Ace International Business School

“AMUL’s competent Logistics and Supply chain management

to win the future of Dairy FMCG”

16010980

Word count:
 “AMUL’s competent Logistics and Supply chain management
to win the future of Dairy FMCG”

Logistics and Supply Chain Management

Logistics is derived from a Latin word “logisticus” and a Greek word “logistikos” which means to compute
or to calculate (Sople, 2009). In ancient times, logistics was a military word/discipline. The word was used
in the history of transporting armies, food and medical supplies and arms and ammunition to the battle
field. Logistics gained importance during the World War II, as a term referring to the movement of men
and supplies. The term logistics was formally used after WW II. Logistics today has a broader sense; it is
used in businesses to relate to the shift of raw materials from suppliers to the producer and eventually to
final consumers. Logistics has often been defined as a plan or strategy for the efficient procurement,
storage and distribution of goods and services with the aim to meet the consumer satisfaction
(Christopher, 2016).
Philip Kotler has defined logistics as an integrative procedure of planning and implementing the flow of
goods from the point of production to the end of consumption.

Supply Chain Management (SCM) entails the coordinated planning and implementation of processes
needed to maximize the flow of goods, knowledge and resources in functions which generally involve
demand forecasting, procurement, development, stock management and logistics (Rouse, 2010). In
comparison to logistics, it crosses strong borders and encourages collaboration and communication
between its vendors and existing customers (Ballou, 2006). Supply chain management intends to
streamline the product flow and make it as cost effective as possible. SCM is an expansive and complex
undertaking that relies heavily on every partner involved in the process. The primary objective of supply
chain management is to gain competitive advantage. By reducing the production times and delivery
methods, SCM helps both companies and customers, delivering the best commodity to the right location
at the right point of time. SCM potentially eliminates the needs of large fixed assets like warehousing and
transport vehicles and improves cash flow.

Relation between Logistics and Customer Satisfaction

Customer satisfaction is not strictly restricted to the product consistency and price of the product.
Customer satisfaction focused mainly on price of the product before globalization (Ghoumrassi & Tigu,
2018). However, the manufacturing cost gradually started rising during the mid- 50s. The way to sustain
the role of business in an evolving environment and raise profit, logistic operations became the core of
companies, which aimed at customer loyalty thus gaining competitive advantage. Logistics aspect is
significant in customer satisfaction. Studies have shown a productive connection between product
distribution and customer satisfaction (Sharma, 1995). Logistics management has the ability to benefit the
firm from both customer satisfaction and productivity (Christopher, 1998). One of the most critical
consideration in customer’s purchasing choice is logistics. People are more educated and sophisticated
today, they seek for value for the price they pay, they look after the mode of delivery, they want the
product in the shortest time possible, their preference standards often change, therefore logistics plays a
significant role. The logistics efficiency not only is regarded as the operation-related task but is also
considered as a competitive attribute and plays a crucial role in customer satisfaction. Organizations must
execute the overall planning accurately in order to avoid high lead time and customer dissatisfaction. If
the finished products are not easily accessible at right place and at right time, then the customers will
inevitably be dissatisfied and this will in turn result to the customers switch to another retail competitor.
Therefore, accessibility of right product at right place, cost and quality through effective logistic and
supply chain management is very essential for businesses to sustain customer loyalty and profitability.

Introduction on AMUL

AMUL (Anand Milk Union Limited) is a dairy cooperative formed in 1946 as a response to the oppression
endured by farmers in Western India. The middle men controlled the milk marketing system, they
purchased the farmers produce in low price and sold them at relatively higher price which was unfair.
Therefore, Gujarat villagers had established the Kaira District Co-operative Milk producers Union Ltd with
two village dairy co-operatives as its members to control the entire value chain and there by eliminate the
middle men and gain profit. The co-operative movement was built by Verghese Kurien on two principles;
value for many and value for money. Today, there are 18,500 member societies with over 3.6 million
farmers catering to 2.1 billion consumers in over 40 countries (2017). The dairy farmer’s cooperative grew
to become Amul, a brand build by the farmers. “Amul” is derived from a Sanskrit word “Amulya” which
means priceless. It is governed and controlled by Gujarat Co-operative Milk Marketing Federation Ltd
(GCMMF). It is a remarkable indicator of the success of a co-operative organization, which is largely
accountable for making India the world’s largest producer of milk. It processes healthy milk in various
pack and sized for various requirements of every family. Approximately 40% of the procured milk is
marketed as liquid milk and the 60% is processed to packaged goods. Its popular products like milk,
cheese, butter, sweets, ice cream, ghee has made Amul a leading food brand and the top FMCG
company in India. It’s excellent quality, authentic taste and affordable pricing has made Amul the taste of
India.

