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Supply Chain Management End Term Project

Business Strategies for Managing Complex Supply Chains in Emerging


Economies: The Story of AMU

Prepared By: Ayan !ey
"oll #o: $%&'$()$*
Abstract
+n this paper a detailed study is descri,ed of a dairy cooperati-e. AMU. in /estern +ndia that has
de-eloped a successful model for doing ,usiness in large emerging economy0 +t has ,een primarily
responsi,le. through its inno-ati-e practices. for +ndia to ,ecome /orld1s largest producer of mil20
This paper dra/s -arious lessons from the experiences of AMU that /ould ,e useful to
cooperati-es glo,ally as /ell as firms that are interested in doing ,usiness in large emerging
mar2ets li2e +ndia and China0
Many of these economies ha-e underde-eloped mar2ets and fragmented supply ,ases0
Mar2et failures for many of these small producers are high0 3n the other hand. the si4e of ,oth.
mar2ets and the suppliers is large0 As a result. firms that identify appropriate ,usiness strategies that
ta2e into account these characteristics are more li2ely to succeed in these mar2ets0 The follo/ing
are some 2ey message from AMU1s success: firms in these en-ironments need to simultaneously
de-elop mar2ets and suppliers to synchroni4e demand and supply planning. de-elop or ,ecome a
part of net/or2 of producers 5i0e0. cooperati-es in this case6 to o,tain scale economies. focus on
operational effecti-eness to achie-e cost leadership to ena,le lo/ price strategy0 +n addition. a
central focus to ,ring the di-erse element together and a long)term approach are re7uired0
+n emerging economies different industrial sectors may ,e at different stages of
de-elopment0 +n some of the sectors all of the a,o-e en-ironmental characteristics faced may not
hold0 8o/e-er. a su,set of strategies follo/ed ,y AMU /ould still ,e -ery useful0 Thus. firms that
are contemplating addressing large unde-eloped mar2ets or ha-e an intention of ta2ing ad-antage of
extensi-e ,ut marginal supplier ,ase /ould still ,enefit0
&
Introduction
Since the turn of $9
th
century. Cooperati-es ha-e existed as dominant forms of organi4ation
in the dairy industry around the /orld0 Sometimes they ha-e played the role of de-eloping infant
industry /hile at other times they ha-e ,een used to strengthen /ea2 production ,ases in an
en-ironment /here mar2et failures tend to ,e higher for marginal producers0 +n some other cases. a
net/or2 of small producers ha-e organi4ed themsel-es to ,etter mar2et their products0 Management
of these cooperati-es ha-e also led to some interesting managerial insights for managers in
emerging as /ell as de-eloped economies0
arge emerging economies. e0g0. +ndia and China. ha-e complexities that range from
de-elopment of mar2ets 5/here the largest segment of population is the one /hich has lo/
purchasing po/er6 to integration of lo/ cost suppliers /ho are predominantly -ery small0 :or firms
that aspire to conduct su,stantial ,usiness in such mar2ets. such complexities ha-e to ,e recogni4ed
and then o-ercome0 The challenge is to understand the lin2ages ,et/een mar2ets and the society0
This /ould also re7uire de-elopment of a ne/ ,usiness model that helps a firm gro/ in such
en-ironments0 This paper is a,out one such successful model0 The ;aira !istrict Mil2 Cooperati-e
Union or AMU in +ndia is an example of ho/ to de-elop a net/or2 of firms in order to o-ercome
the complexities of a large yet fragmented mar2et li2e those in emerging economies ,y creating
-alue for suppliers as /ell as the customers0 AMU has led the mil2 dairy re-olution in +ndia that
has no/ emerged as one of the largest mil2 producers in the /orld0
+n this article /e /ill descri,e the ,rea2through -ision that led to the simultaneous
de-elopment of the mar2et and supply side through a process of social de-elopment and education
at AMU0 Clearly. implementation of this -ision in a competiti-e en-ironment and maintaining
sustained gro/th and profita,ility re7uires de-elopment of competiti-eness on se-eral dimensions
and operational effecti-eness0 This article pro-ides insights into management of -ery large supply
chains ,y adapting and integrating a -ariety of strategies and techni7ues0 This includes ,uilding
net/or2s. de-eloping trust < -alues in the net/or2. de-eloping fair mechanisms for sharing
,enefits across the supply chain. coordination for operational effecti-eness. inno-ation and ne/
technology for gaining competiti-eness0 +t is note/orthy that these successes /ere achie-ed /ithin
the frame/or2 of a net/or2 of cooperati-es organi4ed in a hierarchical manner0 There are many
lessons in AMU1s success not only for the cooperati-e sector ,ut also for firms /ho intend to do
,usiness in emerging mar2ets0
The AMUL Story
The ;aira !istrict Cooperati-e Mil2 Producers1 Union imited /as esta,lished on !ecem,er $=.
$9=> as a response to exploitation of marginal mil2 producers in the city of Anand 5in ;aira district
of the /estern state of ?ujarat in +ndia6 ,y traders or agents of existing dairies0 Producers had to
tra-el long distances to deli-er mil2 to the only dairy. the Polson !airy in Anand @ often mil2 /ent
sour. especially in the summer season. as producers had to physically carry mil2 in indi-idual
containers0 These agents decided the prices and the off)ta2e from the farmers ,y the season0 Mil2 is
a commodity that has to ,e collected t/ice a day from each co/%,uffalo0 +n /inter. the producer
/as either left /ith surplus unsold mil2 or had to sell it at -ery lo/ prices0 Moreo-er. the
go-ernment at that time had gi-en monopoly rights to Polson !airy 5around that time Polson /as
the most /ell 2no/n ,utter ,rand in the country6 to collect mil2 from Anand and supply to Bom,ay
city in turn 5a,out ='' 2ilometers a/ay60 +ndia ran2ed no/here amongst mil2 producing countries
in the /orld in $9=>0
The producers of ;aira district too2 ad-ice of the nationalist leaders. Sardar Aalla,h,hai
Patel 5/ho later ,ecame the first 8ome Minister of free +ndia6 and Morarji !esai 5/ho later ,ecome
the Prime Minister of +ndia60 They ad-ised the farmers to form a cooperati-e and supply directly to
the Bom,ay Mil2 Scheme instead of selling it to Polson 5/ho did the same ,ut ga-e lo/ prices to
the producers60 Thus the ;aira !istrict Cooperati-e /as esta,lished to collect and process mil2 in
the district of ;aira0 Mil2 collection /as also decentrali4ed. as most producers /ere marginal
farmers /ho /ould deli-er $)& litres of mil2 per day0 Aillage le-el cooperati-es /ere esta,lished to
organi4e the marginal mil2 producers in each of these -illages0 The first modern dairy of the ;aira
Union /as esta,lished at Anand 5/hich popularly came to ,e 2no/n as AMU dairy after its ,rand
name60 The ne/ plant had the capacity to pasteurise (''.''' pounds of mil2 per day. manufacture
$'.''' pounds of ,utter per day. $&.*'' pounds of mil2 po/der per day and $.&'' pounds of casein
per day0 +ndigenous "<! and technology de-elopment at the Cooperati-e had led to the successful
production of s2immed mil2 po/der from ,uffalo mil2 @ the first time on a commercial scale
any/here in the /orld0 The foundations of a modern dairy industry in +ndia had just ,een laid as
+ndia had one of the largest ,uffalo populations in the /orld0
Be mo-e to year &'''0 The dairy industry in +ndia and particularly in the State of ?ujarat
loo2s -ery different0 +ndia has emerged as the largest mil2 producing country in the /orld 5see
Ta,le $60 ?ujarat emerges as the most successful State in terms of mil2 and mil2 product production
through its cooperati-e dairy mo-ement0 The ;aira !istrict Cooperati-e Mil2
Producers1 Union imited. Anand ,ecomes the focal point of dairy de-elopment in the entire region
and AMU emerges as one of the most recogni4ed ,rands in +ndia. ahead of many international
,rands
$
0
