Monday, May 09, 2005

AMUL – The Taste of India

AMUL, is a dairy cooperative, in western India that has developed a successful model for doing business in a large emerging economy. It has been primarily responsible, through its innovative practices, for India to become world’s largest producer of milk.

Amul – A diary revolution

In the 1940s, in the Western Indian State of Gujarat, a unique experiment was conducted that became one of the most celebrated success stories of India. At that time, in Gujarat, milk was obtained from farmers by private milk contractors and by a private company, which had a virtual stranglehold on the farmers and exploited its monopoly fully; the farmers were forced to accept very low prices for their products.

In 1946, inspired by Sardar Patel, a local farmer, organized the farmers into co-operatives, which would procure milk from the farmers, process the milk and sell it in Bombay (the financial capital of India). This was the foundation of “Amul”, which in Sanskrit means Priceless.

This experiment of organizing farmers into co-operatives, nicknamed Operation Flood, was one of the most successful government interventions in the world. The Government of India invested about US$ 500 million in the Operation Flood program over two decades 70–90s. During this period, milk production in India increased by 62 million tons from 20 million tons in 1961 to 82 million tons in 2000. No other development project in the world has yielded such a huge incremental return, US $ 9 billion against a total investment of US $ 500 million.

Table 1: International Comparisons

Country Milk Production

1961 1999 2000

Japan 2.10 8.46 8.50

Canada 8.32 8.20 8.10

Europe 132.40 216.3 214.3

USA 57.02 73.8 76.1

Australia 6.28 10.49 11.17

New Zealand 5.22 10.88 12.23

India 20.38 78.90 81.8

Source: www.fao.org; Bulletin of the International Dairy Federation, 339, 1999

AMUL – A path less traveled

AMUL’s success 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 related initiatives with increasing the base of marginal suppliers and consumers. The critical part of AMUL’s efforts were as follows:

§ It combined market and social development in a large emerging economy. It recognized the interconnection between various environments that governed the lives of marginal milk farmers and the unsatisfied demand of consumers. It also changed the supply chain paradigm in order to reduce the cost to the consumer while increasing the return to the supplier.

§ It realized that in order for the organization to achieve its objectives, it would need to benefit society at large – both suppliers and consumers. It realized that operating on a large scale had the danger of failure due to poor control and required more resources, but it also had the advantage of creating a momentum that would bring more people into the fold and thereby benefit more suppliers and consumers.

§ It also realized that its goal could be realized only in the long run and this required in the short run to inculcate values in people and processes that would be robust, replicable and transparent.

§ It also realized that the cooperative could not be viable to face competition and sustain its independent status unless it strived to be financially sound. This implied that AMUL had to innovate and implement distinct capabilities that would deliver competitive advantage to its operations. This included long term cost containment, world-class deployment of technological resources and R&D, and better leveraging of scarce resources.

Amul’s Strategy to Success

The characteristics can be summarized as follows:

Leadership

Key Elements: Charisma, long-term vision, commitment, trustworthy, selfless gain, strong managerial style (bordering on stubbornness), technocrat, pan-Indian vision /nationalism, persuasion

Implementation mechanisms: Constantly raising the bar, promoting a can-do attitude,

communication of the vision to farmers, consumers and the Government. Encouraged self sufficiency paradigm to make India a diary surplus nation

Strategy

Key Elements: Farmer orientation, investment in technology, cost leadership,

product variety in later years

Implementation mechanisms: R&D focus, efficient supply chain, simultaneous development of suppliers & markets, financing projects from internal accruals

Organization

Key Elements: Network of cooperatives, National Dairy Development Board, nature of professional managers

Implementation mechanisms: Democratic governance of cooperatives, unique

composition and role of board members of cooperatives, proactive role of the village societies division at AMUL

Marketing

Key Elements: Gujarat Cooperative Milk Marketing Federation

Implementation mechanisms: Product mix, pricing, dealer network, managing supply and demand growth. Made huge investments in marketing – launched the “Utterly Butterly”, which is Guinness Record for longest ad campaign

Operations & Supply Chain

Key Elements: Robust logistics, effective production, implementation of state-of-art technology

Implementation mechanisms: High utilization of plant capacity, technology & automation for enhancing quality, TQM, adoption of modern manufacturing practices, coordination between unions & marketing federation

AMUL – Takeaways

It is widely accepted that markets that are fragmented or producers that are marginal to build competitive infrastructures or those who are unable to manage technological changes in their operational processes would benefit the most through a cooperative organization. AMUL provides a number of learning for such organizations to compete successfully in the face of increasing globalization and competition. More generally, the AMUL case presents a successful model for operating in emerging economies characterized by either large under-developed suppliers and/or markets with high potential.

Development of an appropriate value proposition suitable for large mass markets in India and China requires a thorough understanding of the environment and a focus on costs. This in turn, requires designing the organization structure and practices in a manner that it delivers continued market share through cost leadership. AMUL is a great example of this strategy. Firms that are able to develop control processes through better use of operational practices and supply chain coordination are the ones that are able to serve large volumes and enjoy top line growth in revenues.


AMUL - The New Frontier

Amul seeks to expand outside India into western markets. Can it replicate its success in other countries?

Reference: Pankaj Chandra and Devanth Tirupati (2003) “Business Strategies for Managing Complex Supply Chains in Large Emerging Economies: The Story of AMUL” Indian Institute of Management, Ahmedabad



Raj Subramanian, Sona Mooliyil and Kunal Shah

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