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Chapter 1

Introduction

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1.1 The Dairy Industry in India Dairy industry is of crucial importance to India. The country is the world’s largest

milk producer, accounting for more than 13% of world’s total milk production. It is the world’s largest consumer of dairy products, consuming almost 100% of its own milk production. Dairy products are a major source of cheap and nutritious food to millions of people in India and the only acceptable source of animal protein for large vegetarian segment of Indian population, particularly among the landless, small and marginal farmers and women. Dairying has been considered as one of the activities aimed at alleviating the poverty and unemployment especially in the rural areas in the rain-fed and drought-prone regions. In India, about three-fourth of the population live in rural areas and about 38% of them are poor. In 1986-87, about 73% of rural households own livestock. Small and marginal farmers account for three-quarters of these households owning livestock, raising 56% of the bovine and 66% of the sheep population. According to the National Sample Survey of 1993-94, livestock sector produces regular employment to about 9.8 million persons in principal status and 8.6 million in subsidiary status, which constitute about 5% of the total work force. The progress in this sector will result in a more balanced development of the rural economy.

India has the highest livestock population in the world with 50% of the buffaloes and 20% of the world’s cattle population, most of which are milch cows and milch buffaloes. India’s dairy industry is considered as one of the most successful development programs in the post-independence period.

In the year 2006-07 the total milk production in the country was over 94.6 million tonnes with a per capita availability of 229 gms per day. The industry had been recording an annual growth of 4% during the period 1993-2005, which is almost 3 times the average growth rate of the dairy industry in the world. Milk processing in India is around 35%, of which the organized dairy industry account for 13% of the milk produced, while the rest of the milk is either consumed at farm level, or sold as fresh, non-pasteurized milk through unorganized channels.

Dairy Cooperatives account for the major share of processed liquid milk marketed in the India. Milk is processed and marketed by 170 Milk Producers’ Cooperative Unions, which federate into 15 State Cooperative Milk Marketing Federations. Over the years, several brands have been created by cooperatives like Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma (Kerela) and Gokul (Kolhapur).

Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu are the milk surplus states in India. The manufacturing of milk products is obviously high in these milk surplus States. Exports of dairy products have been growing at the rate of 25% per annum in the terms of quantity terms and 28% in terms of value

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since 2001. Significant investment opportunities exist for the manufacturing of value-added milk products like milk powder, packaged milk, butter, ghee, cheese and ready-to-drink milk products.

India has emerged as the largest milk producing country in the world with present level of annual milk production estimated as 94.5 million tones with an expected production level of 135 million tonnes by the year 2015. India has a large livestock population base constituting 278 million livestock including 180.5 million cattle, 82.8 million buffaloes, 4 million sheep and 9.2 million goats. The livestock population is projected to increase to 322 million by the year 2015. The large livestock population is raised primarily on crop residues and grazing in the common property including basement. The forest area, which was a major source of grazing, is no longer available to livestock breeders especially landless people. As a consequence, the available feed resources fall short of the nutritional requirement. The shortfall is estimated as 59.9 million tonnes for the green fodder and 19.9 million tonnes for dry fodder. This shortfall is likely to increase by 2015 to 63.5 million tonnes of green fodder and 23.56 million tonnes of dry fodder.

The landless people are, therefore, likely to face severe shortage of resources to raise cattle and other species of livestock. There is a real danger that in the absence of resources to maintain their stock, these under-privilege rural people may give up livestock farming. This could be a serious setback to lakhs of rural families who derive income as well as employment opportunities from livestock sector.

India prepares to tackle the international market following Japan, where milk consumption today, has more than trebled to 70 kg per capita from a mere 20 kg in the ‘sixties – the consumption of dairy products in other Asian ‘tiger’ nations is also growing. As a consequence – creating excellent export opportunities for India, as these nations are deficient in milk by at least 3 million tonnes per year. India, with some 27 per cent of Asia’s population, accounts for more than half of the milk output with enough growth potential to explore foreign markets. In anticipation of the export opportunities and in view of the post GATT scenario, India is gearing up to tackle the demands of the international market.

Indian companies are preparing themselves to meet international standards and other non-tariff barriers. Planners are taking measures to meet the sanitary and phyto-sanitary specifications – prescribed by Office International des Epizooties (OIE) under the auspices of the World Trade Organization (WTO) -, which range from the quality assurance of processed dairy products to the health status of livestock.

“Milk production is likely to reach about 190 million tonnes in 2015 from current level of about 123 million tonnes,” the ASSOCHAM study, titled, ‘Indian Dairy Industry: The Way Ahead’, said. India – the world’s largest milk producer – accounts for around 20 per cent of

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global milk production, with most of it consumed domestically, it added. In India, about 60 per cent of milk is consumed in liquid form, while the remaining 40 per cent is used in the form of butter, clarified butter (desi ghee), cheese, curd, paneer, ice cream, dairy whiteners and traditional sweets. “Growing at about 10 per cent annually, the Indian dairy industry is predominantly controlled by the 4norganized sector, which accounts for nearly 85 per cent,” ASSOCHAM Secretary General D S Rawat said in a statement. About eight crore rural families across India are engaged in dairy production and the rural market consumes over half of the total milk produced, he added. According to the study, an upward spiral in prices, the lack of proper infrastructure like cold storages and absence of a transparent milk pricing system are affecting retail consumption of milk and leading to escalating milk prices in the domestic market. The lack of fodder, resulting in low yield from cattle, is another problem affecting the sector, it added. Despite overall food inflation easing marginally to 10.63 per cent for the week ended November 5, milk prices grew at a faster pace of 10.74 per cent during the period. The private sector can play a pivotal role in reducing the cost of milk production by employing advanced techniques to enhance productivity, providing breeding facilities for cattle and by developing processing and marketing infrastructure, Rawat said. Andhra Pradesh, Bihar, Haryana, Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh are the leading milk producing states in the country. 1.2 Company Profile

The Orissa State Cooperative Milk Producers' Federation Limited (OMFED®) is an apex level Dairy Cooperative Society registered under Cooperative Society Act – 1962. It has come into existence to integrate the milk producers in rural areas with consumers in the urban areas with an enterprising aptitude. OMFED®'s main activities include promoting, production, procurement, processing and marketing of milk & milk products for economic development of the rural farming community of Orissa.