Starting /ith a single shared plant at Anand and t/o -illage cooperati-e societies for mil2
procurement. the dairy cooperati-e mo-ement in the State of ?ujarat had e-ol-ed into a net/or2 of
&0$& million mil2 producers 5called farmers6 /ho are organi4ed in $'.=$$ mil2 collection
independent cooperati-es 5called Aillage Societies60 These Aillage Societies 5AS6 supply mil2 to
thirteen independent dairy cooperati-es 5called Unions60 AMU is one such Union0 Mil2 and mil2
products from these Unions are mar2eted ,y a common mar2eting organi4ation 5called :ederation60
:igure $ gi-es the hierarchical structure of this extensi-e net/or2 of cooperati-es0 ?ujarat
Cooperati-e Mil2 Mar2eting :ederation or ?CMM: is the mar2eting entity for products of all
Unions in the State of ?ujarat
&
0 ?CMM: has =& regional distri,ution centers in +ndia. ser-es o-er
*''.''' retail outlets and exports to more than $* countries0 All these organi4ations are independent
legal entities yet loosely tied together /ith a common destinyC 5+n a recent sur-ey ?CMM: /as
ran2ed amongst the top ten :MC? firms in the country /hile AMU /as rated the second most
recogni4ed ,rand in +ndia amongst all +ndian and M#C offerings60 +nterestingly. the ?ujarat
mo-ement spread all o-er +ndia and a similar structure /as replicated 5all are at different le-els of
achie-ement ,ut their trajectory appears to ,e 7uite similar60 T/o national organi4ations. the
#ational !airy !e-elopment Board 5#!!B6 and the #ational Co)operati-e !airy :ederation of
+ndia 5#C!:+6 /ere esta,lished to coordinate the dairy acti-ities through cooperati-es in all the
States of the country0 The former pro-ides financing for de-elopment /hile the latter manages a
national mil2 grid and coordinates the deficit and surplus mil2 and mil2 po/der across the states of
+ndia0 +n the early nineties. AMU /as as2ed ,y the ?o-ernment of Sri an2a to esta,lish a dairy
on similar lines in Sri an2a0 +nterestingly. /hile Polson folded up sometimes in $9>'s. the
cooperati-es are faced /ith ne/ competition in li,erali4ing +ndia @ from multi)national corporations
5M#Cs6 that ,rought in ne/ and impro-ed product portfolio. international net/or2 and immense
financial support0 The Cooperati-es face ne/ challenges that test the ro,ustness of their approach
and their commitment to the mo-ement and a ne/ style of management thin2ing0
Today AMU is a sym,ol of many things0 3f a promise to mem,er farmers /ho are assured
a guaranteed purchase of all the mil2 that they produce at pre)determined prices0 3f high)7uality
products sold at reasona,le prices to consumers0 3f de-eloping and coordinating a -ast co)operati-e
net/or20 3f ma2ing a strong ,usiness proposition out of ser-ing a large num,er of small and
marginal suppliers0 3f the triumph of indigenous technology0 3f the mar2eting sa--y of a farmersD
organisation0 +n the remaining part of the paper. /e first re-ie/ the role that cooperati-es ha-e
played in the de-elopment of dairy industry glo,ally and ho/ is this sector adjusting to ne/ glo,al
challenges0 #ext. /e loo2 at AMU /ithin this context and highlight their journey to/ards
excellence0 Specifically. /e study ho/ AMU achie-ed this exalted status. /hat /ere the
ingredients of its success. ho/ did the ,elief in cooperation transform the ,usiness en-ironment and
the li-es of people. and /hat lessons does it hold for other ,usinesses0
Cooperatives and the Global Dairy Industry
Three ,road 7uestions ha-e intrigued researchers and practitioners on cooperati-es
(
: /hat are the
o,jecti-es of cooperati-es. /hat determines the success and failure of cooperati-es and ho/ do
cooperati-es act as organi4ations of social and economic change0 Bhile most of the o,ser-ations
are ,ased on normati-e judgments of /hat the cooperati-es are supposed to do. some studies reflect
the true ,eha-ior of agents /ithin a cooperati-e frame/or2 there,y ma2ing the de,ate on
cooperati-es more complex ,ut also interesting0 To these themes /e add another 7uestion that
reflects in some /ays our o/n en7uiry through this paper: are mechanisms of cooperation that
cooperati-es employ any different from those used ,y other industrial organi4ationsE
Traditionally. cooperati-es ha-e ,een esta,lished to ser-e the needs of its mem,ers in order
to maximi4e their returns0 ?o-ernments ha-e usually seen these organi4ations as effecti-e
mechanisms for deli-ering their o/n programmes 5e0g0. sector de-elopment or po-erty reduction.
etc060 "esearchers ha-e loo2ed at cooperati-es as channels for re)distri,uting /ealth. impro-ing the
opportunities for the /ea2er sections of the society. alternati-e institutions for property o/nership.
efforts in democratic and participati-e go-ernance of organi4ations
=
etc0 5this discussion dra/s from
Shah. $99*60 +n that. the cooperati-es ha-e often sought protection of sorts from uncertainties in the
mar2et place0 ?lo,ally. modern day cooperati-es are agglomeration of many such small groupings
that ser-e some of the a,o-e o,jecti-es ,ut ha-e no/ mo-ed from ,eing protected entities to
,ecoming mar2et dri-en0 This ma2es such cooperati-es an interesting organi4ational alternati-e to
traditional ,usiness enterprises 5i0e0. in-estor o/ned firms6 in terms of concern for shareholders.
distri,utional effecti-eness and a,ility to pro-ide product%ser-ice -ariety
*
0
+n emerging economies. cooperati-es ha-e ,een used as institutions to organi4e marginal
producers there,y pro-iding scale effects to a net/or2 of such producers0 Sometimes. it is the
go-ernment that organi4es these marginal producers and may also manage the collecti-e 5as in
-arious cooperati-es in former So-iet Union and Africa60 3n other occasions. producers themsel-es
come together to produce and distri,ute their o/n products 5as in the case of AMU. majority of
cooperati-es in #orth America etc
>
060 Bhile control and su,sidies from the go-ernment distort the
performance of former. producer)dri-en cooperati-es ha-e to de-elop systems and processes that
respond to mar2et re7uirements and ,e competiti-e0 +n that. the determinants of success for this
2ind of cooperati-es are no different from those of other commercial organi4ations0 Moreo-er. they
recogni4e that in order to optimi4e the o,jecti-e function of the marginal producers. they ha-e to
ser-e the mar2et -ery effecti-ely
F
0 Cooperati-es are. ho/e-er. different from other commercial
organi4ations in one respect @ they are ,ound to ser-e the suppliers 5i0e0. the producers of goods <
ser-ices /ho happen to ,e the mem,ers of the cooperati-es6 in good and ,ad times0 +n that. they
present an interesting model to other commercial organi4ations on strategic management of
resources and their conser-ation0
?lo,ally. cooperati-es ha-e played the role of pre-enting mar2et failures for small
producers especially in the dairy industry
G
0 Traditionally. a large num,er of these cooperati-es ha-e
had small mem,ership and produced predominantly ra/ products 5i0e0. fluid mil26 or products /ith
some -alue addition 5i0e0. dry po/der. ,utter etc060 This situation has ,een changing dramatically in
the last decade and especially in the last three years0 There has ,een a spate of mergers all around
the /orld to create fe/er ,ut larger dairy cooperati-es0 +n many cases. these cooperati-es loo2 -ery
different from the merged entities0 Cooperati-e dairies that operate /ith small mem,ership ha-e
retained a certain focus 5i0e0. geographical or product related6 in their offerings
9
0 There ha-e ,een
se-eral factors dri-ing the restructuring of the dairy ,usiness 5/hich has chiefly ,een organi4ed
around cooperati-e principles60 These include efficiencies in managing fe/er large plants -ersus a
num,er of under)utili4ed small plants. need for more mil2 supply 5and declining mem,ership6. need
to offer /ide -ariety. impro-ements in truc2ing < mil2 handling there,y facilitating long hauls.
