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A PROJECT REPORT ON CASH FLOW MANAGEMENT UNDERTAKEN AT

A M U L

SUBMITTED BY: HIRAL.R.JANI GUIDED BY: PROF. HEMANT AGRAWAL MBA PROGRAMME 2010-2012 R.H.PATEL INSTITUTE OF MANAGEMENT GOBLEJ, KHEDA.

Title: Cash flow Management Organization: Amul Company Guide: Mr. Manoj Chauhan Faculty Guide: Prof. Hemant Agrawal Name: Hiral Jani

Amul is a co-operative society where farmers from different places supply milk to Amul every morning as well as in the evening. Milk is collected from nearly 1232 societies. 234 BMC (Bulk Milk Coolers) are installed by Amul at various societies. All co-operative societies do not have BMC. Between 5 to 6 villages there is one BMC. Various departments at Amul are the C.F.Purhcase, Central Purchase, Accounts, Commercial, Administration, Purchase Bill and so on. The Commercial department undertakes marketing activities at the local level. Only about 2 % marketing is done by Amul the rest is done by GCMMF, the marketing wing of Amul. My project report is on Cash flow Management. The aim behind selecting this project is to apply theoretical knowledge into practical life and to understand the complexities of organization life. I have presented various calculations pertaining to cash flow usage at Amul and other necessary theoretical knowledge that would help in understanding the project. I have also tried to cover other departments like the production department in a bit depth so as to know the intensity of work done at Amul.

HISTORY OF THE ORGANIZATION

In the year 1946, the first milk union was established. This union was started with 250 litres of milk per day. In the year 1946, the union was called THE KAIRA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION. The union selected the brand name AMUL for its product range in 1955. The brand name Amul means AMULYA. This word is derived from the Sanskrit word AMULYA which means priceless. A quality control expert in Anand suggested it. The very concept of Kaira Union system of co-operative dairying was to become priceless for millions of farmers all over India. The word AMUL stands for A Anand M Milk U Union L Limited In the early 40s, the main sources of earnings for the farmers of Kaira district were farming and selling of milk. However, the income from selling of milk was not dependable since milk-marketing system was controlled by private traders and intermediaries who exploited the farmers and gave them very less returns on the milk products. Many a times they had to sell cream and ghee at throwaway prices. In those times, there was a great demand for milk in Bombay. The main suppliers of the milk were Polson Dairy Limited which was a privately owned company and held monopoly over the supply of milk at Bombay from the Kaira district. This again led to the exploitation of poor and illiterate farmers. However, this exploitation became intolerable and the farmers became frustrated. Therefore, they collectively appealed to Sardar Vallabhbhai Patel, who was a leading activist in the freedom movement and who had advocated for farmers co-operatives as early as in 1940. He advised the farmers to sell the milk on their own by establishing a co-operative union instead of supplying milk to private traders. Sardar Patel sent the farmers to Shri Morarji Desai in order to gain his co-operation and help. Shri Desai held a meeting at Samarkha village near Anand, on 4 Jan. 1946. He advised the farmers to form a society for collection of the milk. These villages societies would collect the milk on their own and would decide the prices at which they could sell the milk. The District union was also formed to collect the milk from such village co-operative societies and to sell this milk. It was also resolved that the Government should be asked to buy milk from the union. However, the government did not help the farmers by any means and gave a negative response by turning down the demand for the milk. The farmers responded by

going on a strike. For nearly 15 days, not a single drop of milk was sold to the traders. As a result, the Bombay milk scheme was severely affected. The milk commissioner of Bombay then visited Anand to assess the situation. Having seen the farmers condition and studying their demands the commissioner decided to fulfill the farmers demand. In this manner, the co-operative unions were formed at the village and district levels to collect and sell milk on a co-operative basis, without the intervention of Government. Mr. Varghese Kurien showed main interest in establishing unions and he received support from Mr.Tribhovandas Patel who educated the farmers about the cooperative unions at the village level. The Kaira district milk producers union was thus established in Anand and was formally registered on 14 December 1946. Since all the milk was sold in Anand through a co-operative union by farmers, it was commonly resolved to sell the milk under the brand name AMUL. Dr. Rajendra Prasad who was the first president of independent India laid the foundation stone for AMUL on 12/09/1948. Late Shri Jawaharlal Nehru, the then prime minister of India, inaugurated it on 31/10/1955. In the initial stage only 250 liters of milk was collected on an everyday basis. However, with the growing awareness of the benefits of the co-operative ness, the collection of milk has increased considerably. Today, Amul collects about 13 lakhs liters of milk every day. Since milk is a perishable commodity, it became difficult to preserve milk for a longer period. Moreover, when the milk was to be collected from the far off places, there was a fear of spoiling of milk. To overcome the problem the union thought out to develop chilling units at various junctions, which would collect the milk and could chill it and thus able to preserve it for a longer period. Thus, today Amul has more than 150 chilling centers in various villages. Milk is collected from almost 1232 societies. From the late fifties Kaira Union has been investing heavily in schemes to improve the milk yield in animals. The union has built up a full-fledged infrastructure for breeding animals and ensuring animal health care. Semen from high pedigree bulls is being made available. An efficient insemination service was also put into place through village society workers. A mobile veterinary service rendered animal health care at the doorstep of the farmer. The veterinary first aid programmed organized by the union through trained village society workers was probably the first of its kind in India. Today, twelve dairies are producing different products under the brand name AMUL. AMUL Dairy has become no. 1 dairy in Asia and no.2 in the world. It has become a symbol of many things such as:      Of high-quality products sold at reasonable prices Of the genesis of a vast co-operative network Of the triumph of indigenous technology Of the marketing shrewdness of a farmers' organization Of a proven model for dairy development

