Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

A Study of the Sales and Distribution System at AMUL


Published on

- Evolution of the dairy industry in India
- Milk Production and Consumption Patterns in India
- Prevalent Business Models in the Dairy Industry
- Major Players, Operating Margins, ROCE, Prices and Ratings
- Growth Drivers, Key Risks and Porters 5 Forces Analysis
- Analysis of Sales and Distribution Systems of AMUL at distributor, retailer and hypermarket level
- Comparison of Amul with Sanchi
- Recommendations

Published in: Business

A Study of the Sales and Distribution System at AMUL

  2. 2. EVOLUTION OF MILK INDUSTRY IN INDIA Source: CRISIL Research 1960s Poor growth of dairy industry Production and Availability of milk and milk products: LOW 1970-1981: Operation Flood Phase I 13000 dairy cooperatives established 18 lakh farmers became members of 39 milk sheds 34 lakh litres/day procurement 28 lakh litres/day marketing 1981-1985: Operation Flood Phase II 34500 village level cooperatives 36 lakh farmers became members of 136 milk sheds 79 lakh litres/day procurement Marketing of 50 lakh litres/day 1985-1994: Operation Flood Phase III 70000 dairy cooperatives 93.14 lakh farmers became members of 170 milk sheds 115 lakh litres/day procurement Marketing of 100 lakh litres/day 26000 tonnes of balanced feed, 24000 tonnes of bypass protein feed sold through cooperatives 1996-2006: Operation Flood Phase IV Focus on infrastructure development and creating democratic values Strengthening cooperatives by providing funds on 50:50 bases from centre and state Education, Personal Training, Marketing Support, Product Development and Improving Standards • India accounts for 17% of the worlds milk production • India is also the highest consumer of milk (118-120 billion litres)
  3. 3. The per capita milk consumption in rural households registered an increase of 28% The per capita milk consumption in urban households registered an increase of 25% MILK PRODUCTION & CONSUMPTION PATTERNS Production of milk in India has a CAGR of 4.2% 1987-88 1993-94 1999-00 2004-05 2009-10 Rural 38.93 47.94 46.11 47.09 50.09 Urban 51.83 59.50 62.05 62.17 65.19 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 Kgs/Year Consumption of fluid milk in India has a CAGR of 5% 7 Indian States contribute 65% of all the milk produced in the country Milk and Milk Products Segment is expected to record 12-13% CAGR between 2015-18
  4. 4. BUSINESS MODELS IN THE DAIRY INDUSTRY Dairy farmers get milk to the VCC where milk is cooled using chillers Chilled milk is transported from the VCC to the ditrict union where the milk is pasteurized Pasteurized milk is transported to the regional milk federation factories where dairy products are manufactured and branded Products are transported to the various wholesale and retail stores Private player procures milk from sources other than the dairy farmer Milk is processed into various value added products Packs, brands and sells it various distributors and wholesalers Wholesalers and retailers sell to end consumers CO-OPERATIVE MODEL FORWARD INTEGRATED PVT. COMPANY First tranche: Based on quality & quantity of milk, payment within 15 days of procuring milk Second tranche: Based on the sale of various value-added products manufactured during the year, profits are paid back to farmers on the basis of their shareholding in the cooperative. Eg: Amul, Mother Dairy The company does not deal directly with the dairy farmers and procures milk (processed/ unprocessed) through other routes such as village collection centres, franchisee chilling centres, bulk private coolers, district union factories and regional cooperative federation factories. Eg: DudhSagar, Schreiber Dynamic Dairy FULLY INTEGRATED PVT. COMPANY • The farmer is paid only once, as against dual payments made in the cooperative model. • More commission is paid to the farmers as the initial payment, to incentivise farmers to supply milk.
  5. 5. CLASSIFICATION OF INDIAN DAIRY AND MILK INDUSTRY Dairy Industry in India Processed Milk Milk Products Curd and Yogurt/Buttermilk and Lassi Butter/Ghee/Ice Cream/ Frozen Desert Cheese/Paneer/Khoa Milk Powder 57% 19% 12% 6% 2% 1% 1% 1% 1% Market Share (%) Liquid Milk Ghee Paneer/Khoa Curd/Yogurt Buttermilk/Lassi Ice Cream Butter Cheese Milk Powder Liquid milk has the highest market share Cheese and ice cream have the highest growth rate
  6. 6. OPERATING MARGINS AND ROCE OPERATING MARGINS TO IMPROVE 13 12 8 8 7 6 4 Ice Cream Cheese Paneer Curd/Yogurt Butter Ghee Processed Milk 0 2 4 6 8 10 12 14 Operating Margin (%) Operating margins and ROCE depend on the extent of value addition HIGH Value Addition HIGH EBITDA LOW ROCE High margins for value addition
  7. 7. PRICES AND RATINGS NEW TREND Future outlook of milk and dairy companies in India is going to be mostly stable as the demand and consumption of milk and milk products grows in the years to come.
