Business Strategy of Amul: AMUL’s business strategy is driven by its twin objectives of (i) (i) (ii) (ii)
long long-t -ter erm, m, su sust stai aina nabl ble e grow growth th to its its mem membe berr farm farmer ers s alue alue !ro! !ro!os osit itio ion n to a larg large e cust custom omer er base base by !rov !rovid idin ing g mil" mil" and and othe otherr dairy !roducts a low !rice# A ty!ical strategy ma! is given below$ belo w$
%ts strategy, which evolved over time, com!rises of elements described below# &imultaneous 'evelo!ment of &u!!liers and ustomers$ rom the very early stages of the formation of AMUL, the coo!erative reali*ed that sustained growth for the long-term was contingent on matching su!!ly and demand# urther, given the !rimitive state of the mar"et and the su!!liers of mil", their develo!ment in a synchronous manner was critical for the continued growth of the industry# +he organi*ation also recogni*ed that in view of the !oor infrastructure in %ndia, such develo!ment could not be left to mar"et forces and !roactive interventions were reuired# Accordingly, AMUL and MM ado!ted a number of strategies to assure such su ch grow growth th## or e.am e.am!l !le, e, at the the time time AMUL AMUL was was form formed ed,, the the vast vast majo majorit rity y of cons consum umer ers s had had limi limite ted d !ur !urchas chasin ing g !owe !owerr and and was was valu value e conscious with very low levels of consum!tion of mil" and other dairy !roducts# +hus, AMUL ado!ted a low !rice strategy to ma"e their !roducts a/orda a/ordable ble and guaran guarantee tee value value to the consum consumer er## +he succes success s of this this strategy is well recogni*ed and remains the main !lan" of AMUL0s strategy even today# +he choice of !roduct mi. and the seuence in which AMUL introduced its !roducts is consistent with this !hiloso!hy# 1eginning with liuid mil", the !roduct mi. was enhanced slowly by !rogressive addition of higher higher value value !rodu !roducts cts while while maintai maintainin ning g desir desired ed growt growth h in e.ist e.isting ing !roducts# 2ven today, while com!eting in the mar"et for high value dairy
!roducts, MM ensures that adeuate su!!lies of low value !roducts are maintained# 3n the su!!ly side, as mentioned earlier, the membersu!!liers were ty!ically small and marginal- farmers had severe liuidity !roblems, were illiterate and had no !rior training in dairy farming# AMUL and other coo!erative Unions ado!ted a number of strategies to develo! the su!!ly of mil" and assure steady growth# irst, for the short term, the !rocurement !rices were set so as to !rovide fair and reasonable return# &econd, aware of the liuidity !roblems, cash !ayments for mil" su!!ly was made with minimum of delay# or the long-term, the Unions followed a multi!ronged strategy of education and su!!ort# or e.am!le, only !art of the sur!lus generated by the Unions is !aid to the members in the form of dividends# A substantial !art of this sur!lus is used for activities that !romote growth of mil" su!!ly and im!rove yields# +hese include !rovision of 45 veterinary services, su!!ort for cold storage facilities at the village societies etc# %n !arallel, the Unions have !ut in !lace a number of initiatives to hel! educate the members# +o summari*e, the dual strategy of simultaneous develo!ment of the mar"et and member farmers has resulted in !arallel growth of demand and su!!ly at a steady !ace and in turn assured the growth of the industry over an e.tended !eriod of time# ost Leadershi!$ AMUL’s objective of !roviding a value !ro!osition to a large customer base led naturally to a choice of cost leadershi! !osition# iven the low !urchasing !ower of the %ndian consumer and the marginal discretionary s!ending !ower, the only viable o!tion for AMUL was to !rice its !roducts as low as !ossible# +his in turn led to a focus on costs and had signi6cant im!lications for managing its o!erations and su!!ly chain !ractices (described later)# ocus on ore Activities$ %n view of its small beginnings and limited resources, it became clear fairly early that AMUL would not be in a !osition to be an integrated !layer from mil" !roduction to delivery to the consumer57# Accordingly, it chose a strategy to focus on core dairy activities and rely on third !arties for other com!lementary needs# +his !hiloso!hy is re8ected in almost all !hases of AMUL networ" s!anning 9:', !roduction, collection, !rocessing, mar"eting, distribution, retailing etc# or e.am!le, AMUL focused on !rocessing of liuid mil" and conversion to variety of dairy !roducts and associated research and develo!ment# 3n the other hand, logistics of mil" collection and distribution of !roducts to customers was managed through third !arties# ;owever, it !layed a !roactive role in ma"ing su!!ort services available to its members wherever it found that mar"ets for such services were not develo!ed# or e.am!le, in the initial stages, its small and marginal member farmers did not have access to 6nance, veterinary service, "nowledge of basic animal husbandry etc# +hus to assure continued growth in mil" !roduction and su!!ly, AMUL actively sought and wor"ed with !artners to !rovide these reuired services# %n cases where such !artnershi!s could not be established, AMUL develo!ed the necessary ca!abilities and !rovided the services# +hese as!ects are elaborated later in this section# Managing +hird
of third !arties in managing the su!!ly chain were recogni*ed and became fashionable, these conce!ts were !racticed by MM and AMUL# rom the beginning, it was recogni*ed that the core activity for the Unions lay in !rocessing of mil" and !roduction of dairy !roducts# Accordingly, the Unions focused e/orts on these activities and related technology develo!ment# Mar"eting e/orts (including brand develo!ment) were assumed by MM# All other activities were entrusted to 47 third !arty service !roviders# +hese include logistics of mil" collection, distribution of dairy !roducts, sale of !roducts through dealers and retail stores, some veterinary services etc# %t is worth noting that a number of these third !arties are not in the organi*ed sector, and many are not !rofessionally managed# ;ence, while third !arties !erform the activities, the Unions and MM have develo!ed a number of mechanisms to retain control and assure uality and timely deliveries (see the sub-section on oordination for om!etitiveness later in the !a!er for more details)# +his is !articularly critical for a !erishable !roduct such as liuid mil"# inancial &trategy$ AMUL’s 6nance strategy is driven !rimarily by its desire to be self-reliant and thus de!end on internally generated resources for funding its growth and develo!ment# +his choice was motivated by the relatively underdevelo!ed 6nancial mar"ets with limited access to funds, and the reluctance to de!end on overnment su!!ort and thus be obliged to cede control to bureaucracy# AMUL’s 6nancial strategy may thus be characteri*ed by two elements$ (a) retention of sur!lus to fund growth and develo!ment, and (b) limited> no credit, i#e#, all transactions are essentially cash only# or e.am!le, !ayment for mil" !rocured by village societies is in cash and within 45 hours of !rocurement (most, however, !ay at the same time as the recei!t of mil")# &imilarly, no dis!atches of 6nished !roducts are made without advance !ayment from distributors etc# +his was !articularly im!ortant, given the limited liuidity !osition of farmer>su!!liers and the absence of ban"ing facilities in rural %ndia# +his strategy strongly hel!ed AMUL im!lement its own vision of growth and develo!ment# %t is im!ortant to mention that many of the above a!!roaches were at variance with industry !ractices of both domestic and M? com!etitors of AMUL#