Operacle

Operations and Supply Chain

Case Study Challenge

Shreeja MMPCL A Producer Institution owned by Women dairy farmers and the issues
they are facing in their toddlerhood.

The concept of producer owner institutions came to India of late. It is a beautiful concept in
which the producers of resources like agricultural products, milk, honey or silk form a company
by pooling in their resources and becomes the owners of the organization. The producer
members in a shareholding pattern own the company and employ qualified manpower to handle
the day-to-day operations to ensure the profitability. At the end of the financial year; the
producer members share the profits of their company as dividends among themselves. This
concept is beautiful because it envisages stopping the exploitation of the farmers/producers by
the middlemen, private entrepreneurs or corporate entities by ensuring the plough back of the
profits as dividends to the primary producers.

Shreeja Mahila Milk Producer Company Limited (Shreeja MMPCL), an all women milk
Producer Company registered under the companies act on 03rd July 2014, with its Head Office
at Tirupati, Andhra Pradesh. Shreeja MMPCL started its business operations from 15th
September 2014.

The main objective of Shreeja MMPCL is to carry on the business of pooling; purchasing,
processing and marketing of milk to create maximum value for its producer members and at
the same time provide good quality milk and milk products to the customers.

Shreeja MMPCL follows a patronage based shareholding where the members needs to have a
shareholding in proportion to the milk supplied by them and to continue as a producer member,
each women dairy farmer; who are the producer members, has to supply a minimum of 500
Liters of milk to Shreeja MMPCL for a minimum of 200 days in a year. The members are also
classified as A, B and C class members based on the quantity of the milk supplied by them.
Shreeja MMPCL collects milk only from its producer members as per the MOA and AOA of
the company.

The director board of Shreeja MMPCL has of 15 members, which consist of proportionate
representation from all the class of members, 3 expert directors and the Chief Executive.
Shreeja MMPCL has hired qualified professionals to manage the day-to-day business.

The operations:

As on 17th October 2017, Shreeja MMPCLs operations are spread across the Chittoor and
Ananthapur Districts of Andhra Pradesh covering 1,040 revenue villages with a membership
of 73,497 women dairy farmers. On an average, Shreeja MMPCL is collecting 2.91 Lakh Litres
of milk per day (Average daily milk collection for the last 6 months from April 2017 to Sept
2017) through its 2,785 Milk Pooling Points (MPPs). The average milk collection per MPP is
128.99 Litres per day and the average milk procured per member is 4.12 Litres per day with an
average Fat and SNF (solids not fat) of 4.13% and 8.34% respectively. The price per litre of

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the milk, paid to the producer members is based on the % of Fat and SNF in the milk supplied
by them. As per the management decision, Shreeja MMPCL does not accept any milk with an
SNF less than 8% and Fat less than 3%. An analysis of the milk procured by Shreeja MMPCL
for the month of Sept 2017 is given in Annexure 1. Shreeja MMPCL supplies bulk milk to
Mother Dairy Fruits and Vegetables Limited (MDFVPL); a fully owned subsidiary of National
Dairy Development Board and is having an annual contract with MDFVPL for the supply of
3.03 Lakh litres of raw milk per day (Average quantity per day for one year). The unit of
MDFVPL is situated in Tirupati itself. Shreeja MMPCL is also having an agreement with GSK
for the supply of raw milk to their Rajmundry plant in Andhra Pradesh. Shreeja MMPCL has
also entered the local market with their Poly Packed Milk under the brand name Shreeja Milk.

The Daily Dairy Routine:

A producer will milk his cow/buffalo and will bring milk to the MPP, which is manned by a
Palamithra who works on a commission based on the quantity and quality of milk pooled
from the producers and supplied by him/her to Shreeja MMPCL. The Palamithra tests the
quality and quality of milk supplied as per the set standard operating procedures (SOPs) and
accepts the milk. The entire collection happens through Data Processor Milk Collection Units
(DPMCUs). The Quantity and Quality of milk supplied by each producer member will be
recorded against their pourer number in the DPMCUs. DPMCU also issues a printed receipt to
each producer member with the details of the quantity of milk supplied, % of Fat and SNF in
the milk supplied and the price payable. The milk collection at MPP happens twice a day viz;
a morning shift and an evening shift. The duration of each shift is for approximately 1 hour and
the producer members have to visit the MPPs during this window and pour their milk. The
entire milk collection is a semi-automated process.

