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DEMAND ESTIMATION OF DAIRY PRODUCTS AND THE STUDY OF DISTRIBUTION NETWORK OF GCMMF (AMUL) CHENNAI

Summer project report submitted in partial fulfillment of the requirements for the post graduate diploma in management

By Ramaprabhu.R.P
(Roll No: PG 2009-52)

Supervisors: 1. Mr. Apurava Suryadeo 2. Dr. Gopal Iyengar 3. Prof. E. Anand

Kirloskar Institute of Advanced Management Studies, Harihar, Karnataka 2009-10

ACKNOWLEDGEMENTS

Help and encouragement have come from a number of valued sources for completing my project. I would like to thank my company guide Mr. Apurava Suryadeo, branch manager GCMMF, Chennai for his constant supervision and guidance during the period of internship. I would like to extend my gratitude for the distributors of Amul, who are responsible to deliver the products in areas where I worked in Chennai, Mr. Praveen Kumar of Lakshmi agencies, Mr. Ranjith of Lakshmi Narasimha agencies and Mr. Daniel of T.J Marketing. They always made sure that I was assisted by one of their employees for locating the Amul retail shops and to find my way through the intricate network of lanes, gullies and roads of Chennai. My work of conducting surveys was simplified by their employees. My classmate Adhithya.B deserves my token of appreciation for working along with me during surveys and for all the brainstorming sessions with him, which helped me a lot in my project. I would like to thank my college Kirloskar Institute of Advanced Management Studies, Harihar for getting me the summer internship project in a reputed company like GCMMF, Chennai. Eventually, I had got a great exposure by working here in the south zonal office and in a metropolitan city like Chennai. Finally I am thankful to my project guides Dr. Gopal Iyengar and Professor. E. Anand for their time to time advice and for their efforts to scrutinize and refine my project. They have corrected my mistakes and guided me properly to transform all my collected data into meaningful information.

TABLE OF CONTENTS

S.NO 1 2 3 4 5 6 7 8 9 10 11 12 13

PARTICULARS EXECUTIVE SUMMARY INTRODUCTION OBJECTIVES OF THE STUDY HISTORICAL BACKGROUND OF GCMMF METHODOLOGY FOLLOWED TABULATIONS FINDINGS RECOMMENDATIONS SUMMARY LIMITATIONS OF THE STUDY SCOPE FOR FUTURE IMPROVEMENTS APPENDIX BIBLIOGRAPHY

PAGE NO. 4 6 7 7 12 14 16 25 31 32 32 33 38

EXECUTIVE SUMMARY

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 products which are good value for money. CRISIL, India's leading Ratings, Research, Risk and Policy Advisory company, has assigned its highest ratings of "AAA/Stable/P1+" to the various bank facilities of GCMMF. In June 2009 Amul was ranked No.1 dairy product in Asia pacific region. Members: No. of Producer Members: No. of Village Societies: Total Milk handling capacity: Milk collection (Total - 2008-09): 13 district cooperative milk producers' Union 2.79 million 13,328 11.22 million litres per day 3.05 billion litres

Milk collection (Daily Average 2008- 8.4 million litres 09): Milk Drying Capacity: Cattlefeed manufacturing Capacity: Sales Turnover (2008-09): 626 Mts. per day 3500 Mts per day Rs. 8000 crore

Milk and milk products are an integral part Indian cuisine. Milk is consumed as such or in form of tea, coffee or health drinks at least once a day in an Indian family, while dairy products derived from milk like butter, cheese, ghee etc., are used as ingredients in Indian food. GCMMF caters to this market of dairy products, under the umbrella brand Amul along with edible oil under the brand name Dhara and processed fruits and vegetable food business under the brand name Safal. The demand for these products differs with different products of Amul. The demand pattern for milk, butter and ghee in Indian market is trend, where the demand increases year on year. The demand pattern for ice creams, flavored milk and butter milk

is seasonal, which fluctuates due to the weather, holiday or particular events that take place on a seasonal basis. While the demand pattern for other products like dark chocolates, milk sweets and condensed milk is random variation where many factors play a vital role in affecting the demand during specific periods on a random basis. For example the demand for milk sweets increases exponentially during the festival times and a large part of milk procured by GCMMF is utilized in manufacturing milk sweets during those times to meet the demand. Thus to meet the varying demand of various dairy products it is necessary to estimate the current demand and to forecast it for the upcoming quarters. This project is to estimate the demand for Amul dairy products in Chennai by conducting surveys for the retailers of Amul products. In total there are seventeen distributors for Amul in Chennai out of which ten are for dairy products and seven are for ice creams. Survey was conducted in the areas of three distributors in Chennai for two months April and May of 2010. Demand was estimated by quantifying the amount of dairy products each retailer sells in a month. Apart from this to get a customer end perspective, customers of Amul were also surveyed in these areas and the amounts have been quantified. By interacting with the retailers in various places of Chennai the glitches in the distribution network of Amul was also found out. Various problems faced by the retailers due to certain miscommunications in the delivery system have been identified and the losses incurred due to these problems have been quantified. Along with this the competitors practices and the industry best practices were also identified. This gives a broad picture of where Amul stands in the terms of competition and how it can improve its distribution efficiency. On the whole the demand for dairy products has been estimated and recommendations for improving the efficiency of the distribution have been given in this project. This information and the primary data collected by means of survey could be very useful for Amul in the forthcoming quarters of the financial year as they have been collected through one on one interaction by visiting the market place in person and the source is highly reliable. Ways of implementing the recommendations and the consequences have also been discussed in the project which will give a clear idea for GCMMF to implement the same.

