“Supply Chain Management of KMF”
Under the Guidance of Prof. Rahul Gupta Choudhury
Group 6 (Marketing A)
Neeraj Mishra 08PG243
Nishant Baliyan 08PG107
Santosh Prasad 08PG342
Sai Gunaranjan Churya 08PG265
Saumya Saurabh 08PG192
Vijay Pal Singh 08PG282
TABLE OF CONTENTS
1.1. INDUSTRY OVERVIEW ………………………………………………… 2
1.2. COMPANY OVERVIEW…………………………………………………. 6
2.OBJECTIVE OF STUDY……………………………………………………… 13
3.1SUPPLY CHAIN OF KMF………………………………………………… 14
3.2 KMF CHILLING CENTER, ANEKAL…………………………………… 19
3.3 FUTURE PLANS………………………………………………………….. 21
4. CONCLUSION………………………………………………………………… 22
5. REFERENCES………………………………………………………………… 23
1.1 Industry Overview
Dairy industry in India:
Dairy industry is an important occupation of farmer. In India nearly 70% of the
people depend on agriculture. It is the backbone of India. Dairy is linked with agriculture
industry to a large extent. Animal husbandry in India is an essential part of agriculture. It
is mainly a rural population closely associated with agriculture.
India is the largest producer of milk in the world with a total production
of 84 million tonnes in 2001 (Hemme et al 2003). It also has the world‟s largest
livestock population, housing 57% and 16% of the globe‟s buffalo and cattle respectively.
However, a majority of its primary producers involved in dairying activities are
small and marginal farmers, with 80% of the animals kept in small farms with an
average of 2-8 animals 1(Hemme et al 2003). About 18 million people (5.5% of
the workforce) are engaged in dairy activities. Dairying is an important economic
activity in India as livestock distribution is more equitable than land distribution
and thus it is considered an area that can be the focus of anti-poverty and equity-
oriented programs (Staal et al, 2009).
Ninety two percent of the primary producers are concentrated in rural areas
and have limited access to marketing and infrastructural facilities. Only 15% of
milk produced is marketed through formal systems, thus limiting the scope of
processing, value addition and better market penetration in the regional and
international markets. Most States (sub nationals) in India have producer cooperative
unions, where members sell their milk to be processed and marketed.
The birth of cooperative movements in India was in the dairy sector, which began
as a humble initiative began in 1947 in the village Anand in Gujarat, where milk
producers with State support joined hands to have a stake in their produce and
share the profits gained by selling their produce. Such societies federated at the
district level to form a cooperative union which helps to add value to the milk
through processing and market milk products in distant markets. The success of
Kaira District Milk Cooperative Union, known as Amul where Anand village
society is a member, led to the adoption of the Kaira model as a blueprint in all
milk cooperatives in the country under the three phases of “Operation Flood”.
Today almost all states in the India have their own dairy cooperatives supporting
millions of small and marginal farmers.
Dairy is a place where handling of milk and milk products is done and technology refers
to the application of scientific knowledge for practical purposes. India contribution to
world milk production rise from 12-15 % & it will increase upto 30-35% (year 2020).
In India, dairying has been practiced as a rural cottage industry since the remote past.
Semi-commercial dairying started with the establishment of military dairy farms and co-
operative milk unions throughout the country towards the end of the nineteenth century.
The Indian Dairy Industry has made rapid progress since Independence. A large number
of modern milk plants and product factories have since been established. These organized
dairies have been successfully engaged in the routine commercial production of
pasteurized bottled milk and various Western and Indian dairy products.
With modern knowledge of the protection of milk during transportation, it became
possible to locate dairies where land was less expensive and crops could be grown more
economically. In India, the market milk technology may be considered to have
commenced in 1950, with the functioning of the Central Dairy of Aarey Milk Colony,
and milk product technology in 1956 with the establishment of AMUL Dairy, Anand.
The industry is still in its infancy and barely 10% of our total milk production under goes
Development of Dairy industry in India:
During the pre-independence year there was no serious stress given to dairy industry. In
1886 the Department of Defense of the British Government established the dairy farms
for the supply of milk to the British troops in Allahabad. Later, in 1920 serious steps were
taken by Mr. William Smith, an expert in dairy forming to improve the milk production.