1.2.1 The Management of Omfed

The Orissa state Cooperative Milk Producers' Federation ltd. is controlled by a Board Of Directors which consists of Chairman of all affiliated Milk Unions, three nominees of Government of Orissa, a nominee from the National Dairy Development Board and Managing Director of the Omfed (the ex-officio member) .The Chairman of the BOD is elected amongst the members of the Board. The post of Chairman of the Federation is honorary.

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1.2.2 Objectives The organization was established with the following objectives – To carry out activities for promoting production, procurement, processing and marketing

of milk & milk products for economic development of the rural farming community. Development and expansion of such allied activities as may be conductive for the promotion of the dairy industry. Improvement and protection of milch animals and economic betterment of those engaged in milk production. In particular and without prejudice to the generality of the forgoing objective, the federation may: • Purchase and/or erect building, plant machinery and other ancillary objects to carry out

business • Study problems of mutual interest related to procurement, marketing of dairy and allied

products • Purchase commodities from the members of other sources without affecting the interest of the

members, process, manufacture, distribute and sell them same, arrange to manufacture / purchase and distribute balanced cattle feed and for the purpose to set up Milk collection and chilling centers, Milk Processing Plants, Product factories etc, in any of the district covered under its area of operation.

• Provide veterinary aid and artificial insemination services and to undertake animal husbandry activities so as to improve animal health care disease control facilities

• Advice, guide and assists the Milk Union in all respects of management, supervision audit functions

• Render technical, administrative, financial and other necessary assistance to the member unions and enter in to collaboration agreement with someone, if the need arises

• Advise the member unions on price fixations, public relation and allied matters

1.2.3 Vision

To be a leading milk producing organization at international level of efficiency with widest and satisfied customer base, maximizing wealth of stakeholders & contributing to the state economy.

1.2.4 Mission

• Advancement of dairying, encouraging and educating people, through mutual participation.

• Continuous endeavor to increase productivity & per capita consumption.

• To promote clean milk production and distribution with state-of-art technology.

• Customer satisfaction with reliable, uninterrupted services and quality products.

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• To foster a performance oriented culture encouraging innovation.

• To promote a congenial work climate encouraging employees to participate and contribute for organizational growth.

• To be a learning organization and responsive to changing environment.

• Continuous upgradation of skills & competence of employees & their career advancement.

• To enrich quality of life of people and preserve ecological balance.

1.2.5 Organizational Structure

Most of the dairy farmers (“Gowalas”) live in villages. They are organized into Milk Producers’ Cooperative Societies (MPCS). The MPCS collect milk from the dairy farmers, test it for milk content, fat content, SNF content, and sends it to a Milk Union. The procurement target given by OMFED for the year 2012 is 80,000 liters per day (LPD) according to the information given by Mr. P. K. Pani, the procurement in charge at Bhubaneswar Dairy, Chandrasekharpur, Bhubaneswar. The number of farmers varies from one MPCS to another. All members do not pour or supply milk on all days. This is partly because a cow does not give milk throughout the year. The farmers are required to supply only the surplus milk after consumption (marketable surplus). If they wish to sell milk in the open market, they may do so, but in that case, they will have to leave the cooperatives; falling prey to the Village Milk Vendor, an exploiting agent.

Table 1.1

SL. No. District Block Place Capacity 1 Balasore Remuna Remuna 30,000

2 Jagatsinghpur Tirtol Tirtol 10,000 3 Puri Tangi Chandeswar 10,000 4 Khurda Bhubaneswar Chandrasekharpur 2,50,000 5 Dhenkanal Dhenkanal Dhenkanal 10,000 6 Kalahandi Sadar Bhawanipatna 20,000 7 Sambalpur Sambalpur Sambalpur 50,000 8 Sundargarh Sundargarh Rourkela 30,000 9 Ganjam Ankuspur Ankuspur 20,000 10 Keonjhar Keonjhar Sadar Silisuan 10,000 11 Koraput Jeypore Jeypore 20,000

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1.2.6 Achievements Table 1.2

Sl. Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

No.

01 Organised D.C.S. (No.) 4387 4625 4684 4835 5022

02 Farmer Membership (No.) 236199 246410 244295 253343 260611

03 Milk Procurement (KPD) 288270 294383 298823 342663 370179

SALE OF MILK & MILK PRODUCTS

01 Milk Sale (LPD) 252400 277394 341890 380302 420100

02 Ghee Sale (MT) 395.334 389.610 309.916 577.499 433.522

03 SFM Sale (Bottle) 1579778 1635986 1950906 2013757 1908756

04 Sweet Curd sale (MT) 752.290 739.105 585.750 645.659 727.391

05 Butter Sale (MT) 11.147 12.160 6.843 8.153 5.69

06 Plain Curd Sale (MT) 2870.886 3802.126 5522.073 7469.949 6888.853

07 Butter Milk (Pkts) 4545185 5947118 7492035 7775500 5610572

08 Paneer (MT) 332.042 545.811 464.983 510.623 411.671

09 Chhenapoda (MT) 17.073 38.732 79.893 47.474 33.956

10 Lassi (Pkts) 1886983 2478910 3920300 4912900 5601153

Physical Achievements of Omfed for the past five years as on March, 2012 ,2012

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Table 1.3

SL. NO. PARTICULARS 2006-07 2007-08 2008-09 2009-10 2010-11

(Prov)

