

Upstream flow 9|Page

 THE NETWORK

Milk is procured from the villages and collected at Village Cooperative Societies (VCS),
from there the milk is taken to manufacturing units where the milk is processed into various
products.

The products are then transporters to the company Depots located in various parts of the
country. The products are then sent to Wholesale Distributors (WD) and from there to the
retailers.

The fact sheet

 Milk is procured twice a day from 2 million from Gujarat alone

 The payment is made under twelve hours of procurement
 There are 10000 village cooperative societies
 There are 3600 wholesale distributors in the country
 45 depots
 The C&F agents are not fixed and are decided by the local company offices
 There are aproxx. 4,50,000 retailers spread all over India
 Total house hold consumers covered are 100,000
 The milk procured per day is 5 million liters
 Where the total capacity of operation is 7 million liters per day
 The peak processing till date has been 6 million liters per day
 These co operative societies are bound to supply there produce only to GCMMF

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Upstream Channel in which milk is procured from the farmers to the manufacturing units.

1. In the first step, the milk is taken to the VCS by the farmers on foot or bicycles in
small quantities
2. The second step involves the transportation of milk from the co-operatives to the
manufacturing units this is done in special trucks which are equipped with tankers
to carry milk.

Downstream Channel, it is the distribution part of the supply chain. From the manufacturing
units to the retailers.

1. First leg of transport is from the manufacturing unit to the company depots. This
is done using 9 and 18 MT trucks any lesser quantity will be uneconomical to the
company there fore is some time the quantity ordered is lesser then club loading is
done which means that the product ordered is supplied with some other products.
a. Frozen food the temperature of these trucks is kept below -18˚C
b. Dairy wet the temperature of these trucks is kept between 0-4˚C

2. Second leg is from the depot to the WD’s, this transport is carried out in
insulated 3 and 5 MT TATA 407’s here a permanent dispatch plan (PDP) is
prepared where the distributor plans out the quantity of various products to be
ordered on a particular date.

3. Third leg this is the flow of good from WD’s to retailers, a beat plan is prepared
and transportation is done on auto-rickshaws, rickshaws and bicycles.

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 THE BUSINESS MODEL

The objective of the network was to deliver profitable and equitable returns to a large
number of farmers for a long period of time. This follows rather directly from the fact that the
member farmers own essentially the network of cooperatives. An additional objective was to
develop the supplier over the long term through social change. Consequently, the business model
includes both the costs and benefits of services that are needed to deliver milk with high
productivity as well as to assist farmers in improving their social environment.

The success of the network depended on high collection rate of milk. This required
increasing membership with more VSs, raising the number of members per VS, and improving
the milk yield (i.e., better cattle management), constant concern about the cost to farmers in the
network and delivering quality to customers at low prices. The cooperative had decided as part of
its value:

 To charge for each service provided to the supplier.

 To purchase all milk those member farmers produced.
 To sell liquid milk at affordable prices so as to serve a large number of consumers.
 To develop and deliver services that will improve lives of people in the network.
 To hire professional managers, to run the federation and unions, whose value included
upliftment of rural poor.

It is noteworthy that from the very beginning, in the early 1950s, AMUL adopted the
network as the basic model for long-term growth. Two aspects of this network deserve special
attention. First, the network explicitly includes secondary services to the farmer-suppliers.
Second, several of the entities in the network are organized as cooperatives linked in a
hierarchical fashion. In what follows, we describe briefly the environmental characteristics and
the rationale for the underlying business model.

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Market/ Customer: 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 weakness in the basic infrastructure, logistics
and transportation services are typically not professionally managed, with little regard for quality
and service. Even from the cursory description of the environment provided above, it should be
clear that the traditional management practices of the west are not sufficient for success in
emerging markets.

