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DETERMINING EFFICIENCY OF SUPPLY CHAIN MANAGEMENT OF

DAIRY DEVELOPMENT CORPORATION IN CHITWAN

A Report
On Seminar Series: Supply Chain Management

Submitted by
Mr. Amar kumar Nepal
Presidency College of Management Sciences
PU Regd. No.: 070-2-3-01297-2018

Submitted to
Office of the Dean, Faculty of Management
Purbanchal University, Biratnagar

Submitted in partial fulfillment of the seminar course requirement for the degree of
Masters of Business Administration (MBA)

July 2019
DECLARATION

I hereby declare that report entitled “Determining efficiency of Supply chain of D.D.C in
Chitwan” submitted to Office of the Dean Faculty of Management Presidency College,
Purbanchal University is my genuine work. The original work done in the format is
assigned by PU for the partial fulfillment of the seminar series report under Masters
Degree in Business Administration (MBA) under the supervision and guidance of
Mr.Ujjwal Marahatta

……………………………….
Amar kumar Nepal
Presidency College Of Management Science
P.U. Regd No: 070-2-3-01297-2018
APPROVAL SHEET

We have conducted the approval examination of the report presented by

Mr Amar kumar Nepal

Entitled

Determining efficiency of Supply chain Of District Development Corporation in Chitwan

And found the report to be the original work of the student and written according to the
prescribed format. We recommended the report to be acceptance as partial fulfillment of
the requirement for

Masters of Business Administration (MBA)

Approval Committee

………………. …………………
Supervisor External Expert
ACKNOWLEDGEMENTS

This research study/report is done as per the requirement in the seminar series in the 2nd
semester of Master of Business Administration M.B.A program under Purbanchal
University. I would like to express my deepest gratitude to our external faculty Prof.Dr
Biju Thapaliya sir for providing us the opportunity for brainstorming our mind on such
relevant case study . Similarly, my deepest gratitude to our teacher Mr. Ujjwal Marahatta
sir for guiding us to prepare this report, sincerest gratitude to our Principal sir,
Mr.Shambhu Chettry for providing the motivation during the whole report development
period.
I would like to thank Mr Prem Shrestha (PCMS) and Suraj Acharya sir for continuously
guiding me when I used to ask for their help in library work.
This research report would not have been possible without the help of Mr Raghu Sharma
who helped me and went with me in different dairy centres and co-operatives in
Chitwan.
Lastly I would like to thank my family members who believed in me and always helped
me in my work.

Amar Kumar Nepal


M.B.A 2nd Semester
Presidency College of Management Sciences
Bharatpur-10,Chitwan,Nepal
July,2019
EXECUTIVE SUMMARY

The main aim of this report on the study of Determination of efficiency Supply chain of
Dairy Development Corporation D.D.C in Chitwan was to enchance the theoretical
knowledge obtained in the college during the seminar series and linking it with the real
life work carried out in the supply chain scenario. I visited different distribution centres
in different parts of Chitwan and observed the supply chain and distribution process
during the visited.

During the visit Mr. Raghu Sharma gave the detail presentation how the milk of DDC is
collected and distributed in different parts Chitwan.
TABLE OF CONTENTS

CHAPTER CONTENTS PAGE


COVER LETTER i
DECLARATION ii
APPROVAL SHEET iii
ACKNOWLEDGEMENTS iv
EXECUTIVE SUMMARY v
TABLE OF CONTENTS vi
LIST OF TABLES viii
LIST OF FIGURES/DIAGRAMS ix
LIST OF ABBREVIATION x

INTRODUCTION
Background of the study 1
Objectives of the study 2
Scope of the study 3
Study Methodology 4
Approach of the study 4
Study Design 4
Source of Information 5
Review of Literature 5
Limitation of the study 6

II PRESENTATION AND ANALYSIS


Organizational background 7
Dairy Development in Nepal 7
Dairy Development Corporation 8
An overview of Chitwan 11
Analysis 11
Milk Collection Programme 11
Collection Network 12
Production Capacity 13
Sales and distribution management 14

