“Amul – The Taste of India”
How an uprising against corrupt middlemen launched one of India’s longest standing and arguably most successful cooperative movements
Background and Business Model
Small producers of milk in the state of Gujarat established Amul Diary in 1946. This was a reaction to the inefficient, corrupt monopoly (Polson) in place at that point of time. The objective was the ensure that the small fragmented milk producers received the maximum possible remuneration while creating low cost high quality products for consumers, while eliminating the middlemen. Ensuring availability and providing great service to both the suppliers and consumers was of great importance as well.
The main challenges to effectively achieving Amul’s vision are
- Highly fragmented, small scale supplier base
- Low income consumers
- Lack of infrastructure
- Milk is a highly perishable good
- Lack of capital
Operating Model
Amul has very effectively aligned its business and operational models to achieve its vision since its launch.
Supply Chain
Amul has effectively managed both upstream and downstream partners in establishing one of the most complex supply chains across the globe. The producers bring milk to the village cooperatives (foot/bicycle), which is then transported to the unions by specialised trucks. From the union’s production facility, milk is transported to wholesale distributors who then transport the milk to retailers in specialised trucks.
All of these processes are outsourced to third party logistics and retail partners to ensure efficient execution. A stringent verification process and guarantees for the safety of the milk products are required from channel members before they are on-boarded to the network.
To the wholesalers and retailers, Amul offers reasonable margins on a high volume good. It offers support in demand prediction, reducing the potential bullwhip effects that might arise from inexperienced sales partners. It also offers easy repayment programs for capital investments in infrastructure (freezers etc) by the retailers.
Organisational Alignment
The heads of the village cooperatives sit on the management of the union at the district level. The heads of the unions at the district level comprise the governing board for the federation. This board appoints the chairman of Amul diary. This strategy has effectively ensured that the management has “skin in the game”.
The incentive structure is also aligned in that it reward suppliers who generate the most amount of business, which is judged based on a mix of the quality and quantity of milk supplied.
Increasing the Supply of Milk
As we saw in the e-choupal case, increasing the supply of product leads to better economies of scale (optimizing sunk costs). To this end, the unions provide various aids to the milk producers (like cattle-feed, veterinary aid, technical training) obtained at a low cost due to large scale sourcing, to increase supply. Aids are also aimed at overall community development.
Bridging Gaps in a Fragmented/Unstable Supply Side Market
Given the fragmented nature of the producers, supply tends to vary based on various factors, but demand remains fairly constant. The unions have invested in cold storage facilities to ensure that surpluses can be stored and redistributed to village level centers that are facing a shortage of supply, efficiently reducing supply instabilities.
Technology Initiatives
An automatic Milk Collection System was established that could identify and test the quality/quantity of milk. This leads to time saving since over 1000 producers enter a village cooperative each day and increased transparency.
Enterprise-wide Integrated Application Systems were used to align various sub software systems in place. A Geographic Information System was also established to view supply disparities in real time. Cyber stores have been recently launched as well.
Marketing/Advertising Campaign
One of the most interesting things about Amul is how a dairy cooperative evolved into a social commentator through their advertisements. The cartoon is usually has the Amul mascot (Amul Girl) in a current context with a catchy tagline. These ads have now become an establishment of their own right, elevating Amul’s brand image from just a diary cooperative to a household name outside the diary products context.
Product Diversification
Amul diversified into various diary products such as milk powders, butter, cheese, yogurt, ice creams and a number of other variations specific to the Indian market. It has managed to capture significant market share in others. This move was highly strategic once the brand image (quality at affordable prices) and distribution chains were established – a clear indication of successful horizontal integration.
Growth
Source: Company Website
Sources:
Business Strategies for Managing Complex Supply Chains in Large Emerging Economies: The Story of AMUL; Chandra, Pankaj; Tirupati, Devanath; IIM A – April 2003
A case study of AMUL cooperative in India In relation to organizational design and operational efficiency; Prasad, Ruchira; International Journal of Scientific & Engineering Research Volume 4, Issue 1, January-2013 1
https://en.wikipedia.org/wiki/Amul#The_three-tier_.22Amul_Model.22
http://www.ndtv.com/photos/news/amuls-take-on-barack-obamas-four-more-years-10709#photo-183793
http://www.amul.com
http://www.business-standard.com/article/companies/amul-turnover-grows-14-to-cross-rs-20k-cr-in-fy15-115051400858_1.html
“Role of Cooperatives in Inclusive Growth – Comparative study of success of AMUL & Lijjat Papad in India.” Victoria, Queen and Ingale, M.K.
Tami, this is such an interesting company! I love the way they leverage their scale to support each member of their value chain, by providing fair margins to purchasers, assisting with demand prediction and capital expenditure payments, providing less costly cattle-feed, etc. It sounds like they also have good systems in place for quality control, which is something I would be worried about given the fragmentation of the supplier base and the perishability of the product.
Amul’s advertising campaign is very interesting to me, and I’m curious to know if you think it is well aligned with its mission. Is the fact that it was a reaction to a corrupt milk monopoly well known? If that is an important part of the brand, I wonder if that changes the way it should think about its more risqué cartoons that make political statements. I can see both sides. I could imagine that if its brand is associated with fairness and justice, political statements may be well received and consistent with its brand. On the other hand, I could also imagine that consumers may not respond well to feeling like they are making a political statement when they buy their dairy products. Would love to hear your thoughts!
Nicole – thanks for your comment. I like that you picked up on the advertising because at the outset it seemed out of alignment with their business model to me as well.
But thinking through, I think the political commentary actually helped them build a much stronger brand identity (while the initial establishment was against a corrupt monopoly, that image is now buried in its history) which is much more relevant to the current day and age. And I see your point about how it could be perceived negatively, but it has played out in the positive angle in India and is now integral to their brand – allowing them to leverage it and diversify horizontally.
Also, for the majority of the Indian population (middle aged, low-mid income with no real avenues to express their political opinions), Amul’s advertisements are an easy way to stay connected and included into India’s “pop culture”.
Tami, having grown up in India, Amul really was an integral part of our daily diet. And the legend of Verghese Kurien is well known. I think this write up provides some really good insight into operations of Amul. And I really like that you mentioned the Social advertising, since that was something we all used to really enjoy. Only suggestion I had in here was that it missed a mention of ‘The White Revolution’, which is so critical when you speak about Amul. That was the phase that converted India from a milk deficient nation to a milk surplus nation, eventually going on to become the largest producer of milk in the world. For a country of a billion plus people, for one organization to turn things around that way is no mean feat.
Sagar – thanks so much for your post. It is interesting that you mention the White Revolution because I put it in the post and then removed it when editing for length! While Amul played an integral role in the White Revolution, I wasn’t sure if the White Revolution fundamentally changed Amul’s operational model (it was more a replication of Amul’s models on large scale to me) and hence I left it out. Glad you pointed it out though – the story/brand identity is incomplete without that.