Sm Project | Retail | Milk

Project Report on Selection and Motivation of Distribution Channels in Amul.

SUBMITTED BY Hemant Bindra FN-6 BATCH NO:SS 2008-10

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
NEW DELHI

THE COMPANY

AMUL means "priceless" in Sanskrit. A quality control expert in Anand suggested the brand name “Amul,” from the Sanskrit “Amoolya,” Variants, all meaning "priceless", are found in several Indian languages. Amul products have been in use in millions of homes since 1946. Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice cream, Nutramul, Amul Milk and Amulya have made Amul a leading food brand in India. (Turnover: Rs. 25 billion in 2002). Today Amul is a symbol of many things. Of high-quality products sold at reasonable prices, of the genesis of a vast co-operative network, of the triumph of indigenous technology, of the marketing savvy of a farmers' organization and have a proven model for dairy development.

List of Products Marketed: Breadspreads:
• •

Amul Butter Amul Lite Low Fat Breadspread

Cheese Range:
• • • • • • •

Amul Pasteurized Processed Cheddar Cheese Amul Processed Cheese Spread Amul Mozarella Cheese Amul Emmental Cheese Amul Gouda Cheese Amul Malai Paneer (cottage cheese) Utterly Delicious Pizza

Mithaee Range (Ethnic sweets):
• • • • •

Amul Shrikhand (Mango, Saffron, Almond Pistachio, Cardamom) Amul Amrakhand Amul Mithaee Gulabjamuns Amul Mithaee Gulabjamun Mix Amul Mithaee Kulfi Mix

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UHT Milk Range:
• • • • • •

Amul Taaza 3% fat Milk Amul Gold 4.5% fat Milk Amul Slim-n-Trim 0% fat milk Amul Chocolate Milk Amul Fresh Cream Amul Snowcap Softy Mix

Pure Ghee:
• •

Amul Pure Ghee Sagar Pure Ghee

Infant Milk Range:
• • •

Amul Infant Milk Formula 1 (0-6 months) Amul Infant Milk Formula 2 ( 6 months above) Amulspray Infant Milk Food

Milk Powders:
• • • •

Amul Full Cream Milk Powder Amulya Dairy Whitener Sagar Skimmed Milk Powder Sagar Tea and Coffee Whitener

Sweetened Condensed Milk:

Amul Mithaimate Sweetened Condensed Milk

Fresh Milk:
• • • •

Amul Taaza Toned Milk 3% fat Amul Gold Full Cream Milk 6% fat Amul Shakti Standardised Milk 3% fat Amul Smart Double Toned Milk 1.5% fat

Curd Products:
• •

Amul Masti Dahi (fresh curd) Amul Butter Milk

Amul Icecreams: 3

• • • • • • • • • • • • • • •

Royal Treat Range (Rajbhog, Cappuchino, Chocochips, Butterscotch, Tutti Frutti) Nut-o-mania range (Kaju Drakshi, Kesar Pista, Roasted Almond, Kesar Carnival, Badshahi Badam Kulfi, Shista Pista Kulfi) Utsav Range (Anjir, Roasted Almond) Simply Delicious Range (Vanilla, Strawberry, Pineapple, Rose, Chocolate) Nature's Treat (Alphanso Mango, Fresh Litchi, Anjir, Fresh Strawberry, Black Currant) Sundae Range (Mango, Black Currant, Chocolate, Strawberry) Millennium Icecream (Cheese with Almonds, Dates with Honey) Milk Bars (Chocobar, Mango Dolly, Raspberry Dolly, Shahi Badam Kulfi, Shahi Pista Kulfi, Mawa Malai Kulfi, Green Pista Kulfi) Cool Candies (Orange, Mango) Cassatta Tricone Cones (Butterscotch, Chocolate) Megabite Almond Cone Frostik - 3 layer chocolate Bar Fundoo Range - exclusively for kids SlimScoop Fat Free Frozen Dessert (Vanilla, Banana, Mango, Pineapple)