There was discrimination done to the Indians hence this led to the rise of the first milk
union in India. In Lucknow in 1937 called the Lucknow milk producer‟s co-operative
In 1946 AMUL (Anand Milk Udyog Ltd) was started in Gujarat to bring up the economic
stability of villagers. The former Prime Minister Lal Bahadur Shastri visited the
functioning as it was rendering a social service to the society, which helped the villages
to come in the national economic stream.
The dairy and animal husbandry received serious attention after the independence. There
were lots many of progressive steps taken by the government through five year plans.
This led to the formation of National Dairy Development Board in 1965 and thus in 1970
he decided to bring a „White Revolution‟ throughout the country in which initially 10
states were selected excluding Karnataka.
In Karnataka in 1974, an integrated project was launched to restructure and organize the
dairy industry on co-operative principle of AMUL and to lay foundation for new
direction in dairy industry.
1.2 Company Overview
Karnataka Milk Federation:
Karnataka Cooperative Milk Producers' Federation Limited (KMF) is one of the leading
Cooperative Federation in the country. The Karnataka Cooperative Milk Producers'
Federation Limited (KMF), a state-level cooperative, was setup in 1974. The KMF
today is the third largest milk cooperative in India and the largest in South India in terms
of procurement and sale. The federation is immensely supporting the livelihood of 18
lakh dairy cooperative members through 8,390 Dairy Cooperative Societies. Owing to
this relentless drive, today KMF takes pride to be the 2nd largest milk-procuring
organization in cooperative sector with daily milk procurement of 32 lakh litres resulting
White Revolution in Karnataka. Karnataka is a pioneer State in introducing Cross
Breeding Program, which immensely helped in increasing in genetic potential of the local
breed cattle, and as a result there is a consistent growth in milk production and
The first dairy in Karnataka was started in Kudige in Kodagu district in 1955, further in
June 1974 an integrated project was launched in Karnataka to restructure and reorganize
the dairy industry on the co-operative principle and to lay foundation for a new direction
in dairy development. It was India‟s first World Bank funded dairy development program
modeled on the Anand pattern. The KMF markets its products under the brand name
Nandini and unlike Amul its markets are limited to Karnataka. During its initial
years, the focus of these cooperatives was primarily on liquid milk.
Overtime they progressively moved onto higher value milk based products. Quality and
price competitiveness have helped these cooperatives remain competitive in the wake
of emerging competition from multinational companies like Unilever, Nestle and
A key source of competitive advantage has been their ability to implement best practices
across all levels of the network: the federation, the unions, the village societies
and the Distribution channel.
Due to its high perishability, milk and milk products have one of the most stringent codes
of standards. Conforming to standards depends much on how milk is handled throughout
the supply chain, through technology and good supply chain management, particularly in
the context of a cooperative setup, where producers are many.
Technological intervention at the grassroots through the adoption of Bulk Milk
Coolers (BMC) at the village society level have helped increase the scope for the
improving milk quality in the cooperatives. In their efforts to diversify to higher
value products, this intervention can help reduce sour milk content and spoilage
during transportation and storage. However, in order for these benefits to materialize,
there is a need to bring about parallel changes in operational practices. Therefore,
improvement in the quality and competitiveness of milk and milk products
depends on the synergy of technological and organizational improvements coupled
with operational changes at all levels of the value chain. This case primarily
focuses on the aspects of technological change and operational improvement and the
changes brought about in the supply chain and the scope for improvement.
In 1975, the World Bank aided dairy development was initiated. The present Karnataka
Milk Federation (KMF) came into existence in 1984 as a result of merging of Karnataka
Dairy Development Co-operation, small co-operatives and Karnataka Milk Production
and loose vendors.
At the end of the March 1998, the network of 8023 Dairy Co-operative Societies (DCS)
have been established which are spread over 166 taluks of the total 175 taluks in all 27
districts of Karnataka. There are 13 Milk Unions and Belgaum Milk Union (DMU) is one
among them. There are 35 Chilling centers, 3 farm coolers, 15 Liquid milk plants and 2
product dairies for chilling, processing, conservation and marketing of milk. To supply
cattle feed there are 4 cattle feed plants.