Many MNCs that ventured into India following the first phase of liberalization in 1990s
found this at great cost. The success of GCMMF and AMUL is in glaring contrast to the
experience of these MNCs and thus provides an alternative business model that may be useful
for others considering entry into emerging markets like India. A schematic description of the
business model showing the demand-supply linkages is presented in Figure 3. In addition to
material flows, the figure shows major decisions, support services, and planning and
coordination activities. For example, procurement prices set by Unions are a major determinant
of milk supply. Similarly, GCMMF’s pricing strategy for dairy products has a strong influence
on consumer demand. As shown in the figure, the Unions and GCMMF share coordination
activities. 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,

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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 realize that sustained growth for the long-term was
contingent on matching supply and demand. Further, given the primitive state of the market and
the suppliers of milk, their development in a synchronous manner was critical for the continued
growth the industry. The organization also recognized that in the view of the poor infrastructure
in India, such development could not be left to market forces and proactive interventions were
required.

Accordingly, AMUL and GCMMF adopted a number of strategies to assure such growth.
For example, at the time AMUL was formed, the vast majority of consumers had limited
purchasing power and was value conscious with very low levels of consumption of milk and
other dairy products. Thus, AMUL adopted a low price strategy to make their products
affordable and guarantee value to the consumer. The success of this strategy is well recognized
and remains the main plank of AMUL’s strategy even today. The choice of product mix and the
sequence in which AMUL introduced its products is consistent with this philosophy. Beginning
with liquid milk, the product mix was enhanced slowly by progressive addition of higher value
products while maintaining desired growth in the existing products. Even today, while competing
in the market for high value dairy products, GCMMF ensures that adequate supplies of low value
products are maintained.

On the supply side, as mentioned earlier, 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-

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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. A substantial part of this surplus is
used for activities that promote growth of milk supply and improve yields. These include
provision of veterinary services, support for cold storage facilities at the village societies etc. In
parallel, the Unions have put in place a number of initiatives to help educate the members.

To summarize, the dual strategy of simultaneous development of the market and member
farmers has resulted in parallel growth of demand and supply at a steady pace and in turn assured
the growth of the industry over an extended period of time.

Managing Third Party Service Providers: Well before the ideas of core competence and the
role of third parties in managing the supply chain were recognized and became fashionable, these
concepts were practiced by GCMMF and AMUL. From the beginning, it was recognized that the
core activity for the Unions lay in processing of milk and production of dairy products.
Accordingly, the Unions focused efforts on these activities and related technology development.
The marketing efforts (include brand development) 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.

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 COMMENTS AND OPPORTUNITIES

 Amul has loyal cooperatives that provide milk only to them, over time the relationship of
trust has built up with these people that Amul leverages now.

 Transport channel is another strength as the transporters have grown with the company
overtime the bonding with them enables the company to give least margins when it
comes to the distributors in the industry, lowering the costs.

 The company is enabled to push its new products into the market by hooking them onto
the fast moving products like Amul butter; they force the channel members to carry the
new products as well.

 Amul should go in for exclusive outlets in at least all the shopping malls coming up
these days and any location where footfalls are large in number. The advantages of this
channel will be:

i. Full range display

ii. Easier to promote new products
iii. Easy to push impulse purchase products
iv. Brand building will be facilitated

 Pushcarts should be increased in number in order to increase the market reach this can
provide with a very effective channel for ice creams and flavored milks.

 Trade promotion should be formulated for newly launched products instead of just
tagging them onto best sellers.

 The company should start a home delivery where a particular household will order full
range of products required by it over a period of time. For this the company could
provide a deliveryman with cycle to reach the different houses.

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 In order to motivate the channel members it is also very essential for the company to
increase the margins for the hard selling items e.g. Amul dahi where it faces
competition from Nestle & Mother dairy.

 In order to remain sensitive to market demand, it is essential for the company to place
additional salesman on the field since the brand as such commands a high demand in
the market but fails to match it with the supply.