AMUL’s Logistics and Supply Chain Management

Amul has a quite large milk procurement network with a unique distribution paradigm. Amul obtains over

4,47,000 liters of milk from 3.6 million dairy farmers every day, processes the milk into different packaged
goods and delivers and sells the products worldwide to over 5,00,000 retail through the channel of over
4,000 distributors (Chandra, 2005). Amul exports wide range of products in more than 40 countries.
Philippines, Thailand, Japan, China, Singapore, United Kingdom, United State and African countries are
its major markets. There are over 49 depots to store its dry and cold products and is India’s largest cold
chain network with over 19,000 refrigerators. The main manufacturing units of Amul are headquartered in
Gujarat and the large distribution centers are clustered in and around the outskirts of the manufacturing
units. It implies the management of a very complicated logistics with participants across a large
geographical region.

The vast and diverse supply chain spans from local producers to large global markets. Milk is collected
from the dairy farmers and brought all together by the Village Co-operative Societies (VCS). From there
the milk is brought to the processing units at which the milk is refines into various items. The final goods
are then delivered to company distribution centres located in various parts of the world and then to the
wholesale distributors and to the retailers and finally to the end consumers. The operation of this network
is more difficult as GCMMF is solely responsible for only a minor portion of the chain, as a variety of third
parties takes a significant role. Managing the supply chain successfully is important because GCMMF 's
dominant lead is powered by strong commodity costs backed by a low-cost milk distribution network at a
fair price.

The fleet is fitted with vehicle monitoring system and GPS sensors. Such route optimization for each truck
reduces the transportation cost and a quicker lead time cycle. There are sufficient gaps in the existing
network and GCMMF is taking care of outbound logistics in cooperation with distributors. Owing to the
constraints of shipping within eight hours to the dairy for processing to prevent rotting, the logistics of milk
procurement renders it more challenging. The product requires to meet the retailers in the morning.
Therefore, milk collection process has also been outsourced to the third party to ensure timely delivery.
The third party perform the logistics of milk procurement, delivery and sale of dairy products to dealers
and stores. Insulated trucks are used for the delivery of fresh goods and these trucks deliver the goods in
less than 6 hours from the dairy plant to the retail stores. The milk is delivered between 3-8pm according
to the location and the movement of trucks is traced by mobile phones. Amul has production plants near
to its markets to manage the highly time sensitive distribution. This facilitates the transport of goods within
a range of 250-300 km from where the items are manufactured. Amul has also combined its transport
network with railway cooling systems to increase freight costs and distribution to Delhi (Raheja, 2015). It
has tied up with Adani Logistics to have a train specialized to transport milk every day. The supply chain
activities are carried out using information technologies with strategic accuracy. Amul likewise sources
vehicles from the open market in the event of high demand.

Amul’s supply chain is comprised of two supply channel:

 Upstream Channel:
It is the channel of milk procurement from the farmers to the processing units. First the dairy farmers
bring the milk on foot or bicycles to the Village co-operative societies in limited quantities. Around
1000 dairy farmers come to the VCS to sell milk daily. And from there the milk is taken to the
processing units through specialized trucks with chilled tanks. A tanker puts together 3-4 societies
milk which aims to create efficiency in distribution of milk. GPS based transport system has been in
use for the effective management of truck delivering milk to the Dairy factory.
 Downstream Channel:
It is the network of distribution of processed goods from the manufacturing units to the retailers. The
goods are brought from the processing units to the company depots with 9-18 trucks. From there, the
second transportation is from the depots to the WDs with 3-5 trucks and finally the goods are
transported from the WD’s to the retailers.

Corporate Social Responsibility of Amul

Benchmarking of Amul against Mother Dairy

Conclusion and Recommendation

This study shows the effective management of logistics and supply chain management of Amul. Amul can
penetrate the market to a significant extent considering the brand identity. Amul being a trusted brand
with quality worth its price and accessibility helps to increase the sales and maintain a good relationship
with the customers. To sustain the long term relationship with the customers Amul should focus on the
distribution to places where it is not easily available. The following points are the recommendations for
Amul for more effective logistics and supply chain management.

 Reduce transportation time and cost by choosing nearby dairy sites

The milk is transported from Gujarat to the processing units, it is around 700 km in the case of Delhi,
so if they supply raw milk from nearby area, this will dramatically reduce the lead time and the cost of
transport. There will be no stock outs in stores because the goods can be delivered immediately and
the retailers can facilitate just in time practices.

 Forward incorporation of twin model method to expand supply:

Amul needs to increase its distribution channel by 50% to succeed over Mother’s Dairy. Therefore,
Amul is recommended to actively open retail stores within major suburban businesses, as well as
more outlets per area / location to address rising demand.

 Upgrade freight infrastructure by connecting with railway network:

Apart from possessing its own dedicated truck fleet, Amul has also proposed combining its transport
network with railway cooling systems to increase freight costs. With the train transport system using
50 wagons with capacity of 24,000 each, transport costs would be saved by 50% (Kalley, Tyagi and
Felix, 2012). The usage of the railway cooling system will often reduce the possibility of road crashes.
It will reduce wastages and repair expenses for trucks. This will also prevent disruptions in transport
due to road traffic which is very significant for Amul as goods are perishable.
Bibliography