At the end of each shift, the Palamithra pools the milk from the producers and send it to the
Bulk Milk Cooling Units (BMCUs) or the Chilling Centres (CCs). Before sending the milk,
the Palamithra takes a consolidated statement from the DPMCU; the shift end summary and
also makes a dispatch summary after weighing the total milk received by him/her and by doing
an analysis of the composite sample of total milk collected by him/her for the shift to record
the average Fat and SNF% in the total milk collected.

The Palamithra copies the pourer wise data from DPMCU to a pen-drive and sends the data
and the shift end summary along with the milk to BMCUs by handing it over to the transporter
who visits their MPPs at the set timing which is naturally at the end of each shift. The
transportation of milk from MPPs to BMCUs is using local transport autos, which goes to each
MPP location and lifts the milk cans at a specifically set time. These autos collect milk from
MPPs and carry them to the BMCUs/CCs. This process happens twice a day. On an average, a
transporter collects milk from 13-15 MPPs within a radius of 40 Kms. This transportation of
milk from MPP to BMCU/ CC is called primary transport. The procurement team is in-charge
of the primary transport and the primary transporter is paid on a per Kilometre basis for the
distance they cover for collecting milk cans from all MPPs.

Shreeja MMPCL has 3 Chilling centres with an installed capacity of 1 Lakh Liters and 98
BMCUs with a total installed capacity of 3.11 Lakh litres. Shreeja MMPCL owns ~40% of the
BMCUs and the rest are owned by Mahila Mandal Samakhyas, which are the women self-help
groups managed by the state government. Shreeja MMPCL has entered in to an agreement with
Mahila Mandal Samakhyas for the chilling of milk at their BMCUs for which Shreeja MMPCL
will pay chilling charges to them for the total quantity handled by them.

This case has been prepared by Shreeja MMPCL and intended for the purposes of Operacle | IIM Kashipur

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A Tester and a Computer Operator handle the operations of a BMCU. On reception of milk at
BMCU, they take a composite sample of milk supplied by each MPP to test the milk for quality
based on Fat% and SNF% and also measure the quantity of milk received from each MPP. The
data of each shift will be separately entered online at the time of reception and also the producer
wise milk poured data received from the MPPs in pen-drives is uploaded online. This data is
uploaded to the servers of Shreeja MMPCL. An acknowledgement of the quantity and quality
received from each MPP as per the test results at BMCUs will be issued to each MPP. This
acknowledgement will be handed over to the transporter who carries them to the Palamitras.

Post collection, the operators load the milk to Bulk Milk Coolers, which cools it to 4-6 Degree
Celsius in 4 hours time. The same operations also happen at the Chilling Centres (CCs) but
the differences are; the range of collection of milk at a BMCU is from 2 Kilo Litres to 12 Kilo
Liters while the range of collection at a CC is from 15 Kilo Litres to 40 Kilo Litres, there is
more manpower to handle the operations and also the cooling time is 1-2 Hrs.

Once milk is chilled to 4-5 Degrees, it is maintained at 4 Degree Celsius at BMCU. The Road
Milk Tankers comes to BMCUs/ CCs at designated times. Each RMT will have a driver and a
loader. The loader up on reaching the BMCU will test the quality of the milk by taking a
composite sample and also notes the quantity of the milk handed over to him from the BMCU/
CCs. He records the quantity and quality of the milk in duplicate and a copy of the same will
be handed over to the BMCU/ CC operator. The Road Milk Tankers carry milk from
BMCUs/CCs to the reception docks of MDFVPL. This transportation of milk from BMCUs to
the docks of MDFVPL is known as Secondary transport. The logistics team is handling the
secondary Transport operations.

The MDFVPL up on reception of milk at the docks, test for the quality and quantity of the milk
received in presence of Shreeja MMPCL officials and acknowledge it by issuing a receipt of
the same mentioning the quantity received, Fat % and SNF% to Shreeja MMPCL.

The quality field team also visits the BMCUs, CCs and MPPs to check the quality of milk and
also to ensure the SOPs of milk collection at BMCUs, CCs and MPPs.

Some Penny Talks:

MDFVPL make payments to Shreeja MMPCL once in 10 days for the quantity of milk supplied
to them based on the total Fat % and SNF % in the milk supplied by Shreeja MMPCL. Shreeja
MMPCL makes payments to their producer members once in 15 days based on the data of the
quality and quantity of milk supplied by each producer member for the billing period directly
to their bank account.

Shreeja MMPCL also makes payment of commission to Palamithras for the quantity of milk
pooled by them and also pay the chilling charges to the Mahila Mandal Samakhyas.