1 Share Capital 469.89 494.96 497.94 999.38

999.38

2 Turnover 17058.30 21420.16 26974.88 31581.04

38640.27

3 Gross Profit 1152.24 1489.82 2472.38 2446.52

3018.19

4 Net Profit(After Tax) 27.81 (229.42) 280.44 345.35

226.26

Financial Parameters of Omfed as on March 2011

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Figure 1.1

Operational Area of OMFED

1.3. Products

Table 1.4

Ice Cream

Mango Magic 50 ml. Cup 5.00

Mango Magic 100 ml. Cup 10.00

Product Name of the Product Packaging Size Unit M.R.P. (Rs)

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Mango Magic 500 ml. No. 35.00

Mango Magic 1000 ml. No. 65.00

Mango Magic 4000 ml. No. 225.00

Ice Cream

Very Vanilla 50 ml. Cup 5.00

Very Vanilla 100 ml. Cup 10.00

Strawberry 50 ml. Cup 5.00

Strawberry 100 ml. Cup 10.00

Butterscotch 50 ml. Cup 8.00

Butterscotch 100 ml. Cup 15.00

Chocolate 50 ml. Cup 8.00

Chocolate 100 ml. Cup 15.00

Family packs

Very Vanilla (Family Pack) 500 ml. 35.00

Strawberry (Family Pack) 500 ml. 35.00

Butterscotch (Family Pack) 500 ml. 40.00

Chocolate (Family Pack) 500 ml. 40.00

Party Packs

Very Vanilla (Party Pack) 1000 ml. 65.00

Strawberry (Party Pack) 1000 ml. 65.00

Butterscotch (Party Pack) 1000 ml. 75.00

Chocolate (Party Pack) 1000 ml. 75.00

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Bulk Packs

Very Vanilla (Bulk Pack) 4000 ml. 225.00

Strawberry (Bulk Pack) 4000 ml. 225.00

Butterscotch (Bulk Pack) 4000 ml. 280.00

Chocolate (Bulk Pack) 4000 ml. 280.00

Preminum Variety Ice Cream Packs

Packs will be used for scooping purpose

Real Pineapple 4000 ml. 300

Vanilla Chaco Chips 4000 ml. 320

Real Black Current 4000 ml. 520

Butterscoth Premium 4000 ml. 390

Tooty Fruity 4000 ml. 690

Real Mango 4000 ml. 355

Strawberry Fantasy 4000 ml. 770

Cone / Bar

Ripple Cone (Chocolate/Butter Scotch) 120 ml. 15.00

Chocobar 60 ml. 12.00

Tooty Fruity

Tooty Fruity 500 ml No. 37.00

Tooty Fruity 1000 ml No. 70.00

Tooty Fruity 4000 ml No. 260.00

Keshar Pista 100 ml Cup 18.00

Keshar Pista 500 ml No. 80.00

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Keshar Pista 1000 ml No. 155.00

Keshar Pista 4000 ml No. 600.00

Malai Kesar 100 ml Cup 15.00

Malai Kesar 500 ml No. 47.00

Malai Kesar 1000 ml No. 90.00

Malai Kesar 4000 ml No. 340.00

(This will be marketed through authorized OMFED ICE CREAM distributors)

Omfed Peda *Available from Rourkela Dairy

Packet 10 pieces

25.00

Double Toned Milk

Poly Pack 1 Ltr. 22.00

Toned Milk

Poly Pack

1 Ltr.

24.00

Cold Coffee 200 ml

Disposable Bottle

No. 13.00

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Sweetened Flavoured Milk 200 ml

Disposable Bottle

No. 13.00

Butter Milk 250 Ml.

Pouch

No.

6.00

Ghee

1 ltr.

500 Ml.

200 Ml.

100 Ml.

Poly jar

Poly jar

Poly jar

Pouch

No.

No.

No.

No.

350.00

180.00

75.00

37.00

15 Ltr. Tin No. 4500.00

Sweet Curd 80 Gram.

Cup

No.

7.00

Plain Curd

100 Gram.

200 Gram.

400 Gram.

500 Gram.

Cup

Cup

Cup

Cup

One Cup

6.50

13.00

24.00

26.00

Whole Milk Curd

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200 gm Pouch No 8.00

500 gm Pouch No 20.00

Table Butter

500 Gram.

100 Gram.

Pack

Pack

No

No

133.00

27.00

Lassi 250 Ml.

Pouch

No

8.00

Chennapod

500 Gram. V.Pack No 80.00

250 Gram. V.Pack No 42.00

100 Gram.

V.Pack

No

18.00

Cottage Cheese (Paneer)

10Kg / 5kg BLOCK No 170.00per kg

500 Gram V.Pack No 95.00

200 Gram V.Pack No 40.00

Rabidi 80 Gram.

Cup

No.

12.00

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Chapter 2

Introduction to the Study

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2.1 Background and significance Being a student of Marketing, I, in consultation with my external company guide Mr. N.

R. Khadanga and my internal faculty guide and course coordinator Prof. Sujit Kumar Patra decided on this topic since distribution and logistics form the core and threshold of the marketing activities of an organization which are associated with the four ‘P’s of marketing – Product, Price, Place and Promotion.

This is extremely relevant in the context of the topic of my study because focusing on the distribution channel of the market leader of liquid milk opens up avenues and scopes of enhancing the efficiency of the channel in addition to helping me have an understanding of the activities of the channel members. This is applicable in light of the objectives, vision and mission of the organization – achieving and sustaining international standards and fortifying public relations and enhancement of rural Orissa.

2.2 Objectives of the study

• The objective of this study is to look into the various intricacies involved in and obtain insight about the distribution system of OMFED liquid milk.

• The study includes certain observations from the survey conducted at authorized OMFED milk booths and aims at having an understanding of the channel management which is quite distinct in nature as opposed to the routine distribution channel of other F.M.C.G. products.