  8. 8. GROWTH DRIVERS/RISKS OF MILK INDUSTRY Government Incentives Favourable Demographic Trends Improvements in Supply Chain Infrastructure Technological Innovations for Better Quality GROWTH DRIVERS Rise in MSP of Cattle Fodder Crops Dominance of Co- operatives limits Pricing Power of Private Companies Geographic Concentration of Production Volatility in Milk Prices KEY RISKS Growth is fuelled by various external dynamics Risks have increased due to lack of dispersion Other Factors • Rising share of high margin milk products • Priority lending status via National Dairy Plan • Changing lifestyle of consumers • Rising need for convenience • Better health awareness among consumers • Overall growth in food services industry Other Factors • Quality of milking animal difficult to judge • Milk handling practices to prevent microbial contamination • Free rider problems due to mixing different milk quantities in one storage facility • Small probability of transportation failure
  9. 9. INDUSTRY ANALYSIS- PORTER’S 5 FORCES Competitive Rivalry HIGH Bargaining Power of Suppliers LOW Threat of New Entrants HIGH Bargaining Power of Consumers LOW Threat of Substitutes LOW Competitive Rivalry - HIGH • New brands are coming up each day and the major factor on which they play in this industry is prices Threat of Substitutes - LOW • Essential item for beverages like tea, coffee • Traditional consumption habits make milk a favorite • There is no other offering that can substitute milk. Threat of New Entrants - HIGH • Not many entry barriers • Many local players have come up with their own local brands • New company just has to follow the defined standards and it can come up with its offerings in this sector Bargaining Power of Consumers - LOW • The prices of packaged and branded milk and milk products is fixed • Bargain with the local milk vendors in unorganized sector and local shops selling milk products Bargaining Power of Suppliers - LOW • Farmers, rural households and small cooperatives sell at the going market rate. • The big giants and the government control the sector and regulate prices
  11. 11. AMUL DISTRIBUTION SYSTEM STRUCTURE Village Cooperative Societies with Chilling Units Village Cooperative Societies without Chilling Units Local Restaurants and Other Milk related Businesses Milk sold to village and local restaurants Farmers Chilling PlantsNetwork Services • Veterinary Services • Animal Husbandry • Animal Feed Factory • Milk Can Producers • Agriculture University • Rural Management Institute • Trucking Facilities Milk Processing Union & Warehouses GCMMF Warehouses Wholesalers/ C&S Retailers Home Delivery Contractors Consumers AMUL products are available in over 500,000 retail outlets across India through its network of over 3,500 distributors. Three-tier Cooperative Structure • Dairy cooperative societies at village level • Milk Union at district level • Milk Federation at state level AMUL MODEL ANAND PATTERN
  12. 12. SALES & MANAGEMENT AT AMUL Year of Establishment 1973 Members 17 District Cooperative Milk Producers' Unions No. of Producer Members 3.37 Million No. of Village Societies 18,536 Total Milk handling capacity per day 24 Million litres per day Milk Collection (Total - 2014-15) 5.42 billion litres Milk collection (Daily Average 2014-15) 14.85 million litres Cattlefeed manufacturing Capacity 6340 Mts. per day Sales Turnover -(2014-15) Rs. 20733 Crores (US $ 3.4 Billion) 21% 5-yr CAGR INR 20733 crores in sales 230 lakh litres per day Distributors have sales persons who collect orders almost weekly from retailers and mass merchandisers. The order is forwarded to the warehouse. Upto 10 days of credit period received by the distributor is passed on to the retailers. This kind of a benefit further helps in boosting sales. The retailers are helped by the distributors in enhancing sale by on time delivery. GCMMF Overview Sales Management Process
