Implementation of IT’s tools for enhancing the responsiveness of supply chain: A Case of Food

Industry

ABSTRACT

Information Technology (IT) is an idea that is implemented by Gujarat Cooperative Milk Marketing Federation (GCMMF) for the benefit of rural area people as well as the organization. Amul used IT in such a way that every farmer was benefited from it. This is a huge investment for Amul, but they proved their worth with the implementation of IT in rural areas. This report gives you a detailed analysis of the implementation of IT by a Dairy industry, GCMMF which is popularly known as Amul. The use of IT made the farmers happy as their payments were done as soon as they had delivered milk.

The main concern for Amul was to implement IT in proper manner so that the responsiveness of their supply chain was enhanced. Amul mainly targeted for the benefits of rural people as they are the main suppliers of milk. Customization of IT in rural area was a competitive edge for Amul, which no other Dairy industry could implement. Thus, today they proudly say “AMUL – The Taste of India”.

INTRODUCTION

Information Technology (IT), is the trend that is followed by the major supply chain performing companies in India and elsewhere. Information is crucial to the performance of supply chain because it provides the basis on which supply chain managers make decisions. And thus, Information Technology is a tool used to gain awareness of information, analyze this information, and execute on it to increase the performance of the supply chain.

AMUL started in December 1946 with a group of farmers keen to free themselves from intermediaries, gain access to market and thereby ensure maximum returns for their efforts. Gujarat Co-operative Milk Marketing Federation (GCMMF), popularly known as AMUL had decided to implement Information Technology from 1994. They thought as IT being the key component needed to sharpen its competitive advantage. The guiding principle behind the exercise was to align the information strategy with the business strategy of the organization, and derive maximum benefits from computerization. The main focus was to ensure that the output of one system could become input of another system and vice-versa.

IT that is implemented has various tools, like they have used Very Small Aperture Terminal (VSAT) for the seamless exchange of online information. The EIAS customized ERP packages of GCMMF are designed in such a way that it can be used at various points of supply chain. Geographical Information System (GIS) is used for business planning activity at milk centers and it covers animal census data. And most importantly, all sales offices and wholesale distributors of GCMMF are connected through TCP/IP Internet Mail Account for exchange of information.

THE PROJECT IDEA

The term ‘Digital Divide’ has always fascinated the Indian IT industry. AMUL has been one of the first organizations to use IT enabled transactions. AMUL was in a thought that by implementing IT they could boost up the transactions from the rural areas which covered 70% of the population. GCMMF had studied its structure and operations and prevailing developments in the Information Technology front. That gave birth to Information system plan: A step-by-step planning document for GCMMF. The main concern was to make the Information strategy as an integral part of the business strategy through the end-to end total quality management.

GCMMF had taken the initiative of installing the Automatic Milk Collection Unit system at village societies to enhance the transparency of transactions between the farmer and the co-Operative society. The implementation of AMCUS gave GCMMF enough experience for the deeper exploitation of IT. It benefited from the use of IT as its operations are distributed across the country.

“DISK” model

It is abbreviated as Dairy Information and Services Kiosk (DISK). ‘Disk’ model has built upon the existing applications by expanding the database of the milk societies to include a complete history of milk cattle owned by the member farmers. The details such as the breed and a history of diseases, inoculations, and artificial insemination are maintained in the system. The data history on milk production by individual farmer is also available in the database at the collection centers. This model is designed by IIM-A.

There are many more in the pipeline of GCMMF IT Initiatives, like Enterprise wide Integrated Application System (EIAS) to integrate the Distribution side of the supply chain, DISK to upgrade the application at the Milk collection centers and to connect them to the Internet to access a specialized dairy portal with content delivered in the local language have already started giving the fruits to the rural poor, which has persuaded the rural folks to actively participate in IT Revolution of the dairy industry.

This is the basic idea behind the AMCUS, DISK as well as the other programs that were being initiated by GCMMF successfully and making the maximum what they are intended to be.

COMPANY PROFILE:

Gujarat Cooperative Milk Marketing Federation (GCMMF) which has been market as AMUL is an Apex Co-operation organization and is respected for its credentials even after 56 years after its inception. AMUL started with two villages and 247 liters of milk in 1946. it started with the slogan “Remove middlemen” in Gujarat by the village masses.