III SUMMARY, FINDINGS AND CONCLUSIONS

Summary 16
Conclusion 17
Recommendation 18

REFERENCES 19
APPENDICES 20
LIST OF TABLES

TABLE NO. TABLE NAME PAGE

Table 1 Name of Milk Supply Scheme in Nepal 8


Table 2 Name of Milk Supply Schemes, no of MPCs and 12
District covered
Table3 Name of Milk Supply Scheme and number of Chilling 13
Centers
Table 4 Name of Milk Supply schemes and their production 14
Capacity
Table 5 Name of Milk Supply Schemes and distribution 15
channel
LIST OF DIAGRAMS

DIAGRAM NO. DIAGRAM NAME PAGE NO

Diagram 1 Upstream and downstream supply chain 10


Relationship
Daigram 2 Supply Chain Structure of DDC in Chitwan 16
LIST OF ABBREVIATIONS

S.C.M Supply Chain Management


D.D.C Dairy Development Corporation
M.B.A Master of Business Administration
F.A.O Food and Agricultural Organization
D.A.O Department of Agriculture
M.P.C.S Milk Producer Dairy Co-operative Societies
C.C Chilling Centres
H.M.S.S Hetauda Milk Supply Scheme
B.M.S.S Biratnagar Milk Supply Scheme
K.M.S.S Kathmandu Milk Supply Scheme
P.M.S.S Pokhara Milk Supply Scheme
L.M.S.S Lumbini Milk Supply Scheme
M.W.M.S.S Mid Western Milk Supply Scheme
CHAPTER I: INTRODUCTION

Background of the Study

Supply chain management is the management of information, process, goods and funds
from the earliest supplier to the ultimate customer, including disposal (Ell ram et.al.
2004). In supply chain, the company (focal firm) stays at the middle of upstream supplier
and downstream consumer and manages the activities of different supply chain members
according to the information acquired from the downstream customer. The goal of supply
chain management (SCM) is to ensure the effective and efficient movement of materials
and information from the supplier through to the end customers (Lee and Billington,
1995). This phenomenon shows the interdependence and chain link between the supply
chain actors. However, the supply chain is not just a chain of business with one to one,
business to business relationship, but a network of multiple businesses and relationship
(Lambert et.al.1998). Such chain and multiple relationships among the supply chain
actors have made the supply chain management more complex and challenging.
Furthermore, in dairy business the nature of input (raw milk), output (processed
milk), frequency of transaction, relation specific investment by the parties and present
market structure have added more challenges. These phenomenon shows that firm should
think about the appropriate governance structure and the types of relationship with the
supplier.
This report is is concerned with the determination of efficiency of Supply chain of dairy
development corporation (DDC), Nepal in Chitwan and has been done basically for the
fulfillment of seminar series course taught in 2nd semester of Master of Business
Administration(M.B.A) under Purbanchal University, Nepal.
This report has been assigned to each and every student of 2nd sem,MBA in order to
complete the study of research and report writing as well as get a practical exposure
towards real life research project through the seminar series.
The topic was very relevant as per the topic discussed during the sessions at our seminar
series .
1
For the completion of my course, I have prepared this report based on the supply chain
procedure of Dairy Development Corporation (D.D.C) in Chitwan.
I am very excited and delighted to present this report as a part of my research study

Objectives of the Study:

The main reason behind the study for the report writing is as per the course requirement
prescribed in our curriculum. Mainly this study has been conducted to fulfill the
requirement of M.B.A course of 2nd semester but gradually when I went on with my
study ,I came to realize that these kinds of study needs to be done by students in order to
impart practical knowledge and experience of the real world. This type of study is very
necessary to students if they want to grab knowledge about both research operation as
well as learning how to write report writing.
The objective behind this specific study is mainly concerned with the comprehensive
study of Supply Chain of Dairy Development Corporation in Chitwan. Being a
management student and someone related to business study, it is very necessary to impart
knowledge regarding the supply chain network and processes.
Additional objectives of the study can be pointed as follows:

i. To understand the planning mechanism of supply chain.


ii. To understand basically how a corporation operates.
iii. To know what a co-operative is.