INTRODUCTION

In India one could start the day by boiling (as is the traditional Indian practice) one of the different varieties of liquid milk supplied in pouches and making ones morning tea or coffee. If one preferred to use creamer, one could reach for the Amulya creamer on the shelf. For breakfast, butter the toasts with Amul regular butter or, if you are calorie conscious, with Amul lite butter. Drink a cup of Amul chocolate milk. Make sandwiches with one of the different varieties of Amul cheese and take them to the office; add Amul ghee (clarified butter) to ones dishes for lunch; cook your lunch with a curry containing Amul paneer or cottage cheese and have a sweet dish made from Amul gulab jamun mix. If it is a hot day, have an Amul ice cream; and when you return home after the office; relax with tea or coffee, whitened with Amulya creamer or Amul milk. If you are a pizza fan, bake a pizza and top it with Amul mozzarella cheese, and finally retire for the day with a glass of warm Amul milk. In India, Amul was not merely one of the most well-known brands, way ahead of coca cola or pepsi, and even ahead of age old brands such as dalda, lifebuoy and lux, but a lifestyle range of products, consumed in some form or other by a large number of Indians of different income and social strata. GCMMF was the sole marketing agency for the products produced by the different milk co-operative member societies of the state of Gujarat and for those of other states marketing their products under the Amul brand name. There was no doubt that from the time of its inception in 1973, GCMMF was a great success story, as indeed was the co-operative movement in the milk sector initiated and carried to great heights by the milkman of India Dr. Verghese Kurien. Currently GCMMF has five zonal offices and 48 sales offices spread across India to market its dairy products throughout the country. India being a land of varied cultures and people of different social strata, there is a huge difference in the lifestyle of its citizens. Hence the consumption of dairy products differs with every individuals lifestyle. Chennai being the third largest metropolitan city in terms of population in India has the same varied culture of India as a whole. Chennai, the capital of Tamilnadu covers an area of 609 sq.km and has around 75, 45,000 people1 which turns out to be the most densely populated city (11,500 per sq.km) after Kolkata. For every company it is mandatory to know the potential demand for its products and its market share along with its competitors status in every major city like Chennai where GCMMF has its south zonal office. This is needed for the company to progress in future and to identify new scopes for improvement. Chennai in total has a workforce of 1.5 million and the total personal income is
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Demography (PDF) Second Master Plan II by Chennai Metropolitan Authority pp 1-5,1-10.

Rs. 12, 488.83 crore. The literacy rate is at 80.14% which is far more than Indias average of 64%. So Chennai has a good amount of workforce who is majorly literate and earning around 10.9% of Tamilnadus total personal income. GCMMF has a huge scope of improving its market share as Amul can leverage its brand equity to sell to its loyal and earning customers. Now, to meet the demand efficiently every company should have an excellent supply chain management system. It is necessary to be aware about its problems in supply chain and also be updated with the industry best practices followed by its competitors.

OBJECTIVES OF THE STUDY

To estimate the demand of dairy products in Chennai by surveying retailers and consumers To know the problems in the distribution network of Amul products To quantify the losses incurred by the retailers and GCMMF due to the inefficiency of the distribution network To identify the industry best practices and competitors methods to implement them To give recommendations to Amul in order to implement and thus increase its market share

HISTORICAL BACKGROUND OF GCMMF

In the 1940s, in the district of kaira in the state of Gujarat, India, a unique experiment was conducted that became one of the most celebrated success stories of India. At that time, in Gujarat, milk was procured from farmers by private milk contractors and by private company, Polsons Dairy in Anand, the headquarters of the district. The company had a virtual stranglehold on the farmers, deciding the prices both of the procured as well as the sold milk.

In 1946, Mr. Tribhuvandas Patel, a local farmer, freedom fighter and social worker, organized the farmers into co-operatives. These co-operatives would procure milk from farmers, process the milk and sell it in Gujarat and in Bombay. In 1949, a dairy engineer, named Dr. Verghese Kurien, who had just completed his studies in dairy engineering in the U.S.A, came to India and was posted by the Government of India to a job at the dairy research institute at Anand. He took interests in Kaira District Co-operative Milk Producers Union Limited (that was the name of the co-operative registered) and soon extended to the larger sociological issues involved in organizing the farmers into co-operatives and running these co-operatives effectively. At first, the main activity was collection and processing of the milk brought everyday by the member farmers to the local office of the co-operative. It soon realized that it was not enough to merely act as the collection and selling agents for the farmers. A variety of support services were required to enable the farmers to continue selling their milk of adequate quality and to avoid disasters such as death of their cattle. Co-operatives were expanded to cover more and more areas of Gujarat and in each area, a network of local village level co-operatives and district level co-operatives were formed on a pattern similar to that at Anand (the so called Anand pattern). Kaira District Co-operative Milk Producers Union became better known by the brand name of the products marketed by it (Amul) than by the name of the co-operative itself. Amul means priceless in Sanskrit. In 1954, Kaira District Co-operative Milk Producers Union built a plant to convert surplus milk produced in the cold seasons into milk powder and butter2. In 1958, a plant to manufacture cheese and one to produce baby food were added. Subsequent years saw the addition of more plants to produce different products. In 1973, the milk societies/ district level unions decided to set up a marketing agency to market their products. This agency was the GCMMF (Gujarat Co-operative Milk Marketing Federation). It was registered as a co-operative society on 9 July 19733 . It had, as its members (ordinary shareholders), the district level milk unions. No individual could become a shareholder in GCMMF. Starting from a daily procurement of 250 liters per day in 1946, GCMMF had become a milk giant with the milk procurement at about 4 million liters a day by 1999 with 12 dairy plants.

This was a feature of Indias dairy industry. The milk output of cows varied heavily during the seasons, with the winter season leading to heavy oversupply of milk. This naturally led to depressed prices, unless the milk could be converted into other products that could be stored for a long time.

An organization registered as a co-operative society had certain restrictions on its operations.

The co-operative system formed under the so-called Anand pattern has a three-tiered structure (Exhibit 1). At the base is the village level dairy co-operative society. This is composed of the milk producers, mostly residents of the same area, who had joined the co-operative society. A managing committee, of about eight to nine members is elected, one of whom would be elected as the chairperson. Care is taken to ensure that these meetings are held, and seen to be held, in an open and transparent manner. The next level is at the district, and this co-operative (called unions) had, as its members, the village dairy co-operative societies within the district, represented by the chairpersons of the village level societies. For this co-operative, a Board of Directors, consisting of 12 persons, was elected from among the members (i.e., the chairpersons of the village level co-operatives), with its own chief executive, called the Managing Director. The third level is at the state, where the co-operative (GCMMF in Gujarat and other states) is formed with district level milk unions (and certain other milk unions from other states) as members. The state level organization was called the Federation consisted of the Chairpersons of the district level co-operatives as the members, and in addition, the following ex officio members: 1. The registrar of co-operatives of the state concerned. 2. A representative, from the National Dairy Development Board (NDDB), which was a body created by the Government of India to replicate the Anand pattern in the other states of India. 3. One nominated technical expert. 4. The Managing Director (CEO) of the State level federation

