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What Walmart can learn from AMUL November 15, 2009

Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Indian Economy, Logistics, Retailing, Supply Chain.
2 comments

1989headerI was reading an article about the visit of
CEO of Walmart
and his meeting with Dr Manmohan Singh. He told the Prime Minister that Walmart’s entry would benefit the farmers and change the agrarian supply chain.

About 2 years back there were numerous articles on how Reliance Fresh was about to revolutionize and streamline the farm to fork supply chain agrarian supply chain by removing all the inefficiencies and middlemen.

So this talk of the Walmart CEO seemed like déjà vu!

I want this to happen and would love to see the vegetable and fruit supply chain streamlined.

But Walmart should look at a different role model and emulate a model which suits the Indian conditions and has already proven to be immensely successful.

In my humble opinion, the most successful agrarian supply chain is the AMUL model which drove the white revolution. A supply chain which handles a highly perishable commodity like milk in huge quantities and over a vast area requires a thousand bows!!

In rural India to be successful you have to go the grassroots and develop models with the involvement of the people and specially tailored and customized to their needs. The Panchayati Raj is just such a model – governance at the grassroots. It is a simple but very effective model.

In rural India, banking did not do well, but micro-finance is catching up. Big packs don’t do well but sachets do well. The list of innovations, specially tailored to the Indian Rural Market and which are successful, could go on.

Conversly, ideas and products plonked from urban markets without tweaking it to suit the rural markets have been failures.

One big failure in the Indian governance system are the schemes to benefit the rural poor. They are not conceived taking the grassroots into confidence or consideration. They are developed in Delhi and other State Capitals with nil or minimal grassroot involvement. The results are plain for all to see.

Amul is a cooperative. The milk suppliers are the shareholders. The owners decide what they should pay themselves for the raw material they supply. A unique situation where the owners of the company are also it’s largest vendors!

In the Amul system milk is collected at the collection centres. These collection centres are in the village, where the milk quantity is measured, the quality is checked and payment is made.

The milk is then transported by vans doing a “milk run” (literally and figuratively) and gets the milk to a chilling centre within 2 hours. At the chilling centre the milk is pasteurzied and then packed. Some surplus milk is sent to a factory to be converted to other milk products. A simple hub and spoke system.

The marvel is that all this was done 40 years back, when road and infrastructure was primitive.

AMUL has successfully used this model for vegetable oil – DHARA.

For the fruit and vegetable supply chain to be successful, the farmers need to organize themselves into cooperatives. That way they will have the bargaining power with the buyers and transporters. Instead of a multitudes of cooperatives, there should 1 per district or state

Next the cooperatives would have to invest in Cold -Storages.The number and location of the cold storages could be decided keeping in view the shelf life, the transportation costs and the investment in cold storages. A good Operations Research problem.

The collection of fruits and vegetables has to be organized. For this the truck routing has to be decided. The Milk Run concept can be applied here. The capacity of the collection vans, the length of the route, the amount of vegetables and fruits to be collected are the variables that need to be taken into consideration to draw out the routes.

The onward distribution of the fruits and vegetables to cities, retail stores can then be organized by trucks or railway parcel vans.

So Mr Walton, if you are really serious and want to revolutionize the Indian “farm to fork” supply chain it would be worth your time and effort to meet Dr Verghese Kurien – the father of white revolution in India and the brain behind AMUL- and learn or lesson or two from him.

Just calling on the Prime Minister and promising things without understanding India seems very hollow and could be painful.

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