Chocolate & Confectionery:
• • •

Amul Milk Chocolate Amul Fruit & Nut Chocolate Amul Eclairs

Brown Beverage:

Nutramul Malted Milk Food

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THE CHANNEL NETWORK
Distribution channel
GCMMF Head office Manufacturing

First leg

(from manufacturing units)

Depot...1

Depot...n

Second leg

WD…1

WD…n

Third leg

Retail…1

Retail...n

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Downstream flow Procurement Channel
Distribution GCMMF Head office

MU…1

MU...n

VCS…1

VCS…n

Village…1

Village…n

Upstream flow 6

SCM AND MARKET LOGISTICS
The network
Milk is procured from the villages and collected at Village Cooperative Societies (VCS), from there the milk is taken to manufacturing units where the milk is processed into various products. The products are then transporters to the company Depots located in various parts of the country. The products are then sent to Wholesale Distributors (WD) and from there to the retailers. The fact sheet • • • • • • • • • • • • Milk is procured twice a day from 2 million from Gujarat alone The payment is made under twelve hours of procurement There are 10000 village cooperative societies There are 3600 wholesale distributors in the country 45 depots The C&F agents are not fixed and are decided by the local company offices There are aproxx. 4,50,000 retailers spread all over India Total house hold consumers covered are 100,000 The milk procured per day is 5 million liters Where the total capacity of operation is 7 million liters per day The peak processing till date has been 6 million liters per day These co operative societies are bound to supply there produce only to GCMMF

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SCM and Market Logistics
Enterprise resource planning: the company at has implemented an ERP program as low as Rs. 3 corers in collaboration with TCS ltd. The company uses it, the data right from the procurement from the farmers till the delivery of goods to the retailers is fed into the system. The software enabling the channel members to use for the synchronized working and best possible utilization of the available resources maintains details regarding the inventory management. Market logistics deals with the implementation of the SCM of the company. Upstream Channel in which milk is procured from the farmers to the manufacturing units. 1. In the first step, the milk is taken to the VCS by the farmers on foot or bicycles in small quantities 2. The second step involves the transportation of milk from the co-operatives to the manufacturing units this is done in special trucks which are equipped with tankers to carry milk. Downstream Channel, it is the distribution part of the supply chain. From the manufacturing units to the retailers. 1. First leg of transport is from the manufacturing unit to the company depots. This is done using 9 and 18 MT trucks any lesser quantity will be uneconomical to the company there fore is some time the quantity ordered is lesser then club loading is done which means that the product ordered is supplied with some other products. a. Frozen food the temperature of these trucks is kept below -18˚C b. Dairy wet the temperature of these trucks is kept between 04˚C 2. Second leg is from the depot to the WD’s, this transport is carried out in insulated 3 and 5 MT TATA 407’s here a permanent dispatch plan (PDP) is prepared where the distributor plans out the quantity of various products to be ordered on a particular date.

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3. Third leg this is the flow of good from WD’s to retailers, a beat plan is prepared and transportation is done on auto-rickshaws, rickshaws and bicycles.

SELECTION, MOTIVATION & EVALUATION OF CHANNEL MEMBERS
Selection:
The company takes into consideration a host of factors while selecting the channel members. This is because GCMMF believes that selection of channel members is a long run decision & the rest of the decision regarding the supply chain depends upon the efficiency & coverage by the channel members. The following are the host of factors considered by the company in selecting the channel members: • • • • Authentication is required by the regarding the identity of the channel members, which includes the name & address, photograph of the location. Proof of solvency which requires name & address of the channel member’s bankers Safety of the inventory, which means that the distributor/ dealer should get the stock of the company insured. Inventory or the perishable goods kept by the distributor/ dealer should be in good condition which means a detail of storage space & Refrigeration facility is to be provided. Refrigeration system should have deep freezers, cold room & walk in coolers. Details of the delivery vehicle, which includes Light Commercial Vehicles, Matador, 3 Wheeler Van, Tricycle Van & Hand/Push cart. The number & model of each of the vehicle needs to be furnished to the company. GCMMF acknowledges the fact that it needs to be sensitive to the market demands. For this it requires that a number of salesmen needs to be present on the field. The salesmen too are divided into various categories like the Field salesmen & Counter salesmen. Also the details of Clerical Staff & Mazdoors are to be provided. The technical competence of the salesmen needs to be mentioned Details of the product kept of other companies have to be provided. The annual sales of these products too have to be mentioned. Also details of complementary products & product lines need to be mentioned.