As on April 2000, there were 10,800 village level co-operatives in Gujarat under the GCMMF umbrella with 2.1 million milk producers. Out of 25 districts in Gujarat, there were district level unions in 12 districts4 A pattern similar to the Anand pattern has been built in other states in India also. This was done under a program launched by the Government of India, under the title Operation Flood. The operation was co-ordinate by the National Dairy Development Board (NDDB), a body formed by the Government of India with this objective. Dr. Kurien was the Chairperson of the NDDB and the main moving force behind the program. As on April 2000, there were 22 state

Some of the districts that had no district level unions were those formed through reorganization of existing districts at different points of time

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federations in India, with 170 district level unions, 72,774 village level societies and 9.31 million milk producer members in the different states. Each of the state level federations marketed their own brands. Amul was the brand marketed by GCMMF. Vijaya was the brand name marketed by the federation in the state of Andhra Pradesh. Thus GCMMF could market its Amul brand butter in Andhra Pradesh competing with Vijaya butter. It was believed by the officials of the National Dairy Development Board that such competition was healthy and would curb monopolistic tendencies.

EXHIBIT 1
The Anand Pattern

State Marketing Federation All dairies in a state (GCMMF) 22 state federations in India

District Milk Processing Unions Every district in the state 12 district unions in Gujarat 170 unions all over India

Village Co-operative Societies All villages in a district 72,774 villages in India

Milk Producers All milk producers in a village 2.1 million In Gujarat 9.31 million In India.

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ORGANIZATION STRUCTURE OF GCMMF (See Exhibit 4)

GCMMF is a lean organization, which their executives believed led to a cost advantage. At its headquarters in the town of Anand, three general managers and two assistant General Managers assist the managing director. The three general managers look after the functions of Marketing, Human resource development (HRD) and quality assurance. The general manager (marketing) is in charge of the whole marketing operation of the dairy products, liquid milk and ice cream. This general manager is assisted by one assistant general manager (marketing, dairy products) 4 and managers (commercial), (exports) and (liquid milk). The general manager (HRD) also looks after edible oils, administration, legal matters and new opportunities. The whole country was divided into five zones, each headed by a zonal manager responsible for the sales of all the products under his zone. They reported to the managing director, but functionally each reported also to the various assistant general managers/ general managers at the headquarters. Under the zonal managers were the branch managers. Generally there are three product managers in each branch reporting to the branch manager: one each for the edible oil, dairy products and ice cream. They were assisted by sales officers and field salespersons. There were 48 sales offices spread over the country (of which only two are in Gujarat). The entire country had been represented in this structure. GCMMF has one overseas office, at Dubai.

OBJECTIVES AND PHILOSOPHY OF GCMMF: The main stakeholders of GCMMF are the farmer members for whose welfare, it exists. Unlike other organizations, the objective is not to maximize its profit but it is to give the best price for the farmers for their milk. It is restricted, by bye-laws, to giving a maximum of 12 percent on the paid share capital as the dividend. GCMMF has declared, as its business philosophy, the following5 To serve the interests of milk producers To provide quality products that offer the best value to consumers for money spent.

The biggest strength of GCMMF is the trust it has created in the minds of its consumers regarding the quality of its products. In India, where trust was hard to come by, this could provide a central anchor for GCMMFs future business plans.
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Asian Case Research Journal, Vol.6, Issue 2, 205-239 (2002)

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Exhibit 4 Organization Structure of GCMMF

METHODOLOGY FOLLOWED

Research Design:
GCMMF Chennai is the marketing company for Amul, the apex brand of Kaira District Co-operative Milk Producers Union. It has 17 distributors to cover the 609 Sq.Km wide Chennai city to reach the 75, 45,000 people of the city. Out of which 7 distributors take care of only icecream distribution while the rest 10 are involved in dairy products distribution. To estimate the demand for dairy products in Chennai is to exactly find the demand prevalent at present. The best suited methodology for this is Descriptive Research which has been done through surveys and fact-finding enquiries of different kinds. It is also called Ex post facto research; the main characteristic of descriptive research is that the researcher has no control over the variables; and

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he can only report what has happened or what is happening and can be used to measure such items as demand for dairy products. Ex post facto studies also include attempts by researchers to discover causes even when they cannot control the variables. The research problem is to estimate the demand for dairy products in Chennai city and the research design that has been followed is Description. The means of obtaining the information is through survey of Amul retailers and consumers of dairy products. Survey was conducted to few of the retailers in three major areas in Chennai viz. Ramapuram, Tambaram and Adyar as these are the major areas where the demand for the dairy products is consistently increasing year-on-year, mainly due to the rise of new IT majors and other companies from various industries. These areas have seen a surge of increase in households on account of many young working professionals settling here. They find it comfortable and easy to find houses and the realtors are building new apartments and are expanding the area limits. The survey was conducted in the months of April and May.

Sample design:
The sample design followed for the project was Deliberate Sampling which is a type of non-probability sampling where each element of the population does not have a known probability of being included in the sample. The survey was conducted for the retailers and consumers of the above mentioned areas of Chennai city as the population in this area is a good representation of the population mix in Chennai city with people from different social strata and different lifestyle which influences the demand of dairy products. Three distributors Lakshmi agencies of Ramapuram; TJ Marketing of Adyar and Lakshmi Narasimha agencies of Tambaram were the chosen distributors. The demand for the dairy products is consistently increasing yearon-year, mainly due to the rise of new IT majors and other companies from various industries. 60 retailers and 20 consumers from each of these beats were surveyed. On the whole 180 retailers and 60 consumers were surveyed. Care was taken to include varied consumers of different age, social status, economic class etc.

Data Collection:
Primary data can be collected through experiment or through survey. Here data was collected by survey through schedules. I was the enumerator and was provided with schedules from GCMMF on day one. The work to be done was explained clearly by the project guide and data was collected by filling up the schedules on the basis of replies given by respondents, since many retailers were not so proficient with English, the language used in the schedule, it required

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me to translate the questions in local language, Tamil without distorting the meaning of the questions. During the execution period the data collected and the progress of the project was monitored time and again by the company guide. The data collected were fed in Microsoft Excel sheets for calculating the demand for the dairy products and the potential losses incurred by GCMMF in terms of quantity and money.