opening of ne/ international mar2ets 5also mar2ets for ne/ products6. see2ing mar2eting clout and
need to ,ring in-estment from outside the cooperati-es0 +n USA. for instance. there /ere *9&
cooperati-es 5/ith a mem,ership of &G$.'>* producers6 that mar2eted mil2 to plants and handlers
in $9F(0 This num,er reduced to &&> 5/ith GF.9(G mem,ers6 in $99F0 8o/e-er. the share of mil2
deli-ered ,y the cooperati-es increased ,y 9 percent during this period though the share of dairy
sales of small cooperati-es reduced from =(0G percent in $9F* to a,out (' per cent in $99G
5Blayney and Manchester. &'''6
$'
0 The t/o largest dairy cooperati-es in the US. !airy :armers of
America and and 31a2es had annual sales of USH F09 and *0$ ,illion respecti-ely
$$
0 !airy
:armers of America /as formed ,y the merger of four large cooperati-es in the US in $99G0 +t
consists of &*.=99 mem,ers across =* states of USA
$&
0 Consolidation in cooperati-es during the last
fi-e years /as also in anticipation of 5and reaction to6 the consolidated :ederal Mil2 Mar2eting
3rder of &''' /hich remo-ed geographical anomalies in minimum support prices for dairy
products hence reduced the need to locate spatially distri,uted processing centers to ta2e ad-antage
of -arying prices0 +t helped dairy cooperati-es to forge alliances /ith firms in -arious regions0
European 5and especially Scandina-ian6 dairy cooperati-es ha-e also seen tremendous
consolidation0 !anish cooperati-es. mostly producers1 cooperati-es. ha-e often faced difficulties in
raising capital internally for in-estment 5though go-ernment support has ,een 7uite strong on this
count6 and ha-e ,een re)structuring since mid)F's 58ansen et al0 $9G'60 !airy coops in !enmar2
ha-e reduced to =* units in &''& from $*'' in $9('s /ith one large dairy processing 9' per cent of
the a-aila,le mil20 The !anish !airy Board. ho/e-er. in-ests in "<!. allots 7uota for mil2 supply
to indi-idual farms. regulates prices and 7uality. and supports the efforts of the cooperati-es in
international mar2ets0 +t ,elie-es that its competition is from dairies outside !enmar2
$(
0 Similar has
,een the experience of dairy farmers in other parts of Europe /ith a higher in-ol-ement of
go-ernment in reshaping the structure of the industry0 Many +rish cooperati-es ha-e. ho/e-er.
con-erted to non)cooperati-e forms 58amm. &''$60 3utside Europe and USA. the experience of
dairy cooperati-es in #e/ Iealand is instructi-e0 The #e/ Iealand !airy Board 5#I!B6 4ealously
guards the structure of the industry. /hich had an annual /orld/ide sale of #IH(0* ,illion in $99>0
!airy cooperati-es collect mil2 from indi-idual farmers and sell processed products in the domestic
mar2ets and to #I!B for exports
$=
0 A2oorie and Scott);ennel 5$9996 argue that this structure loo2s
more li2e strategic partnership ,et/een producers and the ,oard 5the glo,al mar2eting arm6 /ith the
later pro-iding capital for gro/th and inno-ation0 +nterestingly. the form that a producing
organi4ation should ta2e and the relationship that it should ha-e /ith its mar2eting has ,een the
center of de,ate in managing dairy cooperati-es0 AMU in +ndia has learnt from many of these
experiences and has ,een influenced ,y practices in dairies around the /orld especially in its
formati-e years0 +t has. ho/e-er. formed it o/n organi4ational structure 5i0e0. AMU is a
cooperati-e of -illage cooperati-es6 to ,ring a,out a change in the li-es of marginal farmers of
+ndia0
The AMU experience has attracted considera,le interest from the de-elopment community
@ predominantly anthropologists. de-elopment < agriculture economists. and political scientists0
;ey areas of their en7uiry ha-e ,een the role of AMU in reducing social and economic ine7uality
in the region of the cooperati-e. the sociology of cooperation. interface of the dairy cooperati-e and
the rural po/er structure. relation of the State and the Cooperati-e and the role of go-ernment in its
gro/th 5interestingly. AMU has successfully managed to exercise its independence from the
go-ernment unli2e other cooperati-es in +ndia6. elements < replica,ility of the cooperati-e
mo-ement at Anand. cost effecti-eness of su,sidies to AMU 5in its initial years6 etc0
$*
A fe/
studies ha-e e-aluated the operational effecti-eness of the operations at AMU
$>
0 Studies ha-e
reported usage of mo,ile -eterinary dispensaries. /ireless sets to lin2 mo,ile units to ser-ice
centers as early $9*$. de-eloping a programme of cross ,reeding of co/s in early $9F's etc0 that
ha-e led to a phenomenal rise in producti-ity of mil2 5Patel. $9GG60 Be ha-e. ho/e-er. not come
across any research paper or study that loo2s at the entire supply chain to understand the role of
managerial practices in achie-ing its o,jecti-es successfully0 There ha-e ,een no studies that loo2 at
managerial practices. efficiency and performance of cooperati-es either0 Be no/ present. ho/
AMU de-eloped a ro,ust organi4ation ,ased on sound -alues and commercial interests0
AMULs Journey towards !cellence
AMU1s journey to/ards excellence is mar2ed ,y some critical understanding of the ,usiness
en-ironment in large emerging economies li2e +ndia /here mar2ets ha-e to ,e de-eloped ,y
com,ining efficiency related initiati-es /ith increasing the ,ase of marginal suppliers and
consumers0 The essence of AMU1s efforts /ere as follo/s:
+t com,ined mar2et and social de-elopment in an emerging economy0 +t recogni4ed the inter)
lin2ages ,et/een -arious en-ironments that go-erned the li-es of marginal mil2 farmers and
the unmet needs of consumers0 +t also changed the supply chain paradigm in order to reduce the
cost to the consumer /hile increasing the return to the supplier0
+t reali4ed that in order to achie-e their o,jecti-es. it had to ,enefit a large num,er of people @
,oth suppliers and consumers0 Bhile large scale had the danger of failure due to poor control
and re7uired more resources. it also had the ad-antage of creating a momentum that /ould ,e
necessary to ,ring more people into the fold and there,y help more suppliers and consumers0
+t also reali4ed that its goal could only ,e achie-ed in the long run and this re7uired de-eloping
-alues in people and processes that /ere ro,ust. replica,le and transparent0
+t also reali4ed that the cooperati-e /ould not ,e independent and -ia,le in the face of
competition if it /ere not financially sound0 This implied that AMU had to de-elop distinct
capa,ilities that /ould deli-er competiti-e ad-antage to its operations0 This /ould include long
term cost containment. /orld)class deployment of technological resources and "<!. and ,etter
le-eraging of scarce resources0
+n Ta,le & /e present some characteristics of this uni7ue mo-ement and ho/ AMU /ent
a,out ,uilding a culture of excellence0 The salient features of this approach 5/hich has ,een termed
as the JAnand PatternK6 are discussed in su,se7uent paragraphs0
Leadership
Bhile ;aira Union 5or AMU6 had the support of national leaders /ho /ere at the forefront of the
+ndian independence mo-ement. its local leaders /ere trained in ?andhian simplicity
$F
and had
their feet rooted firmly amongst people /hom they had mo,ili4ed @ the poor farmers of Anand0 The
foremost amongst them /as Tri,hu-andas Patel
$G
/ho had led the mo-ement for the formation of
cooperati-es of small and marginal farmers in order to compete against in-estor o/ned enterprises
on one hand. and 2eep ,ureaucracy a/ay on the other hand0 Tri,hu-andas /as the first Chairman of
the cooperati-e0 8is s2ills lay in organi4ing the -illage producers. in ma2ing them ,elie-e in the
po/er of cooperation and their rights to/ards impro-ement of human condition0 8e is remem,ered
as fair and honest person /hose highest sense of accounta,ility to the mem,ers of the union laid the
foundation of trust ,et/een net/or2 mem,ers
$9
0 Another important aspect of his remar2a,le
management style /as his gentleness and a,ility to repose trust in people @ he ga-e complete