The first lesson in milk marketing was learnt when an assured outlet for milk in Bombay stimulated increased milk collection in the villages of Kaira District. The density of farmers increased every day which helped AMUL reach its daily increasing demand. As all the milk was not accepted by the Bombay milk scheme, setting up of a dairy processing unit was the only solution to this problem. There was a need felt for the Dairy plant to process and utilize the milk supplied by the society and as a result the dairy was setup in 1995.

Amul followed a pattern named “The Anand pattern”. This pattern included the Dairy Co-Operative societies at village level and a processing unit called “Union” at district level. It formed GCMMF in the year 1973, which was established for the sole marketing purpose for all the ranges of Amul products. The Products they produced were only milk powder and butter. But later on they have started producing many other products other than butter. They are:

Liquid milk (nine varieties) Milk Powders (5 varieties) Butter Ghee (two varieties) Cheese (three varieties) Bread spread Cocoa Products (two varieties) Sweets (3 varieties) Ice Creams Condensed Milk Edible oil (nine varieties) Mineral water Fruit drinks.

As they had increased the number of products produced thus had to improvise the system also. They implement new structure of GCMMF which is well known as the new Anand Pattern. Determination, Dedication, Discipline are the driving forces of the Co-Operative organization AMUL. The GCMMF consists of 12 affiliated member Dairies/ District milk unions and also coordinates with the manufacturing dairy units for production planning and milk procurement and handles the distribution of milk from surplus union to the deficit areas.

The Anand Patterns that has been implemented by the Dairy Co-Operative societies at village level are given by:

The quality is also an important aspect that is concentrated by Amul for its production of products. Thus the strategy:

PROBLEMS TO BE ADDRESSED

There are various problems that need to be given attention by the dairy industry GCMMF popularly known as Amul. They are:

Logistics in collection of : 6million liters of milk per day From about 10600 separate village cooperative societies Approximately 2.1 million milk producing members

Logistics in coordination of: Storing the milk

Processing the milk

Distributing the milk

Supplier Logistics:

Weighing the milk

Determining of fat content

Calculation of the purchase price

Strong challenge from large organized dairies due to globalization

Considerable time (one week) to test the milk and work out the purchase price through

pass book system resulted in delayed payments to farmers.

OBJECTIVES FOR THE IMPLEMENTATION OF IT

The rural IT empowerment project started by GCMMF had the following objectives:

To build transparency among the farmers towards cooperative society

Training the rural people towards the quality supply of milk

Getting the whole activity chain of GCMMF under uninterrupted information flow

network

To reduce the pilferage

To remove the complexity associated with the village cooperative society milk collection

process

Empowering the rural masses towards self-development activities

To build the competencies in the area of it

To build the transparency and trust amongst the rural people towards the cooperative

system

To face the global competition by effective decision-making.

IMPLEMENTATION OF IT

The EIAS system covers a plethora of operations like market planning, advertising and promotion, distribution network planning, stock control, sales and accounting, budgetary control, quality control management and co-operative service management. Amul has also connected all its zonal offices, regional offices and members dairies through VSATs for seamless exchange of information.

Each of Amul’s offices is connected by e-mail and all of them send a daily report on sales and inventory to the main system at Anand. Also, sales offices, C&F points and wholesale distributors of GCMMF have been connected through the Internet for timely exchange of information. The customized ERP EIAS is designed in such a way that it can be plugged into various points of the supply chain and external system. Moreover, the software is platform independent and can work on any operating system. Amul is also in the process of Web-enabling the entire supply chain so that it can capture key information at the source, and use the same for decision-making. This would include the likes of transporters, member-manufacturing units, oil packing stations, suppliers, depots and the entire field force.

Milk is collected at the co-operative milk collection centers located within 5-10 km of the villages supplying the milk. The number of farmers selling milk to these centers varies from 100 to 1000. The daily milk collection varies from 1000 to 10,000 liters. Each farmer is given plastic identity card. At the counter he drops the card into a box that reads it electronically and transmits the identification number to the PC. The milk is emptied into a steel can kept over the weighing scale. Instantly the weight of the milk is displayed to the farmer and communicated to a PC. The can is connected by tube to a big can, which transports milk to the dairy. One operator is required to fill the can. Another operator sitting next to the can takes a 5-ml, sample of milk and holds it up to a tube of an Electronic Milk-tester (a fat testing machine, which is a local adaptation of an expensive and sophisticated tester made by M/S. ASN Foss Electric, Denmark). The fat content is displayed to the farmer and communicated to the PC, which calculates the amount to be paid to the farmer based on the fat content of the milk. The total value of the milk is printed on a pay slip and given to the farmer who collects the payment from the adjoining window. The payment is automatically rounded to the nearest rupee and the balance due to the farmer is stored so it can be added to the farmer’s payout for the next day.

