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Amul: The untold story An enParadigm paper on Amul’s strategic ‘fit’, which gives it a unique market position and makes it virtually immune to imitation by competition.

1. Executive Summary

2. What is strategic ‘fit’?

3. The Amul story

4. Amul’s strategic fit

5. About enParadigm

Contents

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enParadigm | White Paper | Amul’s strategic fit | 2


We all know Amul as one of India’s most recognized brands – as a bellwether that

has shaped a significant portion of the country’s economic and agrarian history.

One of Amul’s primary achievements (which is often ignored) is it established that

cooperatives can also be competitive, sustainable, independent and profitable

in the face of national, and even well-muscled international commercial rivals.

This paper explores how Amul built its strategic ‘fit’ as a farmer-owned, profit-

distributing co-operative as well as a lean, market-savvy, R&D-oriented corporate

entity.

First, it created a set of powerful, scalable, sector-specific competitive advantages

that helped it take a leadership position in its market. Next, it ensured these

activities complemented each other, creating a network of interdependent

advantages that are, by design, very difficult for competitors to imitate.

Amul’s strategic ‘fit’ is a clear and uniquely Indian addition to celebrated examples

like Southwest Airlines, Starbucks and Ikea.

Executive Summary

Strategic fit is a network of interdependent and complementary differentiators

designed to provide the company with a unique and sustainable competitive

advantage. From the company’s perspective, it is the process of taking up a clear

strategy based on unique activities relevant to the market – and then

building/matching all its resources and capabilities to strengthen this unique-ness.

For example, Southwest Airlines, a US-based carrier, has been profitable for 41

consecutive years now. Its recipe is a strategic fit, which it achieved by orienting

and developing all its capabilities with a single target customer in mind – the low-

cost flier looking for point-to-point routes between small towns and secondary

airports. While this part seems simple enough, it managed to shape every activity -

from aircraft selection to crew training to ticketing – into a set of differentiators that

supported (and were supported by) the other differentiators.

The Southwest Airlines Strategic ‘fit’ What is Strategy, Michael Porter, 1996

What is strategic ‘fit’


Amul began as a cooperative movement nearly 70 years ago, and has grown into a

federation of many cooperatives - 1,44,500 dairy cooperative societies across 188

districts in 22 Indian states. Their success has been built around combining the

advantages of a cooperative and a corporate model. It’s core strength lies in its

stated principles of a) Linking milk producers and consumers directly and eliminating

the middle-man, b) Ensuring milk producers also control up-stream activities like

processing and marketing, and c) Professional, commercially-sound management to

keep them competitive.

Amul operates on a 3-tier model, with cooperative entities at state, district and

village level. The village co-ops function as daily procurement cells. Milk then flows to

processing units at the district level, while the state unit coordinates marketing,

access, pricing and supply to consumers. It has also established a daily flow of cash

in the opposite direction – cash gets all the way back to village c-ops and farmers are

paid on the same day. This creates an intrinsically credit-efficient system which Amul

has utilized to full effect.

The Amul model With inputs from the IJSER Jan-13 paper by

Dr. Ruchira Prasad and Dr. Rupali Satsangi, ISSN 2229-5518

State Milk Federation

District Milk Unions

Village Dairy Co-ops

Market (consumers)

Member producers

Milk Payment

Milk & milk products

Sales revenue

Bonus Dividend

Additional price diff.

Cattle feed Vet. and AH services Rural health schemes

Financial/tech. support for setup, expansion &

upgrades

Marketing direction, distribution support

The Amul story


Amul’s strategic fit is based on a network of complementary and interdependent

differentiators

Product Variety

Reach & availability

Affordable prices

Quality Massive,

loyal supplier base

Decentralized, networked

supply chain

Lean processing & distribution

Financial security

Health benefits Equity

participation

Products at all price points

Outsourced non-core activities

Heavy IT integration

Surplus/deficit balancing

Tight inventory control

No credit, all-cash transaction

TQM and Kaizens

Cold-chain highways

Across the country

Cattle feed and vet. services

No-frills marketing, utilizing umbrella branding and

emotional/patriotic connect

Profit reinvested in R&D

The Amul Strategic ‘Fit’ © enParadigm Knowledge Solutions

Amul’s strategic fit


Amul from the customer’s viewpoint:

1. Wide variety of products (most

comprehensive dairy portfolio by far)

2. Unparalleled reach (available across

the country)

3. Affordable prices (products at all price

points beginning with the lower end)

Pricing is a major source of advantage for

Amul. With its lean processing and

distribution and scale of operations, it has

the ability to balance surplus and deficit

in supply – a critical advantage in

extremely perishable goods.

Amul offers a full range of

dairy products, at almost every

identified price-point, across a

vast swathe of the country

with reliable deliveries,

assured quality and the

promise of each purchase

being a socially-conscious,

patriotic act.


Amul leverages the advantages of both cooperatives and corporate entities, while

avoiding the pitfalls of both to create an effective ‘fit’. As a federation of cooperatives, it

constantly adds to its membership – creating a massive, loyal and geographically-

distributed supplier base, which is vital for perishable raw materials like milk.

Amul also exploits its social capital, as a successful co-op and a source of pride for

India – which means it needs to spend less than its competitors to generate the

same demand for its products.

Amul from a company’s viewpoint:

1. Massive, loyal supplier base (profit-distributing cooperative model)

2. Lean processing and distribution (outsources non-core activities)

3. Focus on research and development (appropriate reinvestment of profits)

Amul manages its R&D professionally, reinvesting its profits in quality and yield-

focused research, which ensures they stay abreast of large dairy corporations, while

miles ahead of other cooperatives.

Amul thus combines the best of both worlds (cooperative and corporate) to build,

maintain and constantly enhance a network of interdependent advantages that has

thus far proven to be imitation-proof.

About enParadigm

We help you turn your managers into a substantial, sustainable competitive

advantage, through simulation-based interventions aimed at middle and senior

management. Run by industry experts and IIM Ahmedabad alumni, we have

conducted workshops for companies such as Citibank, Coca Cola, HCL, Dell, Dow,

Essar, GMR, HSBC, IBM, Indian Oil, Merck, NIIT, SAP, and Tata Motors.

One key learning from our workshops is the ability to understand the benefits of a

strategic fit for the participants’ company, as well as the tools to effectively work

towards a fit – linking short and long-term activities toward building a unique and

hard-to-copy position for your firm in its target markets.


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