• This study also aims at looking into the inbound and outbound logistics associated with the distribution system of liquid milk of OMFED. This includes gaining knowledge about the procurement as well as the dispatch and final delivery of the product to the milk booths.

• Finally, the study also aims at deducing certain inferences and conclusions and suggesting some recommendations based on the data collected from the survey at OMFED milk booths.

2.3 Scope

The scope of this study involves an overview of the functionalities of the organization, especially in the purview of the distribution system; from the chilling plant at Bhubaneswar Dairy, Chandrasekharpur, Bhubaneswar to the milk booths. This study covers the details of the activities of the channel members or intermediaries and identifies the link which exists among the same. This is inclusive of the processes involved in procurement, interactions with the

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channel members starting from the organization to the authorized milk booth agents, the order size of milk booth agents, as well as the benefits or margins enjoyed by them. The study also comprises the learning from visits to a Bulk Milk Cooler (B.M.C.) under Puri Milk Union and the visits to 90 odd authorized OMFED milk booths; it tries to highlight the answers to the questions: “What actually takes place and how?” in the distribution system of OMFED.

2.4 Limitations

• An inherent, but minor communication gap between me and the booth agents. • Not all milk booth agents were very sanguine about the functioning of the distribution

channel and benefits they receive from OMFED and were more focused on their profits and were reluctant to share information readily.

• The time that could be squeezed for collecting data and information from the milk booths was very little as I had to move around in the delivery trucks and we had to be moving to different booths in a particular route.

• I encountered many people who were eager to take distributorship of OMFED but shrunk away after I communicated the criteria and procedure to obtain the same since allotment of distributorship involved a lot of inspection from the organization’s part.

• Distributors selling competitor brands of OMFED were hard to convince since they seemed to overlook the benefits offered from OMFED and were more concerned with margins and credit.

• I could cover authorized OMFED milk booths of the ‘Evening Routes’ only since the distribution for the ‘Morning Routes’ begins late at night.

2.5 Research Methodology

Research Methodology qualifies as one of the most indispensable components of the project. It is by far most necessary for reaching conclusions and inferences about the data collected in the course of the survey conducted and study made on the topic. The project and study was based on a survey conducted by me at 90 odd authorized OMFED milk booths. The primary objective of the survey was to collect relevant data and gather information pertinent to my topic of study so as to obtain an insight about the functionalities and activities of the distribution system and draw certain conclusions based on the results.

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2.5.1 Research Design

Descriptive Research: The survey was conducted in the city of Bhubaneswar and Cuttack – • To understand the product & service offering by OMFED. • To assess the customer demand and channel efficiency of the distribution system. • To obtain data and information regarding booth visits and order size for further value

addition.

Although OMFED has a wide range of product categories starting from dairy products to horticulture products, I was directed to cover the distribution system of liquid milk of OMFED; its procurement as well as final delivery by my external company guide Mr. N. R. Khadanga. So I had prepared a questionnaire for the various milk booth agents whom I had visited while delivery of liquid milk. So my survey was mainly questionnaire and interview based.

2.5.2 Geographical Coverage

The market survey was conducted in the cities of Cuttack and Bhubaneswar as mentioned earlier. I had covered four of the evening routes of distribution (delivery); namely Route Nos. 1, 6, 8 of Cuttack and Route No. 11 of Bhubaneswar. The areas I had covered in the delivery vehicles are as follows –

Cuttack:

• Traffic Tower • Stoney Road • Satichaura Road • Sectors – 7, 9, 11 • High Court CDA • Badambadi Lane • Pithapur • City Hospital • Seminay Chhak • Dagarapada • Mahatabnagar

Bhubaneswar:

• Old Town • Lingaraj Mandir & Lingaraj Railway Station

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• Mahatab Road • Bhimatangi • Ekamra College Chhak • Sankara Bazar • Laxmisagar Bazar • ANI House Chhak • Canal Road • SS Vihar

2.5.3 Data Source & Type i Primary Data: This data has been collected directly from the markets visited with the help

of the questionnaire I had prepared for the authorized OMFED milk booths. This also includes results from interactions I had with the agents.

ii Secondary Data: This data includes information about the organization, its vision mission and objectives and its performance with respect to prevalent market conditions and status of the dairy industry and liquid milk market of India and Orissa in particular.

2.5.4 Research Instruments 1. Questionnaire: The questionnaire was designed primarily to obtain the necessary

numerical data pertaining to the milk booth agents; their order size, sales, demand etc.

2. Interview: The interview was taken mainly with the respective members of the organization, in-charges of the distribution system, personnel of Milk Producers’ Cooperative Society and finally the booth agents.

2.5.5 Sample Size

The sample size for my survey was 90 booths, the population size being 950 booths

2.5.5 Statistical Tools

The statistical tools used to get results are mainly mean and standard deviation.

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Chapter 3

Findings and Observations

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3.1 The Jagannathpur Chapter

On 14th May, 2012, I along with Mr. P. K. Pani, the Procurement-in-charge visited the Milk Producers’ Cooperative Society at Jagannathpur of Nimapada Unit in Puri District across Nimapada and Peepli; a Bulk Milk Cooler (BMC) where the cow milk is chilled. Over there I had an interaction with Mr. Pramath Kumar Das, the President and Mr. Kailash Chandra Mishra, the Secretary and gathered certain information and data about the procurement starting from the grassroots level.

Most of the dairy farmers (“Gowalas”) live in villages. They are organized into Milk

Producers’ Cooperative Societies (MPCS). The MPCS collect milk from the dairy farmers, test it for milk content, fat content, SNF content, and sends it to a Milk Union. The procurement target given by OMFED to Puri Distrct for the year 2012 is 80,000 liters per day (LPD) according to the information given by Mr. P. K. Pani, the procurement in charge at Bhubaneswar Dairy, Chandrasekharpur, Bhubaneswar. The number of farmers varies from one MPCS to another. All members do not pour or supply milk on all days. This is partly because a cow does not give milk throughout the year. The farmers are required to supply only the surplus milk after consumption (marketable surplus). If they wish to sell milk in the open market, they may do so, but in that case, they will have to leave the cooperatives; falling prey to the Village Milk Vendor, an exploiting agent.