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Scope of the Study:

Since the stake for the different players is extremely high in Supply chain managaement,
making it imperative for the partners –including the suppliers, manufacturers, distributors
and customers behave as if they are part of the same company. This creates a vast scope
of supply chain management.
The geographic reach of Supply Chain Management is immense. Today, a firm producing
ready made men's shirt procures the raw materials from African countries, gets
manufacturing process done in Asia and sells the product in Europe. The headquarter of
the company is situated in Holland. With great strides being made in the way information
is generated, disseminated and collected through the use of Internet , Emails etc great
Supply Chains are being witnessed in practically all the processing industries horizontally
as well as vertically. From complex and multi supply chains witnessed in production of
Iron and Steel , cement etc to small values retail products such as clothes, vegetables are
getting into the domain of the supply chain , cutting across the boundaries of the nations.
Very aptly, the supply chain has thrown up relevant educational courses and plenty of
jobs in the  area of procurement, inventory  control, strategic planning, distribution,
transportation etc.

As the reach of Globalization expands so shall the scope of Supply Chain Management
which is being recognized as a major competitive edge of business today.
 

3
Study Methodology:

This study is conducted basically on the basis of primary data collected during to
different dairy shops, dairy co-operatives,etc. Additionally to the primary data collected,
secondary data too was used and taken from local newspapers, magazines, information
from websites,etc. All the secondary data are accumulated, processed and combined as
per the need and objectives required by the study.
Likewise various other related data are collected from the journals,bulletins, magazines
and other published and unpublished reports and documents from various sources.

Approach of the Study:

A number of tasks was done to complete the proposed research because the study is
concerned with examining the real situation of relationship between supply chain of DDC
milk in Chitwan.
This approach included both primary research by going through different milk collection
centres and dairies of Chitwan, as well as studying different journals and articles
published in the related topic.

Study Design:

Basically the study design of this report covers following chapters:


:Introduction and background of the study
:Dairy development in Nepal
:Analysis and discussion
:Conclusion and recommendation

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Sources of Information:

Basically the major source of information collected during this preparation of report was
the primary research carried out at different co-operatives of Chitwan.
Similarly different journals, online pdf files , google scholar documents , etc was studied
for the preparation.

Data Presentation :

Data has been presented in the simplest of manner. Basically description form has been
used while preparing the report. Tables and figures , upon the need has been used for in-
depth understanding of the topic.

Review of Literatures:

In commerce, supply-chain management (SCM), the management of the flow of goods


and services, involves the movement and storage of raw materials, of work-in-process
inventory, and of finished goods from point of origin to point of consumption.
Interconnected, interrelated or interlinked networks, channels and node businesses
combine in the provision of products and services required by end customers in a supply
chain. Supply-chain management has been defined as the "design, planning, execution,
control, and monitoring of supply-chain activities with the objective of creating net value,
building a competitive infrastructure, leveraging worldwide logistics, synchronizing
supply with demand and measuring performance globally. SCM practice draws heavily
from the areas of industrial engineering, systems engineering, operations management,
logistics, procurement, information technology, and marketing and strives for an
integrated approach. Marketing channels play an important role in supply-chain
management.
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Limitations of the Study:

Following are the limitations of the study:

i. The study is limited to a simple and less descriptive study of the Dairy
Development Corporation D.D.C.
ii. It doesn’t cover all the operational analysis and working modality of the
organization
iii. Visit to main office of DDC , to Kathmandu and Hetauda was not
possible due to budget constraint.
iv. The scope of the study was limited only upto the supply chain of DDC in
chitwan
v. Part of the data was collected from secondary sources such as websites,
journals and local newspaper which could may be outdated or old.
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CHAPTER II: PRESENTATION AND ANALYSIS

Organizational Background:

Dairy development in Nepal:

In Nepal dairy development activities begin in organized way in 1952 with an


experimental production of Cheese. It led to the establishment of Yak Cheese factory in
Langtang of Rasuwa district under Food and Agriculture organization (FAO) assistance
in 1953. In 1954 a dairy development section was established under the Department of
Agriculture (DOA) and also a small scale milk processing plant was started on
experimental basis in Tusal, a village in Kavre Palanchowk district in the central region.
In 1956, a central dairy plant with an average milk processing capacity of 500 LPH was
established in Lainchaur, Kathmandu with the financial assistance from New Zealand and
technical assistance from FAO.
A Dairy Development Commission was formed in 1955. The Dairy Development
Commission converted into the dairy development board in 1962 and this board was
converted to the Dairy Development Corporation (DDC) in July 1969 under the
corporation Act 1964.
Gradually DDC set up more milk supply schemes to meet the growing demand of
processed milk and milk products. They are:-
At present, under DDC there are seven milk supply schemes in different parts of the
country.
(see table- 1).

