Amul: Deary Cooperative in India Essay

AbstractIn this paper we describe a case study of a dairy concerted, AMUL, in western India that has developed a successful cast for doing business in long emerging economy. It has been primarily answerable, done its innovative practices, for India to money in ones chips lands man-sizedst producer of draw. A subset of strategies fol lowed by AMUL would understood be truly useful. Thus, firms that are contemplating addressing large undeveloped markets or have an intention of taking receipts of extensive but fringy supplier base would still benefit.IntroductionThe Kaira District Cooperative Milk Producers total Limited was established on December 14, 1946 as a response to exploitation of marginal take bug out producers in the city of Anand (in Kaira district of the western show of Gujarat in India) by traders or agents of existing dairies. Producers had to travel vast distances to deliver milk to the only dairy, the Polson dairy in Anand often milk went sour, espec i eachy in the summer season, as producers had to physic aloney carry milk in individual containers. These agents decided the prices and the off-take from the sodbusters by the season. Milk is a commodity that has to be coded double a day from each(prenominal) cow/buffalo. In winter, the producer was either left with surplus unsold milk or had to sell it at actually low prices. Moreover, the government at that time had given(p) monopoly rights to Polson Dairy (around that time Polson was the most well known butter brand in the rustic) to collect milk from Anand and supply to Bombay city in bend (about 400 kilometers away). India ranked nowhere amongst milk producing countries in the world in 1946.The producers of Kaira district took advice of the nationalist leaders, Sardar Vallabhbhai Patel (who later became the starting time Home Minister of free India) and Morarji Desai (who later become the Prime Minister of India). They advised the farmers to form a cooperative and supply directly to the Bombay Milk intrigue instead of selling it to Polson (who did the equal but gave low prices to the producers). Thus the Kaira District Cooperative was established to collect and passage milk in the district of Kaira. Milk collection was as well decentralized, as most producers were marginal farmers who would deliver 1-2 litres of milk per day. colonisation direct cooperatives were established to organize the marginal milk producers in each of these closures. The first modern dairy of the Kaira Union was established at Anand (which popularly came to be known as AMUL dairy after its brand name). The new plant had the capacity to pasteurise 300,000 pounds of milk per day, manufacture 10,000 pounds of butter per day, 12,500 pounds of milk powder per day and 1,200 pounds of casein per day.Indigenous R&D and technology increment at the Cooperative had led to the successful ingatheringion of skimmed milk powder from buffalo milk the first time on a commercial sca le anywhere in the world. The foundations of a modern dairy industry in India had just been laid as India had one of the largest buffalo populations in the world. We move to social class 2000. The dairy industry in India and particularly in the tell apart of Gujarat looks very different. India has emerged as the largest milk producing country in the world. Gujarat emerges as the most successful State in terms of milk and milk product ware through its cooperative dairy movement. The Kaira District Cooperative Milk Producers Union Limited, Anand becomes the focal call for of dairy development in the entire region and AMUL emerges as one of the most accepted brands in India, ahead of many international brands.Starting with a single shared plant at Anand and twain village cooperative societies for milk procural, the dairy cooperative movement in the State of Gujarat had evolved into a profit of 2.12 million milk producers (called farmers) who are nonionised in 10,411 milk collec tion self- fitting cooperatives (called Village Societies). These Village Societies (VS) supply milk to thirteen independent dairy cooperatives (called Unions). AMUL is one such Union. Gujarat Cooperative Milk selling compact or GCMMF is the marketing entity for products of all Unions in the State of Gujarat. GCMMF has 42 regional distribution centers in India, serves over 500,000 sell outlets and exports to more than 15 countries. All these arrangings are independent legal entities yet generally tied together with a common destiny. In a recent survey GCMMF was ranked amongst the crystallise ten FMCG firms in the country while AMUL was rated the second most recognized brand in India amongst all Indian and MNC offerings.2nd PhaseIn 1966, Amul hired Sylvester daCunha, then managing director of the advertising agency AS to design a new ad campaign for Amul Butter. daCunha designed an add campaign as serial publication of hoardings with topical ads, relating to day-to-day issues. 14The campaign was widely popular and earned a Guiness world record for the yearlong running ad campaign in the world. Since the 1980s, cartoon artist Bharat Dabholkarhas been involved with sketching the Amul ads, who rejected the trend of employ celebrities in advertisement campaigns. Despite encountering political pressure on several occasions, daCunhas agency has feed it a policy of non backing down.Some of the more controversial Amul ads include one commenting on Naxalite uprising in West Bengal, on the Indian Airlines employees strike, and the one depicting the Amul butter girl have on a Gandhi cap. Amul hired DraftFCB+Ulka for the brands of Amul milk, chocolates, paneer, ghee, ice-cream. The establishment of Amul is in addition known as White Revolution. The White Revolution of India godly the nonable Indian film-makerShyam Benegal to base his film Manthan (1976) on it. The White Revolution ushered an era of plenty from a measly amount of milk production and distributi on. Aside from the great measurable success that this project was, it also demonstrated the power of collective might. A small set of poor farmers of Kheda district in Gujarat had the mental imagery and foresight to act in a way that was good for the society and not for the self-importance alone.There have been several factors driving the restructuring of the dairy business (which has chiefly been organized