The hierarchy of the MPCS is as follows. The President and Secretary are appointed by the board of directors of OMFED from the members of the MPCS. The members of each MPCS are registered with the respective milk unions which in my case study would be the Puri Milk Union Limited (PUMUL). PUMUL, according to the target set by OMFED which in this case is 80,000 LPD allots quantities of cow milk to be procured to each MPCS and its BMC according to its capacity and efficiency. In this context it is important note that there are a total of 10 MPCSs under PUMUL.

3.1.1 Details of Activities

The entire procurement process can be divided into three main stages which involves the following –

1. There are milkmen assigned by the MPCS to collect cow milk from the dairy farmers who are members and are registered at Jagannathpur MPCS. The MPCS at Jagannathpur has a labour force of about 25 people. The milkmen move around in

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bicycles in the villages and visit the dairy farmers carrying two cans of capacity 20 liters each for collecting the raw cow milk. After collection of the raw cow milk, these milkmen assemble these cans at a particular point. This happens in numerous trips. This particular MPCS has two motorized vehicles – Tata Ace which move around and collect these 20 liter cans from these points in numerous trips and brings the raw cow milk at the Bulk Milk Cooler (BMC) of Jagannathpur MPCS.

2. The activity which follows this step is sampling and quality determination of the raw

cow milk collected. This is done so as to determine what price is to be paid to the dairy farmers who supply the raw cow milk. In this process two conventional scientific instruments (devices) with which this process is executed; the “Lactometer” and the “Butrometer”. The Butrometer is a device for measuring the fat content of milk. There is another component called Solid Not Fat (SNF) which actually helps in determining the price to be paid to the dairy farmers. There is this particular two way table for determining the SNF content. The intersection of the Corrected Lactometer Reading and the Fat Content Reading gives the SNF content of the milk that has been procured. (Please refer to SNF calculation chart in Appendices)

3. Next, the raw milk is chilled at the BMC. Tankers of PUMUL leave from OMFED

(Bhubaneswar Dairy) collect this chilled milk from these BMCs in two shifts; morning and evening and bring it to the respective dairy, which, in this case, is the chilling plant at Bhubaneswar Dairy, at Chandrasekharpur, Bhubaneswar for the procured milk to undergo further processes like homogenization, pasteurization, chilling, etc.

3.1.2 Other issues

• The capacity of the Bulk Milk Cooler (BMC) at Jagannathpur is – it can chill 2000 liters of raw cow milk per shift (morning and evening), per day.

• The cost of the machinery installed at the BMC for chilling the raw cow milk collected is about Rs 3-5 lakhs.

• Constant monitoring is carried to address the efficiency of these BMCs. • To meet the increasing demand of OMFED liquid cow milk, more quantities of milk

need to be procured. In this light 4 more BMCs are about to be established; 3 at Astaranga and 1 at Kakatpur. (Please refer to “The Jagannathpur MPCS at a glance in Appendices)

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The following figure illustrates the procurement and dispatch channel of OMFED

Figure 3.1

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3.2 The Distribution system

The distribution system of OMFED liquid milk is a very interesting one; the channel members being only two namely the organization and the authorized milk booth agents. Now let us look into the intricacies involved in it.

3.2.1 Criteria for Allotment of Milk Booth:

For Bhubaneswar, Cuttack, Jajpur, Puri, Jatni, Nimapada and Khurda, application in plain paper is to be submitted to Dy. Gen. Manager (Marketing), Bhubaneswar Dairy through respective Marketing-In-Charges of that area. For other places application should be submitted to Plant Manager of respective dairies enclosing Photo Identity Card /Driving License and Sketch map of the proposed location/site. After receipt of the application, field verification is to be done by field supervision staff and if report goes in favour of the applicant, he has to submit the following document for consideration of his application. • In case of Private land, the applicant has to furnish land document on ownership of

land/house. • In case of rented house Xerox copy of the agreement is to be furnished. • In case of Govt./municipality land permission is to be obtained by the applicant from the

concerned Department.

Allotment of booth will be considered on the basis of the following criteria: • Substantial distance from one booth to another booth is to be maintained taking into account

the sale potentiality of location /area. • Applicant should have sound financial background to deposit the cost of the required milk in

advance. • Allotment is to be done provisionally for a period of one year which will be renewed after

reviewing the performance. • After allotment, Rs. 1000/- is to be deposited towards security deposit and an agreement is

to be executed on Non-Judicial stamp paper amounting Rs. 5/-.

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3.2.2 Criteria for Allotment of Product Distributorship: For Bhubaneswar, Cuttack, Jajpur, Puri, Jatni, Nimapada and Khurda, application in plain paper is to be submitted to Dy. Gen. Manager (Marketing), Bhubaneswar Dairy through respective Marketing-In-Charges of that area. For other places application should be submitted to Plant Manager of respective dairies enclosing Photo Identity Card /Driving License and Sketch map of the proposed location/site. After receipt of the application distributorship will be considered on the basis of the following criteria: • Applicant should have sound financial background along with business experience. • Applicant should have valid SHRIN/TIN from Commercial Tax authority. • Applicant should have required manpower and own distribution vehicle for distribution of

products. • Allotment will be done for a particular area as per the requirement/feasibility. • Product will be supplied against 100% payment (Cash/DD), EX-Dairy/Godown. • After allotment Rs. 5000/- is to be deposited for distributorship of all OMFED Products and

Rs. 2000/- for fresh Milk products only as refundable Security amount.