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• • •

Dealers of the company must carry a good reputation. This is due to the fact that the company believes reputation of the dealer affects the clientele. Market coverage by the distributors needs to be defined which includes details of Geographic coverage & Outlets per market area. The company also requires the dealers to furnish any Advertising & Sales initiative undertaken by them on behalf of the company.

Motivation of Channel Members
GCMMF strongly believes in maintaining a good relationship with the channel members so that they are genuinely motivated to work for the company. Also if the channel members are motivated, they can also initiate advertising & sales promotion schemes on behalf of the company. However to keep the channel members motivated to work, the company has to incur certain costs but the benefits of it are felt in the long run. The following are the motivation programs run by the company: Distributors • One of the main factors, which keep the distributors motivated, is the margin. Usually the margins offered by the company are 8% & it is raised to 8.5%. Volume wise this comes out to be a big figure since Amul’s product has a good demand in the market. However compared to the other companies the margins are still lower since the new players in the market offer a much higher margin. But the very fact that Amul’s products have good demand in the market motivates the distributors to stock it. Amul being a cooperative cannot afford to give heavy monetary incentives. Amul’s products are considered to be value for money since the company does not believe in charging high margins. In fact all monetary incentives are just the short run means to promote the company’s product. In order to keep the Channel members motivated in the long run, Amul builds on the concept of “Trade Marketing” which makes the dealers & the distributors believe that the company’s products are worthy of being pushed in the market. The company is organizing various Total Quality Management initiatives & workshops. Here various counseling measures are undertaken by the company to improve the overall working of the distribution network. Vision and mission statement: the company cascades down the vision to the various channel members, this is done through various events organized by the company at different locations where the values of the company are made clear and enforced to the channel members. Also the fact that Amul being a cooperative society cannot 10

afford to spend exorbitantly on such events therefore it has a very traditional way of organizing these get together which leaves an impact on the members. • Amul yatras: this includes taking the channel members on a guided tour of the manufacturing and procuring facilities in Gujarat. So that the channel members can have an experience of the working of the company and can pick up some quality measures that can help them to synchronize and improve their own functioning at various levels. This in turn help the company to co ordinate the entire value chain, as the channel members understand the various constraints and liberties the company goes through. The company has already got the Rajiv Gandhi award for quality.

The Retailers • Trade schemes: these are undertaken by the company only for the hard selling items e.g. Ice creams, flavored milk etc. for these the company raises the margins by 2%, also schemes like good packaging incase of butter and cheese is undertaken by the company. However this is only a short-term initiative to push the products of the company. • Glow boards: the company puts up glow boards at the retailer and pays the major portion of the cost. • Schedule of the salesmen: they provide the retails with this schedule so the retailers can pre estimate the quantities of the various products needed. • Infrastructure facilitation: the company facilitates the retailers to buy freezers and fridges by formulating an easy payment program and a commitment to buy back the equipment at a reasonable price when the value of the equipment has depreciated.

Evaluation of channel members
• Beat plan: this plan is generated for the various product categories i.e. diary dry, diary wet, Dhara and ice cream. A weekly schedule is prepared for various markets and the retailers the turnover for each of the product is calculated for the wholesale dealers. Cumulative performance: the performance of the dealers is averaged out over a period of three years where a comparison is made of the present performance visà-vis the previous ones.