To ensure supply of quality germ plasma, bull breeding farm and frozen semen bank are
also available. KMF is the third largest dairy co-operative amongst the dairy co-
operatives in the country.
To impart training KMF is the apex body in Karnataka representing Dairy, institutes at
Bangalore and regional training institutes at Dharwad and Gulbarga are functioning.
Three nitrogen plants (2 plants of 25 CPM and 1 plant of 5 CPM) are been set up to
supply nitrogen, which is used for refrigeration purpose. Three diagnostic centers have
been set up for monitoring diseases: three fodder farms at Rajkunte, Kuttanhalli and
Kodagu have been set up to supply for fodder and seed production farm at Shahpur have
been set up.
. Mother Dairy, Yelahanka, Bangalore.
Milk Product Plant, Channarayapatna.
Nandini Milk Products, KMF Complex, Bangalore.
Cattle Feed Plants at Rajanukunte/Gubbi/Dharwad/Hassan
Nandini Sperm Station (formerly known as Bull Breeding Farm & Frozen
Semen Bank) at Hessaraghatta
Pouch Film Plant at Munnekolalu, Marathhalli
Central Training Institute, Bangalore & Training Institutes at
Sales Depots at B'lore,M'lore,Hubli,Gulbarga,Tirupathi & Kannur
The federation giving details of the latest technology in dairy industry etc is published
“Ksheer Sagar” magazine monthly.
KMF is a co-operative apex body in the state of Karnataka for representing dairy
organizations and also implementing dairy development activities to achieve the
1. Providing assured and remunerative market for all the milk produced by the
2. Providing hygienic milk to urban consumers
3. To build village label institutions in co-operative sector to manage the daily
4. To ensure provision of milk production inputs, processing facilities and
dissemination of know-how.
5. To facilitate rural development by providing opportunities for self employment at
village level, preventing migration to urban areas
Functions of KMF
Co-ordination of activities between the unions
Developing the markets for the increasing in milk productions
To make the brand “Nandini” as a household name
Excellence in quality is to be maintained to lay a solid foundation
Spread acceptance of “Nandini” products
NANDINI MILK PRODUCTS (NMP) –
With the main objective of supplying nutritious milk to the under-privileged through the
Women and Child Welfare Department, the erstwhile Miltone Project was started during
the year 1973 under assistance from Government of Karnataka. Out of 80,000
beneficiaries, mainly children, more than 70% belonged to Scheduled Caste and
Scheduled Tribe. The production of Groundnut protein enriched Miltone, which was
started in year 1973, was discontinued and Sterilised Flavoured Milk was introduced in
its place during the year 1992.
The Miltone Project was renamed as "Nandini Milk Products" in the year 1995 with
specialized production of sweet-based milk products, Sterilized Flavoured Milk, Paneer,
Khova etc.Mysore Pak, Premium Cashew Burfi, Premium Badam Burfi are very popular
with the consumers who are highly appreciative of these quality milk products at a
reasonable cost. Nandini Badam Powder, introduced during January 2000, is being
exported to Singapore in 200 gm packs. Badam Powder in 10 gms pouches was also
introduced during September 2002.
The growth over the years and activities undertaken by KMF is summarised briefly
1976-77 2009-2010(Upto Jul'09)
Dairy Co-operatives Nos 416 11542
Membership Nos 37000 2018788
3668314 / Peak Proc.40.41
Milk Procurement Kgs/day 50000
Milk Sales Lts/day 95050 2377364 / Curds:2.27LKPD
Cattle Feed Consumed Kgs/DCS 220 3046
Daily Payment to Rs.
2. Objectives of the report:
To study the functioning of KMF with respect to its distribution points
To gain an in-depth overview of the supply chain network of milk industry with
respect to state government institution like KMF
To study the supply chain network of KMF
3. 1 The Milk Cooperative Structure and Supply Chain:
The structure of the KMF in the above figure of supply chain is based on the three tier
model, which comprises of the milk producer and the village cooperative at the village
level, the district dairy and the district unions at the district level and the state
marketing federation representing all dairies at the state level.