3.2.3 Functionalities, Activities & Observations

Now, having looked into the criteria, let us see how actually the activities and functionalities take place in the distribution channel –

• First, the authorized milk booth agents place an order size at OMFED which is known as the

indent. The agents place the indents for both the morning and evening shifts according to the estimated demand for that shift.

• The agents make the payment before hand through a ‘challan’ (Please refer to sample challan in the Appendices) through various banks with which OMFED has tie-ups. OMFED has tie-ups with seven different banks. For example, Union Bank, Omfed Square, United Bank Of India, Shahid Nagar, Bank Of India, Bapujinagar. In this context, it is important to note that all transactions are carried on a cash basis and no credit is given; the rationale behind it being liquid milk is a perishable product. And besides liquid milk being a perishable product, had OMFED given credit to its booth agents, collection of the same would have been next to impossible since the channel members are few but the number of

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authorized OMFED milk booths where milk is suppled from Bhubaneswar Dairy, Chandrasekharpur is enormous—

Total No. of authorized OMFED milk booths under Bhubaneswar Dairy………………1200 No. of milk booths in Bhubaneswar……………………………………………………….700 No. of milk booths in Cuttack……………………………………………………………..250 Other cities covered: Puri, Konark & Jajpur Average no. of grocery stores where OMFED liquid milk is supplied…………………..9-10

• The final, packaged liquid cow milk is loaded in crates and is then dispatched for delivery to the milk booths. In this context, let us look into the outbound logistics and details of the vehicles deployed for delivery as shown in the following table. Type & Make Tata 407 Tata 709 Tata Ace Capacity 2700 liters 3500 liters 1000 liters Total no. of vehicles deployed from Bhubaneswar Dairy, Chandrasekharpur: 62

One driver and one/two assistant/s move in every truck while delivery of milk packets. Payment to the driver : Rs. 4000/- Payment to the assistant(s): Rs. 2000/-

• There are exceptionally well designed beat plans/route maps known as “Truck Sheets” (Please refer to Truck Sheets of Evening Routes covered) which efficiently cover the milk booths in the areas of Bhubaneswar, Cuttack etc. There are route-in-charges who have been assigned the job of overseeing the channel efficiency of their respective routes; the one under whose guidance I made the survey being Mr. S. K. Swain, route-in-charge of Route Nos. 9 & 11. No. of Morning Routes: 24 Time of loading for Morning Routes: 2:30 A.M. No. of Evening Routes: 11 Time of loading for Evening Routes: 12:00 P.M.

In this case, it must be noted that these vehicles are deployed on the basis of contracts OMFED has with various transport companies. The route maps/beat plans are designed in such a way that every authorized OMFED milk booth is covered both in the morning as well as the evening shifts. Apart from this, while moving in the delivery vans covering different evening routes, I observed that after crates were unloaded at a certain booth, the vehicle

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moved off to another booth and while returning the empty crates of the previous booths were collected back.

It was also seen that there are certain authorized OMFED milk booths which is directly

inaccessible by the delivery truck. In that case certain delivery men have been assigned the job of collecting the milk packets in bags and take them to the respective milk booths on their bicycles. Payments to these delivery men are done by the respective milk booth agents.

3.2.4 Margins and other benefits

Orissa State Cooperative Milk Producers’ Federation offers a good number of benefits along with margins to the booth agents. These can be attributed to the following –

• Margins:

Cost of production/liter : Rs. 22.65 Per liter price at which milk is sold to the agents: Rs. 23.15 Per liter price to the customer : Rs. 24

• From the above numerical data, it can be observed that OMFED keeps a margin of 2.2% whereas the milk booth agents enjoy a margin of 3.67%.

• Apart from this there is a provision of free packets according to the indent placed by the milk booth agents. For every 50 liters, OMFED gives two 500 ml packets free to the booth agents.

• Besides, OMFED offers a unique benefit of insurance worth Rs. 1,00,000 which is provided to the authorized booth agents. We have seen earlier that the agents make a profit of 85 paisa/liter. Now, from this 5 paisa per liter per day is deducted from the profit of the booth agent and is deposited in the agent’s provident fund. So if an agent makes a sale of Rs. 1000/- on a day, Rs. 50 is deposited in his provident fund account. The authorized OMFED milk booth agent can redeem this amount whenever he likes for further investment; enhancement of the existing infrastructure of his milk booth.

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3.3 Other issues • While surveying in a couple of the modern trade retail outlets – Reliance Fresh, Ravi

Talkies and Garage Chhak I found that the benefits of insurance and free packets are defunct in those cases and the order size is also less. Moreover, the store managers reported that the number of damages was on the rise due to the summer season and the cooling facility is not adequate.

• The authorized OMFED milk booth agents are required to keep the basic promotional material on display and more importantly, they are not allowed to keep promotional material and products of the competitor companies which are Milky Moo of Milk Mantra based at Gope, Konark, Kamdhenu and Seashore; which was found to be true during my survey.

• The criteria for distributorship are optimally flexible and a milk booth agent is given the

distributorship on the basis of many underlying factors. It is mentioned earlier that one booth should be at a substantial distance from another, yet it was found that there was occasional digression from this criteria. This is because of a demand forecast factor. For example, there is an existing milk booth at Garage Chhak. Now some new establishments and apartments are about to come up shortly in that area. Considering this situation, OMFED has decided upon allotting distributorship to agents in that area to meet the upcoming demand and also so that a single booth is not overburdened and at the same times it does not lose its sales.

This flexibility in the criteria has been interestingly identified in the type of milk booth and agents. There are certain counters which have sufficient infrastructure yet they have lower sales than an agent who has no proper infrastructure and makes a sale of about 1000 liters by the road side near Lingaraj Mandir.

The challenging job of the route-in-charges also involve converting agents of

competitor companies into agents of OMFED by properly, efficiently and effectively communicating the margins and benefits to the agents which I actually witnessed with Mr. S. K. Swain.