around cooperative principles). These include efficiencies in managing fewer large plants versus a number of under-utilized small plants, need for more milk supply (and declining membership), need to offer wide variety, improvements in trucking & milk handling thereby facilitating long hauls, opening of new international markets (also markets for new products), seeking marketing clout and need to bring enthronement from outside the cooperatives. AMUL in India has learnt from many experiences and has been influenced by practices in dairies around the world especially in its con structive years. It has, however, formed it own organizational structure (i.e., AMUL is a cooperative of village cooperatives) to bring about a change in the lives of marginal farmers of India. The AMUL experience has attracted considerable interest from the development community predominantly anthropologists, development & agriculture economists, and political scientists.Key areas of their enquiry have been the role of AMUL in reducing social and economical inequality in the region of the cooperative, the sociology of cooperation, interface of the dairy cooperative and the rural power structure, relation of the State and the Cooperative and the role of government in its growth (interestingly, AMUL has successfully managed to exercise its independence from the government different separate cooperatives in India), elements & replicability of the cooperative movement at Anand, cost effectiveness of subsidies to AMUL (in its initial years) etc. A few studies have evaluated the ope rational effectiveness of the operations at AMUL. Studies have reported usage of industrious veteran dispensaries, wireless sets to link mobile units to service centers as early 1951, developing a political program of cross breeding of cows in early 1970s etc. that have led to a phenomenal rise in productivity of milk (Patel, 1988).AMULs Journey towards ExcellenceAMULs journey towards excellence is marked by some critical understanding of the business environment in large emerging economies like India where markets have to be developed by combining efficiency think initiatives with change magnitude the base of marginal suppliers and consumers. The essence of AMULs efforts were as follows It combined market and social development in an emerging economy. It recognized the inter-linkages between discordant environments that governed the lives of marginal milk farmers and the unmet needs of consumers. It also changed the supply compass paradigm in request to reduce the cost to the consumer while increasing the re invert to the supplier. It completed that in order to achieve their verifiables, it had to benefit a large number of mass both suppliers and consumers. While large scale had the danger of failure due to poor control and require more resources, it also had the advantage of creating a momentum that would be necessary to bring more tidy sum into the fold and thereby economic aid more suppliers and consumers. It also realized that its goal could only be achieved in the long run and this required developing fosters in people and processes that were robust, replicable and transparent. It also realized that the cooperative would not be independent and viable in the face of competition if it were not financially sound.LeadershipWhile Kaira Union (or AMUL) had the avow of national leaders who were at the forefront of the Indian independence movement, its local leaders were trained in Gandhian simplicity and had their feet rooted firmly amongst people whom they had mobilized the poor farmers of Anand. The foremost amongst them was Tribhuvandas Patel who had led the movement for the governance of cooperatives of small and marginal farmers in order to compete against investor owned enterprises on one hand, and keep bureaucracy away on the opposite hand. Tribhuvandas was the first Chairman of the cooperative. His skills lay in organizing the village producers, in making them believe in the power of cooperation and their rights towards improvement of human condition. He is remembered as fair and honest person whose highest sense of accountability to the members of the union laid the foundation of trust between net members. Another all- eventful(prenominal) aspect of his remarkable management style was his gentleness and ability to repose trust in people he gave complete autonomy to charabancs of the union and earned complete commitment from them. Verghese Kurien was one such manager who would, first, shape the destiny of the Union and then the milk movement throughout the country.Several young people left better paying jobs to help create a dream of making India the milk swell of the world. Kurien had learnt the persuasive charm of Tribhuvandas through plain speaking and had soon created a cadre of highly open managers to whom he had delegated both management as well as commitment. These leaders were created at the village, district and arouse levels in different organizations of the cyberspace. Tribhuvandas knew that his fledgling cooperative needed a technocrat manager who shared his guardianship for the farmers and also had the tenacity to organize marginal producers. Convincing farmers to join the cooperative required commitment bordering on stubbornness, a can do attitude and a desire to change lives of poor people. Verghese Kurien had those skills and had linkages to the government. He was charismatic in his communication and committed in his effort. Over a period of time, he develope d a very close link with the poor farmers who, as he always says, were his employers at the cooperative.He would travel through the villages on with Tribhuvandas and work out the details of how the milk collection cooperative would work, how trucks would pickup milk from village societies, how the cattle would have to be taken care of and how all of this would help the poor milk farmer come out of poverty and the clutches of the middleman. Operational details were meticulously planned and executed. And then, he along with two of his close associates would work on the design of the dairy plant including conducting experiments to create powder out of buffalo milk a task that was ridiculed by all who heard of it including the international aid agencies in the dairy industry. Tribhuvandas and Kurien were able to convince the government