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Table-1: Name of milk supply schemes in Nepal

Diary Development Corporation DDC:

Dairy Development Corporation (DDC, Nepal) is one of the leading public enterprises
(Government owned) which collects milk, produces diary product and distributes them to
the customers. Dairy Development Corporation (DDC) was established in 1969 with the
main objectives of providing guaranteed market and fair price to the rural milk producers
and supplying hygienic pasteurized milk and other standard dairy products to the urban
consumers.
This corporation was established by the government to fulfill the following
objectives (DDC, 2000):-
 Provide a guaranteed market for milk to the rural farmers with fair price.
 Supply pasteurized milk products to urban consumers.
 Develop organized milk collection system to meet increasing demand for
pasteurized milk and milk products.
 Develop an organized marketing system for milk and milk products in urban
areas.
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To fulfill these objectives DDC collects milk from farmers and diary cooperatives
processes it and distributes it through its own retail chain and other independent
distributor.
At present DDC is facing some problems in collection of milk to fulfill the increasing
demand due to the lack of strategic supply management.
Dairy faces two types of seasonal challenges,
 One is lean season (April-July) when milk production is low but demand is high
 Another is flush season (August-March) when milk production is high as
compared to lean season.
In lean season DDC is not getting sufficient milk from the dairy cooperatives where as in
flush season DDC doesn’t buy all the milk as supplied by the cooperatives. This is a main
problem.
The diagram-1 given below shows the supply chain relationship between actors from
upstream suppliers to downstream suppliers of HMSS. The second tier upstream
suppliers are the farmers who are the producer of raw milk. They produce milk in small
quantity and supply it to nearest dairy co-operatives. In Nepalese context milk farmers
are concentrated in northern hilly area but they are scattered and doing their business in
unprofessional way. Most of them are uneducated and they have taken livestock farming
as their side job as a result milk production is very low. Whatever is the milk production,
first they try to sell it in nearer market instead of dairy cooperative because they get better
price from local consumers as compared to dairy cooperatives and they also save
transportation cost. Here, pricing is the main de-motivational factor to the farmer which
forces them to sell in local market not to dairy cooperatives as a result HMSS/MPCS has
failed to get sufficient quantity of milk from farmer to meet its requirement. On the other
side, many consumers from rural area as well as urban area prefer raw milk as compared
to processed milk because they are not conscious about the processed milk is good for
their health. So this phenomenon has also increased easy market access to the farmer in
their local market.
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Moreover, whatever is the surplus milk after selling in local market farmers bring it in
Milk Producer Dairy Co-operative Societies (MPCS). It is the first tier upstream supplier
of HMSS operated by local farmers independently. These MPCSs collect milk from the
farmers and use porter, cycle and horses as means of transportation to transport milk up
to chilling centres and other collection centres. Firstly, Dairy cooperatives also prefer to
sell milk in local market andthen only whatever is the surplus they sell it to HMSS
because they get better price from those buyers as compared to HMSS. Most of the local
customer (institutional and individual) who don‟t have direct contact to the farmer they
purchase milk from local dairy cooperatives .
HMSS (Hetauda Milk Supply Scheme) is the focal firm which produces
pasteurized milk and milk products and supply it through its own and independent
distributors to the ultimate customers. It collects milk from its collection centres and
chilling centres scattered in different places, mostly in hilly area from three hours drive to
6 hours. Although it uses two layer down-stream suppliers there is no channel conflict
because production of milk and milk product is very low as compared to market demand.
Diagram: 1: Upstream and Downstream supply chain relationship
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An overview of Chitwan:

Chitwan District is one of 77 districts of Nepal, and is located in the southwestern part of
Province No. 3 with Bharatpur, the fourth largest city of Nepal, as its district
headquarters. It covers an area of 2,238.39 km2 (864.25 sq mi), and in 2011 had a
population of 579,984 (279,087 male and 300,897 female) people. Bharatpur is a
commercial and service centre of central south Nepal and major destination for higher
education, health care and transportation in the region.
Dairy farming is the dominant activity of the crop-livestock integrated farming practice
among smallholder farmers in Chitwan.
Talking about whole Nepal, about 80% of farm households rear dairy animals (cows and
buffaloes).  In addition, this sector is the largest contributor of the livestock sector to
Nepal’s agricultural GDP.
However, its growth rate is patchy compared to cash crops and industrial crops in the
Chitwan. Poor status of the use of productivity enhancing products and services (e.g.
breeding, veterinary and feeding) and lack of functioning market constrain productivity
and growth.  Furthermore, the high degree of informality means that public and private
sector investment is a challenge.

