DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS}

1. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} INTRODUCTION • Managing dairy business in India is more of an art than science. Most of the dairy professionals may not tend to agree with this statement though it is supported by authentic data from actual case studies. • A milk vendor handling two hundred Kg. milk/day and without using any adulterants or preservatives is in a position to easily earn more than Rs.600/day (>Rs. 3.00/Kg.). Using adulteration, dilution and manipulation he can further improve his returns by two three times. • An ethical “HALWAI” (sweet meat manufacturer) producing good quality ethnic dairy products, besides earning handsome profits( more than 20% of business turnover) can easily attain appreciable annual business growth rate. • Milk contractors from unorganized sector having much lower investment as compared to owners of dairy plants are supplying raw milk to commercial dairy plants in private and public sector. These contractors are making fabulous profits (Rs.3/Kg. to Rs.5/Kg) by using their expertise and innovative techniques(known and unknown to the professionals purchasing milk for organized sector)

2. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} INTRODUCTION • Professionally managed commercial dairy plants are either in loss or earning much less than clearly visible profit margin of Rs. 3 /Kg. Desirable profit being the difference of gross revenue and total expenditure for a specific period divided by quantity of standard milk (6.5% Fat & 8.8% Snf) procured/processed by the dairy plant should be >Rs.3/Kg. • In most of the case studies undertaken by mission (IIM) profit remains a insignificant amount ( much lower than profit margins quoted above). • We need to evolve a transparent and effective monitoring /performance evaluation system for commercial dairy plants in India so that owner of business can review on daily basis his profit or loss without any ambiguity or distortion. DBMS is a professional approach and an attempt to achieve this objective. It is based on famous “MARWARI” concept of business management called “PARTHA”.

3. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} ANNEXURE-A • Dairy plant selling pasteurized liquid milk must earn >Rs.3.00/Kg. • Assuming annual average basic price of raw milk as Rs.13.00/Kg. (6.5%/8.8%) or Rs. 200/Kg. Fat (Rs. 120 /Kg Fat & Rs. 59.09/ Kg. SNF) total solids=15.3% • Milk collection/processing/packing /marketing cost for efficiently managed dairy plant will not normally exceed Rs.3.00/Kg. (including processing losses) • Pasteurized standardized milk containing 4.5% Fat and 8.5% SNF (Total solids=13%) would cost Rs. (13.00+3.00-2.40)=Rs.13.60/ Kg. {(6.5-4.5)x 120=Rs.2.40} (8.8-8.5)x 59.09=Rs.0.17727/ Kg {Ignore considering it as part of handling loss} • Retail consumer price for pasteurized standardized milk in most of our towns is Rs. 17.00/Liter or even more.

4. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} ANNEXURE-A • As such there is clear profit margin of more than Rs.3.00/Kg. • {17.00-13.60=3.40/ Kg.} • Increase in volume of milk due to dilution: 15.3/13 =1.17 {Hidden gain due to increase in volume (0.17X3.40) = Rs.0.578/Kg} • {It will compensate the weight volume difference as milk is packed and sold in liters but purchased in Kgs.} • Dairy company handling one lac Kg. milk per day would thus make annual net profit of more than Rs. 12 crores. (>20% of turn over) provided there are no hidden losses. { 100000x3.40x365=Rs.12,41,000,00} • ANALYZE HIDDEN REASONS TO KNOW WHY YOUR PROFITS ARE LOW?.

5. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} ANALYZING PROFIT & LOSS STATEMENT TYPICAL DAILY PROFIT & LOSS STATEMENT {Basis 100 kg.) S.NO DESCRIPTION AMOUNT(Rs.) S.NO REVENUE AMOUNT(Rs.) I Purchase price of milk (6.5%/8.8%) 1040 I Sale of standardised milk 500 II Overhead cost on milk procured. 150 II Sale of toned milk 400 III Processing cost including packing 150 III Sale of double toned milk 200 IV Cost of utilities and maintenance 50 IV Sale of skimmed milk 200 VI Manpower and allied costs 50 V Sale of other products 300 relating to service departments like quality assurance,PNL & HRD, Assuming realization from standard milk ( 6.5% Fat & Purchase, Stores, security/estate 8.8% SNF) as Rs. 1800/100 Kg. and finance marketing etc. VII TOTAL EXPENDITURE 1440 VII TOTAL REVENUE 1600 Daily Profit=Rs.{1600-1440)/100= Rs.1.60/Kg.{Basis: 100 Kg. Standard milk (6.5% Fat/8.8%SNF)} “PARTHA” PROFIT NORMS:-Rs.{Selling Price/ Kg. -(Cost Price of milk/kg. +handling expenses/Kg.) “PARTHA” PROFIT =Rs{ 18-(10.40+4.00)}=Rs3.60/Kg. Cost of milk=Rs1040 Other costs= 4.00/Kg. LOSS AGAINST PROJECTED“PARTHA PROFIT = Rs. (3.60-1.60)=Rs 2.00/Kg. OR Rs.200/!00 Kg.

6. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} INTRODUCING PARTHA IN DAIRY BUSINESS Business of procuring milk , manufacturing value added products and marketing the produce can be divided in to following ten functional activity centers/departments. 1 Milk procurement 2 Production 3 Quality Assurance 4 Engineering 5 Personnel and Human Resource Development 6 Finance 7 Materials Management 8 Purchase 9 Marketing 10 Estate & Security Each of the above ten departments have distinct function to perform and discharge its specified obligations. For the success of business venture, it is extremely important for the management to specify norms for each performance parameter.

7. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} INTRODUCING PARTHA IN DAIRY BUSINESS(MILK PROCUREMENT) These norms can be fixed in consultation with the concerned staff bench marking with the best in the country. CREATING NORMS AFFECTING PARTHA {MILK PROCUREMENT DEPARTMENT} Milk procurement in dairy business is often neglected function but it deserves maximum attention from top management.80% to 85% of the total business expenditure in dairy business is incurred on purchase of raw milk. Based on key performance parameters relating to milk procurement typical norms for each activity can be specified as under: PRIME PERFORMANCE PARAMETERS: NORMS I Quantity of milk procured (Kg/day) As per specified targets II Quality of milk procured ( V3/V2/V1/U) 100%V3 III Landed cost of milk (Rs. /Kg.) As per specified targets EXPENSE RELATED PARAMETERS: Rs./Kg. 1 Basic cost of milk:(As per competitive market rates) 10.71 2 Milk handling charges (Village level milk collection): 0.350 3 Milk transportation expenses ( VLC to MCC): 0.113

8. DAIRY BUSINESS MANAGEMENT SYSTEM {DBMS} INTRODUCING PARTHA IN DAIRY BUSINESS(MILK PROCUREMENT) 4 Milk transportation expenses from MCC to Dairy plant/ Kg.milk: 0.200 5 Tester expenses/Kg. milk ; 0.024 6 Milk chilling charges/ Kg.milk: 0.100 7 Maintenance expenses / Kg. Milk: 0.003 8 Manpower cost /Kg. Milk: 0.058 9 Cost of testing chemicals (Sulphuric acid) /Kg.milk: 0.012 10 Cost of testing chemicals ( Amyl alcohol) /Kg. Milk: 0.021 11 Cost of detergents/ cleaning & sanitizing agents /Kg. Milk: 0.003 12 Total milk procurement overhead expenses: 0.884 13 Landed cost of milk 11.594 Once these norms based on scientific calculations are specified and well demonstrated in field conditions by effective and efficient management, every zonal Incharge would then be asked to make consistent efforts to attain these performance levels. Monitoring performance using PARTHA as a tool can help the management in continuously upgrading quality of raw milk improving quantity of milk procured besides reducing total cost of milk procurement.

9. PARTHA PROJECT PLAN • Based on infrastructure and resources available with the organization projected “PARTHA” plan can be drafted by management. • This document is based on raw material inputs, product mix combination,projected expenditure/ revenue account, contribution per unit and anticipated annual profits.

12. TYPICAL “PARTHA BASED” PROFITABILITY STATEMENT • Conventional profitability statement or balance sheet is neither cost specific nor related to output of prime performance parameters. • Total expenditure against each head for each department with specified “Partha” norms should be compiled, monitored and analyzed at regular intervals.

14. ANALYZING “PARTHA BASED “ PROFITABILITY STATEMENT • We all know that divided responsibility is no one’s responsibility. • Total dairy business can be conveniently demarcated in ten functional divisions or departments who can be made responsible for efficient resource utilization and effective revenue generation pertaining to their specific tasks and assignments.

16. TYPICAL DEPARTMENT WISE “PARTHA” STATEMENT • Close monitoring and effective corrective action for all deviations noticed in the “Partha” statement is the key for managing profitability of business operations. • All departments must record all below norms performance entries in red ink so as to high light areas that need prompt attention of top management and all concerned.

18. PRIME PERFORMANCE PARAMETERS AFFECTING “PARTHA” • Profits projected in overall “Partha” profitability report can only be achieved if all departmental heads keep their focus on their prime performance parameters. • Goals,objectives and tasks relating to all prime performance parameters must be clearly specified. Resources be made available and progress closely monitored

20. ANALYZING PRIME PERFORMANCE UTILIZATION EFFICIENCY REPORTS • Micro level control on profitability can only be exercised if regular utilization efficiency reports for prime performance parameters are made and analyzed scientifically. • In order to high light the impact of efficiency lower or higher than specified norms impact charts be made and supplied to all concerned.

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