War Zone Report

Amul Ice Creams

By, Srichandan S Bhoopalam

Industry Background
The Ice Cream Industry in India is, admittedly, not as huge as the Manufacturing or
Automotive Industry, though it is growing quite rapidly. This is understandable, given that
ice cream is a seasonal product. Even so, an analysis of this industry has brought forth the
underlying complexities of supply chains, flow of materials, and so on. Although most
analyses have been on the Marketing, Sales & Distribution paths, I chose to look at it from
the view point of Materials Management. I have tried to relate most MM concepts to this
industry. Some key points about this industry are as follows:
Valued at INR 4,300 crore
Amul brand as the major market player (38% share)
Each brand has a different supply chain form associated with it.
My focus is on the ice cream brand Amul, owned, produced & marketed by the Gujarat Milk
Marketing Federation (GCMMF). It is a somewhat unique organization because it is
essentially a combination of various dairy cooperatives. Another surprising fact is that most
of these cooperatives are run by farmers; the main suppliers of raw material (milk).I chose
the ice cream industry because of the following reasons:
a. It provides key insights into Procurement, Production & Supply Chain Management.
b. The industry has been explored from the Marketing, Finance & Sales angles. Not much
emphasis has gone into the Materials Management / Supply Chain aspect.


Best Practices in Materials Management:
In this section, I will try to reflect on the best practices used by Amul inrelation to Materials
Management. From Wikipedia, I got the following definition: Best practices are generally-
accepted, informally-standardized techniques, methods orprocesses that have proven
themselves over time to accomplish given tasks. From what I have learned; I believe Best
Practices are tools & techniques used by organizations to achieve specific objectives over
givenperiods of time. You define a process, set the necessary guidelines & policies, provide
the framework, complete each task in the process and measure the output, compare the
methods used with past approaches & set them as benchmarks against which all future
tasks are measured. Best Practices would also involve the appropriate strategies used to
complete tasks in the least possible time. So what are Amuls best practices when it comes
to Materials Management? Lets list them down one by one:
1. An efficient cold chain network.
Amul has the largest cold chain network (over 18000 refrigeration units) in India. There are
temperature data loggers & RFID tags in place, used to monitor the temperature history of
the truck, warehouse etc. Additionally, there are Chilling Units in place inside the Dairy Co-
ops as well as in the trucks carrying the milk.
2. An efficient procurement mechanism bringing the suppliers & consumers closer.
Suppliers do the procurement via Dairy Co-ops, who in turn send the raw material to various
dry & cold warehouses, and ultimately it ends up as a packaged product sold to the
consumer. This is not followed by other ice cream manufacturers such as Vadilal, Havmor,
Mother Dairy, etc.
3. A precise Supply Chain
This is lacking in most ice cream manufacturing units. Because milk is directly sourced from
the farmers, it is cheaper to procure. Most market players outsource this part to dairyfarms.
Also the distribution channel is not as effective as that of Amul. Plus, with their unique
Umbrella Brand strategy, the Supply Chain becomes even more effective because the
amount of milk sourced would be enough not just for making ice creams, but other products
as well.
4. Effective Use of Information Technology & Automation
The presence of EIAS, GIS(Geographic Information Systems) and DISK makes Amul a
formidable presence in the entire ice cream industry. The integration of ERP with the
military- precision Supply Chain provides scope for effective forecasting, enhanced milk
production capabilities, and inventory tracking & management. In further sections, 2 main
areas of Materials Management that are vital to this organizations success are covered.