autonomy to managers of the union and earned complete commitment from them
&'
0 Aerghese
;urien
&$
/as one such manager /ho /ould. first. shape the destiny of the Union and then the mil2
mo-ement throughout the country0
;urien emerged as the father of the dairy mo-ement in +ndia0 8e managed to 2eep the
go-ernment and ,ureaucrats a/ay from the cooperati-e
&&
and ga-e shape to the modern structure of
the cooperati-e. /or2ed tirelessly to esta,lish the -alues of modern economics. technology and
concern for farmers /ithin the cooperati-e0 8e interfaced /ith glo,al financing agencies to ,uild
ne/ projects at AMU0 8e /or2ed /ith the Unions to ,ring the ,est of technology to the plants0 8e
/or2ed /ith marginal -illage farmers to create systems that /ould increase mil2 yields0 8e
understood that /ithout meeting the needs of customers he /ould not ,e a,le to satisfy his
o,ligations to the farmers0 +n short. ;urien shaped the destiny of the mil2 mo-ement in +ndia
through #!!B 5as its Chairman6 and particularly at ?CMM: and cooperati-es in ?ujarat0 8e
helped ,uild a modern organi4ation /ith professional management systems that /ould support the
aspirations of farmers and customers0 Se-eral young people left ,etter paying jo,s to help create a
dream of ma2ing +ndia the mil2 capital of the /orld0 ;urien had learnt the persuasi-e charm of
Tri,hu-andas through plain spea2ing and had soon created a cadre of highly capa,le managers to
/hom he had delegated ,oth management as /ell as commitment0 These leaders /ere created at the
-illage. district and state le-els in different organi4ations of the net/or20
Tri,hu-andas 2ne/ that his fledgling cooperati-e needed a technocrat manager /ho shared
his concern for the farmers and also had the tenacity to organi4e marginal producers0 Con-incing
farmers to join the cooperati-e re7uired commitment ,ordering on stu,,ornness. a can do attitude
and a desire to change li-es of poor people0 Aerghese ;urien had those s2ills and had lin2ages to the
go-ernment0 8e /as charismatic in his communication and committed in his effort0 3-er a period
of time. he de-eloped a -ery close lin2 /ith the poor farmers /ho. as he al/ays says. J/ere his
employersK at the cooperati-e0 8e /ould tra-el through the -illages along /ith Tri,hu-andas and
/or2 out the details of ho/ the mil2 collection cooperati-e /ould /or2. ho/ truc2s /ould pic2up
mil2 from -illage societies. ho/ the cattle /ould ha-e to ,e ta2en care of and ho/ all of this /ould
help the poor mil2 farmer come out of po-erty and the clutches of the middleman0 3perational
details /ere meticulously planned and executed0 And then. he along /ith t/o of his close associates
/ould /or2 on the design of the dairy plant including conducting experiments to create po/der out
of ,uffalo mil2 @ a tas2 that /as ridiculed ,y all /ho heard of it including the international aid
agencies in the dairy industry0 Tri,hu-andas and ;urien /ere a,le to con-ince the go-ernment also
of the -alue of his efforts and secured funding for se-eral projects of the cooperati-e0 8e /as
slo/ly laying the foundation of a modern dairy industry in +ndia0 Mem,ership of the cooperati-e
started to increase. professional managers started to join AMU and production capacity at AMU
started to expand 5and this expansion /as done through inno-ati-e changes to processes at the plant
and through e7uipment designed and fa,ricated in)house60 ;urien had transformed AMU from a
dream into a major industrial entity @ a net/or2 of plants. cooperati-e societies. research centers. an
institute for training future managers in rural management. secondary ser-ices li2e
-eterinary%artificial insemination expertise%feed factory etc0 ;urien1s ,iggest strength lay in his
a,ility to con-ince people that the cause of rural farmers /as important thus esta,lishing an
important shared -alue0 Su,se7uently. he could con-ince the go-ernment to replicate the AMU
model in almost all states of the country0
Strate"y
AMU1s ,usiness strategy is dri-en ,y its t/in o,jecti-es of 5i6 long)term. sustaina,le
gro/th to its mem,er farmers. and 5ii6 -alue proposition to a large customer ,ase ,y pro-iding mil2
and other dairy products a lo/ price0 +ts strategy. /hich e-ol-ed o-er time. comprises of elements
descri,ed ,elo/0
Simultaneous Development of Suppliers and Customers: :rom the -ery early stages of the
formation of AMU. the cooperati-e reali4ed that sustained gro/th for the long)term /as
contingent on matching supply and demand0 :urther. gi-en the primiti-e state of the mar2et and the
suppliers of mil2. their de-elopment in a synchronous manner /as critical for the continued gro/th
of the industry0 The organi4ation also recogni4ed that in -ie/ of the poor infrastructure in +ndia.
such de-elopment could not ,e left to mar2et forces and proacti-e inter-entions /ere re7uired0
Accordingly. AMU and ?CMM: adopted a num,er of strategies to assure such gro/th0 :or
example. at the time AMU /as formed. the -ast majority of consumers had limited purchasing
po/er and /as -alue conscious /ith -ery lo/ le-els of consumption of mil2 and other dairy
products0 Thus. AMU adopted a lo/ price strategy to ma2e their products afforda,le and
guarantee -alue to the consumer0 The success of this strategy is /ell recogni4ed and remains the
main plan2 of AMUDs strategy e-en today0 The choice of product mix and the se7uence in /hich
AMU introduced its products is consistent /ith this philosophy0 Beginning /ith li7uid mil2. the
product mix /as enhanced slo/ly ,y progressi-e addition of higher -alue products /hile
maintaining desired gro/th in existing products0 E-en today. /hile competing in the mar2et for
high -alue dairy products. ?CMM: ensures that ade7uate supplies of lo/ -alue products are
maintained0
3n the supply side. as mentioned earlier. the mem,er)suppliers /ere typically small and
marginal) farmers had se-ere li7uidity pro,lems. /ere illiterate and had no prior training in dairy
farming0 AMU and other cooperati-e Unions adopted a num,er of strategies to de-elop the supply
of mil2 and assure steady gro/th0 :irst. for the short term. the procurement prices /ere set so as to
pro-ide fair and reasona,le return0 Second. a/are of the li7uidity pro,lems. cash payments for mil2
supply /as made /ith minimum of delay0 :or the long)term. the Unions follo/ed a multi)pronged
strategy of education and support0 :or example. only part of the surplus generated ,y the Unions is
paid to the mem,ers in the form of di-idends0 A su,stantial part of this surplus is used for acti-ities
that promote gro/th of mil2 supply and impro-e yields0 These include pro-ision of
-eterinary ser-ices. support for cold storage facilities at the -illage societies etc0 +n parallel. the
Unions ha-e put in place a num,er of initiati-es to help educate the mem,ers0
To summari4e. the dual strategy of simultaneous de-elopment of the mar2et and mem,er
farmers has resulted in parallel gro/th of demand and supply at a steady pace and in turn assured
the gro/th of the industry o-er an extended period of time0
Cost Leadership: AMU1s o,jecti-e of pro-iding a -alue proposition to a large customer ,ase led
naturally to a choice of cost leadership position0 ?i-en the lo/ purchasing po/er of the +ndian
consumer and the marginal discretionary spending po/er. the only -ia,le option for AMU /as to
price its products as lo/ as possi,le0 This in turn led to a focus on costs and had significant
implications for managing its operations and supply chain practices 5descri,ed later60
Focus on Core Activities: +n -ie/ of its small ,eginnings and limited resources. it ,ecame clear
fairly early that AMU /ould not ,e in a position to ,e an integrated player from mil2 production
to deli-ery to the consumer
&(
0 Accordingly. it chose a strategy to focus on core dairy acti-ities and
rely on third parties for other complementary needs0 This philosophy is reflected in almost all
phases of AMU net/or2 spanning "<!. production. collection. processing. mar2eting.