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Target versus achievement: the performance and the targets are compared and therefore the gaps are identified which help in evaluating the WD and planning for the next year as well. This is done for each of the product category.

Other criterion o o o o o o o o o Details of the bank guaranty Photographs of the offices Details of the WD salesmen and the product lines he deals in The computerization facility available The storage space Refrigeration facility with photograph Details of the delivery vehicle with photograph Summary of the monthly potential sales of markets Summary of the product wise monthly sales potential of institutions

Note: the evaluation form in original attached.

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CONFLICTS AND CO-OPERATION AMONG CHANNEL MEMBERS
Conflicts
• Ownership of assets: Previously the company used to give the cooling equipment on lease to the retailers, when the company wanted the stuff back; the retailer disagreed to comply and created issues of ownership. Stocking issues: The company doesn’t want the retailers to stock the competing brand in the company leased fridges, which at times s hard to manage as retailers tend to do it often. Replacement of products: The deterioration in the product calls for fail in replacement by the company this major issue of vertical conflict. Credit policy: Compared to the market, the company’s credit period is less that specially incase of institutional sales is very important. Packaging: The channel members for easy storing demand a better quality of packaging. Replenishment: The replenishment of the stocks is not prompt in case of amul cheese and all hard selling items. Margins: The Company provides least margins to all the channel members. For e.g. The retailer’s margin in case of butter is 8% as compared to Britannia’s 12%

• • • • •

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Co-operation among channel members
• Amul quality circles: The members of the local channel meet together every month to share issues and the achievements of the channel members. This is an ongoing activity facilitated by the company offices in different locations; this enables the channel members to learn together and reduces the horizontal conflicts among the WDs. Pilot salesmen scheme: To reduce the financial burden of the distributors this scheme is run whereby half the cost of the salesmen is born by the company and the rest half by the distributor Scheduling of sales: The WD’s provides Schedule of the distributor’s sales men to the retailers so that the retailers can plan out and place the orders in advance. Agreement defining rights: The company makes the distributors sign an agreement where the areas of operation for each of the distributors are defined, therefore avoiding any conflict amongst the distributors regarding their areas of operation.

• •

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OBSERVATION, COMMENTS AND SUGGESTION
Observations
• The company’s strength is in its procurement and not the distribution even they know this, as this is the industry’s main problem. Other companies fail to replenish demand due to lack in procurement of raw milk. Amul has loyal cooperatives that provide milk only to them, over time the relationship of trust has built up with these people that amul leverages now. Transport channel is another strength as the transporters have grown with the company overtime the bonding with them enables the company to give least margins when it comes to the distributors in the industry, lowering the costs. The company believes that there is an ongoing demand in the market and therefore no promotions are needed to increase the sales, also the fact this would affect the cost of the product the company doesn’t undertake many promotion schemes. The not being a profit driven organization, is able to provide products at the least price in the industry, and is able to give least channel margins as the channel members earn through volumes and not through high margins. The company is enabled to push its new products into the market by hooking them onto the fast moving products like Amul butter; they force the channel members to carry the new products as well.

• •

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Comments and Suggestion:
• Amul should go in for exclusive outlets in at least all the shopping malls coming up these days and any location where footfalls are large in number. The advantages of this channel will be: i. ii. iii. iv. • • • Full range display Easier to promote new products Easy to push impulse purchase products Brand building will be facilitated

Pushcarts should be increased in number in order to increase the market reach this can provide with e very effective channel for ice creams and flavored milks. Trade promotion should be formulated for newly launched products instead of just tagging them onto best sellers. The company should start a home delivery where a particular household will order full range of products required by it over a period of time. For this the company could provide a deliveryman with cycle to reach the different houses. In order to motivate the channel members it is also very essential for the company to increase the margins for the hard selling items e.g. Amul dahi where it faces competition from Nestle & Mother dairy. In order to remain sensitive to market demand, it is essential for the company to place additional salesmen on the field since the brand as such commands a high demand in the market but fails to match it with the supply.

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