In many centers the above transaction takes only 20 seconds. The system costs around $2000 and is currently being supplied by at least two private companies. There are 70,000 village societies in India, of which 2500 have been computerized. The farmers benefit as payment is now based on a quick and accurate measurement of fat content and weight and is not subject to the individual methods. Traditional methods require hours to calculate the fat content, as the measurement process (the conventional Gerber method requires laboratory equipment and corrosive chemicals) is cumbersome, and payment to farmers is made every ten days due to the time required by the collection centers to calculate the amount due. The IT system enables prompt, accurate, and immediate payment. The queues at the centers are short despite the number of people selling their milk being quite large. As 2500 centers receive milk from 400,000 farmers daily, the ten-minute savings comes to 180,000 man-days per month.

COMPETITOR PROFILE:MOTHER DAIRY

Mother Dairy, delhi based cooperative is known for giving a strong competition to AMUL. Mother Dairy is wholly owned subsidiary of National Dairy Development Board. Mother Dairy's range of products include the brands Mother Dairy (milk, milk products, curd, ice cream, butter, dairy whitener etc), Dhara (range of edible oils) and Safal (range of fresh fruits and vegetables, frozen vegetables, fruit juices). Mother Dairy’s constant endeavor is to

(a) Ensure that farmers and milk producers get paid properly and customer gets products at reasonable cost (b) Uphold institutional structures that empower milk producers

Both these have been to some extent influenced by information technology. At Mother Dairy, processing of milk is controlled by process automation whereby state-of-the-art microprocessor

technology is adopted to integrate and completely automate all functions of the milk processing areas to ensure high product quality/ reliability and safety.

The importance of speed of operations should be emphasized, because 600 milk collection centers receive milk from 60,000 farmers daily. On an average, if the saving in time per farmer were 10 minutes every day, it would amount to a huge saving to the tune of 10,000 hours per day! The deployment of technology was considered instrumental to realize such savings. Milko-testers reduce the time taken to ascertain the quality and the fat content of milk which in turn helps in overcoming all associated problems of the traditional method of testing such as storage of samples, and handling of corrosive chemicals. However, the calculation and payment of bills remained as cumbersome as ever since the bills were still being calculated manually. The NDDB, in 1988, took up a project to develop an integrated milk collection system to effect immediate calculation and payment of bills to the farmer. For this REIL and M/s ATE Enterprises Ltd. developed prototypes that were tested in two villages in Kheda district, namely Mogri and Bedwa.

Initially the project had many difficulties mainly associated with implementation (excessive dust & breaking down of systems under excessive weights).The implementation of this project has leaded to:

Immediate payment for the milk delivered Accurate information about the fat content, quantity of milk and payment due to the

farmer displayed Greater accuracy in weighing Immediate testing of quality of milk Card reader ensures speed of operation and an error free entry of identification number of

the farmer Elimination of manual registers for all kinds of information and data storage.

THE PROCESS FLOW IS SHOWN IN FIG.

MILK DEMAND AND SUPPLY

Supply:

Supply of milk is affected by the seasonal influences, in summers the milk supplies dip & in winters it soars. Therefore, dairies generally make use of the surplus milk available with them during winters for manufacturing milk powder so that they can meet the increased demand during summers. Moreover the demand forecasting techniques aren’t applied at mother dairy, there being many constraints: firstly the supply of raw materials like milk, and other products is highly unpredictable many climatic and seasonal factors influencing it, secondly the processing capacity is limited.

Demand:

Demand for milk is not very stable either, during festivals its demand increases exponentially. For example, the demand during festivals surpassed even Mother Dairy’s

projections & its booth had to encounter a rare problem of being out of stock, a blot indeed on an otherwise impeccable distribution system of Mother Dairy. Since then, to its credit Mother Dairy brought efficiency in the system & reevaluated its strategy to encounter this problem & to be fair to them they have lived to the expectations of its consumers by making milk easily available.