distri,ution. retailing etc0 :or example. AMU focused on processing of li7uid mil2 and con-ersion
to -ariety of dairy products and associated research and de-elopment0 3n the other hand. logistics
of mil2 collection and distri,ution of products to customers /as managed through third parties0
8o/e-er. it played a proacti-e role in ma2ing support ser-ices a-aila,le to its mem,ers
/here-er it found that mar2ets for such ser-ices /ere not de-eloped0 :or example. in the initial
stages. its small and marginal mem,er farmers did not ha-e access to finance. -eterinary ser-ice.
2no/ledge of ,asic animal hus,andry etc0 Thus to assure continued gro/th in mil2 production and
supply. AMU acti-ely sought and /or2ed /ith partners to pro-ide these re7uired ser-ices0 +n cases
/here such partnerships could not ,e esta,lished. AMU de-eloped the necessary capa,ilities and
pro-ided the ser-ices0 These aspects are ela,orated later in this section0
Managing Third Party Service Providers: Bell ,efore the ideas of core competence and the role of
third parties in managing the supply chain /ere recogni4ed and ,ecame fashiona,le. these concepts
/ere practiced ,y ?CMM: and AMU0 :rom the ,eginning. it /as recogni4ed that the core
acti-ity for the Unions lay in processing of mil2 and production of dairy products0 Accordingly. the
Unions focused efforts on these acti-ities and related technology de-elopment0 Mar2eting efforts
5including ,rand de-elopment6 /ere assumed ,y ?CMM:0 All other acti-ities /ere entrusted to
third party ser-ice pro-iders0 These include logistics of mil2 collection. distri,ution of dairy
products. sale of products through dealers and retail stores. some -eterinary ser-ices etc0 +t is /orth
noting that a num,er of these third parties are not in the organi4ed sector. and many are not
professionally managed0 8ence. /hile third parties perform the acti-ities. the Unions and ?CMM:
ha-e de-eloped a num,er of mechanisms to retain control and assure 7uality and timely deli-eries
5see the su,)section on Coordination for Competiti-eness later in the paper for more details60 This is
particularly critical for a perisha,le product such as li7uid mil20
Financial Strategy: AMU1s finance strategy is dri-en primarily ,y its desire to ,e self)reliant and
thus depend on internally generated resources for funding its gro/th and de-elopment0 This choice
/as moti-ated ,y the relati-ely underde-eloped financial mar2ets /ith limited access to funds. and
the reluctance to depend on ?o-ernment support and thus ,e o,liged to cede control to ,ureaucracy0
AMU1s financial strategy may thus ,e characteri4ed ,y t/o elements: 5a6 retention of surplus to
fund gro/th and de-elopment. and 5,6 limited% no credit. i0e0. all transactions are essentially cash
only0 :or example. payment for mil2 procured ,y -illage societies is in cash and /ithin $& hours of
procurement 5most. ho/e-er. pay at the same time as the receipt of mil260 Similarly. no dispatches
of finished products are made /ithout ad-ance payment from distri,utors etc0 This /as particularly
important. gi-en the limited li7uidity position of farmer%suppliers and the a,sence of ,an2ing
facilities in rural +ndia0 This strategy strongly helped AMU implement its o/n -ision of gro/th
and de-elopment0 +t is important to mention that many of the a,o-e approaches /ere at -ariance
/ith industry practices of ,oth domestic and M#C competitors of AMU0
#r"ani$ation
AMU is organi4ed as a cooperati-e of cooperati-es 5i0e0. each -illage society. a cooperati-e in
itself. is a mem,er of the AMU cooperati-e6 there,y deri-ing the ad-antage of scale and
uniformity in decision ma2ing0 The founders of ;aira Union reali4ed that to fulfill their o,jecti-es.
a large num,er of marginal farmers had to ,enefit from the cooperati-e @ a net/or2 of sta2eholders
had to ,e ,uilt0 And once ,uilt. it had to gro/ so as to dra/ more rural poor to underta2e dairy
farming as a means of li-elihood0 The net/or2 had to ha-e se-eral layers @ the organi4ational
net/or2 /here the -oice of the o/ners go-erned all decisions. a physical net/or2 of support
ser-ices and product deli-ery process and a net/or2 of small farmers that could deli-er the ,enefit
of a large corporation in the mar2et place0 More importantly. a process had to ,e put in place to
,uild these net/or2s0
Building an organi4ational net/or2 that /ould represent the farmers and the customers /as
the most complicated tas20 A loose confederation /as de-eloped /ith ?CMM: representing the
-oice of the customers. the Unions representing the mil2 processors and the -illage societies
representing the farmers0 Competition in the mar2ets ensured that the entire net/or2 /as
responding to the re7uirements of the customers at prices that /ere -ery competiti-e0 The tas2 of
ensuring that returns to the farmers /as commensurate /ith the o,jecti-es /ith /hich the
cooperati-es /ere setup /as achie-ed through representation of farmers at different le-els of
decision ma2ing throughout the net/or2 @ the ,oard of directors of societies. Unions and the
:ederation comprised farmers themsel-es0 +n order to ensure that most returns from sales /ent to
the producers. the intermediaries had to operate -ery effecti-ely and on ra4or thin margins0 This
turned out to ,e a ,lessing in disguise @ the operations remained -ery JleanK and started to pro-ide
cost ,ased ad-antage to the entire net/or20
AMU esta,lished a group to standardi4e the process of organi4ing farmers into -illage
societies0 +n addition to esta,lishing the criteria for selecting mem,ers. the group had to train the AS
to run the cooperati-e democratically. profita,ly and /ith concern for its mem,ers0 This included
esta,lishing procedures for mil2 collection. testing. payment for mil2 purchased from mem,er
farmers and its su,se7uent sale to the union. accounting. ensuring timely collection and dispatch of
mil2 on mil2 routes esta,lished ,y the union. etc0 The Aillage Societies !i-ision at AMU acts as
the internal representati-e of -illage societies in their dealings /ith the Union0 Cooperati-e
de-elopment programmes at the -illage le-el for educating < training its mem,ers ha-e ,ecome an
important part of the strategy to ,uild this extensi-e net/or2
&=
0
Mil2 procurement acti-ity at AMU comprises de-elopment and ser-icing of -illage
societies. increasing mil2 collection. procurement of mil2 from societies < its transport to the
chilling locations. and resol-ing pro,lems of farmers and -illage societies0 Their stated o,jecti-e is
to ensure that producers get maximum ,enefits0 The Aillage Societies !i-ision coordinates these
acti-ities0 Mil2 collection ta2es place o-er a large num,er of pre)defined routes according to a
precise timeta,le0 The field staff of this di-ision also help -illage societies interface /ith the Union
on -arious issues ranging from impro-ement of collection. resol-ing disputes. repair of e7uipments
to o,taining financing for purchase of e7uipment etc0 +n addition. they are also responsi,le for the
formation of ne/ societies. /hich is an important acti-ity at AMU0
+n essence. the organi4ation structure of AMU allo/s effecti-e utili4ation of resources
/ithout losing the democratic aspiration of indi-idual mem,ers0 +t is o,-ious that such a system
needs charismatic leadership to achie-e consensus across issues @ a process that has long)term
,enefits for any organi4ation0
Mar%etin"
?CMM: is the mar2eting arm of the net/or2 and manages the physical deli-ery and
distri,ution of mil2 and dairy products from all the Unions to customers0 ?CMM: is also
responsi,le for all decisions related to mar2et de-elopment and customer management0 These
acti-ities. /hich range from long)term planning to medium)term and short)term operational
decisions are descri,ed ,elo/0
As mentioned earlier. introduction of ne/ products and choice of product mix and mar2ets
should ,e consistent /ith the gro/th strategy. and synchronous /ith gro/th in mil2 supply0
?CMM:1s demand gro/th strategy may ,e characteri4ed ,y t/o 2ey elements: 5i6 de-eloping
mar2ets for its high -alue products ,y graduating customer segments from lo/ -alue products. and
5ii6 maintaining a healthy le-el of customer ,ase for its ,ase products 5lo/ -alue segment60 This
strategy often re7uires ?CMM: to allocate sufficient 7uantity of mil2 supply to lo/ -alue products.