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Chapter 4

Data Analysis &

Interpretation

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4.1 Data Analysis & Interpretation Following are the details and interpretations of the data that had been collected while conducting the survey at 90 odd authorized milk booths of OMFED of the “Evening Route” in Cuttack and Bhubaneswar. (Please refer to questionnaire and response sheet in the Appendices)

• Type of liquid milk sold or ordered from OMFED

The above data clearly shows that the almost all milk booths (99%) of OMFED order for and sell F.C.M. – Full Cow Milk clearly because definitely its demand is always at the peak. Besides, OMFED deals in F.C.M. because cow milk has less fat. The fat in cow milk also has greater percentage of unsaturated fat. Cow milk also contains carotene, because of which cow ghee is yellowish in colour. Carotene is an anti oxidant and also is converted to Vitamin A in the body. For all these reasons cow milk is superior to buffalo milk. Also, F.C.M. marketed by OMFED has 3 to 4% fat and 8 to 9% non fat milk solids. This is standardized with minimum interference in natural milk. The percentage of fat varies depending upon supply and demand of milk. By adopting this procedure, OMFED is able to assure supply of milk in a fluctuating market.

F.C.M. 89 99%

Double Toned 0 0%

Both 1 1%

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• Average order size/indent registered at OMFED per day for “Evening”

The above data is in sync with the mean indent placed by the milk booths in the “Evening” which was calculated to be 93.4222 liters. As we can see above – 71% of the authorized OMFED milk booths order/place an indent in between 10 liters and 100 liters. Also it can be seen that OMFED focuses more on booths selling higher quantities and less on booths with lower sales. The idea is to have more booths with lower sales and less of higher sales so as to evenly distribute the bulk of milk to be supplied and sold by the milk booths.

• Awareness about margins and other benefits

10-100 litres 64 71%

101-200 litres 20 22%

201-300 litres 4 4%

301-500 litres 2 2%

>500 0 0%

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As we can see from the above data and figure, it is quite evident that the majority of the authorized OMFED milk booth agents is aware of and has access to all the margins and benefits offered to them. This proves that the margins and benefits have been well communicated by OMFED to the booth agents. Those who are not aware of all the benefits are aware of the margin of 2.2% and the quantity discount of 2 free packets per 50 liter and are small agents with moderate or low sales.

• Average estimated daily demand per milk booth

From the above data it is evident that the bulk of the daily demand lies between 100 liters and 200 liters in 41 booths followed by in between 200 liters and 300 liters in 20 booths. This speaks of the rising demand of customers for OMFED F.C.M. thus justifying the fact that OMFED is still the market leader in Orissa as far as liquid milk is concerned.

A margin of 2.2 % from OMFED 27 30%

Insurance Benefits 0 0%

Free Packets 25 28%

All of the above 63 70%

</=100 litres 6 7%

>100 & </=200 41 46%

>200 & </=300 20 22%

>300 & </=500 15 17%

>500 8 9%

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• Average demand in the evening shift per milk booth

Looking into the previous two data types, we can pool them and interpret that the daily demand may lie between 100 liters and 200 liters, but during the evening shift, the demand is contained within 100 liters per booth. This also has the link with the consumer behavior which in this case is that the bulk of the customers buy relatively more in the early morning than in the evening.

• Estimated daily sales per booth

</=100 47 52%

>100 & </=200 29 32%

>200 & </=300 6 7%

>300 & </=500 2 2%

>500 0 0%

More than Indent placed [71]

Less than Indent placed [19]

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According to the above data collected, we see that the majority of the milk booths are able to sell off the quantity of indent they order. Coming to those who don’t, they use the milk of the left over packets in other products (making tea or lassi) or sell them off to the local tea stalls and thus they dispose of the unsold milk packets.

• Shifts in which each milk booth is covered

The above data is a reflection of the efficient distribution system of OMFED. As mentioned earlier, the delivery trucks try to deliver at every authorized milk booth twice; once in the morning shift and once in the evening. Clearly as the data collected from the agents suggest in the above chart, the bulk (84) of the counters surveyed (90) are covered in both the shifts; thus helping OMFED cater to the high demand of F.C.M.

Less than Indent placed 19 21%

Equal to Indent placed 71 79%

Morning 0 0%

Evening 6 7%

Both 84 93%

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4.2 S.W.O.T. Analysis

Strengths

• OMFED has been and continues to be the market leader in the product category of liquid milk.

• A well integrated organization structure with distinct hierarchies starting from the MPCS and Milk Unions till the Federation level.

• A well planned procurement process with effective inbound and outbound logistics rendering the entire distribution channel efficient.

• Effective and constant implementation of the mantra of Operation Flood which involved flow of milk from rural to the urban and flow of cash from urban to the rural.

Weaknesses • There is no system or provision as such for monitoring the distribution of liquid milk. • There is no presence of a separate distributor thus the entire burden has to be taken by

OMFED solely; breaking the bulk is not prevalent. • OMFED has not made provisions for installing promotional material at places where its

competitors are ruling the market; for example, the Vivekananda Marg Area. • OMFED does not offer high margins as compared to its competitors; for example Milky

Moo offers the retailers a margin of Rs. 1.20 per liter.

Opportunities • There are areas in Bhubaneswar and Cuttack where there is a lot of potential to allot

new authorized booths especially in places where new apartments are coming up. • Although, the Orissa market is somewhat saturated, OMFED can still extend its

distribution channel beyond the borders of Orissa since its mission is to reach international standards in the long run.

• OMFED might reconsider the production of Double-Toned milk so that it can target, acquire and build upon the customer base who are health conscious.

Threats • A potential threat to the company in the long run can be the new models of distribution

which are being adopted and implemented by OMFED’s competitors especially that of Milk Mantra’s Milky Moo.

• Another threat can be the low shelf life of OMFED liquid milk as compared to Milk Mantra’s Milky Moo which has a higher shelf life.