TABULATIONS

DEMAND ANALYSIS

Amul Retailer's Demand

Amul Consumer Demand

The Retailer ends demand and consumer ends demand for different products of Amul products namely Liquid milk, Curd, Paneer, Milk powder, Ghee, Cheese, Condensed Milk, Milk Sweets, Flavored Milk, Butter Milk and Butter is given in the Microsoft Excel sheets Amul Retailers Demand and Amul Consumer Demand repectively.

CALCULATIONS:

In retailers demand the work sheet named Total gives the total demand of dairy products of retailers of Chennai. Sample size provides the number of retailers out of 180 retailers (60 retailers/ distributor) who stock those products Total retail universe is the number of shops in Chennai which sell those products

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In Consumers demand Sample size gives the number of consumers out of 60 consumers who consume the product Total population of Chennai is 75, 45,000 out of which only 75% (56, 58,750) of them consume dairy products regularly The Chennai population can be divided into three categories based on income level

Total Chennai Population Total Population who consume dairy products regularly

75, 45,000 5658750

High Income Population

(Annual Income > Rs. 10, 00,000)

707340

Mid - income Population

(Rs.1, 50,000 < Annual Income < Rs.10, 00,000)

2724520

Low income Population

(Annual Income < Rs. 1, 50,000)

2226890

During the survey it was found that: Milk, Curd, Milk Powder, Ghee and Butter Milk were consumed by all class of consumers Paneer, Condensed Milk, Flavored Milk and Butter were majorly consumed by middle and high income groups Cheese and Milk sweets were majorly consumed by high income group though there was a substantial amount of middle income group consumers too. The demand has been estimated with the above findings The deviation in values between retailers and consumers demand may be due to the fact that people from other income groups may also buy those products.

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FINDINGS

FIGURE I: DEMAND OF VARIOUS PRODUCTS IN TERMS OF WEIGHT

LIQUID MILK CURD/DAHI PANEER MILK POWDER GHEE CHEESE CONDENSED MILK FLAVOURED MILK BUTTERMILK BUTTER

FIGURE II: POTENTIAL SALES REVENUE FROM VARIOUS PRODUCTS IN TERMS OF RS.LAKHS

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LIQUID MILK CURD/DAHI PANEER MILK POWDER GHEE CHEESE CONDENSED MILK FLAVOURED MILK BUTTERMILK BUTTER

FIGURE III: NUMBER OF RETAILERS STOCKING VARIOUS PRODUCTS

LIQUID MILK CURD/DAHI PANEER MILK POWDER GHEE CHEESE CONDENSED MILK FLAVOURED MILK BUTTERMILK BUTTER

ANALYZING FIGURE I, II, III:

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From fig. I it is evident that Liquid milk has the highest demand in terms of volume of sale (70%) followed by curd (12%) and Ghee (5%). The least ones are milk powder (2%) and butter (1%). From fig. II it is seen that in terms of potential sales revenue Liquid milk has the larger part of the pie (34%), followed by Ghee (20%) and curd (16%). The least ones in terms of volume follow the lead, whereby milk powder can contribute (8%) and butter (6%) of the potential sales. This discrepancy between the volume of demand and potential revenue is due to price of the products. For eg:1 liter of liquid milk is just rs.26 but one liter of ghee is around rs.200 From fig. III we get the preference of the retailers to stock various products. Here Milk Powder has the highest preference (14%), followed by Ghee (13%) and Butter (12%). Curd (10%) and Liquid Milk (8%) trails behind them

From the above points it can be suggested that Ghee needs more attention as it is the cash cow product for Amul in Chennai. Its demand in terms of volume is less but its potential sales revenue is high and is preferred by most of the retailers as Amul Ghee is priced relatively low and is preferred by the customers for the quality it delivers. Amulya and Sagar are the most preferred brands of Milk Powder by retailers compared to other products of Amul and it enjoys a better market share than its competitors like Everyday by Nestle etc. GCMMF has already utilized this opportunity and is tapping the potential market for more revenues. Like Ghee the small retail packs of Amulya has a huge demand. Customers from lower social strata prefer the small retail packs of milk powder than liquid milk, which needs to be treated to keep it fresh. Followed by these two products it is preferable for GCMMF to concentrate on curd which is also a potential revenue generator and preferred by retailers. Major competitor in this market is Nestle and Britannia. Customers of Amul curd are from the middle class and upper middle class. The lower class people do not prefer branded curd packs since they are relatively expensive. So the target customer for Amul, Nestle and Britannia are the same class of people. The only glitch Amul faces in this market is delivery of fresh stocks. The consumer tends to pick up Nestle curd after comparing Amul curds date of manufacturing.

POTENTIAL LOSSES INCURRED

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Amul- Losses Quantified

Losses incurred in the following PRODUCTs are quantified: Butter, Cheese, Flavored Milk, Milk Powder, Curd and Buttermilk/ Lassie in the Microsoft Excel Sheet Amul Losses Quantified. GCMMF incurs loss in potential business majorly due to three reasons: Delay in supply and fulfilling the entire order Damaged and expired products Inability to meet unplanned demands of the retailers

The salesperson of the distributors works in a one week cycle i.e. order is taken from the retailer on the first day and goods are delivered on the second day. The salesperson covers all the shops under his area within a weeks time and the cycle continues. Some retailers face problems like delay in supply; supply of damaged or expired products and the inability to meet unplanned demands at least once a month due to which they place lesser orders which is much below their potential to sell within a week. To be on safer side, retailers appreciate this practice in order to minimize their losses. When the order placed is less they are able to get their entire order, the number of damaged or expired product which they tend to receive is minimal and they do not mind their inability to meet unplanned demands which occurs during festival seasons as they suffice the demand with competitors products.