there,y sacrificing additional profits that could ,e generated ,y con-erting the same to high -alue
products0
+nterestingly. ad-ertisement < promotion 5a la :MC?6 /as not considered to ,e enough of
-alue addition and hence the ,udget /as 2ept relati-ely small0 +nstead. ?CMM: preferred a lo/er
price /ith emphasis on efficiency in ad-ertising0 +n this context. ?CMM: pro-ides um,rella
,randing to all the products of the net/or20 :or example. li7uid mil2 as /ell as -arious mil2
products produced ,y different Unions are sold under the same ,rand name of AMU0 +nterestingly.
the ad-ertising has centered on ,uilding a common identity 5e0g0. a happy < healthy JcartoonK
AMU girl6 and e-o2ing national emotion 5e0g0. the 2ey ad-ertising slogan says JAMU ) The
Taste of +ndiaK60
?CMM: also plays a 2ey role in /or2ing /ith the Unions to coordinate the supply of mil2
and dairy products0 +n essence. it procures from multiple production plants 5the thirteen Unions6.
/hich in turn procure from the Aillage Societies registered /ith each Union0 ?CMM: distri,utes its
products through third party distri,ution depots that are managed ,y distri,utors /ho are exclusi-e
to ?CMM:0 These distri,utors are also responsi,le for ser-icing retail outlets all o-er the country0
?CMM: sales staff manages this process0 "etailing of ?CMM:1s products ta2es place through the
:MC? retail net/or2 in +ndia most of /hom are small retailers0 i7uid mil2 is
distri,uted ,y -endors /ho deli-er mil2 at homes0 Since $999. ?CMM: has started /e, ,ased
ordering facilities for its customers0 A /ell)defined supply chain has ,een de-eloped to ser-ice
customers /ho order in this manner0
#perations & Supply Chain Mana"e'ent
As mentioned earlier. the strategy. design and practices in AMU1s net/or2 are strongly dri-en ,y
the o,jecti-e of esta,lishing and operating an efficient supply chain from mil2 production and
procurement to product deli-ery to customers0 Management of this net/or2 is ,uilt around t/o 2ey
elements @ 5a6 coordination of the di-erse elements of the net/or2 and 5,6 use of appropriate
technology that includes product. process and information technology and managerial practices and
systems0 +n /hat follo/s. /e descri,e -arious features of these elements that ha-e contri,uted to
the e-olution of an efficient supply chain0
Coordination for Competitiveness
"o,ust coordination is one of the 2ey reasons for the success of operations in-ol-ing such an
extensi-e net/or2 of producers and distri,utors at ?CMM:0 Some interesting mechanisms exist for
coordinating the supply chain at ?CMM:0 These range from ensuring fair share allocation of
,enefits to -arious sta2eholders in the chain to coordinated planning of production and distri,ution0
More importantly. the reason for setting up of this cooperati-e is not amiss to any one in this large
net/or2 organi4ation0 Employees. third part ser-ice pro-iders. and distri,utors are constantly
reminded that they /or2 for the farmers and the entire net/or2 stri-es to pro-ide the ,est returns to
the farmers. the real o/ners of the cooperati-e0 +t may ,e remem,ered that coordination
mechanisms ha-e to lin2 the li-es and acti-ities of &0$& million small suppliers and '0* million
retailersC
There appear to ,e t/o critical mechanisms of coordination that ensure that decision ma2ing
is coherent and that the farmers gain the most from this effort0 These mechanisms are:
+nter)loc2ing Control
Coordination Agency: Uni7ue "ole of :ederation
+nter)loc2ing Control
Each Aillage Society elects a chairperson and a secretary from amongst its mem,er farmers of good
standing to manage the administration of the AS0 #ine of these chairpersons 5from amongst those
AS affiliated to a Union6 are elected to form the Board of !irectors of the Union0 The Chairperson
of the Union Board is elected from amongst these mem,ers0 The managing director of the Union.
/ho is a professional manager. reports to the chairperson and the ,oard0 All chairpersons of all the
Unions form the Board of !irectors of ?CMM:0 The managing director of ?CMM: reports to its
Board of !irectors0 Each indi-idual organi4ation. the Union or ?CMM:. is run ,y professional
managers and highly trained staff0 +t must ,e pointed that all mem,ers of all the ,oards in the chain
are farmers /ho pour mil2 each day in their respecti-e Aillage Societies0
A 2ey reason for de-eloping such an inter)loc2ing control mechanism is to ensure that the
interest of the farmer is al/ays 2ept at the top of the agenda through its representati-es /ho
constitute the Boards of different entities that comprise the supply chain0 This form of direct
representation also ensures that professional managers and farmers /or2 together as a team to
strengthen the cooperati-e
&*
0 This helps in coordinating decisions across different entities as /ell as
speeding ,oth the flo/ of information to the respecti-e constituents and decisions0
Coordination Agency: Uni7ue "ole of the :ederation
+n addition to ,eing the mar2eting and distri,ution arm of the Unions. ?CMM: plays the role of a
coordinator to the entire net/or2 /ithin the State @ coordinating procurement re7uirements /ith
other :ederations 5in other states6. determining the ,est production allocation for its product mix
from amongst its Unions. managing inter)dairy mo-ements. etc0 +t /or2s /ith t/o -ery clear
o,jecti-es: to ensure that all mil2 that the farmers produce gets sold in the mar2et either as mil2 or
as -alue added products and to ensure that mil2 is made a-aila,le to an increasingly large sections
of the society at afforda,le prices0 +n addition. it has to plan its production at different Unions in
such a /ay that mar2et re7uirement matches /ith uni7ue strengths of each Union and that each of
them also gets a fair return on its capacity0 +n this regard. ?CMM: follo/s an interesting strategy0
?CMM:. in consultation /ith all the Unions. decides on the product mix at each Union location0
Some considerations that go-ern this choice are the strengths of each Union. the demand for -arious
products in its region as /ell as the country. long term strategy of each Union. procurement -olumes
at different Unions. distri,ution costs from -arious locations etc0 !emand for daily products and
supply of mil2 -ary /ith the season0 :urther. demand and supply seasons run counter to each other
ma2ing the planning pro,lem more complex0 +n ma2ing allocations to Unions. ?CMM: is guided
,y t/o main o,jecti-es @ 5i6 maximi4ing the net/or2 surplus. and 5ii6 maintaining e7uity among
unions for the surplus reali4ed0 +n this regard. -ery often ?CMM: is /illing to sacrifice reali4a,le
surplus and allocate products to Jless efficientK Unions in order to achie-e ,etter ,alance in
surpluses accruing to the Unions0
Technology for Effectiveness
Ser-ice to customers re7uired the follo/ing: ,etter and ne/er JproductsK. JprocessesK that /ould
deli-er the lo/ cost ad-antage to the net/or2 and JpracticesK that /ould ensure high producti-ity
and deli-ery of the right product at the right time0 Thus technology or 2no/ledge that /as em,odied
in products. processes. and practices ,ecame an important factor in deli-ering effecti-eness to the
net/or2 of cooperati-es0 3ne distinguishing feature of AMU 5in comparison /ith other similar
cooperati-es glo,ally6 is the large -ariety in their product mix0 Producing them not only re7uires
di-erse s2ills ,ut also 2no/ledge of different types of processes0 AMU dairy led the /ay in
de-eloping many of these products and esta,lishing the processes for other mem,er Unions0
E7ually impressi-e are the achie-ements on process technology0 Bhile se-eral continuous
inno-ations to e7uipment and processes ha-e ,een done at AMU. the most significant one has
,een the de-elopment of processes for using ,uffalo mil2 to produce a -ariety of end products0
?ujarat 5and most of +ndia6 is a ,uffalo predominant area0 As more farmers joined the cooperati-es.
