OPERATIONS MANAGEMENT

Amul: Supply Chain and Distribution

Contents
Dairy Industry in India ...................................................................................................................... 2
About Amul....................................................................................................................................... 3
AMUL Supply Chain and Distribution ............................................................................................. 3
Channel Network at AMUL .............................................................................................................. 4
1. Upstream process involved in transportation – Procurement of Milk ...................................... 4
Upstream processing involves the following stages- .................................................................... 5
Collection of milk using AMCUS- ................................................................................................... 5
• Village Cooperative societies-.................................................................................................... 5
• District Milk Processing Unions- ............................................................................................... 6
• State Marketing Federations- ..................................................................................................... 6
2. Downstream process involved in transportation – Distribution of Milk .................................. 6
Amul supply chain network – Upstream + Downstream .............................................................. 8
Challenges in AMUL’s operations management- ............................................................................. 8
Exhibits ............................................................................................................................................. 9
References ....................................................................................................................................... 10
Plagiarism Report ............................................................................................................................ 11
Dairy Industry in India

India stands first in the list for highest milk production in the world. Also known as the ‘Oyster’
of the global dairy industry. With liberalization, dairy industry in India has witnessed rapid
growth and there are great opportunities for entrepreneurs globally, as the economy provides
good opportunities for MNCs and foreign investors to release the full potential of the industry.
The main objective of the Indian Dairy Industry is to manage the national resources to enhance
milk production and upgrade milk processing using innovative technologies.

Crossbred technology in Indian Dairy Industry has further augments with the viability of dairy
units by increasing the milk production per animal. Subsequently milk production increased at
an exponential rate, and this increase in production of milk has benefited consumers with a
relative decrease in price of milk. Favorable price environment for milk producers weakened
during the 90s, a decline in the real price of milk was noticed in year 1992. However, it regained
its glory after 1992 till now.

The country’s milk supply comes from millions of small producers dispersed throughout small
areas. As income from crop production is seasonal, dairying provides a stable year-round
income. Hence, dairying is regarded as an instrument for social and economic development.

India has tremendous milk production in 40 years with a gross output of 84.6 million tons in
2001. 15 State cooperative milk marketing foundations support 170 milk producers’
cooperative unions. More than 10 million dairy farmers belonging to 96,000 local dairy
cooperatives sell their products to one of these unions.

The growth of Indian Dairy Industry has been impressive in the last three decades, at more than
5% per annum. The existence of restrictive trade policy milk in the Dairy Industry and the
emergence of Amul type cooperatives have changed the dairy farming practices in the country.
Milk production in India is dominated by small and marginal land-holding farmers who in
aggregate own 70% of national milch animal herd. India’s milk product mix includes - fluid
milk, ghee, butter, curd, khoa and others with contribution of 46%, 27.5%, 6.5%, 7%, 6.5% and
6.5% respectively.

Indian Dairy Industry specializes in the production, processing, storage and distribution of dairy
products. The industry contributes about Rs. 1,15,970 to national economy.

About Amul

Amul or Anand Milk Producers Union Limited is an Indian dairy cooperative based out of
Anand, Gujarat. It was formed in 1948, managed by Gujarat Co-Operative Milk Marketing
Federation Ltd. (GCMMF). GCMMF today is jointly owned by 3.6 million milk producers in
Gujarat.

GCMMF is India’s largest food product marketing organization with annual turnover of $4.5
billion in year 2017-18. Its daily milk procurement is approximately 18 million liters per day
from 18,554 village milk cooperative societies, 18-member unions covering 33 districts, and

3.6 million milk producer members. It operates through 56 Sales Offices and has a dealer
network of 10,000 dealers and 10 lakh retailers, one of the largest networks in India. GCMMF
is India’s largest exporter of Dairy Products with its products in USA, Gulf Countries,
Singapore, Japan, China and Australia. GCMMF was awarded “Golden Trophy” for its
outstanding export performance and contribution in dairy products by APEDA. For consistent
adherence to quality, customer focus and dependability, GCMMF has received numerous
awards and accolades like Most Respected Company Award, International Dairy Federation
Marketing Award, AIMA-RK Swamy High Performance brand award and many more. Amul
is considered to be a representation of economic freedom of farmers in India.

Mission of Amul speaks about the satisfaction of taste and nutritional requirements of
consumers of the world.

The primary business objectives of AMUL are:

• To provide remunerative returns to the farmers

• Serve consumers interests by providing quality products at reasonable prices

AMUL Supply Chain and Distribution

Amul supply chain management is a three-tier model consisting of farmers and unions. Amul
follows a co-operative model unlike other companies who employ forward integration model
which functions without the involvement of farmers. It employs upstream and downstream
model. In the upstream model, the milk is collected from farmers to GCMMF and in the
downstream model the milk is transmitted from GCMMF (plants) to retailers/customers. In
Amul co-operative model the milk is procured from farmers, which is the main source and then
transferred to village co-operatives. The next phase involves transfer of milk to district level
co-operatives and finally to the consumers through the retailers. The milk which is collected
undergoes various processing units which determines the fat content. Depending on the fat
content, the purchase price is determined. To achieve agility in the process, Amul uses
automated tools in the collection centres.