The average price per litre paid by MDFVPL is Rs. 30.89 and average price per litre paid to
the producer member is Rs. 25.85. (Data for the 6 month from April - Sept 17)

Last Financial year Shreeja MMPCL made a profit after tax of Rs. 2.34 Crores and paid it back
to the producer members as dividends. The total dividend payment made was of Rs.63.42
Lakhs and the incentives paid were in the tune of Rs. 2.03 Crores.

This case has been prepared by Shreeja MMPCL and intended for the purposes of Operacle | IIM Kashipur

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The IT Infrastructure:

The backbone of Shreeja MMPCLs operations is its strong IT infrastructure. Starting from the
milk collection at MPPs, the producer wise data will reach the servers of Shreeja MMPCL. The
company is also setting up DPMCUs, which are enabled with GPRS so that the data from the
MPPs can directly reach the servers of Shreeja MMPCL on a real time basis at the time of milk
collection itself and the veracity of the data is ensured. The company is using the ERP software
of SAP.

The Man Power:

The Chief Executive heads Shreeja MMPCL and there are 13 functional departments Viz.
Procurement, Finance, Marketing, HR, Quality, Producer Institution Building (PIB), IT,
Purchase, Legal, Logistics, Projects, Field Engineering Services (FES) and Input Services,
which are headed by the Functional Heads.

The field team of procurement is divided in to 20 areas under Area Officers under which there
are field assistants. There is also field force for Quality, PIB, FES, Marketing, IT and Input
Services.

The total employee strength of Shreeja MMPCL is 310 Employees consisting of 82 Employees
on the roles of Shreeja MMPCL and 228 employees on third party roles.

The Operational Glitches:

Shreeja MMPCL is just a 3 year old company which is facing with the teething issues in their
operations. The major issue is the variation between the quality and quantity of milk supplied
by its member producer acknowledged by Shreeja MMPCL in the receipts issued from the
DPMCUs and the quality and quantity of milk reaching the docks of MDFVPL. The problems
might have arisen due to any or many of the operational issues in the entire process as
mentioned below.

The Palamithras may not collect the sample properly

The MPPs have a shift lasting for 1 hour and many of the producer members will visit the MPP
only in the last 10 minutes of milk collection and the Palamithra may not be in a position to
follow the proper sampling technique.

(Please note here that if the samples are collected from a vessel without mixing the milk using
a plunger properly, it will not give a conclusive result about the quality of the milk. If the
sample is collected without mixing the milk and is collected from the top layer; it will show
the fat% higher and SNF % lower and if it is collected from the bottom of a vessel it is vice
versa. So the Palamithra has to collect each sample only after proper mixing of the milk in a
vessel using a plunger to get a conclusive result.)

It may be either intentionally or due to lack of time or knowledge or even the Palamithra will
complete an entire shift by keeping only one good sample from a producer member and
showing the results uniformly for the entire producer members. The producer members who
are dairy farmers might have also compromised on the quality of milk by adulterating and want
to put indirect pressure on the Palamithas in accepting their milk in a hurry due to the time
crunch.

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 Unethical practices followed by the Palamithras

The Palamithra may also not collect a proper composite sample at the end of the shift. There
are chances that the same may also happen with the quantity also which may lead to variations
in quantity of milk procured by him. There is also a wrong practice where some of the
Palamithras may do a local sales of the milk procured by them in their villages and may send
only the balance quantity to the BMCUs. It may also happen that the Palamithras may
adulterate the milk to the extent of quantity sold so that the final quality of the milk sent by
them to BMCUs may be of an inferior quality.

Cascading effect of the errors

The errors / unethical practices committed by Palamithras have a cascading effect. The milk
reaching the BMCUs when tested for Fat% and SNF% will not match with the Shift-end
Summary and the BMCUs can only acknowledge the receipt as per their test results only.

The operational glitches at the BMCUs

The quality and quantity variations arise at the BMCUs as the errors or unethical practices at
the MPP level are continued over here also. Here it is necessary to mention that almost all of
the staff at BMCUs are women who are part of Mahila Mandal Samakhyas in the BMCUs
owned and operated by Mahila Mandal Samakhays and in Shreeja MMPCLs own BMCUs the
staff is employed by the company on third party roles.