the need to de-elop a mechanism for storage of increasing 7uantities of mil2 ,ecame intense0
Moreo-er. the cooperati-e /as esta,lished on the promise that it /ould ,uy any 7uantity of mil2
that a mem,er farmer /anted to sell0 The need to store mil2 in po/der form increases as excess
mil2 7uantities in /inter seasons could then ,e used in lean summer seasons0 Moreo-er. demand for
li7uid mil2 /as not gro/ing along /ith gro/th in mil2 production0 #o technology. ho/e-er. existed
/orld/ide to produce po/der from ,uffalo mil20 Engineers at AMU successfully de-eloped a
commercially -ia,le process for the same @ first time in the history of glo,al diary industry0
Su,se7uently. it also de-eloped a process for ma2ing ,a,y food out of this mil2 po/der0 +t has also
de-eloped a uni7ue process for ma2ing good 7uality cheese out of ,uffalo mil2 there,y con-erting a
percei-ed lia,ility into a source of comparati-e ad-antage @ the tas2 /as done through process
technology research0 Most of its plants are state of art and automated0 Similar efforts in the area of
Jem,ryo transfer technologyK ha-e helped create a high yield ,reed of cattle in the country0
AMU1s inno-ations in the areas of energy conser-ation and reco-ery ha-e also contri,uted to
reduction in cost of its operations0 AMU also indigenously de-eloped a lo/ cost process for
pro-iding long shelf life to many of its perisha,le products0
TLM at the grassroots has ,een a strong mo-ement to de-elop leadership. operational and
strategic capa,ilities in the entire net/or2 @ farmers. -illage cooperati-es. dairy plants. distri,utors
and /holesalers and retailers0 ;ey elements of this TLM mo-ement ha-e ,een:
:riday !epartmental Meetings: Each :riday. at a prescri,ed time. e-ery one in the net/or2
5from the farmers to the carry < for/arding agents6 joins their respecti-e departmental meeting
to discuss 7uality initiati-es and share policy related information0
Training for Transformational eadership so that indi-iduals are a,le to control their thoughts.
feelings and ,eha-ior and ta2e more responsi,ility in one1s life and surrounding en-ironment0
Application of 8oshin ;anri principles to ,ring a,out a ,ottom)up setting of o,jecti-es @
aligning policies for effecti-e management of Unions < -illage societies on hand /ith those of
channel mem,er on the other hand0 +S3%8ACCP certification /as o,tained for all the Unions
and each -illage society is in the process of o,taining the same0
Training for farmers and their families emphasi4ing the need for good health care for not only
cattle during its pregnancy and feeding ,ut also for expecting and feeding mothers and the
/hole family0 This effort has ,rought a,out a significant social change to/ards such issues in
-illages that ha-e cooperati-e mil2 societies0
"etail Census: ?CMM: underta2es a census of all retail outlets 5o-er *''.'''6 to e-aluate
customer perceptions and distri,ution efficacy of their net/or20 +nterestingly. this is ,eing done
,y /holesalers in their respecti-e territories at their o/n cost0 This information is used for
policy deployment exercise0
The extent of +T usage includes a B&C ordering portal. an E"P ,ased supply chain planning
system for the flo/ of material in the net/or2. a net ,ased dairy 2ios2 at some -illage societies 5for
dissemination of dairy related information6. automated mil2 collection stations at -illage societies
and a ?+S ,ased data net/or2 connecting -illages societies to mar2ets0 Mil2 collection information
at more than $'.''' -illages is a-aila,le to all dairies 5or Unions6 to ena,le them ma2e faster
decisions in terms of production < distri,ution planning. and disease control in more than
>.F''.''' animals0 Similarly. this is lin2ed /ith information at all =* distri,ution offices and (9''
distri,utors0 This net/or2 is ,eing extended to co-er all related field offices in the net/or20 The
?CMM: cy,er store deli-ers AMU products at the doorsteps of the consumers in $&* cities across
the country0
Bhat is remar2a,le a,out the a,o-e is implementation of -ery contemporary practices in
rural areas /here ,oth education and infrastructure are generally lo/0 3ne of the 2ey sources of
competiti-e ad-antage has ,een the a,ility of the cooperati-e to continuously implement good
practices across all elements of the net/or2 @ the federation. unions. -illage societies and the
distri,ution channel0 Bhether it is implementation of small group acti-ities or 7uality circles at the
federation or SPC and TLM at the Unions or house2eeping and good accounting practices at the
-illage societies le-el. the net/or2 has de-eloped -ery interesting /ays of rolling out impro-ement
programmes across different entities0 Bhile these programs may not ,e -ery uni7ue. the scale is
impressi-e0 3ne of the 2ey strengths of ?CMM: < AMU can surely ,e characteri4ed as
de-elopment of processes that allo/ them to implement these practices across a large num,er of
mem,ers0
Growth and Challen"es
:rom its inception /ith the formation of its first mil2 cooperati-e. AMU net/or2 has sustained an
impressi-e gro/th rate for more than *' years culminating in the emergence of +ndian dairy
industry as the /orld1s leading mil2 producer0 8o/e-er. it is unclear /hether AMU1s strategy and
practices that ha-e /or2ed /ell for long can maintain this gro/th trajectory in a changing
en-ironment /ith glo,ali4ation and increased competition0 +n this section /e descri,e some of
AMU1s initiati-es and discuss ,riefly opportunities for gro/th and challenges that need to ,e
o-ercome0
AMU1s gro/th during the past fi-e decades has ,een fuelled primarily ,y gro/th in mil2
supply /ith corresponding pricing strategy to generate demand0 This gro/th has ,een sustained ,y
a t/o)pronged strategy @ 5a6 gro/th in the num,er of mem,er farmers ,y /idening its co-erage
/ith more -illage societies and increasing the mem,ership in each society. and 5,6 gro/th in per
capita mil2 supply from its mem,ers0 This gro/th is achie-ed ,y increasing mil2 yields and ,y
helping mem,ers raise their in-estments in cattle0 +t is /orth noting that AMU has funded these
support acti-ities from its earnings 5instead of repatriating them to the mem,ers either as di-idends
or /ith a higher procurement price60 +t is expected that AMU1s gro/th in the immediate future /ill
continue to rely on this strategy0 8o/e-er. in the ne/ emerging en-ironment. se-eral challenges
ha-e ,ecome apparent and AMU net/or2 needs to e-ol-e proacti-e mechanisms to counter these
threats0 :irst. competitors are cutting into mil2 supply ,y offering marginally higher procurement
prices there,y challenging the practice of pro-ision of ser-ices for long)term gro/th in lieu of
higher prices in the short)term0 Second. for a section of its mem,ership. dairy acti-ity is a stepping)
stone for up/ard mo,ility in the society0 Typically. such mem,ers mo-e on to other occupations
after raising their economic position through mil2 production0 As a result. AMU is una,le to
reali4e the full ,enefits of its long)term strategy. and finds ne/ mem,ers 5mostly marginal farmers6
to replace those /ho ha-e higher potential and capacity0 Bhile this is a /elcome
de-elopment for the society as a /hole. it is unclear /hether AMU /ould ,e a,le to sustain it in
the light of increased competition0
By progressi-ely increasing the share of higher -alue products AMU has ,een a,le to gro/
at a faster rate than the gro/th in mil2 supply0 AMU has ,een rather cautious in implementing this
strategy and has al/ays ensured retention of its customer ,ase for li7uid mil2 and lo/ -alue
products0 Bith slo/do/n in the gro/th of mil2 supply this strategy is li2ely to come under pressure
and AMU /ill ,e forced to ma2e some hard choices0 More important. it is fairly clear that its lo/
price. cost efficient strategy may not ,e appropriate for the high -alue segment0 Thus. AMU may
ha-e to adopt a dual strategy specific to its target mar2ets. /hich in turn may lead to dilution in
focus0
A part of AMU1s gro/th has come from di-ersification into other agri)products such as
-egeta,le oils. instant foods etc0 +n some of these initiati-es AMU adapted its successful
cooperati-e organi4ation structure. ,ut the experience to date has ,een some/hat mixed0 More
recently. the net/or2 is exploring con-entional joint -enture arrangements /ith suita,le partners for
di-ersification into areas such as fast food and speciality chocolates0 Bhile it is too early to assess
the success of these -entures. challenges in-ol-ed are ,ecoming 7uite -isi,le0 :or example.