Potential loss for GCMMF in sale of Amul products** (Loss in one week in the area of three distributors)

Order met* properly Butter 82.22%

Loss due to* Delayed supply (a) 1.44%

Loss due to* Damaged / Expired (b) 16.33%

Loss due to* Unplanned demand (c) 0%

Total sales* lost (a+b+c) 17.78%

Total amount lost in a week by 3 distributors (Rs.) 49056

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Cheese Flavored Milk Milk Powder Curd Butter Milk

66.75% 54.61% 68.88% 52.44% 57.88%

5.79% 2.00% 5.82% 2.08% 2.53%

24.67% 42.90% 22.44% 45.48% 39.58%

2.78% 0.47% 2.84% 0% 0%

33.24% 45.38% 31.11% 47.56% 42.11%

26271 25118 117442 25956 6632

TOTAL Rs. 250475 *As a percentage of sales potential. **Monetary loss is given in the Microsoft Excel sheet Amul Losses Quantified.

FIGURE IV: COMPARISON OF POTENTIAL LOSSES IN VARIOUS PRODUCTs

Butter Cheese Flavored Milk Milk Powder Curd Butter Milk

Loss Due to Damaged / Expired Products:

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In the losses thus quantified it is obvious that the loss due to damaged / expired products is huge. This happens in two stages:

STAGE I: The retailer is supplied with damaged product for eg: the Amulya, Sagar or 100gm Butter cases are slightly torn. In case of the milk powder it happens during handling and transportation while in butter the case is different. This problem is prevalent in 100gm Butter packs which comes in carton cases. They are stored in the cooler room when it is with the distributor. The delivery vans are loaded with these butter packs at around 10:30 am in the morning and it moves out for delivery. Chennai is a city well known for its hot and humid climate and the delivery vans have a steel body. The steel body gets heated up immediately when exposed to sun and it also retains the heat. So the butter tends to melt soon. As it melts it soaks the cartons and the wet cartons tear off before delivery. Though the delivery men take care to deliver butter orders as early as possible few of them gets damaged in the evening at around 5:00 pm. So the retailers who are slightly far away from the distributors area have more frequency of getting damaged butter packs. They also get delivery only once a week as they are located at remote places and hence their order would be in bulk to suffice for the entire weeks demand and this adds up to the frequency of getting damaged products.

STAGE II: Dairy products have a maximum shelf life of only 6 months. Amul has all its manufacturing units in North and Central India. It has its stock point at Alappakkam in Chennai. By the time the products reach the stock point; then the distributor and then the retailer the stocks become a month or two old. Sometimes certain stocks of Amul tend to remain unsold for some days. Customers, as observed during survey, check for the expiry dates carefully before buying a product, and they tend to reject those products which are above to expire in a month. So these left over stocks though not expired tends to remain unsold till it expires. GCMMF does not have the practice of taking return of the unsold and expired products as they insist the retailers to stock exactly to their demand. Ultimately the retailer suffers the loss and he is compelled to dispose the products. There are instances where the retailer has thrown out expired milk powder and paneer packs before the municipal authorities had visited the shop for inspection. This has forced the retailers to stock below their actual demand levels, to be on safer side. They are not ready to incur huge losses on unsold products instead they suffice the extra demand by convincing the customers to buy the competitors products. Ultimately Amul not only loses its market share but also paves way for the competitors brand to eat away its share and hence they gain more.

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Rarely do the retailers get expired products on delivery; this is prevalent in products which has only three months shelf life like buttermilk. The retailers usually do not check the products for expiry dates when they are delivered as they will be busy attending their customers. But unfortunately, this has happened to certain retailers in certain products and they have gone to the extent of not stocking those products like paneer, cheese, dark chocolates and curd.

Loss Due to Delayed Supply: Various products of Amul has varied amounts of demand during various seasons in a year. Ghee, milk powder, curd has a constant demand but products like buttermilk and flavored milk have seasonal demand. The demand for flavored milk shot up during the period of survey as it was summer in Chennai. Taking the case of flavored milk, it has various flavours like elaichi, kesar, rose and chocolate and they come either in tetra packs or in glass bottles. It also has premium variant called Amul kool caf which comes in cans and it is priced slightly high. So under one PRODUCT of flavored milk the customer has seven different variants to satisfy his thirst. Now to predict the demand for each and every variant is more difficult and even the consumer might not be able to predict his flavor of demand at different points of time. Ultimately the retailer and hence the distributor runs out of stock of a particular flavor and even if the retailer places an order he will not be able to get till next week. In this case he loses his customers or Amul losses its customer to its competitors either ways it is loss for GCMMF. Sometimes distributor may be having the required stock but will not be able to deliver it has he cannot break the cycle of delivery within a week and hence asks the retailer himself to collect the required stock in person. If the retailer is close by he spends for the transportation and gets his required stock else he loses his customers. They are times when the distributor is not able to fulfill the entire demand of a retailer in certain products as the demand peaks up all of a sudden and it is unforeseen. So in that case the distributor supplies only fewer stocks to the retailers to make sure that all the retailers in his area get at least few pieces of the products instead of having none.

GENERAL DISSATISFYING FACTORS

No returns:

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In the retail industry it is a general practice to take return of the unsold and damaged pieces of the product from the retailers. Companies like Nestle, Britannia and Heritage the competitors of Amul has the practice of taking returns in order to minimize the loss incurred by the retailers, and they are the money is refunded. For example Nestle takes return of the unsold, expired or damaged curd packs and refunds. The retailer buys Nestle curd at 4% VAT but when he is refunded he is not reimbursed with the VAT amount but the retailer is satisfied with whatever he has got as refund as his losses are minimized. They employ separate personnel, who visit the retailers once a month, to take care of returns. Distributors carry inventory that is just adequate to take care of the transit time from the branch warehouse to their premises. This just-in-time inventory strategy improves dealers' return on investment (ROI). But this is not the case with local retailers. GCMMF does not take returns of the product as it emphasis the retailers to stock only to their anticipated demand and not in excess. In case the products are unsold the retailer suffers losses. This has pushed certain retailers to stock below their potential demand and some retailers who are not able to forecast their demand properly have even stopped stocking certain PRODUCTs like milk powder.