Analysis :

Milk Collection Programme:

DDC have been collecting cow, buffalo and yak/ chauri milk from 33 districts. Milk is
collected through the farmers owned organizations: Milk Producers` Cooperative
Societies(MPCS). Its present milk collection network has spread from Illam in the East
to Surkhet in the West. The table below shows the number of milk supply schemes
currently running under the DDC, the number of MPCS associated with the supply
schemes and the district covered by these milk supply schemes.

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Table-2: Name of milk supply schemes, no of MPCS and district covered
Source: DDC (2006/07)

Collection Network:

The collection network under different Milk Supply Scheme is presented below. A total
of 45 chilling centres (CC) established under the Milk Supply Schemes are in operation
across the country for chilling the milk collected from the MPCSs. The main purpose of
these chilling centres is to preserve the quality of milk during the period of collection of
milk from MPCSs to delivery up to the DDC plant. Hetauda Milk Supply Scheme,
Lumbini Milk Supply Scheme and Mid-Western Milk Supply Scheme transport raw milk
to Pokhara and Kathmandu Milk Supply Scheme to cater the demand of those areas
because their sales volume is small in the local market. Besides these chilling centres
DDC also collects milk directly in the factory gate.
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Table-3: Name of milk supply schemes and no of chilling centres
Production capacity:

The table below shows the production capacities of different Milk Supply Schemes under
the DDC.
Table-4: Name of milk supply schemes and their production capacity.

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Since past few years, milk production in the milk shed areas of the DDC has been
increasing to a great extent. Consequently, the DDC could not buy all the milk offered by
the farmers especially during the flush season. As a consequence, it had to impose Milk
Holiday on certain days during the period. On the other hand, during the lean season
DDC had been importing skimmed milk powder to meet consumer demand. To mitigate
this problem, with the assistance of Danish government, a Skimmed Milk Powder Plant
was initiated in 1991 in HMSS and is in operation since December1994. Capacity of this
plant is 3 metric ton of milk powder per day from 40000 litres of milk.

Sales and distribution management:


A goal of any producer is to ensure that the product reaches the ultimate customers.
Therefore distribution of any product to their respective places must be considered
seriously so that the products are available to the consumers at the right time in the right
place with minimum cost.
To achieve these objectives DDC has managed the different types of sales and
distribution channels for its Milk Supply Schemes, which are as follows:
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Table-5: Name of milk supply schemes and distribution channels

The DDC distributes milk through a network of milk parlour run by DDC itself and milk
booths operated by milk vendor on commission basis in urban areas. The milk is made
available in such milk booths for few hours during the early in the morning and
afternoon, while in case of milk parlour it is open throughout the day and deals with both
milk and milk products. The other strategy undertaken by DDC for its distribution of
various milk products are, franchise, dealer and distributor. These channels are provided
with a fixed commission based on the dairy products they have purchased but there is one
condition attached to them is they have to purchase at least minimum quantities of milk
products per month as prescribed by the DDC, these channels also sales milk under the
same commission basis; as applicable to milk booth.

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CHAPTER III: SUMMARY, FINDINGS AND CONCLUSIONS

Summary

The study determination of efficiency of supply chain of D.D.C in Chitwan was a study
which was very contemporary and I got to learn the basics of supply chain in a closed
way.
Mr. Raghu Sharma, a local dairy businessman helped me in getting to know the basics of
milk distribution in different areas of Chitwan. I got to meet few persons associated with
different co-operatives here in Chitwan. Milk from D.D.C is first accumulated in the local
depo from where the distributor picks up the consignment and delivers to different local
milk vendors, shops, hotels, motels etc.
Basically the delivery system starts under D.D.C Hetauda( H.M.S.S) scheme. The supply
chain consists of the following intermeditaries:

H.S.S.M Collection Depo Distributors

Final Consumers Hotels,Motels,Restaurants,


Local Dairy Shops,etc

Diagram: 2: Supply chain structure of DDC in Chitwan

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Conclusions:

The main purpose of this report is to know the supply chain mechanism taking place in
different organization of Nepal, namely D.D.C , that too in Chitwan area.
What we can conclude from this report is that Dairy development corporation D.D.C is
one of the major backbone of Nepalese market in milk and other milk related dairy
products. Though it has been a while since the corporation has been established, but it
does lack basic necessary amenities in terms supply chain modalities.