The Milk Producers Co-operative Society (MPCS) on an average have about 200
members each from whom milk is collected every day. Each member of the MPCS has
a commitment to supply a certain amount of milk to the society. Payments are made
based on test results used to determine quality of milk supplied. The procured milk is
then sent to the district dairy for processing. The role of the federation at the state level is
to market the products under their respective brands and plan strategies and
investments for the market as well as the cooperative.
Milk collection from farmers is done according to the nature of the village cooperatives‟
infrastructure. Cooperatives without BMCs collect their milk in cans of 40 kilos
each, before transporting them to chilling centers at the district level. From the
chilling plants, the milk is sent to the processing and packaging centre. Milk under
normal conditions, especially in tropics spoil faster, therefore, milk in non-BMC centers
are collected twice a day. Villages with BMC facilities have their milk collected
once a day as milk is refrigerated. The milk collected from these centers is sent
directly to the processing plants.
3.11 Supply Chain of KMF
KMF Nandini has got one the most effective supply chain management. Supply chain of
KMF can be depicted by the following graph
Milk Producers Co-operative Society (MPCS)
KMF Main Dairy
Main Distributors Nandini Milk
Supply chain in general can be classified into 4 basic steps
1. Procurement from producers
2. Processing by manufacturer
3. Distribution to distribution channel
4. Availability to end consumer
Stage 1: Procurement from producers
This is the first stage in the chain. Milk is procured from the milk farmers throughout
the state. Procurement is done through 136 Milk Producing Co-operative Society
(MPCS) throughout Bangalore. MPCS are the centers where the milk farmers bring
their milk. This milk is bought in 40 kg cans. KMF vans come to these MPCS to
collect the milk. Milk is collect twice from these MPCS once in morning at around 8
and once in the evening at around 7. Milk is brought to nearest chilling centers to chill
the milk so as to prevent spoiling. There are 7 chilling centers in and around
Bangalore. Later milk from these chilling centers is transported to the main Bangalore
Dairy. Milk is then processed and packed.
Stage 2: Processing
Milk is brought to the main dairy in milk vans. The milk is then processed by various
methods like separations, homogenization, and pasteurizations. After all these
processes milk is packeted in to different packets. Milk is available in 3 packets of
0.5l, 1l, and 5l. There are four important variants of Nandini milk available in the
market they are
Name Color Cost SNF (%) Fat (%)
Skimmed milk Yellow 14 9 1.5
Toned milk Blue 16 8.5 3
Cream milk Green 18 9 4.5
Full cream Red 22 9 6
Stage 3: Distribution
Packed milk is then distributed to the distribution centers and the Nandini milk parlors
by Nandini trucks. There are some 200 milk trucks to distribute milk. They travel in
50 to 60 specified roots and deliver to main distributers throughout Bangalore. Main
distributors then will distribute the milk to the local vendors like kirana shops and the
supermarket. There are around 10,000 Nandini milk parlors and 60,000 local vendors
throughout Bangalore where Nandini milk is obtained.
Stage 4: Availability
This is the last step in the distribution chain. Nandini is available in the market
through vendors and milk parlors. It is easily available in the market at affordable
Nandini has about 35 lakhs kg milk procurement in the whole of Karnataka, 8 lakhs
kg only in Bangalore. Out of these 6.5 lakhs kg sale is only in Bangalore. 1.5 lakhs
kg sales are done to other states like Andhra Pradesh, Tamil Nadu.
3.2 KMF Chilling Center, Anekal
KMF Chilling center at Anekal is one of the 7 chilling centers which are present in the
outskirts of Bangalore. This center was established on 2nd September 1964.