di-ersification has resulted in expansion of the net/or2 /ith disparate elements. each moti-ated ,y
their o/n o,jecti-es0 This in turn has led to a lac2 of focus /ithin the net/or2 and dilution in the
commonality of purpose0 These de-elopments are li2ely to ha-e serious implications for
coordination and control in the net/or20 More important. shared -ision and common goal /as one
of the main plan2s of AMU1s gro/th during the past *' years. and its dilution is li2ely to ad-ersely
impact the net/or2 performance0
Conclusion
+t is /ell recogni4ed that mar2ets that are fragmented or producers that are too small to ,uild
competiti-e infrastructures or those /ho are una,le to manage technological changes in their
operational processes /ould ,enefit the most through a cooperati-e organi4ation0 Conse7uently a
large num,er of cooperati-es ha-e ta2en roots amongst producers of food 5especially those that are
perisha,le60 8o/e-er. there are interesting cooperati-e formations in +ndia and China that are
starting to emerge amongst small producers in auto)components 5especially those ser-ing the
replacement mar2ets6. amongst small scale dyeing communities and the po/er)loom operators in
the textile industry0 +n these cases. the producers are coming together to de-elop a common ,rand
that is ,ased on stringent 7uality certifications that /ould distinguish them from other small
producers and for usage of common property resources0 The example of AMU pro-ides a num,er
of lessons for such organi4ations to compete successfully in the face of increasing glo,ali4ation and
competition0 More generally. the AMU case presents a successful model for operating in emerging
economies characteri4ed ,y either large under)de-eloped suppliers and%or mar2ets /ith high
potential0
The largest segment of the mar2et in emerging economies desires -alue for money from its
purchases0 !e-elopment of such mar2ets re7uires careful nurturing and a long)term approach0
+nitial success in these mar2ets is typically ,ased on a lo/ price strategy 5pro-iding -alue for
money6 supported ,y cost leadership0 This strategy helps to gro/ the mar2et exponentially ,y
focusing on the largest segment of the population. the middle and the lo/er middle class0 +n this
context. it is important for glo,al players to note that the -alue proposition percei-ed ,y consumers
is influenced to a large extent ,y the state of mar2ets and the economy and cultural factors0
!e-elopment of an appropriate -alue proposition suita,le for large mass mar2ets in +ndia re7uires a
thorough understanding of the en-ironment and a focus on costs0 This in turn. re7uires designing the
organi4ation structure and practices in a manner that it deli-ers continued mar2et share through cost
leadership0 AMU is a good example of this strategy0 :irms that are a,le to de-elop control
processes through ,etter use of operational practices and supply chain coordination are the ones that
are a,le to ser-e large -olumes and enjoy top line gro/th in re-enues0
!e-elopment of suppliers li2e/ise re7uires nurturing /ith a long)term perspecti-e0 +t is
interesting to note that this /as achie-ed ,y AMU through a process of education and social
de-elopment acti-ities ) acti-ities that are not usually considered to ,e standard ,usiness practices0
This type of Mout of the ,ox1 -ision is essential for de-eloping inno-ati-e mechanism in ne/.
unfamiliar en-ironments /here ,uilding of relationship /ith consumers goes much ,eyond
mar2eting messages and useful product offerings0
En-ironments /ith underde-eloped mar2ets and suppliers 5as in the case of AMU6 add one
more dimension of complexity relating to the relati-e pace of gro/th of these t/o areas0 Through its
pricing strategy. AMU has ,een a,le ,alance the gro/th in mar2ets and suppliers and has achie-ed
some degree of synchroni4ation0 3ther/ise. gaps ,et/een demand and supply /ould re7uire
complementary strategies0
The AMU example is also instructi-e for multinational companies and others
contemplating operations in emerging mar2ets ,y ta2ing ad-antage of the local small and medium
enterprises0 +n such cases large ,usinesses are ,uilt ,y forging lin2ages /ith these enterprises
there,y changing the ,oundaries of the entering firm0 Such a partnership reduces the operational
ris2 /hile pro-iding a credi,le source of understanding the ,eha-iour of the consumer through the
experience of partners0 +t also pro-ides operational flexi,ility and ma2es the net/or2 responsi-e to
changes /ithin and outside0 To ,e effecti-e it is important that decision)ma2ing ,e decentrali4ed to
the extent possi,le. /ith appropriate coordination mechanisms to ensure consistency in the system0
The leadership of such organi4ations ha-e al/ays ,een larger than life and ha-e ,een seen to play
an important role in the ,uilding of the society e-en today0
:irms that are a,le to o-ercome the hesitation of deploying +T for achie-ing operational
excellence in emerging economies gain considera,ly from its net/or2 effect0 Most firms either
automate decision ma2ing to such an extent that it eliminates local initiati-es 5as many SAP
implementations in +ndia are finding out that it has added more rigidity in decision ma2ing as
opposed to using it in conjunction /ith a more flexi,le JtelephoneK mode of communicating6 or use
manual systems that lead to inaccurate data ,ased decision)ma2ing0 Bhat /or2s ,est is +T for
information sharing and e-aluating complex tradeoffs /hile ma2ing decisions locally0 Net another
strong trend in these economies is to use +T for managing the interface ,et/een the mar2et and the
supplier of goods and ser-ices0
+n this article. using the example of AMU. /e ha-e presented a ro,ust ,usiness model for
operating in large emerging economies characteri4ed ,y underde-eloped mar2ets. infrastructure and
suppliers0 Cooperati-e net/or2 /ith interloc2ing arrangement as in ?CMM: is one example of
success in managing such complex supply chain0 3f course. the long)term challenge in such cases is
to ,ring more mem,ers into the net/or2 and increase their capa,ilities0
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