COMPFED: The Dairy Cooperative Distribution System
(10 pages of text)
Bihar State Milk Cooperative Federation (COMPFED) had been marketing its milk and milk-related products under the Sudha brand name in the Bihar and Jharkhand regions of India for three decades. It operated through six unions and two dairies to process the milk collected from nearly 4,000 village-level cooperatives. COMPFED appeared to have a competitive advantage for its supply of milk, since it maintained the largest network for milk procurement, which spanned a large area and was unmatched by its competitors. However, due to various environmental forces, the ability to procure an adequate supply had declined in the last two years, which negatively affected the profitability of the organization.
The marketing manager of COMPFED had been facing difficulty in serving the growing demand and maintaining profitability. Since he operated in an industry with high fixed costs, the declining supply of milk procurement meant lower sales. As a result, there was no opportunity to significantly lower operating costs to match the limited supply.
The marketing manager thought of two reasons in the external environment that contributed to this situation. First, a series of floods had caused damage to grazing land and livestock operations. Additionally, private players were disrupting the supply chain by offering short-term higher payments to some suppliers/farmers. These players did not face the same regulatory and hygiene guidelines that COMPFED did. The marketing manager’s options included two very different alternatives: trying to work with these agents or securing a process to minimize or eradicate their activities.
- Exposes students to the intricacies of a special type of distribution system, that is, a cooperative system. This system involves different mechanisms of down-stream activities such as the procuring and processing of a perishable product (such as milk), and upstream activities such as the marketing, distribution, and retailing of such a product. In addition, the case indicates a need to revamp the milk procurement systems.
- Brings out the dichotomy between the short-term gains of farmers when they accept the higher prices offered by private players, compared with long-term sustainability through association with the cooperative, which provides several other long-term benefits.
- Provides a glimpse of the cooperative movement in India. In examining the period following its inception, it highlights the different skills needed to strengthen the three-tier model of cooperatives, which is based on the Anand Pattern.
- Raises issues of determining an optimal balance between the cost of service delivery and procurement of milk and its impact on the pricing of finished products.
- Illustrates a key strategic task for a business, namely, understanding the suppliers’ and consumers’ need to compete in the market.
Agriculture, Forestry, Fishing and Hunting
India, Large, 2009
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