Procurement at KMF, Anekal
This center procures around 70,000 to 75,000 kg milk every day. This milk is collected
from various MPCS across Anekal Taluk. Milk is collected twice everyday once in the
morning and once in the evening. Vans collect milk from MPCS and bring it to Anekal
35,000 kgs 30,000 kgs
Figure 2: Procurement from Anekal center
As the temperature of milk in BMCs is kept at 6-7 °, the milk stays fresh and
acidity and alcohol free as fermentation levels are low. While collection practices
have given the milk union the advantage of bacteria free, fresh and adulteration free
milk, there are many processing advantages dairies able to reap as a result of this. For
example, milk free of alcohol is suitable for the preparation of products that require
sterilization. The processing of milk determines the quality and shelf life of milk
only to a certain extent. The improvement of quality before the processing stages has
helped improve the shelf life of milk in the market. Yield is another important aspect in
milk production which is determined by a number of factors ranging from health and
breed of the livestock to feed. According to the International Livestock Research
Institute, the timing between milking also has an effect on yield and quality. In the
can system of procurement, there are normally two procurements a day from each
village cooperative. The producer has to time the milking according to the collection
timings, reducing the time between each milking. This drastically influences the
solid non-fat (SNF) content in milk as well as yield, which is reduced by almost
a litre if the timing between milking is less than 12 hours. The premium price
paid to farmers in Karnataka, for milk with 3.5% fat content and 8.5% SNF is
12.95 Rs. This premium increases by 0.05 Rs for every .01% of SNF giving
farmers better returns. However, at the MPCS‟s of the Bangalore Dairy, there have not
been any noticeable changes in quality (SNF %) or quantity of milk. This is primarily
due to the lack of any initiatives in creating awareness among farmers about the
benefits of increased milking intervals.
The supply chain in these cooperatives consists of two patterns of procurement, the
cans and bulk milk coolers (BMC) procurement. Over the years, the number of MPCS
having BMCs has increased drastically though cans are still used for transportation.
Bulk Milk Coolers at the village level were introduced in 1993 in Anand and
2003 in Bangalore Dairy f or storage and preventing milk from turning into curd or
getting sour. In the Bangalore Dairy of the KMF, there are 85 BMCs and 172
MPCS‟s attached to them giving 15% of the total number of producer
cooperatives access to BMCs. The percentage of milk produced by BMCs to the
total production per day is 16.5% in the Bangalore Dairy.
3.3 PERSPECTIVE PLAN 2010 –
After the closure of OF-III project, Government of Karnataka and NDDB signed an
MOU during February 2000, for further strengthening the Dairy Development Activities
in Karnataka with an outlay of Rs.250 Crores. Consequent to the announcement of new
lending terms and conditions by NDDB through an evolution of an action plan -
Perspective 2010 to enable the dairy cooperatives to face the challenges of the increased
demand for milk and milk products by focusing efforts in the four major thrust areas of
Strengthening the Cooperatives. Enhancing Productivity, Managing Quality and building
a National Information Network, plans are under implementation. The 4 Milk Unions
viz., Dharwad, Tumkur, Bijapur and Gulbarga that were having accumulated losses were
included for rehabilitation programme under the Centrally Sponsored Scheme
"Assistance to Cooperatives" which is also under implementation.
To consolidate the gains of Dairying achieved in the state of Karnataka and with a view
of to efficiently chill, process and market ever developing and increasing milk
procurement with an utmost emphasis on the Quality and in the process conserve the
socio-economic interests of rural milk producers, the Govt. of Karnataka through KMF
has proposed to undertake several projects with financial and technical support of NDDB
for which an MOU was signed between Govt. of Karnataka and NDDB on 10th Nov.
Technological innovation and operational changes are important to bring
about transformation in the production practices and supply chain management.
The Karnataka Cooperative Milk Producers' Federation Limited is an example of
how important the synergy between the two is to bring about quality and competitiveness
at all levels of the food value chain. Especially in the context of a cooperative
setup, where resources are limited and stakeholders are many, appropriate operational
changes need to be implemented along with technological innovations to bring
about awareness and benefits to all levels of the supply chain.
Good quality milk low in bacteria and pathogens and high in FAT and SNF
content is a product of a well functioning cold chain, where systems are in place
at all levels to maintain quality. Only then will the benefits percolate to all levels
of the supply chain and to all stakeholders. In the KMF, the absence of
operational changes with the introduction of BMC have led to the milk union
incur losses and additional costs at the MPCS and district dairy levels. This has led
to the union not being able to reap the benefits of technological changes, making it
into costly enterprise.
It also emphasizes on a best-case scenario inferring the benefits of
technological innovations if operational systems were in place to enable its proper
functioning. It emphasizes the benefits farmers could get through better prices
because of improved quality and yield. Through better functioning cost of production
could be reduced sharing the benefits with all participant of the value chain. At the final
stages of production, better quality milk can help in product diversification and
higher value addition helping the Union earn better revenue by producing high
quality competitive products to the markets.
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