REFERENCES

1. http://www.rediff.com/money/2005/sep/23spec.htm
2. http://www.scribd.com/doc/8714268/Rahul-Raj-Project-Report-on-Amul
3. http://www.iimahd.ernet.in/publications/data/2002-05-06PankajChandra.pdf
4. http://www.slideshare.net/nikunj1986/distribution-network-of-amul
5. Heredia, R. 1997. The Amul India Story. Tata McGraw Hill, New Delhi.

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 EXHIBIT

Table 1 : International Comparisons

COUNTRY Milk production(million tonnes)

1961 1999 2000

Japan 2.10 8.46 8.50

Canada 8.32 8.20 8.10

Europe 132.40 216.30 214.3
USA 57.02 73.8 76.1
Australia 6.28 10.49 11.17
New Zealand 5.22 10.88 12.23
India 20.38 78.90 81.8

Source: www.fao.org : Bulletin of the IDF, 339, 1999

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Table 2: Scale of Operations at GCMMF

Panel A: Sales turnover

Year Sales Turnover (in million Rupees)
1999-00 22185
1998-99 22192
1997-98 18840
1996-97 15540
1995-96 137900
1994-95 111400
1986-87 3600
Panel B: Milk Collection (in 1000 litres)
Annual: 1998-99 14,74,000
Daily Average 4020
Union:
AMUL(98-99) 230000
Mehsana(98-99) 375500
Panel C: Other Information
Total Milk Handling Capacity: 6 million litres/day
Milk Drying Capacity: 450 MT/day
Cattlefeed Manufacturing Capacity: 1450 MT/day (7 plants)
Panel D:Product Range
Liquid Milk (nine varieties) Sweets (three varieties)
Milk Powders (five varieties) Ice Cream (several varieties)
Butter Condensed Milk
Ghee(two varieties) Edible Oil (nine varieties)
Bread spread Mineral Water
Cheese (three varieties) Fruit Drinks
Cocoa Products (two varieties)
Panel E: Number of Brands
Liquid Milk: AMUL,SAGAR Mineral Water: Jal Dhara
Milk Powders: Amulspray, AMUL, SAGAR, Fruit Drinks:Safal
Amulspree, Amulya
Cocoa Products: Amul, Nutramul All other products are sold under the AMUL
Edible Oils: Dhara, Lokdhara brand name
In 1999, US$ 1 was equal to Rupees 41.33. In 1986, 1 US$ was equal to Rupees 12.00

Source: Annual Reports of GCMMF.

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Figure 1: Dairy Cooperative Structure and details for State of Gujarat

NDDB/NCDFI

FEDERATION FEDERATIONS

In Other States
GCMMF

UNIONS
Figure 2: GCMMF’s SUPPLY CHAIN
AMUL and 13 Other District

VILLAGE SOCIETIES

10,411 Village Level Milk Collection

Centres
INDIVIDUAL MILK PRODUCERS

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AMUL SUPPLY CHAIN
Farmers

Village Village Local Milk Sold to

Cooperative Cooperative Restaurants/Other Village &
Societies Societies (with Milk related Local Residents
(without Chilling Chilling Units) businesses
Units)

Network Milk Processing Chilling Plants

Services Union &
* Veterinary Warehouses
Services
* Animal Warehouses
Husbandry
* Animal
Feed Factory
* Milk Can Wholesalers/C&S
Producers
* Agriculture Retailers Home Delivery
University Contractors
* Rural Mgmt
Institute
* Trucking CONSUMERS CONSUMERS
Facilities

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 Figure 3: The Supply – Demand Linkages

3PL
Services

Product
GCMMF
Price

Unions Strategy

Suppliers/
Procurement Price
Farmers

3POL

Customers/
Consumers
3PIL
VS

Milk Supply Entities in Supply Chain

Material Flow of Milk and Dairy Products Distributor

Support Services
Retailer
Primary/Major Influencing Factors 3PIL – Third Party in-bound logistics

Coordination & Planning activities 3POL – Third Party Out-bound logistics

Demand

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