also of the appreciate of his efforts and secured funding for several projects of the cooperative. Kuriens biggest faculty lay in his ability to conv ince people that the cause of rural farmers was important so establishing an important shared value. Subsequently, he could convince the government to replicate the AMUL model in almost all give ins of the country. strategyAMULs business strategy is driven by its twin objectives of (i) long-term, sustainable growth to its member farmers, and (ii) value proposition to a large customer base by providing milk and other dairy products a low price. Its strategy, which evolved over time, comprises of elements depict below. Simultaneous Development of Suppliers and Customers From the very early stages of the formation of AMUL, the cooperative realized that sustained growth for the long-term was contingent on matching supply and demand. Further, given the primitive state of the market and the suppliers of milk, their development in a coincident manner was critical for the continued growth of the industry. The organization also recognized that in view of the poor infrastructure in India, such development could not be left to market forces and proactive interventions were required. Accordingly, AMUL and GCMMF adopted a number of strategies to assure such growth.For example, at the time AMUL was formed, the vast majority of consumers had limited purchasing power and was value conscious with very low levels of consumption of milk and other dairy products. Thus, AMUL adopted a low price strategy to make their products affordable and guarantee value to the consumer. The success of this strategy is well recognized and remains the main gameboard of AMULs strategy even today. To summarize, the dual strategy of simultaneous development of the market and member farmers has resulted in parallel growth of demand and supply at a steady pace and in turn assured the growth of the industry over an extended period of time.Cost Leadership AMULs objective of providing a value proposition to a large customer base led naturally to a choice of cost leading position. Given the low purc hasing power of the Indian consumer and the marginal discretionary spending power, the only viable option for AMUL was to price its products as low as possible. This in turn led to a focus on costs and had significant implications for managing its operations and supply chain practices (described later). focussing on Core Activities In view of its small beginnings and limited resources, it became clear fairly early that AMUL would not be in a position to be an integrated player from milk production to oral communication to the consumer. Accordingly, it chose a strategy to focus on event dairy activities and rely on third parties for other complementary needs. This philosophy is reflected in almost all phases of AMUL communicate spanning R&D, production, collection, processing, marketing, distribution, retailing etc. For example, AMUL pore on processing of runniness milk and conversion to variety of dairy products and associated research and development.On the other hand, logist ics of milk collection and distribution of products to customers was managed through third parties. However, it played a proactive role in making hold up services available to its members wherever it found that markets for such services were not developed. For example, in the initial stages, its small and marginal member farmers did not have access to finance, veterinary service, knowledge of radical animal husbandry etc. Thus to assure continued growth in milk production and supply, AMUL actively sought and worked with partners to provide these required services.Managing Third Party Service Providers Well before the ideas of core competence and the role of third parties in managing the supply chain were recognized and became fashionable, these concepts were practiced by GCMMF and AMUL. From the beginning, it was recognized that the core activity for the Unions lay in processing of milk and production of dairy products. Accordingly, the Unions focused efforts on these activities a nd related technology development. Marketing efforts (including brand development) were assumed by GCMMF.All other activities were entrusted to third companionship service providers. These include logistics of milk collection, distribution of dairy products, sale of products through dealers and retail stores, some veterinary services etc. It is worth noting that a number of these third parties are not in the organized sector, and many are not professionally managed. Hence, while third parties perform the activities, the Unions and GCMMF have developed a number of mechanisms to retain control and assure quality and timely deliveries (see the sub-section on Coordination for Competitiveness later in the paper for more details). This is particularly critical for a perishable product such as liquid milk.Financial Strategy AMULs finance strategy is driven primarily by its desire to be self-reliant and thus depend on internally generated resources for funding its growth and development. T his choice was motivated by the relatively underdeveloped financial markets with limited access to funds, and the reluctance to depend on Government support and thus be obliged to cede control to bureaucracy. AMULs financial strategy may thus be characterized by two elements (a) retention of surplus to fund growth and development, and (b) limited/ no credit, i.e., all transactions are essentially cash only.For example, payment for milk procured by village societies is in cash and within 12 hours of procurement (most, however, pay at the same time as the receipt of milk). Similarly, no slayes of finished products are made without advance payment from distributors etc. This was particularly important, given the limited liquid state position of farmer/suppliers and the absence of banking facilities in rural India. This strategy strongly helped AMUL implement its own vision of growth and development. It is important to mention that many of the above approaches were at variance with in dustry practices of both house servant and MNC competitors of AMUL.OrganizationAMUL is organized as a cooperative of cooperatives (i.e., each village society, a cooperative in itself, is a member of the AMUL cooperative) thereby deriving the advantage of scale