Stages of Development
Growth of Amul is not a one-night story. It took several decades to succeed in the present manner. Initially, Amul started with one single society, now it has around 1231 societies in its net. It poured in 250 liters of milk per day initially, which has now reached up to 15 lac liters per day in FLUSH (winter) season and about 8 lac to 9 lac liters of milk per day during LEAN (summer) season. The main stages of development of Amul are as follows: In 1954: UNICEF provided financial help worth Rs. 50 million to Amul. This financial help led Amul to establish fully automatic plant for producing milk and milk powder. In 1958: Amul expands; it started producing sweetened condensed milk.

In 1960: Excess milk that was brought in by the farmers in the winter season and huge amount of profit made it possible the expansion of Amul. Amul established producing cheese and baby food. This created history in the world dairy industry because, it was for the first time in the world that cheese and baby food was processed from buffalos milk instead of cows milk. In 1981: The new cattle feed plant at Kanjari was commissioned. In 1992: For getting the benefits of excess supply of milk, Amul established another plant named Amul III. This plant has a capacity of processing 14 lac liters of milk every day. In 1994: The new cheese plant was established at Khatraj. Together with it was established the Mogar plant to produce chocolates and malted drink. Both of these plants were commenced with the help of NDDB. In 2001: Amul launched its flavored milk variety. This was a major jump taken by Amul. In 2003: For expanding the market share, Amul launched the Snowball pizza and flavored lassi. These helped Amul to gain a major chuck of market share. In 2004: Amul keeps on achieving new heights in the competitive world. It has launched Chocozoo (chocolate) and Munch time (crunchy snack). Amul also started new satellite dairies at Pune and Kolkata. This will be a help in gaining larger portion of market share.

LOGO OF AMUL

Symbol of Amul is a ring of four hands, which are in coordination with each other .The actual meaning of this symbol is coordination of hands of different people who have strived to make this union successful.  First Hand is of the farmers (producers), without whom the organization would not have existed .Farmers are the inspiration of the AMUL the taste of India.  Second Hand is of employees of Amul who process the raw milk into different finished products.

 

Third Hand is of marketers without whom the product would not have been able to reach the customer. Fourth Hand is of customers without whom the organization would not have reached such great heights because they are the people who consume the product.

The union of Amul would not have reached such great heights without the coordination of the above four hands.

MOTTO The main motto of Amul is to help farmers i.e. Milk Producers. Amul system works under objective of highest possible compensation to the milk producers and lowest possible price to consumers. Farmers are paid money in cash payment for the milk. Milk gives them money for the daily necessities. Amul is the one who started using their profits for the milk producers common good.

VISION Vision of Amul was to provide and remove the problems of farmers (milk producers) of their livelihood .The Amuls apparition was to run the organization with the co-operation of four main parties like the farmers, the representatives, the marketers and the customers.

QUALITY POLICY The Amul is motivated and devoted workforce are committed to produce wholesome and safe food of excellent quality to remain market leader through deployment of quality management system ,state -of-art technology innovation and eco-friendly operation to achieve delightment of customer and betterment of milk producers .

Organization Profile
Name: Kaira District Co-operative Milk Producers Union Limited Address: KDCMPU Ltd. Amul Dairy Road, Anand 388001 Date of Establishment: 14 December, 1946

Form of unit: A Co-operative Society, registered under Co-operative Societies Act, 1912. Bankers: 1. 2. 3. 4. 5. 6. 7. Plants: 1. Anand Plant Anand plant is the main plant. Most of the raw-milk is procured here. Products being manufactured here are butter, flavored milk, ghee, milk powder and baby food. 2. Mogar Plant It is situated on Anand-Vadodara national highway no.8. It produces chocolates, Nutramul, Amul lite and Amul Ganthia. 3. Kanjari Plant Kaira District Central Co-operative Bank Limited. Axis Bank Bank of Baroda Corporation Bank State Bank of India State Bank of Saurashtra Oriental Bank of Commerce

Cattle feed is produced here. 4. Khatraj Plant This plant is situated between Nadiad and Mhemdabad highway. Cheese is produced here. 5. Satellite Dairies Amul has got satellite dairies at Pune, Mumbai and Kolkata. It helps in handling operations of the organization from a distant place.

INITIAL PROMOTERS 1). Shri Tribhuvandas Patel. 2). