best practices in materials management

8/4/2019 Best Practices in Materials Management

1/12

BEST PRACTICES IN MATERIALS MANAGEMENT

USED IN THE ICE CREAM INDUSTRY (AMUL)

(A REFLECTIVE APPROACH)

Prepared By:

SOUGAT CHAKRAVARTTY PRN # 086

Purpose: Assignment for Evaluation

Subject: Materials Management

Faculty In Charge: Mr. Venkatesh V G

Date of Submission: 10th September, 2011


2/12

TABLE OF CONTENTS

INDUSTRY BACKGROUND MM BEST PRACTICES AREAS CHOSEN SOURCING & IT IN MM INDUSTRY TERMINOLOGIES & LEARNINGS FROM THIS

ASSIGNMENT

BIBLIOGRAPHY


3/12

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:

a.Valued at INR 4,300 croreb. Has the Amul brand as the major market player (38% share)c. 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 dairycooperatives. 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 ChainManagement.

b. I wanted to do something different than my peers.c. The industry has been explored from the Marketing, Finance & Sales

angles. Not much emphasis has gone into the Materials Management /

Supply Chain part of it.


4/12

Below is the market structure of the Indian Ice Cream industry:


5/12

BEST PRACTICES IN MATERIALS MANAGEMENT:

In this section, I will try to reflect on the best practices used by Amul in

relation to Materials Management.

I have often come across the term Best Practices in many books & even

during my tenure as an IT professional, but never fully understood it until I

started researching for this assignment. From Wikipedia, I got the following

definition:

Best practices are generally-accepted, informally-standardized techniques, methods or

processes that have proven themselves over time to accomplish given tasks.

From what I have learned & experienced, I believe Best Practices are tools &

techniques used by organizations to achieve specific objectives over given

periods 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 chainnetwork (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 mechanismbringing 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 ChainThis is lacking in most ice creammanufacturing units. Because milk is directly sourced from the farmers, itis cheaper to procure. Most market players outsource this part to dairy


6/12

farms. 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 & AutomationThepresence of EIAS, GIS and DISK makes Amul a formidable presence in the

entire ice cream industry. The integration of ERP with the military-like

Supply Chain provides scope for effective forecasting, enhanced milk

production capabilities, and inventory tracking & management.

In further sections, I shall cover 2 main areas of Materials

Management that are vital to this organizations success.


7/12

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.

Before going on to describe these, here is the Supply Chain of the Gujarat

Milk Marketing Federation (GCMMF), which makes the brand Amul and its

range of dairy products:


8/12

The figure above is a simple form of GCMMFs Supply Chain. However, it is

not all that simple in fact, this Supply Chain is one of the most complicated

ones in the world. What intrigued me most about this network was the

impeccable efficiency & immense precision with which GCMMF has managed

all these years. The core aspects that make this network tick are:

a. Sourcingb. 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 milkedimmediately 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. In the figure above, this 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 are

to 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 isall

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 litres per day. Also, the logistics & distribution of milk to customers

is handled by third parties while the federation focuses on core dairy

activities. Such activities include:


9/12

a. Preparing production plans at different Unions so that each gets a fairreturn on its capacity & market requirement matches the different

strengths of each Union.

b. Maximizing the network surplus excess milk generated.c. 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.

IT IN MATERIALS MANAGEMENT:

With such a large & efficient supply chain, GCMMF would be expected to roll

in 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 theConsumers (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 ofAutomated Milk Collection System Units (AMCUS).b. Implementation ofEnterprise 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 SystemKiosk (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.


10/12

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.

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.

Below is the Information Structure used by Amul:


11/12

INDUSTRY TERMINOLOGIES & LEARNINGS FROM THIS

ASSIGNMENT:

Frankly speaking, Ive never had an assignment that required me to go into

the nitty-gritties of one of the biggest industries ever. What this has done is-

it has made me stop, pause, think & review whatever Ive learned so far.

Being a former IT professional, I didnt think I could cope with the concepts

of Materials Management, Supply Chain, etc. So far, it has been the best

assignment ever given to us. The reasons are:

1. It forced me to think long & hard2. It has generated curiosity in me to better understand the ice cream

manufacturing process & figure out ways to improve on the IT as well as

Sourcing portions of this Supply Chain

3. It has opened up a few interesting career choices.

I came across various industry terminologies while working on this

assignment. Some of them are:

Cold Chain

Warehousing

Inventory

Procurement

Sourcing

Supply & Distribution

Logistics

In conclusion I hope to have benefitted from this assignment as it hasgiven me a clearer picture of the Industry. We could use some more

assignments on such lines to broaden our understanding of basic industry

concepts. And like I mentioned earlier, such an endeavour does open up a

few alternative career choices.


12/12

BIBLIOGRAPHY:

www.amul.com(for the Supply Chain diagram)

http://en.wikipedia.org/Cold_Chain(for definition of the term)

www.rediff.com/business/the-extraordinary-story-of-Amul.html(for statistics)

www.dare.co.in(for the Market Structure)

One on one interaction with Mr Vipin Sharma (PRN # 96), who has worked in

the Projects section of GCMMF- for the Supply Chain & Material Flow
http://www.amul.com/http://www.amul.com/http://en.wikipedia.org/Cold_Chainhttp://en.wikipedia.org/Cold_Chainhttp://www.rediff.com/business/the-extraordinary-story-of-Amul.htmlhttp://www.rediff.com/business/the-extraordinary-story-of-Amul.htmlhttp://www.dare.co.in/http://www.dare.co.in/http://www.dare.co.in/http://www.rediff.com/business/the-extraordinary-story-of-Amul.htmlhttp://en.wikipedia.org/Cold_Chainhttp://www.amul.com/

best practices in materials management

Documents