Sustainability of Co-operatives: AMUL Success Story Part 2

Sun, Aug 4, 2013

Biz Arena

Sustainability of Co-operatives: AMUL Success Story Part 2
What are the objectives of the cooperatives? Can cooperatives work as an organization and yet sustain in the changing market scenario? What determines the success and failures of cooperatives? These kinds of questions have always bothered researches and practitioner of cooperatives across the globe. Because In today’s world we see the hierarchy of command and control is everywhere. Most of the organizations strive for the mechanic structures and major decisions are taken by the upper management and passed to the employees for its implementation. In such world cooperatives have often been formed to protect the rights of the weaker section of the organizations or societies, to redistribute the wealth among the members and improving opportunities for weaker section of the society. Not many cooperatives have been successful to run the entire business itself and yet sustain in the global market against so called business entities (Firms owned by investors). AMUL is exception to that and it offers the interesting management insights of how management can be done through cooperatives and yet achieves economies of scale without any so called Line and staff organization and mechanic structures. Amul is India’s largest cooperatives with annual turnover of 355 Million US $ and 3.18 million members of cooperatives catering to daily Milk requirement of whole India. Let us look at the different management aspects of Amul one by one.
Organization:
Amul has developed organization representing not only the farmers but also customers thus securing both Demand and supply side of the milk industry. Three different bodies were set up. GCMMF was set up for marketing activities and it represents customer, the unions represent Milk processors and the village societies represent farmers. To ensure farmers get fair share of returns, farmers are given positions at different levels of decision making throughout the network. The board of directors of societies, Unions and Federation comprised Farmer themselves. AMUL established a group to standardize the process of organizing farmers into village societies. This group was responsible for selecting members, training Village societies, establishing procedure for milk collection, testing, Payment for milk purchased from member farmers and ensuring timely collection and dispatch of milk on milk routes established by unions. Milk procurement activities are done by village societies such that milk producers get maximum benefits. Milk collection takes place over a large number of networks on predefined time. Field staff of this division is responsible for interface with unions on various issues like improvement in milk collection, resolving disputes and repair of equipments and financing to farmers for buying new equipments. They are responsible for the formation of new societies which is an important activity at AMUL. Overall complex task of managing both customers and Farmers was broken in to the small cooperatives and societies making the entire operation lean and providing cost benefit to every member of entire supply chain.
Farmers as Decision makers
To ensure interest of famers at first place there is unique way in selection of management team at GCMMF. Each Village Society elects a chairperson and a secretary from amongst its member farmers to manage the administration of the Village societies. Nine of these chairpersons are elected to form the Board of Directors of the Union. The Chairperson of the Union Board is elected from amongst these members. The managing director of the Union, who is a professional manager, reports to the chairperson and the board. All chairpersons of all the Unions form the Board of Directors of GCMMF. The managing director of GCMMF reports to its Board of Directors. Each individual organization, the Union or GCMMF, is run by professional managers and highly trained staff. It must be pointed that all members of all the boards in the chain are farmers who pour milk each day in their respective Village Societies.

Role of GCMMF

GCMMF is primary responsible for distribution of milk and dairy products from unions to the customers. GCMMF follow generally two kind of strategy (1) Development of strong customer base for low valued segments and (2) Introduction of high valued items in developed low valued segments. GCMMF never relies upon heavy advertisement of its product and market all the products under the name of AMUL only. It believes in increasing efficiency of the advertising and not in increasing budget of advertising. All we know about Amul advertisement is of the Cartoon girl who markets product by making fun of recent issues and encouraging people everywhere. This development of common identity is at the core of the GCMMF’s marketing strategy. 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 multiple production plants, which in turn procure from the Village Societies registered with each Union. GCMMF distributes its products through third party 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 GCMMF’s 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.

Use of Latest technology

AMUL has the large variety of product mix and producing them requires diverse skills and different types of processes. Most of the milk AMUL received daily is buffalo milk and supply of it varies according to the season. It is high in winter season whereas less in summer season. On the other hand demand of the milk is almost same in any season. Also cooperatives have been established with aim of purchasing any amount of milk that member want to sell. So sometime Amul has surplus supply of milk and sometime it has less supply of milk demand. Also there was no technology in the world to convert Buffalo milk in to the milk Powder. Engineers at Amul successfully developed commercial viable process for producing milk powder from buffalo milk. It has also developed baby food and cheese from the milk powder. Embryo transfer technology has helped to develop high yield breed of cattle in the country.B2C ordering portal, an ERP based supply chain planning system for the flow of material in the network, a net based dairy kiosk at village societies for taking dairy related information, automated milk collection information at more than 10,000 villages is available for unions to enable them to make faster decisions in terms of production & distribution planning and disease control in animals. Similarly, this is linked with information at all 45 distribution offices and 3900 distributors. This network is being extended to cover all related field offices in the network. The GCMMF cyber store delivers AMUL products at the doorsteps of the consumers in 125 cities across the country. The interesting thing to note here is that most of these technologies are developed in rural area where infrastructure availability and education among the people is very less and in spite of that most of the farmers use these technologies.

Overall AMUL has been successful to develop linkages among cooperatives and develop partnership among Milk Producers, processors and marketers. Such partnerships reduce the operational risk and help to understand the consumer through its reliable partners. It provides flexibility and makes the entire organization responsive to changing environment conditions. Amul model has successfully shown the management through cooperatives and how cooperatives can be used to build larger organization. One can learn many things from this model and apply it in business practices. The approach may be different but message remains same- Building organizations through cooperatives.

References:

1. Baviskar, B.S. (1988) “Dairy Cooperatives and Rural development in Gujarat,” in Who Shares?
2. Heredia, R. (1997) The Amul India Story, Tata McGraw Hill, New Delhi.
3. Kurien, V. (1997) The Unfinished Dream, Tata McGraw-Hill, New Delhi.
4. www.amul.com
5. Amul study by pankaj Chandra and Devnath tirupati

Written by,
Chintan Parikh
MBA Batch 2012-14
IIT Kanpur

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