Channel Network at AMUL

AMUL employs both upstream and downstream model. In the upstream model the milk is
collected from farmers and transferred to manufacturing plants and in the downstream model
the milk is transmitted from manufacturing units to retailers/customers.

1. Upstream process involved in transportation – Procurement of Milk

GCMMF coordinates with different unions at state, district and village levels to get a regular
supply of milk and various other dairy products. GCMMF constitutes of 22 State federation
unions in India which comprise of 170 District Milk Processing Unions. 72774 Village
cooperative societies, collecting milk from approximately 9.31 million milk producers, are
associated with the 170 district unions which form the backbone of Amul’s upstream supply
chain.
Upstream processing involves the following stages-

1. Collection of milk from farmers using Automated Milk Collection System (AMCUS)
2. Collected milk sent to village cooperatives
3. Transfer of milk to AMUL manufacturing units in specially designed vehicles

Collection of milk using AMCUS-

Initially, the farmers from various villages bring their milk to village centres in the respective
villages. This milk is tested by various digital and electronic machines, weighs the fat content
and pays the farmers accordingly. Typically, the Village centres are called dairy cooperative
society which have approximately 100 farmers in it. All the dairy cooperative society combine
collects 18 million Kg/day. The collection and weighing of the milk is done through
computerized mechanisms and electronic milk testers (EMT) established at village centres so
that the process time can be reduced. Amul in its vision has stated that it has been established
to uplift farmers in rural areas. Accordingly, it pays the farmers whenever the farmers need it.
Initially, Amul used to make payments once in a day and later twice a day however because of
supplier and company relationships it is now paying monthly or weekly basis to
suppliers/farmers.

Quality is of paramount importance to Amul and it maintains quality by involving all the
stakeholders. Amul educates their suppliers on the feed and fodder provided to the cows so that
the milk collected from cows is of top quality. The milk quality can be measured in terms of
acidity, sourness and microbiological activity. These parameters have to be maintained to
improve the shelf life of milk.

Automatic milk collection units:

On an average around 1000 farmers come in the morning and evening to the centres and each
farmer has been given a plastic card for identification. During the procurement process the
farmers swipe their plastic cards in the kiosk machines and pour the milk in the collection units.
The automatic milk collection units test the milk for weightage, fat content and other physical
and chemical parameters and generates slips on how much amount the farmer must be paid
according to the quality assessed on the basis of above parameters and the farmers are paid on
the spot. This process aids in faster procurement time and transparency in payments.

• Village Cooperative societies-

The milk collected from millions of farmers, after its quality assessment is sent to village
cooperatives and then to manufacturing units. Milk being a perishable product needs to be
transferred in specially designed vehicles with tankers. Vehicles used for transportation of
rawmilk to plants include standard insulated tanker design known as SS304 internal surface.
The vehicle maintains a temperature of 4 to 6 degrees Celsius while in transit. By doing this
milk quality is not compromised.
Amul maintains the largest cold chain network in India. It operates at various levels so that
quality of milk is not compromised. Milk being a perishable product has to be consumed within
24 hours, so the collected milk is kept in cold storages in Village centres and transported
through chilled trucks. The main components of milk are water, SNF and solids. In order to
avoid wastage, Amul evaporates the water which comprises of 60-70% of milk contents.

• District Milk Processing Unions-

All the milk that is collected is transferred to various district cooperatives for further processing
of the milk and then converted into ice-creams, butter, milk powders etc. Some of the district
cooperative unions are Banaskantha District Cooperative Milk Producers’ Union Limited
known as Banas Dairy, Gandhinagar District Co-operative Milk Producers’ Union Ltd.
operated as Madhur dairy, Surat district cooperative society as Sumul Dairy, Surendranagar
District Co as Sursagar Dairy. All these DCU are required to sell the products under the brand
name Amul.

• State Marketing Federations-

All the district cooperative models work under one governing body known as Gujarat
Cooperative Milk Marketing Federation (GCMMF). All the processed milk that is
manufactured in DCU is transported to state federations where these products are distributed
across the country and worldwide through GCMMF. Every operation from beginning to
reaching the GCMMF is done through ultra-modern facilities and its extensive supply chain
and distribution networks. GCMMF can have real time data and tracks every stage of the milk.

2. Downstream process involved in transportation – Distribution of Milk

The first process involves transfer of milk from manufacturing units to Amul depots. From the
manufacturing units of Amul, all the products are divided into dairy products and frozen food
products before being transferred to Amul depots. For the dairy products, trucks which maintain
temperature between 0-4 degrees Celsius are used and for frozen products like ice cream,
paneer etc. trucks maintaining below -18 degrees Celsius are used.