Stocks not delivered on credit: The employee of the distributor who delivers the dairy products to the retailers shops collects the amount to be paid, after producing the bill for the delivered items, immediately after delivery. Sometimes the store manager or the purchase manager who is responsible for the payment fails to be present or is unable to pay the deliverer immediately and since the distributors does not deliver the goods on credit the deliverer waits till he can collect the money and then leaves the shop. This delays his work and also dissatisfies the retailers. There are small retailers who pay out of the days earnings so in case at the time of delivery if the retailer has not earned the amount to be paid he is not in a position to pay or makes the deliverer wait till he arranges for money. The major reason for the retailers to demand the products on credit is that. Order is taken on a particular day and goods are delivered on the very next day. So either the retailer forgets to make arrangements for the money or is unable to pay the distributor the next day. This is not the scenario with Nestle or Britannia. They give either bill to bill credit or 15 days credit on their product line.

Low Margin: The margin provided by Amul is relatively low when compared to that of its competitors. This is mainly due to the objectives and business philosophy of GCMMF. It believes in quality

24

delivered to its customers and delivers the best value for the money spent. Amul products are inexpensive when compared with the quality it delivers and so it has earned the trust of its customers over the years. This is the central anchor for GCMMFs future business plans. So eventually the retailers get a relatively low margin (around 8% - 12%). The competitors have a lesser market share when compared to Amul but their market penetrating strategy is to give high profit margin to retailers (around 12% - 15%) but they compromise on quality. But this is easily perceived by the customers of Amul and they stick to Amul as they are brand loyal. There are retailers who stock Amul products just to satisfy their customers and not make profits. Others try to push competitors product in order to gain more profits, in this process GCMMF incurs a loss though the important cog in the wheels of the distribution network, the retailer gains.

Connect between GCMMF and its Retailers: Throughout the process of survey it was observed that the retailers were dissatisfied with these above said issues and they were looking forward to put across these issues to the company in order to seek a solution. But it seems none of the company personnel visits the retailers on a regular basis. They visit only to promote a newly launched product, which happens once in six months or so. Unlike, GCMMF its competitors like Nestle and Britannia harnesses those employees who take return to know the grievances of the retailers. If not at least their distributors visit the retailers. This does not happen in GCMMF. So the bond between the company and the retailers is weakening. GCMMF should look into this issue seriously as the retailers play a major in promoting Amul products at POS (point of sale).

Schemes offered: GCMMF offers a lot of schemes time and again for the benefit of retailers and consumers. These schemes do help to boost the sales and consumers are allured to buy the products in bigger volumes. But the schemes offered to retailers, at times, do not reach them and are coveted by the distributors. For example GCMMF was giving two curd packs free for the retailers for one case of curd (24 packs of 200 ml each) they buy. The distributors receive their stocks only in cases and not as loose packs so they get the offer from the company but when they distribute them to the retailers some buy as cases and some as individual packs since they do not require so much. Ultimately the offer packs is retained by the distributor. Few retailers get to know about the offer so they demand it from the distributors but those who are unaware tend to lose the offer. Even the APO who gets intimation about the offers from GCMMF, at times, does not get the schemes.

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Non-availability of Amul Products: Unlike other factors stated above this was suggested by the customers. Certain variants or flavors in a particular products are not available in their neighborhood. This is happens in flavored milk, butter and cheese. There were certain customers who were dissatisfied by the distance they need to commute to buy Amul products. Certain variants of Cheese, flavored milk are available only in supermarkets and these supermarkets are not placed in neighborhoods and the local retailers are neither aware of their customers demand nor aware of the entire array of products available.

RECOMMENDATIONS

Harnessing the ERP system of GCMMF:

GCMMF is utilising IT to optimise efficiency and production at each point in its supply chain through a customised ERP package called Enterprise-wide Integrated Application System (EIAS) which has been designed in such a way that it can be plugged into various points of the supply chain for seamless information exchange. Through this, the federation has also connected zonal offices, its Guwahati regional office, as well as major member dairies/milk unions and its own unitMother Dairy through VSAT. All sales offices and wholesale distributors of the organisation have also been connected through TCP/IP internet mail accounts for timely exchange of information. GCMMF gets the secondary sales data from the distributors on a 7-day frequency as the distributor places his order to the stock point. But in the FMCG industry, distribution is the key to success and GCMMF cannot afford to lose its business due to delay in supply and not able to meet the exact demand. The constant challenge is to track the movement of products at the distributor and retail levels and ensure that retail store shelves are refilled as quickly as possible. So there is need for the secondary sales data to reach GCMMF at a higher frequency. In short,

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the company needs a software package to capture secondary sales data or distributor sales data and feed it into its ERP system. The aim is to enhance the responsiveness of the companys distribution network. IBM along with SAP has implemented a state-of the-art ERP system for GCMMF ltd. just recently. GCMMF can leverage the internet to find a solution and minimize its losses. Apart from using the TCP/IP mail accounts for timely exchange of information it needs to connect all the Chennai distributors with the stock point in Chennai and with the manufacturing unit which supplies Chennais stock point for exchange of inventory level information. This will help the stock points to anticipate the demand of the distributors beforehand. For which it requires an automation system which is already available in the ERP system developed by IBM and SAP. This can be taken to internet so that it can be a multi-user and multi-company product, in case the finished goods are received from different plants of Amul. Wipro Ltd. can develop a single virtual office on the internet that could be accessed by GCMMF distributors, the stock point and the manufacturing units. To make the entire system work like a virtual office, it is required to integrate SAP system compatible with multiple platforms and operating systems, such as Microsoft windows or Unix, APO module (Advanced planner and optimizer, a software) and BW(Business information warehouse). Preferred architecture is to have the intermediate BW system that functions as a data repository for the APO-BW system. The intermediate system does provide some real advantages, in that it is easier to migrate historical data from the BW to APO-BW system as the host and target are more similar. The newest version of the suite is MySAP 2007 or SAP ECC 7.0.It is advisable for GCMMF to go for the latest version i.e SAP ECC 7.0. This ensures that there is a constant flow of data between these systems. SAP allows the IT supported processing of a multitude of tasks, accruing in a typical company By this way the Chennai distributors, the stock point in Chennai and the manufacturing unit which supplies Chennais stock point will be connected. The distributors need to log on to the website once daily and upload their sales data for that day. The system can be customized to automatically replenish stocks, which is a big step towards precise streamlined inventory management. Stock norms for every distributor can be fed into the ERP system. Comparing the sales on a day with the norm, the program generates a dispatch order for the quantity needed to maintain the required levels of inventory, thereby eliminating the opportunity for dumping to a large extent.