POTENTIAL THREATS FOR AMUL Enhancing its presence in Mumbai, Mother Dairy has garnered a 5 per cent share

in the ice cream market. Taking advantage of the strong distribution chain used for its Safal brand of peas, Mother Dairy believes logistics and cold chain facilities will hold its brand in good stead in the markets it enters. Mother Dairy, which launched its ice cream brand

FIG: PROCESS FLOW IN MILK PROCURINGlast summer in Mumbai, has been slowly increasing its offerings in the regional markets, after establishing its prominence in the northern States. Mother Dairy has been launching a series of products in the western region including fresh milk, ghee, butter and cheese, which was

introduced recently. However, it has no plans to set up independent retail outlets (such as the ones in Delhi), primarily due to real estate constraints in a city such as Mumbai.

Mother Dairy milk booths are not selling competing Amul's products any more. Also, NDDB has decided to float a subsidiary marketing company, Mother Dairy Foods Ltd, to partner with State dairy co-operative federations in the form of joint ventures. NDDB is further strengthening its marketing and finance divisions, has been in expansion mode on the product front for Mother Dairy ice-creams, and has undertaken a large-scale exercise to revamp its ice-cream push-carts.

COMPETITIVE EDGE

Amul assigned the ERP software development project named as Enterprise-wide integrated application system (EIAS), on a turnkey basis to Tata Consultancy Services. Amul

has also connected all its zonal offices, regional offices and members dairies through VSATs for seamless exchange of information.

Each of Amul’s offices is connected by e-mail and all of them send a daily report on sales and inventory to the main system at Anand. Also, sales offices, C&F points and wholesale distributors of GCMMF have been connected through the Internet for timely exchange of information.

The customized ERP EIAS is designed in such a way that it can be plugged into various points of the supply chain and external system. Moreover, the software is platform independent and can work on any operating system. Amul is also in the process of Web-enabling the entire supply chain so that it can capture key information at the source, and use the same for decision-making. This would include the likes of transporters, member-manufacturing units, oil packing stations, suppliers, depots and the entire field force.

In the co-operative space, this is the first instance of an integrated system. The same system is going to be linked to each member dairy’s ERP system in order to get information about a variety of details. For example, details like milk procurement, production and stocks ready for despatch, wholesale distributor orders, secondary sales, direct consumers and demographic census data are available on the click of a button. This has proved to be extremely effective in streamlining the demand versus supply data activity on a continuous basis.

EIAS, Amul has also been using Geographic Information Systems (GIS) in an innovative way. The company uses GIS in its head office and key marketing offices. Using the Indian map in GIS, the company is in a position to plot zone/depot boundary as well as a pointer for zone, depot and distributor locations, which are superimposed by product-wise sales data. This data is then used for sales and distribution planning according to the various zones.

The unique thing about Amul’s GIS is that it is used for business planning activity at the collection level as it captures the farmer-member census information, which includes animal census data. This has enabled Amul to decipher information regarding milk production and productivity of animals, region wise in Gujarat. This ultimately helps in forecasting milk production according to the region and suggests remedies, if any, for a region that has a lower milk production rate. The same GIS system can also be used for monitoring veterinary health and controlling the outbreak of diseases.

To examine and measure the effectiveness of enterprise systems at business network level. The paper presents the best practice case highlighting how business network systems (BNS) can be redesigned using enterprise systems to strengthen relationships with business partners and to enhance value to consumers.

The findings are quite useful to enterprises in terms of deploying enterprise systems across their value chain. They need not only to re-engineer business processes, but also to innovate new business policies while deploying enterprise systems in order to create value out of IT investment.

The use of information communication technologies (ICT) in the rural areas of Gujarat by Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMFL) has made the operation of the dairy industry different. While it has always been argued that investments related to ICT made in rural India are not effective, the case of Amul proves that "where there is a will, there is a way".

Amul has become rural India's flag bearer in the information technology (IT) revolution. This paper analyses the use of ICT in the dairy industry by the GCMMFL. This system makes it easy for the farmers to get the cash payment as soon as the milk is delivered. The Amul experience indicates that, if properly designed and implemented, the rural poor can benefit from ICT platforms. Customization of IT platforms for use in rural communities is emerging as a major opportunity for change.

Your Federation is extending its Enterprise-wide Integrated Application System (EIAS) by making it Web enabled. When this is completed it will further improve supply chain management and customer management. Federation has been honoured for its IT excellence by the award of Top CIO 2001 Awards in the areas of Supply Chain Management and Customer Management.