  13. 13. AMUL SUPPLY CHAIN AT DISTRIBUTOR LEVEL Company GCMMF Wholesaler (Dewas Naka) Small Retailers Sri Patodia Sales (Retailer/ Customer) Customers Amul’s Supply Chain at Distributor – Sri Patodia Sales Distribution Management:  7 to 8 people are employed who work under the distributor.  Orders are collected from the retailers via phone or visits by the labour employed by the distributor.  Transportation cost is borne by Amul  Orders received are placed online with GCMMF (Dewas Naka).  Robust IT Mechanism helps to collect orders and places them quickly from the company.  It takes maximum 1-2 days to get materials from Warehouse to the distributor.  As there is a large demand for goods, frequents checks need to be performed regarding the stocks in the shop which is done using calculation on basis of sales.  Sometimes clashes with other distributors occur for territory.  If products get expired then claims are refunded within fifteen days. However, this may sometimes take a bit longer time also.  Sales Figures:10 -12 lakhs per month Category Product Dairy (Buttermilk, Ghee Butter) 2.75-3.5% Fresh (Milk, Curd) 3%-4% Frozen (Ice cream, Chocolates) 9%-10% Category-wise Margin Structure
  14. 14. SALES MANAGEMENT PROCESS BY DISTRIBUTOR Distribution function •The distributors have an area assigned to them which is done by the company itself and they use area mapping system depending on the population and distance from the warehouse. •The distributor not only sells to retailers but also sells to large mass merchandiser and other outlets who order in large quantities. Credit and Sales •Distributor gets the material from Amul on a credit period of 15 days. And he gives a credit period of 10 days to the retailer. •Each distributor has a sales force of 7 to 8 people who are responsible for collecting order from various retailers on phone or physically go and collect orders. Territories •The distributor has the DMS (Distributor Management System) facilitated by the company which is installed in his computer. This system helps the company to keep a track of the amount of products a particular distributor is selling over the year and this helps in distribution of incentives and benefits to the distributors at the end of year. •Each territory has 10-15 APO (Amul Preferred Outlets) i.e. exclusive retailers for Amul which are managed by the distributors. Gujarat Headquarters Amul Warehouse Distributor SalesManagementStructure
  15. 15. ANALYSIS AT RETAILER LEVEL – Tirupati Enterprises DistributionSystem -Distributor sends material when ordered over telephone. -Lead time is 2 to 3 hours only since the distributor is located in close vicinity. -Orders are send either on pickups or 2 wheeler also depending on the quantity ordered. The costs are borne by the distributor. -Lead time for delivery of goods is 2 hours. Margins -Sales amount ranges from Rs. 30,000-35000 a month. -3% extra margin which available on goods that have invoices are transferred to the retailers by the distributors. -17% margin for all products. -More margin on frozen segment than dairy and fresh segment. Problems -Poor service levels have made Amul less competitive. -Old and expired Products are not exchanged and repeated reminders also fail to wake the distributors. -No incentives are provided if extra products are sold or if extra orders are made. -All advertisement costs are paid by the retail store. The functioning of the distribution network was also analysed from the perspective of the retailers. One such retailer that we visited and surveyed is Tirupati Enterprises.
  16. 16. ANALYSIS AT HYPERMARKET LEVEL – MORE The functioning of the distribution network was also analysed from the perspective of the hyper-retailers. One such hyper-market that we visited and surveyed is MORE. More Retail Outlets Places Orders Orders placed to Mumbai office Order is placed with GCMMMF Orders shipped to More by GCMMF CENTRALISED ORDER MECHANISM FOR MORE OUTLETS ACROSS THE COUNTRY TO TAKE ADVANTAGE OF ECONOMIES OF SCALE They have a warehouse to stock their goods that they receive and have refrigerators to keep the SKU’s. Transportation and shipping charges are paid by AMUL Margins of 3-4% on AMUL 213 SKU’s available out of which 144 have very less probability of a stock-out In case of expiry, MORE has to destroy the product since AMUL does not have a return or refund policy Cash rewards and related benefits are awarded to outlets based on the EBITDA values. 480 stores and 18 hyper markets are used for the calculation of EBITDA.
  17. 17. EXISTING SALES MANAGEMENT AT AMUL The Sales Management System RetailerDistributor GCMMF Warehouse State Co- operative Milk Marketing Federation District Dairy Cooperatives Farmers & Milk Producers Distribution chain: The flow from farmers to final retailers  AMUL is also part of Global Dairy Trade (GDT) platform, where only the top 6 dairy players of the world sell their products.  GCMMF operates through 56 Sales Offices, has a dealer network of 10000 dealers and 10 lakh retailers. It has one of the largest such networks in India.