The milk packets from Hetauda Milk Supply Scheme H.M.S.S are collected from
various parts of nearby districts as well as from the city, pasteurized and packaged under
the label of D.D.C and then sent to the depo from where the distributors supply the order
procured by the means of transportation in Chitwan and nearby areas.
It is a very systematic process wherein the order , procurement and delivery go hand in
hand . The mil packed is of the highest standard and is ready for consumption by the
customer as per his/her requirement.

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Recommendations

Following are my recommendations regarding the efficiency of supply chain of D.D.C in


Chitwan:

 Use of latest supply chain modals and replacing the old traditional concepts as
single depo distribution.
 Establishment of proper Criteria Control Areas .
 Since leakage can be a problem during long distances, it is better to allocate depo
centres within nearby areas for leakage and wastage issues.
 Resource mobilization can be done to increase productivity.
 Since population is in increasing pattern, big oulets can be opened in busy areas
of Chitwan.
 Marketing and promotion needs to be done as new competitions are increasing

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REFERENCES

1:https://tutcreport.blogspot.com/2011/12/academic-report-on-dairy-development.html
2:https://www.academia.edu/4244563/Acharya_Mohan_Bahadur_Basnet_Supply_chain_
challenges_in_DDC_Nepal_A_perspective_of_buyer-seller_relationship
3: https://dairydev.com.np/
4: Dairy Value chain report by: Kisankalagi Unnat Biu-Bijan Karyakram (KUBK-
ISFP)
Tilottama Municipality-3, Janakinagar
Rupandehi, Nepal
5: Value Chain Analysis and Dairy Development in Nepal by:
Satish Joshi,
Professor, Department of Ag. Food and Resource Economics,
Nanda Joshi,
Director of International Program for College of Veterinary Medicine and
Department of Animal Science, Michigan University
6: http://www.n.com/supply-chain-management/scope-of-supply-chain-management.htm
7: https://link.springer.com/chapter/10.1007/978-3-540-68739-9_2
8: http://samarth-nepal.com/portfolio/dairy
9 https://www.wikipedia.org/

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APPENDICES

ANNEX-1
QUESTIONNAIRE FOR CUSTOMER
Namaskar!
My name is Amar kumar Nepal. I am student of Presidency College, as a practical
study of MBA level. I am writing a Report :Study of Supply Chain of Dairy Development
Corporation(D.D.C) in Chitwan”. Without your co-operation, it is impossible to go on.
Will you please take a few minute to answer some questions? I assure you that your
answer will be kept completely confidential.

Name: Age:
Address:
Education: Literate ( ) SLC ( ) Undergraduate ( ) Post graduate ( )
Illiterate ( )
Occupation: Student ( ) Service ( ) Business ( ) Others ( )
Sex: Male ( ) Female ( ) Others( )

1. Do you consume milk on a regular basis?


(a) Yes (b) No
2. Do you exercise regularly?
(a) Occasionally (b) Frequently
3. Do you know about the brand D..D.C?
(a) Yes (b)No (c) Heard of it but don’t know about it

4. Do you consume the milk of D.D.C brand?


(a) Occasionally (b) Frequently (c) Always
5 Are you satisfied with the taste and the nutritional value?
(a) Highly satisfied (b) Average satisfied
(c) Satisfied (d) Not Satisfied
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6 Do you breed cow/buffalo?
(a) Yes (b) No
7 Have you thought of selling milk to DDC?
(a) No (b) Yes (c) don’t know how

8 Is milk selling a profitable business?


(a) Yes (b) No (c) Average
9 Do you know how D.D.C supplies milk in Chitwan Area?
(a) Yes (b) No
10 Do you have any idea about Supply Chain Management?
(a) Yes (b) No (c) Heard of it
(d) (e)

10 If any suggestion to office of D.D.C ,please mention.

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