In order to bridge the digital divide, there is an initiative to create a Top Level Domain (TLD) for Co-operatives. By developing "Amul.coop" umbrella brand web portal, they are in a position to communicate with all their members and millions of consumers across the world. This will give us vital business advantage and facilitate Amul brand penetration across the world. One of the Co-Operative unions “Banas dairy” started with educating the rural about the cattle, cleanliness and so on because of the systems that are already in place at AMCUS. The Dairy Information and Services Kiosk (DISK) is another initiative that is started with the help of IIM (A) by GCMMFL. There are many more in the pipeline of GCMMFL IT Initiatives.

AMUL after the implementation of IT

The idea of AMCUS has helped GCMMF in a great factor by reducing the time taken for the collection of milk in a society. The reduction in time is measured as 5 minutes per member form the range of 5 to 6 hrs for a whole society. This is a comparative reduction of 75% of time that’s spent on each deal. Thus each farmer is immediately paid for his deposition of milk in the society’s counter on a real time basis.

There is an application software provided to the corporative through the DISK project conceptualized by IIM-A which includes:

Data analysis and decision support to help rural milk collection society in improving its performance.

Data analysis to improve productivity the yield from cattle. Farmers with facilities to place orders for goods and service offered by different agencies

in the dairying sector and collaborates on subjects of interest.

The basic requirements of DISK are already met by the village cooperatives. There might be an upgrade required for the software and hardware in place and an Internet connection would be required. For the portal at the unions, a small server and a leased line would be needed. The union portal can be implemented at a central location at one of the NDDB servers. Projects such as decision support systems and data mining packages are in pipeline of GCMMF action plan. The new E-enabled value chain of GCMMF is shown in the figure below:

THE BENEFITS OF THE AMCUS SYSTEM

The rural people are getting benefited much by the IT initiatives, started by GCMMF. The benefits of various projects such as DISK are yet to be realized. The following are the demonstrated benefits of the ICT platform.

Time reduction

Reduction of pilferage

Reduced human errors

On the spot payments for farmers

Wastage is reduced

Transparency of operation

Operational integration

The AMCUS benefits the farmer community by saving Rs. 1159.4 million per year. The benefits that are accounted above don’t include the knowledge and skill development, quality improvement and the remaining subjective parameters.

Evolution of IT

The implementation of IT systems in Amul took place and brought up the advanced changes they wanted to bring, not only in the system of their working but also in the system of how the farmers contribute to Amul:

The milk collection centers at villages co-operative societies, were first automated

The enterprise wide integration was taken up next.

Application and utilization of GIS

Data analysis software utilization for milk production estimation and increasing

productivity.

VSAT network between all the levels of distribution network and GCMMF.

WEB initiatives-“.coop” domain name, to become the first five Indian companies that

went for web and cyber stores.

CONCLUSION

The experience of conceptualizing and implementing an IT platform for a dairy industry is a challenging task. It is distributed data architecture. The critical factors that contributed to the success of this project are worth look into:

Understanding the baseline operations comprehensively is the starting point for designing

a customer oriented IT platform. The understanding of ground conditions helped Amul to

design the system considering customer needs.

Here again, the implementation was carried out in a limited way and the system was

expanded after validation. The reputation of the agency was a major factor that increased

the acceptance of the new technology.

The new system endowed substantial benefits to the customer. The waiting time for

payment was completely eliminated. In any IT platform if the benefits far outweigh the

costs, the rate of diffusion will be high.

Working closely with the supplier, helped in the hardware/software customization,

thereby facilitating the user acceptance. This also leads to user led innovation through a

pilot exercise before the actual implementation.

Amul had been known for treating all its customers alike. This helped them to create

trust. Existing levels of trust helped them to reinforce the working relationships.

PRESENT SCENARIO

Gujarat: Gujarat Co-operative Milk Marketing Federation (GCMMF) popularly known for its products brand name Amul has become India's first billion dollar co-operative unit after touching the record annual turnover of Rs. 5,255.41 crores (52.554 bn rupees).

It has registered quantum growth of 22.9 pc with an increase of nearly Rs.1,000 crores (10 bn rupees) in absolute terms over the previous fiscal year.

Besides, the GCMMF, the apex marketing body of 13 district milk unions of Gujarat having a membership of at least 27 lakh (2.7 mn) milk producers has reached another milestone by processing almost one crore litres of milk in a single day.

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