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Chapter 5

Conclusions

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5.1 Conclusion

OMFED is no doubt the market leader as far as liquid milk is concerned; the organization being the oldest player in the market and having developed a very effective and efficient distribution system starting from the procurement till delivery of cow milk. It has undoubtedly been a great boost to the economy as a whole. Now, if we try to pool the data collected in the survey and the findings and observations we can infer certain conclusions –

• OMFED has been able to cover the entire market evenly as far as distribution of liquid milk is concerned by virtue of its well designed ‘Truck Sheets’ and by focusing on the key areas and also seeing to it that the norms of the organization as well the criteria for distributorship are adhered to in almost all the cases.

• Although no credit facility can be incorporated, OMFED with proper tie-ups with banks and constant communication with the booth agents have simplified the transaction procedure.

• Further, OMFED has been successful in capitalizing on the fact that it is a State run

organization thus enhancing its functionalities by offering its agents more than just a nominal margin; the benefits of free packets and insurance of Rs. 1,00,000.

• Another intriguing which is evident from my survey as well as the findings and

observations is the exemplary delegation of responsibilities to the channel members. This includes assigning of delivery men by the milk booth agents, a proper payment system to the dairy farmers and optimum and effective logistics. This, in my opinion has been the driving force behind the absence of channel conflicts which is quite rampant in case of organizations this big.

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5.2 Recommendations

Having discussed about the intricacies of the distribution system; the details of its functionalities, I have come across certain issues which struck me; issues which OMFED may reconsider. Following are a few recommendations which I believe can be implemented for the wholesome enhancement of the organization; the distribution system in particular –

• First of all, I would suggest the organization to customize the criteria for distributorship of liquid milk, if not flex it. The rationale being there may be situations arising where there is scope of harvesting from an unexploited market, but it may not be possible to satisfy all the criteria at a time; apart from the legal protocols of course.

• According to the information obtained from the organization, Bhubaneswar Dairy is falling short of the daily demand of liquid milk. In order to check this gap, more BMCs are required to be installed and more potential dairy farmers need to be convinced to become an integral part of the respective MPCS. This can be achieved by dint of OMFED’s Public Relations tools.

• As hinted earlier, in order to have an even stronger competitive edge over its

competitors, OMFED can reconsider restructuring the distribution channel so as to break the bulk and evenly distribute the burden.

In this context I would like to share certain information which I had gathered from the Head Office of Milky Moo. Milky Moo has adopted a two pronged approach of distribution; first direct sales to retailers and second sales through a distributor. The distributor collects the milk packets directly from the chilling plant at Gope or else delivery trucks go on distributing the packets to distributors at various strategic parts of Orissa. These distributors then sell it to the retailers of Milky Moo.

So this is one approach which can be modified and utilized by OMFED so as to further enhance its already efficient distribution channel.

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• The previous recommendation has an additive. In order to appoint a distributor, the distributor needs to have adequate investment capacity as well as proper storage facility since milk is a perishable product. In this context OMFED can look into and consider changing the packaging material from the existent one to a tetra-pack one so as to increase the shelf life of the product since I had mentioned earlier in my report that certain retailers of modern trade are complaining about the product getting damaged very soon. This way the distributor can hold his stock or clear it accordingly without much worry about the product getting damaged.

• Finally, I would like suggest about the margins, benefits and price of the product. But first I would like to bring to notice a typical consumer behavior and perception which suggest that consumers often associate low price with low quality. OMFED has been priced quite compared to its competitors. No doubt that the costs are covered, but the point is although OMFED offers a lot of additional benefits, it might not be easy to communicate that to a booth agent who is not quite sanguine about insurance and the like; booth agents whose primary look out is for his margin. So OMFED can reconsider increasing the margin and price its product a little high so as to shift gears fro price leadership to product leadership as well; rather an optimum mix of both.

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Appendices

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The Jagannathpur MPCS at a glance

1. Name of the MPCS : Jagannathpur 2. Regd. No. & Date : 853 Vet 1985 dt. 01.10.1985 3. Address : At – Jagannathpur

P.O. – Othaka Via – Kakatpur District – Puri

4. Block : Kakatpur 5. G.P. : Othaka 6. Area of Operation : i Jagannathpur

ii Somanathpur iii Tavagolaragada iv Banamalipur Sasan v Madhuban

7. Date of opening : 17.08.1984 8. Date of A.I. Centre opening : 05.12.1985 9. Total no. of members : 121 10. Name of the President : Mr. Promod Kumar Das 11. Name of the Secretary : Mr. Kailash Chandra Mishra

Free Facilities Provided by PUMUL

• Vaccination for FMD, HS & BQ. • Deworming medicine for milch animals. • Deworming medicine for female claves. • Subsidized balanced cattle feed and mineral mixture. • Insurance coverage for milch animal for three years. • Insurance coverage for farmers through LIC. • Incentives for fodder cultivation. • CMP Programme under Govt. of India. • Different training programmes for up-gradation of knowledge of farmers (Society

Management, Animal Husbandry, A.I., First-Aid Training Programme, Fodder Development, Tester Training etc.).

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• Conducting infertility camp and supply of free medicines. • Supply of milko-tester at subsidized rate. • Installation of Bulk Milk Cooler (BMC). • Finance of milch animal without any interest for needy farmers.

Jagannathpur Bulk Milk Cooler

1. Name of the Bulk Cooler Centre : Jagannathpur

2. Unit : Nimapara

3. Capacity : 4000 LPD

4. Plant Grant Received : Clean Milk Production

5. Society attached : 8 Nos. –

• Jagannathpur MPCS • Chandikuda MPCS • Danduasi Hota MPCS • Nilakanthapur WDCS • Kadampatna • Berji Sahi MPCS • Basumati C.C. • Gajanan C.C.

6. Average Milk procurement : 2000 LPD

Fat : 4.5% SNF : 8.4%

7. Managed by : Jagannathpur MPCS