PHASE I: Implementation GCMMF should select a list of leading distributors out of the 17 distributors who will implement the software and will be examples to their counterparts. All the distributor has to do is to buy the hardware, the PC and the modem. Some distributors are already using local software, which may be tailor made but the company must convince them that in the long run, this ERP system will be

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more efficient. GCMMF should send a team of technologists (from GCMMF) and implementers (from Botree). The technologists should explain the working procedures. Since every distributor has a computer of their own and adept in using them they need not require separate training to implement this automation procedure. PHASE II: Backward integration with ERP systems - Total Integration The second phase involves hooking all these distributors to the companys SAP system. This is pretty simple as this has already been done by IBM and SAP just recently. In future: The portal can be made wireless and can be accessed through handheld, mobile gadgets. Now the sales force who takes order can directly punch in the order and this will reach stock point in no time. This not only astronomically increases the frequency within which stock points get the information; it also simplifies the sales forces job without much of congested work. This is currently implemented by Coca-Cola in major cities and Marico Ltd. has plans to implement this technology, in future. Advantages: Reduction in late deliveries and working capital requirement Will enable to capture and analyse secondary sales data in terms of daily sales and stock availability for every distributor, distributor sales team performance, outlet monitoring, merchandising monitoring, new product performance monitoring Will enable to analyse information related to planned orders, primary sales invoicing, dispatch details and claims Market information on a product comes everyday to factory, SKU-wise defect-wise in a report called DQR (Daily quality report), which enable to meet customer satisfaction all the time.

Improving the delivery time: In the FMCG industry the minimum level of service (time taken by the company to deliver the product to the customer once the order is placed) should always be the least possible that is when a customer anticipates buying a product it should be available on the shelf. This happens with Amul products due to its efficient distribution network. But the problem is some distributors of Chennai does not receive fresh stocks and are not able to deliver fresh stocks for the retailers. This problem has been prevalent for a long time in Chennai mainly due to the lack of manufacturing facility in South India. Though there are warehouses close by, even they do not

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receive fresh stocks. This immediately calls for attention as, though customers prefer Amul products over its competitors they are pushed to buy other products due to stale stocks of Amul. This can be done by exploiting the ERP system. The warehouse can be enabled to receive real-time inventory load of the distributors and it can intimate the manufacturing facilities. This can help the facilities to reschedule their MPS (Master Production Schedule) in accordance with the anticipated demand. GCMMF, being a market leader in various products it is important for GCMMF to improve logistics to reduce the delivery time and to make sure that its distributors get fresh stocks. A detailed account on this suggestion is not possible as manufacturing does not come under the scope of the report.

Delivering on Credit: Distributors can give bill to bill credit on all the dairy products for the retailers. This should be done after meticulous evaluation of the retailers potential and habit of settling his dues in the past. The distributors should keep track of the retailers practices and should be able to evaluate them carefully. Based on the order placed by the retailer, every week and based on his aptness to repay the amount due he can be given on credit.

For example if this is the scenario with a retailer Order placed per week Rs.1000 Tenure of business with GCMMF 4 years Aptness in paying the bills on time 95% No. of days taken in meeting the dues 3 days The entire stock need not be given on credit instead he can be given a credit of Rs.950 (based on previous practice of settling dues) for a week and the rest of the amount rs.50 can be collected during the next delivery on the next week.

Pros: This will boost the retailers morale (mainly the smaller ones) to stock more of Amul products and hence he will promote them to his customers. During survey it was found that retailers are ready even to double their orders if given on credit.

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So in the above scenario just by delaying the payment of rs.950 by a week GCMMF will be able to generate revenue of rs2000 in the place of rs1000 He will be aware of his due amount the next week and will be ready with money. This will lead to increase in the order placed every week and the credit limit can also be increased based on his timeliness and consistency to meet his dues. This will spread by word of mouth to other retailers on the same street and he will also be interested in stocking Amul products.

Cons: Some retailers may stock beyond their potential to sell and may end up in losses. Few might still try to evade paying the dues.

In case his aptness to pay the bills even after delivering on credit deteriorates then the credit limit can be minimized accordingly or if his number of days taken in meeting the dues increases his credit timing can be reduced accordingly. If still his practice deteriorates then he should be denied delivery on credit and should be delivered products only on clearing his debts. The above stated initiatives, taken by the distributors, demands GCMMF to deliver stocks on credit to the distributors. They can be given bill to bill credit as they also receive stocks on a weekly basis. This can be used as tool to increase the sales volume. The credit limit should depend on the sales volume shown by the distributor.

Small retail packs: Retail packs of Ghee and cooking butter have a huge demand. During the survey there were strong suggestions from retailers to launch small retail packs of Ghee (50gm) due to huge demand in the market. Customers prefer small retail packs of 50gm than 200gm packs (std. Amul Ghee packs) as there usage is less and they can open a fresh pack whenever one gets over. So they tend to stock four 50gm packs rather than a single 200gm pack. Its been found that the count of 50gm and 100gm retail packs of ghee selling is twice that of 200gm packs. The profits earned by selling them are quite high. It is advisable for Amul to launch small sachets of 50 gm rather than plastic cases in order to cut down costs.

Salesperson efficiency improvement:

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During the survey it has been observed that the salespersons who take order are unskilled labors. Some distributors have employees who are old enough and mature enough to understand the retailers while interacting with them but other employees of some distributors are just school kids or undergraduates in their freshmen year. They work on an incentive basis, the more order they procure the more are their incentives. So instead of spending time with each retailer to explain the array of products available they tend to cover as many retailers as possible in the shortest span of time. Ultimately, the retailer is unaware of the products available and the customers of those neighborhoods complain about the non-availability of Amul products. If the salesperson spends more time in explaining about the product width and depth available; the schemes offered by Amul he will be able to procure more order. They can also try and pitch to new retailers. The salesperson can also act as a spokesperson for their agency, by which they can collect responses and expectations of customers; can make sure that the schemes offered to the retailers reach the retailers and communicate retailers problem to the distributors and who in turn and can inform GCMMF. The issues which come to the board of GCMMF should be considered seriously and resolved if they are feasible and cost effective. The salesperson should be skilled enough to maintain a good relation with the retailers as he depicts GCMMF and the brand Amul to the retailer who is solely responsible for promoting Amul at the POS (point of sale).