Cleaning Issues of BMCUs and Low MBRT

Another major factor affecting the operations of BMCU is that the milking of animals happens
twice a day; at early morning and at late evening. By the time the milk is pooled at MPPs and
transferred to BMCUs, it will be 8-9AM in the morning or 9-10 PM in the evening. The milking
time of animals cannot be altered, as it is a natural phenomenon followed from the time
immemorial. The road milk tankers come to collect the milk from BMCUs between 11 AM to
2 PM. So people manning the BMCUs manage the operations within themselves by taking
shifts though as per SOP both of them should be together handling the operations of each shift.
This leads to further problems. The quality of milk will deteriorate if the cleaning of BMCUs
are not properly done and may lead to fall in MBRT (Methylene Blue Reduction Time), which
is a dye test to assess the microbial load in the milk. The ideal MBRT will be 3-4 Hours but
Shreeja MMPCL is able to achieve only 1-2 hours. The BMCUs will be left un-cleaned till the
next shift after loading the milk in Road Milk Tankers, which leads to precipitation of milk
solids and formation of crust inside the stainless steel tanks of BMCUs, which also impacts the
MBRT. The milk with lower MBRT is considered inferior and there are chances of rejection
by the purchasing party.

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 Issues from the loaders of Road Milk Tankers

The loaders are supposed to do a sampling and acknowledge the quantity and quality of milk
received by them from the BMCUs. But many a times they fail to do a proper sampling; may
be intentionally or may be due to lack of time or knowledge which also leads to quality and
quantity variations in the milk reaching the reception docks of MDFPL. MDFVPL makes
payment to Shreeja MMPCL only as per the test results of their dock for the quality and
quantity.

Variation between the rate mentioned in the receipt and the rate actually paid

Shreeja MMPCL has to make payment to its producer members as per the receipt issued to
them from the DPMCUs at the time of collection. Sometimes due to the operational issues,
Shreeja MMPCL may have to resort to a payment lesser than the one mentioned in the receipt
issued to them and many a times Shreeja MMPCL has to penalize the Palamithras and has to
deduct their commissions and has to make payment to the producer members as per the receipt
issued to them from the MPPs DPMCU at the time of collection.

The fall in trust and competition

All the above issues have led to the dilution of trust of the Producer Members on Shreeja
MMPCL as an organization. The producer members are the real owners of Shreeja MMPCL
the company can only procure milk from its producer members who are the shareholders of the
company. But many a times, though intensive extension activities are carried out; the rural
farmer is yet to understand the nitty-gritties of the concept of producer companies.

There are 36 competitors in the procurement area of Shreeja MMPCL including private and
cooperative dairies that play around with the miniscule price variations and try to tinker with
the system and cox and cajole the customer to pour milk to their dairies. It is to be noted that
none of the competitors have installed such an infrastructure, which is capable of automating
the entire process of milk collection. Many of the competitors are not even involved with the
producers. They only appoint agents in the villages who collect milk from the dairy farmers
and in turn sell to the dairies. Shreeja MMPCL cannot take on the competition without winning
the heart of its producer members. The company also plans to expand to further territories but
the growth path is open only if the current operational lacunas are thoroughly addressed.

Prepare a business plan to ensure the growth path for Shreeja MMPCL by properly
addressing the issues in the operational efficiency.

Post Script:

Dairy and petroleum are the only 2 industries where there can be operational gain. The
operational gain in dairy industry can be mainly due to the slight increase in quantity of the
milk which may be due to the small quantities taken for sampling from the producers before
measuring not being accounted, the drip gain from the vessels and the miniscule overflowing
of milk from the measuring jars at the time of collection. Even if we factor a gain of 0.005 litres
form a producer and when calculated for the 30000 active producer members pouring milk
twice daily to Shreeja MMPCL, that itself accounts for 300 litres of volume gain per day. But
even after factoring this gain, Shreeja MMPCL is yet to bring operational efficiency to an extent

This case has been prepared by Shreeja MMPCL and intended for the purposes of Operacle | IIM Kashipur

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to which this gain is perceivable and the quantity and quality reaching the docks of MDFVPL
is the same as the average of the receipts Shreeja MMPCL has issued to its member producers
from the MPPs at the time of milk collection.

Annexure 1: Pourer Analysis September 2017

Pourer Analysis No of % of Actual % of Total Average

September 2017 Pourers total volume Volume Quantity of
Average milk per day* Pourers Poured milk Poured
(Ltrs/per
SLAB day)

< 5 Litres 14,276 38% 10,74,415 11% 2.5

5-10 Litres 12,632 33% 27,36,899 28% 7.2

10-15 Litres 5,795 15% 21,16,612 22% 12.1

15-25 Litres 3,850 10% 21,64,911 22% 18.7

25-50 Litres 1,254 3% 12,23,647 13% 32.5

>50 Litres 184 0.5% 3,86,964 4% 70.1

TOTAL 37,991 100% 97,03,447 100% 8.5

Source: Company documents

This case has been prepared by Shreeja MMPCL and intended for the purposes of Operacle | IIM Kashipur