In this article, we will share the experience of Mr. R. S Sodhi, Managing Director of Amul, He explains How to reduce the cost to make and market a product?
How to Reduce the Cost to Make and Market a Product
Introduction
This article we will start with the Golden Statement:
Farmers can get the best price of milk only when they not only produce milk but also process and market it under a brand name.
How to reduce the overall cost of production?
Amul pays 80% of its revenue to farmers and remaining 20% is used for meeting their expenses, which includes:
Procurement, processing, and packaging = 15%
Distribution cost = 5%
Amul is able to reduce its cost by making its supply chain efficient.
Tips to reduce procurement, processing and packaging cost
- Good quantity of raw materials
- Good quality of raw materials
- Latest technology, which should have low maintenance charges
Tips to reduce distribution cost
- Make a product affordable to lower middle class. This will help you to generate huge sales volume for your products.
- It will further enable you to bargain and convince your retailers and wholesalers to market your products even at low margins, which will automatically reduce your distribution cost.
Example:
- FMCG companies give 8-10% margin to their retailers.
- However, Amul provides only 3-5% margin to its retailers and 1.5-1.75% to its wholesalers.
- Despite of this, retailers and wholesalers the products of Amul are for common man and affordable. So, they give huge volumes to retailers and wholesalers.
- So, per unit margin is low but the margin is very high on a high volume.
Also Read: How to Scale Up Your Business
How to bring efficiency in your supply chain?
To bring efficiency in supply chain, you need to build a proper structure and procedure to complete the production and market your product as done by Amul by establishing a 3-tier structure of Amul in brief.
Tier-1: Procurement of Milk – Village Level
- 200 village families form a cooperative society.
- The society performs the task of milk procurement from farmers and testing the milk.
- It gives money to the farmers on the spot.
Tier-2: Processing and Packaging of Milk – District Level
- Village cooperative society transfers milk to the nearest district level processing, value addition, and packaging unit, which is called dairy plant.
- One processing plant covers around 1,000 villages.
Tier-3: Distribution and Marketing of Milk – State Level
- From dairy plants, milk is sent to state level federations for distribution and marketing purposes.
How to build SKU products?
There is no need of market research in India for food products. It can be launched by just testing on team members’ wives.
So, if you are into food industry, then you can launch SKU products or variants of existing products by:
- Observing which food is preferred by people
- Make a prototype of the food product and ask your team members and family members to taste it
- Taste the product yourself as well
- If majority of people like the taste, then launch it
How to build commercial dairy farms?
Dairy business seems to be an old-fashioned and traditional business to the youth of villages.
However, you can make it more glamorous, contemporary, and start-up India by:
- Building commercial dairy farms by having 25-30 cattle instead of 4-5 cattle
- Using milking machine instead of hand milking
- Using computerized feeding system and good shed
You can easily get loan from bank to establish a commercial dairy farm.
Benefits of commercial dairy farms business
- In starting, you can earn a profit of Rs. 55,000-60,000 per month (after deducting all your expenses and paying loan EMI) by keeping 25-30 cattle.
- This income will keep on multiplying because one cow will give birth to one calf. So, if you have 40 cattle this year, then you will have 60 cattle next year.
- So, your income will keeps on increasing without any investment.
- You will get recurring income in commercial dairy farms business.
- You will get this amount of income in your village only.
- It is one of the sources of sustainable income. Do not think that is a traditional business.
- You will never face recession in dairy or food business.
Commercial dairy farming training by Amul
If you want to build a commercial dairy farm, you can get 7-days training from Amul.
This training covers the following aspects of dairy farming:
- What kind of cows and buffalos should they breed?
- What should be the kind of feeding?
- What kind of shed should they use?
- How to maintain accounting?
- What kind of veterinary service like artificial insemination to be used?
To get this training, you should approach to the:
- Amul’s Distributors, who are available in every district of Gujarat
- Amul’s Village cooperative societies in Gujarat villages
- Out of Gujarat also, Amul has distributors in Punjab, Haryana, Rajastham, UP, MP, Maharastra, and West Bengal
Tips to Get Successful in a Business
1. Strong and determined value system:
Maintain good relationships with your customers and suppliers. Never cheat them.
Give benefits to your suppliers and customers if you are earning good profits.
2. Maintain the quality of your product:
Never compromise with the quality of your product or service even if your have to invest more to maintain the quality
3. Build your brand:
There is no investment in building brand, if you are giving Good product, Good quality, and Good customer service while maintaining consistency.
This will build your brand automatically.
Give a lot of to the Supplier, give a lot of to the Buyer and you'll be able to earn more
Value for Many, Value for Money
Key Learnings
- Make your supply chain efficient to reduce your cost
- Build a proper structure and procedure to make your supply chain efficient
- Maintain good quality and quantity of raw materials and use latest technology to reduce your cost
- Produce a product for lower middle class, which will give huge sales volume and enable you to give products to retailers and wholesalers at low margins
- Get sustainable and recurring income by doing dairy farming business
- Build commercial dairy farms by having 25-30 cattle instead of 4-5 cattle
- Use automatic milking machine, computer feeding system, and a good shade in dairy farm
- Get training of dairy farming from village cooperative society of Amul
- Have strong value system, maintain the product quality, and build your brand to become successful businessman
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