Issues Not to be Resolved: Other issues of taking returns and increasing the profit margin to the retailers are not possible as they are least cost effective and will also pay way for disrupting the whole objective and business philosophy of GCMMF.

SWOT ANALYSIS FOR GCMMF

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STRENGHTS
Consistency in delivering quality Affordable and Competitive pricing Brand loyal customers

WEAKNESS
Not favored by many retailers as their demands are not met on time Relatively low profit margin for retailers Non-availability of fresh stocks Boardroom fracas due to resignation of Mr. B M Vyas

OPPORTUNITIES
Can leverage brand equity to diversify into new markets Dairy industry is the new found attraction for private equity and venture capitalist firms

THREATS
Competitors brands are preferred by retailers New entrants low cost market penetrating strategy

SUMMARY

The total demand estimated for various Amul products are as follows:

particulars Through Retailers Survey (Rs.lakhs) Through Consumers Survey

Liquid Milk 3216.9

Curd 1552.4

Paneer 274.0

Milk powder 762.2

Ghee 1927.9

Cheese 303.8

Condensed Milk 227.8

Milk Sweet 94.7

Flavored Milk 364.0

Butter Milk 247.6

Butter 553.4

6673.7

1307.2

391.9

829.4

2085.3

287.24

260.6

99.2

496.1

292.7

726.2

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(Rs.lakhs)

The total losses incurred in a weeks time in the three distributors area are as follows:

Products

Butter

Cheese

Flavored Milk Rs.25118

Milk Powder

Curd

Butter Milk Rs.6632

Total

Losses Incurred

Rs.49056 Rs.26271

Rs.117442 Rs.25956

Rs.250475

General dissatisfying factors for the retailers and consumers of Amul have been stated and recommendations and their ways of implementation have been given. They can be implemented and many of the issues can be resolved. It will be helpful in strengthening the bond with retailers and increase the brand equity of Amul.

LIMITATIONS OF THE STUDY

The survey was conducted only in the areas of three distributors leaving the other areas untouched. The constraints were manpower and time. Only two people were involved in surveying through schedules and the total retail universe in a metropolitan city like Chennai is huge and it is practically impossible to cover all the retail outlets in two months time. However, care was taken to cover almost all the beats under one distributors area so that the data collected would represent the population as such. The responses given by the retailers were jotted down as it was given by the respondents. There may be high chances of few retailers in enunciating the demand figures. In the same way the complaints given by them also needs consideration as they few retailers were angry with GCMMFs inefficiency to meet the demand. So when they had a chance to pour out their grievances they might have hyped it.

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SCOPE FOR FUTURE IMPROVEMENTS

GCMMF believes in low inventory and JIT delivery system for various reasons. As of now the replenishment time for retailers in Chennai is one week and for certain retailers who are close to the distributors it is 3-4 days. GCMMF can work on reducing the replenishment time to 2-3 days for all the retailers. This will address various issues and result in better profitability.

APPENDICIES
(The questionnaires were provided by GCMMF) APPENDIX - 1 SURVEY FOR AMUL PRODUCTS QUESTIONNAIRE FOR RETAILERS

1. What kind of milk & milk products do you sell?

product

Avg. sale per week

Whether Packaged or Loose

If Packaged specify Brand

Rate (Rs./pack) & Margin (%)

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Liquid Milk Curd/Dahi Paneer Milk Powder Ghee Cheese Condensed Milk Milk Sweets Flavored Milk Butter Milk Ice- cream Butter Other

2. Are these products delivered at your doorstep? Yes No

If yes, who delivers the Products? Company directly Distributor Whole-seller Buying on own from market Any other (please specify) ____________

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3. Are you satisfied with the way these products are delivered to you? Yes No

If no, how would you like it to be delivered?

4. Are you satisfied with the quality of products you are selling currently? Yes No

5. Are you satisfied with the quality of service provided by company/ distributor? Yes No

If no, what are the problems with quality of service?

6. What are the schemes/ promotion support provided by the company?

7. Any suggestions for improvements in Amul products?

Retailer Information Name of the Establishment: Type of Establishment: Contact Person: Address & Phone No.:

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APPENDIX - 2 SURVEY FOR AMUL PRODUCTS QUESTIONNAIRE FOR CONSUMERS

1. What kind of milk do you consume: Pouch Loose

If Pouch 1. Brand name 2. Variant (Full-Cream, Std., Toned DTM, Skimmed, Cow Milk) 3. Quantity per day 4. Rate of milk (Rs./Lit.)

If loose, Quantity per Day Rate (Rs./ Lit.)

2. What is the mode of purchasing of milk? Home delivery Retailer Others (Please Specify)

3. What is the Consumption of other Milk Products?

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Product

Consumption per day/per week

Whether made at home or brought from the market

If brought Rate(Rs./pack) from the market, specify the brand

Curd/Dahi Paneer Milk Powder Ghee Condensed Milk Milk Sweets Flavored Milk Buttermilk/Lassi Ice cream Butter Other(Pl. specify

4. Are you satisfied with the availability of above products in your neighbourhood? Yes No

If no, how would you like product to be available?

5. Are you satisfied with the Quality of product you are using currently? Yes No

If not, what are the problems with its quality?

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6. Are you satisfied with the Price of product you are using? Yes No

If no what must be the price?

7. Any suggestions for improvements in Amul products?

Respondent Information

Name: Age: Educational Qualification: Occupation: Total members in family: Average Income of the Family: Complete Address:

BIBLIOGRAPHY

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Kothari, C. R. (2004), Research Methodology, 2nd edition, New Age International Ltd. Arnold Tony .J.R, Chapman .N Stephen & Ramakrishnan .R.V, Introduction to Materials Management, 5th edition, Pearson Education Pingali, Venugopal, Sales and Distribution Management an Indian Perspective, 1st edition, 2008, Sage Publications India Pvt.Ltd. Goldratt.M Eliyahu, Eshkoli Ilan & Brown .L Joe, Isnt It Obvious?, 2010, Productivity & Quality Publishing Pvt.Ltd Asian Case Research Journal, Vol.6, Issue 2, 205-239 (2002) Demography (PDF) Second Master Plan II by Chennai Metropolitan Authority www.supplychain.org www.managementparadise.com