Reverse logistics

jagan_narayan

Tuesday, February 20, 2007
Reverse Logistics : milk procurement systems can feed rural retail outlets

The story of India’s perishable foods business has long been one of innovations. While Amul, via the Gujarat Co-Operative Milk Marketing Federation, has already made a success out of its supply chain, there are many others in the milk and milk-based products that are now trying out various options.

Take the milk supply chain. Broadly, rural farmers / villagers bring their milk daily to the milk collection centre, or agent, for sale. This milk is chilled at the nearest chilling centre before onward transport for processing at the local/ regional dairy. Here the dairy pasteurizes it, converts it into products. This is the supply side of the business, which has essentially not changed.

However, a look through the annual reports of 34 listed food products companies throws up some interesting ideas, of leveraging the logistics of milk procurement for reverse logistics: using the system to drive product penetration into rural markets. Check out Heritage Foods (HFIL), with sales of Rs 245 crore from its liquid milk business and which plans to enter retail in 2006-07.

This is how the company plans to configure its retail supply chain, using its milk procurement chain, in the company’s own words, from its annual report 2005-06: “HFIL has an established supply chain of their dairy business, which procures milk from farmers in Rural Areas (mainly in AP and some parts of Karnataka and Tamil Nadu). The starting point will be to harness the current infrastructure to penetrate into the rural market. e.g. instead of direct retail presence milk collection agents will be mobilized for selling products, reverse logistics in the supply chain can be used to transfer goods from the Urban markets to rural markets; thus able to dis-intermediate the supply chain cost, provide benefits to the rural customer & improve better penetration on the rural areas.

It will connect to consumers through Agents (predominantly current Milk Collection Agents of HFIL) who will sell the goods (mainly FMCG) to the consumers. The value preposition for the rural customer will be the availability of the quality/genuine FMCG products mostly branded ones at a better price. This will also provide opportunity to HFIL to launch & strengthen their private label in rural markets which is slightly easier turf for private label than the urban markets.”

Another dairy firm, Umang Dairies, also outlines its plans in the annual report. It plans to leverage its network of 18 depots, 6 consignment agents and 650 distributors and reaching 2.5 lakh outlets. On the procurement side, it collects milk from 2.5 lakh farmers in 800 villages. Umang plans to put more products through its retail network on one side, and the procurement on the other.

The reverse logistics option has been used in several companies already- like in durables-FMCG; cars-durables combos. But the vast network of milk procurement can still be tapped: the milk collection centres are plentiful, agents are very clued onto local needs and wants, and because of the perish ability of the milk, transport systems are more reliable than otherwise. With the retail boom now spreading into smaller cities of India, there are opportunities on both sides of the chain: all it needs an entrepreneur’s touch.