  18. 18. SALES & MANAGEMENT AT AMUL Amul has a very wide range of products available for distribution. More has as many as 213 SKUs. Thus, sales are higher as the retailers have a variety of products that they can offer to the customers. It is necessary for the distributors to be sure of which products to be pushed forward and which are the most profitable along with the speed with which they sell. Inventory management throughout the distribution system is quite well maintained. The larger distributors and stores like more, with higher inventory being carried, have electronic systems for tracking the inventory. Thereby cost is minimized, problems of excessive carrying costs or that of stock outs is also easily taken care of. Inventory management and product portfolio at Amul retail stores
  20. 20. COMPARISON: AMUL v/s SANCHI SANCHI AMUL Management Dairy co-operative under the Madhya Pradesh State Cooperative Dairy Federation Limited (MPSCDF), largely based out of Bhopal and Indore. Formed in 1946 in Anand, Gujarat. It is managed by the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF). Organization Structure Three-tier structure with MPSCDF at the State-level Federation, followed by Regional Level Milk Unions and then Village Level Dairy Cooperative Societies. Amul's structure has the National, State, District and Village levels, with GCMMF coming under the National Cooperative Dairy Federation of India. No of SKUs sold in Indore 10-12 In general 144 but nationally it is more than 400 Most preferred SKU Liquid Milk Butter Product Categories Less diversified Too much diversified portfolio of products. Highest selling product in terms of packaging 500 ml pouch milk 1 Litre pouch milk Sales A total of 450 litres of Sanchi milk is sold in Indore in a day. A total of 450-500 litres of milk is sold per day(rough estimates)
  21. 21. COMPARISON: AMUL v/s SANCHI (contd.) SANCHI AMUL Distribution Margins Distribution margin is Rs. 1.42 on a litre, irrespective of the SKU size. Distribution margin is Rs. 1.30 on a litre, and it varies depending on the SKU size. Shelf life Lower i.e. 50-60 days higher, 180 days from MFD date No. of Distributors in Indore 7 10-12 Inventory management No godowns. Direct shipping Stocks are kept in a godown (only one in entire M.P ) in Indore Incentives structure To Retailers Rs 1000 worth products free for the first 5 months Not much incentives provided Pricing Sanchi Milk is priced at Rs.38 for the 1-litre Gold pack. After the recent price hike, Amul Gold costs Rs. 48 for the 1 litre SKU.
  22. 22. RECOMMENDATIONS 1 • There is a huge demand for Amul Products in Madhya Pradesh and it becomes very difficult to operate from a single point of sale i.e. warehouse only in Indore. Amul could look to increase the number of Warehouses and Distributors so that it can have greater ease of operation and at the same time increase its customer base. 2 • Goods incentives based on sales target are being currently being stopped by Amul which is de-motivating the Amul retailers. Needs to offer a better Incentive than Amul Yatra which is currently offered. 3 • Investment from company’s side is decreasing down the chain. So the company must focus on various aspects of Promotion, Advertisements, and Providing incentives to retailers. 4 • The current demand forecasting system needs to be better managed and needs to be redesigned as retailer and distributors are always in a fear of Stock out. 5 • It is unaware of the competition it is facing from local dairies. They have similar product lines with no preservatives in their products. They can become a major competitor in the future. Need to focus on them also. 6 • Use of IT systems should be made mandatory at both retailer and distributor level
  23. 23. RECOMMENDATIONS (contd.) 7 • Amul can also go for better deals with the supermarket chains and the unreached hypermarts which will help them to capture a larger consumer base. 8 • Claims related to refund and return policies of the retailers and distributors needs to be looked at because if the promises made by the company are not fulfilled it creates a lack of trust for them. 9 • The company can focus on their entire system to help them grow in Indore and make an impact on ‘Make in India’ initiative 10 • Amul could also build a perception in the mind of consumer and project itself as a more health- focussed brand as consumers are increasingly becoming health conscious and looking for sources of nutrition
  24. 24. REFERENCES  15/articleshow/47284976.cms   115051400858_1.html      industry     station/articleshow/50784250.cms  marketing-federation 