The second process involves transmission of dairy and frozen products from depots to
wholesale dealers. The trucks involved are insulated 3 and 5 MT Tata 407’s.
 • In these small refrigerated vehicles, the products are carried from wholesale dealers to
retailers and shopkeepers.

Amul outsources its logistics to third party services for transportation of milk to GCMMF and
distribution of finished goods from GCMMF. As milk is a perishable product (lasts only for 24
hours), it is important to transport it without spoilage. In order to cater this, Amul uses chilled
freezers in village centres and the vehicles are usually tempo, trucks, and insulated vans with
chillers in it is used to carry the milk and finished products. On average each truck carries
7000litres of milk and 1100 trucks operate each day in upstream flow. With a CAGR of 10 per
cent in milk procurement Amul is planning to expand its logistics to supply the milk. Amul sets
certain conditions and terms in selection of vehicles and selects only those which complies with
their parameters.

GCMMF categories their logistics structures as four traffic distribution highways according to
the type of products it transports like fresh products, ambient products, refrigerated products
and frozen products. Fresh products like pouch milk, butter milk and dahi are transported by
insulated trucks. These trucks typically take less than six hours to reach the final outlet. Open
trucks are used in transporting milk powders, flavored milk, UHT cream and refrigerated vans
are used for transporting butter, cheese, cheese spread and ice cream. In these trucks, Data
loggers are fixed to control the temperature ranging from 0-4 degrees throughout the
transportation. Ice cream and other frozen foods must be maintained at a temperature from 0 to
-18 degrees. In cases where demand is high Amul also sources vehicles from open market.

Specially designed crates are used in transit for milk as it is easy to stack them in cold storages
and refrigerated truck containers. For transportation of ice cream GCMMF owns India’s largest
cold chain network with a fleet of 700 vehicles of various capacities depending upon the market
size. All these vehicles are equipped with VTS (Vehicle tracking system) and GPS technology.
Amul also employs digitalization tools for route optimization to reduce the turn-around time
and increase the efficiency.
 Amul supply chain network – Upstream + Downstream

Challenges in AMUL’s operations management-

1. Amul has a unique 'from cow to consumer' supply chain that links 3.5 million milk producers
/farmers to nearly 1 billion customers across the country. On the upstream side, milk is
purchased daily and farmers are paid at the point of delivery, with 80% of payments being
made in cash. At the downstream end of the supply chain, Amul collects remittances from
distributors on a 'cash and carry' basis. Only some of the distributors and retailers use electronic
payments, rest provide post-dated cheques towards the payment of future milk supply orders.
For clearing, settlement and reconciliation, cheques are sent to BNP Paribas. This translates
into massive administrative overheads and high operating costs, along with the risks
associated (cancelled or non-honoured cheques, errors causing cheques to bounce back, etc.).
Farmers are reluctant to use electronic modes of payment and rather prefer cash.
2. Village cooperative societies are the backbone of Amul’s business and these cooperatives are
dependent on millions of farmers across the country. Any type of political unrest between the
organisation and the farmers will directly affect the first step of the supply chain and affect the
 (Amul - When milk supply chain takes a new dimension, n.d.)Milk being a perishable product
requires a highly efficient supply chain network. Minimal defects in any upstream or
downstream process might pause the complete supply chain and severely affect quality of the
milk.
3. Most of the distribution services of Amul are outsourced to third parties which are not in the
organized sector and are not professionally managed. GCMMF has to put in a lot of effort and
resources to manage them. In addition to outbound logistics, GCMMF also takes responsibility
for coordinating with the distributors to assure adequate and timely supply of products. It works
with the Unions to determine product mix, product allocations and to develop production plans.

Exhibits

Exhibit 1: Co-operative Model at AMUL

Exhibit 2: Automatic Milk Collection Unit

References

Amul - When milk supply chain takes a new dimension. (n.d.). Retrieved from cashmanagement:
https://cashmanagement.bnpparibas.com/amul-when-milk-supply-chain-takes-
newdimension
Amul kicks off largest distribution exercise. (n.d.). Retrieved from economictimes:
https://economictimes.indiatimes.com/industry/cons-products/fmcg/amul-kicks-off-
largestdistribution-exercise/articleshow/7714890.cms

Amul. (n.d.). Organization. Retrieved from Amul: http://www.amul.com/m/organisation

Dr. Ruchira Prasad, D. R. (2013). A Case Study Of Amul Co-Operative in India in relation to
Organizational Efficency. International Journal of Scientific & Engineering Research.

Indian Industries. (n.d.). Retrieved from Indian Mirror:

http://www.indianmirror.com/indianindustries/dairy.html

Supply Chain Management-Amul Milk farmers and logistic system-case study. (n.d.). Retrieved from
ensyklopedia: http://www.ensyklopedia.com/supply-chain-management-amul-milk-
farmersand-logistic-system-case-study/

Understanding Amul Supply Chain Model. (n.d.). Retrieved from cmuscm:

http://cmuscm.blogspot.com/2014/01/understanding-amuls-supply-chain-model.html

Plagiarism Report