and uniformity in decision making. The founders of Kaira Union realized that to fulfill their objectives, a large number of marginal farmers had to benefit from the cooperative a communicate of stakeholders had to be built. And once built, it had to grow so as to draw more rural poor to abridge dairy farming as a means of livelihood. The network had to have several layers the organizational network where the voice of the owners governed all decisions, a physical network of support services and product delivery process and a network of small farmers that could deliver the benefit of a large corporation in the market place. More importantly, a process had to be put in place to build these networks. Building an organizational network that would represent the farmers and the customers was the most complicated task.A loose confederation was developed with GCMMF representing the voice of the customers, the Unions representing the milk processors and the village societies representing the farmers. Competition in the markets ensured that the entire network was responding to the requirements of the customers at prices that were very competitive. The task of ensuring that returns to the farmers was commensurate with the objectives with which the cooperatives were frame-up was achieved through representation of farmers at different levels of decision making throughout the network the board of directors of societies, Unions and the Federation comprised farmers themselves. In order to ensure that most returns from sales went to the producers, the intermediaries had to operate very effectively and on shave thin margins. This turned out to be a blessing in disguise the operations remained very lean and started t o provide cost based advantage to the entire network. AMUL established a group to govern the process of organizing farmers into village societies.In addition to establishing the criteria for selecting members, the group had to train the VS to run the cooperative democratically, profitably and with concern for its members. This included establishing procedures for milk collection, testing, payment for milk purchased from member farmers and its subsequent sale to the union, accounting, ensuring timely collection and dispatch of milk on milk routes established by the union, etc. The Village Societies part at AMUL acts as the internal representative of village societies in their dealings with the Union. Cooperative development programmes at the village level for educating & training its members have become an important part of the strategy to build this extensive network. Milk procurement activity at AMUL comprises development and servicing of village societies, increasing milk collec tion, procurement of milk from societies & its carry-over to the chilling locations, and resolving problems of farmers and village societies. Their stated objective is to ensure that producers get maximum benefits.The Village Societies Division coordinates these activities. Milk collection takes place over a large number of pre-defined routes according to a hairsplitting timetable. The field staff of this division also help village societies interface with the Union on various issues ranging from improvement of collection, resolving disputes, repair of equipments to obtaining financing for purchase of equipment etc. In addition, they are also responsible for the formation of new societies, which is an important activity at AMUL. In essence, the organization structure of AMUL allows effective work of resources without losing the democratic aspiration of individual members. It is obvious that such a system needs charismatic leadership to achieve consensus across issues a process t hat has long-term benefits for any organization.MarketingGCMMF is the marketing arm of the network and manages the physical delivery and distribution of milk and dairy products from all the Unions to customers. GCMMF is also responsible for all decisions related to market development and customer management. These activities, which range from long-term planning to medium-term and short-term operational decisions are described below. As mentioned earlier, introduction of new products and choice of product mix and markets should be consistent with the growth strategy, and synchronous with growth in milk supply. GCMMFs demand growth strategy may be characterized by two key elements (i) developing markets for its high value products by graduating customer segments from low value products, and (ii) maintaining a healthy level of customer base for its base products (low value segment). This strategy often requires GCMMF to allocate sufficient quantity of milk supply to low value products, thereby sacrificing additional profits that could be generated by converting the same to high value products.Interestingly, advertisement & promotion (a la FMCG) was not considered to be enough of value addition and hence the budget was kept relatively small. Instead, GCMMF preferred a lower price with furiousness on efficiency in advertising. In this context, GCMMF provides umbrella branding to all the products of the network. For example, liquid milk as well as various milk products produced by different Unions are sold under the same brand name of AMUL. Interestingly, the advertising has centred on building a common identity (e.g., a golden & healthy cartoon AMUL girl) and evoking national emotion (e.g., the key advertising slogan says AMUL The Taste of India). GCMMF also plays a key role in working with the Unions to coordinate the supply of milk and dairy products.In essence, it procures from octuple production plants (the thirteen Unions), which in turn procure from the V illage Societies registered with each Union. GCMMF distributes its products through third companionship distribution depots that are managed by distributors who are exclusive to GCMMF. These distributors are also responsible for servicing retail outlets all over the country. GCMMF sales staff manages this process. Retailing of GCMMFs products takes place through the FMCG retail network in India most of whom are small retailers. Liquid milk is distributed by vendors who deliver milk at homes. Since 1999, GCMMF has started web based ordering facilities for its customers. A well-defined supply chain has been developed to service customers who order in this manner.