SOURCING & IT
In this section, we take a look at two key areas where Amul utilises key concepts of both
materials management as well as supply chain management.
It is not all that simple in fact, this Supply Chain is one of the most complicated ones in the
world. What intrigued the most about the network was the impeccable efficiency &
immense precision with which GCMMF has managed all these years. The core aspects that
make this network tick are:
Sourcing
IT (a relatively new addition to this set up).
Sourcing: At first glance, it is easy enough to understand that any firm involved in the dairy
business uses milk as raw material. An image of cows being milked immediately springs to
mind. However, the farmers who collect the milk for the various co-operative societies &
unions (that make up the GCMMF) use buffalo milk as the chief source of raw material for
making ice cream. Another fact that interested me was how the sourcing was done. Farmers
take the milk they have collected in cans (taking care to see that it doesnt get spoilt) to the
nearest Milk Collection Centre. The Collection Centre is also called the Village Dairy Co-op.
There are many such units all over the state of Gujarat. The farmers line up at the Centre,
deposit the milk, get paid for the amount they have brought, and leave. Each Collection
Centre has a daily target, something like 10 litres of milk areto be collected (for example).
Such targets are called Milk Quotas. Once the Quota for the day is fulfilled, the collected
milk is placed in Chilling Units to ensure that it is fresh and ready for processing. If the
designated Collection Centre is not equipped with a Chilling Unit, it immediately sends the
gathered raw material to the nearest Co-op that has one. The advantage here is all such
Collection Centres are very close to each other, so the milk has very little chance of getting
spoiled. In summary milk produced directly from cattle is sold by farmers to various Dairy
Co-operatives that form the GCMMF. Such Co-ops store this milk in their Chilling Units, or
send it across to other Co-ops that have such units. With this kind of strategy, the
federations daily milk procurement is a staggering 12 million litre per day. Also, the logistics
& distribution of milk to customersis handled by third parties while the federation focuses
on core dairy activities.
1. Preparing production plans at different Unions so that each gets a fair return on its
capacity & market requirement matches the different strengths of each Union.
2. Maximizing the network surplus excess milk generated.
3. Ensuring that all Unions have equity on realizing the surplus this means that if
there is surplus milk generated, it is sent to those Unions who are falling short of
their Daily Milk Quota.
Why does this form of sourcing make it a best practice? This is a tricky question to answer. I
think that the sourcing used by Amul is even more innovative than that of its competitors.
The reasons are:
1. The middleman concept is eliminated here. Amul takes its milk directly from the
farmers. This is quite unlike the practices used by other ice cream manufacturers.
2. There is a direct link between the producer & the consumer. By using this strategy, Amul
is able to maintain a healthy business relationship & stay ahead of its competitors
3. It becomes a best practice in terms of the overall profits generated. Amuls sourcing is
one of the key factors that helped it grab the largest market share in the ice cream sector.
IT IN MATERIALS MANAGEMENT:
With such a large & efficient supply chain, GCMMF would be expected to rolling profit.
However, the following problems were encountered, which necessitated the use of
Information Technology & Automation:
1. There was an indirect connection between Producers (farmers) and the Consumers
(general public).
2. Producers were unable to forecast productivity accurately and in time. Then came the
solution Information Technology. Within a short span of time, IT enabled the Supply Chain
to be carried out with even more military-like precision. Following are some of the features
that were implemented:
a. Installation of Automated Milk Collection System Units (AMCUS).
b. Implementation of Enterprise wide Integrated Application System (EIAS). This covers a
wide array of operations such as market planning, inventory control, quality control
management, etc.
c. Another brilliant initiative establishing a Dairy Information System Kiosk (DISK) was
undertaken by IIM Ahmedabad. Its purpose was to ensure that the automated collection of
milk would be supplemented by comprehensive data analysis & choosing the best decision
to help in improving the collection process.
More data means faster decision making, faster decision making leads to better forecasting,
better forecasting enables creating precise MPS & Production Plans, which in turn facilitate
better Capacity Requirement Planning. How does all this tie up with the Supply Chain? The
answer is simple. At each phase of the Supply Chain, EIAS can be plugged in. This particular
software is platform-independent (it can be used in any system) and also facilitates quick
decision making. I say this because it is easier to get a consolidated report, at each stage of
the entire supply process, so that GCMMF can track the status every step of the way. In a
way, it incorporates the Monitoring & Control aspect of Project Management.
One final feather in GCMMFs cap is the use of the Geographic Information System (GIS). It
is very similar to the Global Positioning System (GPS). Using the map of India with the GIS,
the federation plots the zone/depot (milk depot) boundary, along with pointers for zone,
depot & distributor locations. The fun continues when, along with the various locations,
supporting sales data (for each product) also pops up. This provides the following
advantages:
1. GIS is used by Amul to plan business activity at the sourcing / collection level.
2. enables the company to forecast milk production according to each region, & suggest
corrective measures (if any). The Master Production Schedules (MPS) & Production Plans
can then be formulated accordingly.

Why is IT considered as a best practice in the industry? All major players in this industry
have now realized the importance of Information Technology more specifically, gathering,
storing & delivering data in a structured, presentable format. Some, like Kwality Walls
(marketed by HUL), have started implementing SAP by partnering with various service
providers (such as Tata Consultancy Services, Deloitte, etc.). Though these initiatives are
quite recent, they are well on their way to become Best Practices
I do not know for certain whether these will be replaced by better alternatives, but ERP & IT
are here to stay. If that is what it takes to generate profits in the long run, then so be it
this is the motto followed by most ice cream companies now. With the formation of the
Indian Ice Cream Manufacturers Association, it is widely expected that IT will, in a short
duration, establish itself as a key component of this industry.

Marketing Organisation Structure
Marketing Department has regional senior marketing manager and under him there is a
regional manager. This department takes care of the marketing aspects of Amul.
Promotion
It includes a variety of techniques including advertisement, sales promotion, public relation
and personal selling that are used to communicate with customers and potential customers.
Television is the best media for advertising in the local areas. Hoardings designed on the
creative basis attract the customers more.

Market segmentation
At Amul, ice cream market is segmented at national level. Also ice creams are segmented on
the basis of age. A market survey is conducted to know the demand and accordingly market
is segmented, this also defines the target market.
Distribution
Amul ice cream is available in over 500000 retail outlets across India through its network of
over 3500 distributors. There are 47 cold warehouses to buffer inventory.
Wholesale dealers carry inventory that is just adequate to take care of the transit time from
the branch warehouse to their premises. All branches engage in route scheduling and have
dedicated vehicle operation.
Amul, through its 50 sales offices located across India to 4000 stockists has an effective
distribution channel. These stockists supply ice cream to about 500000 retail outlets.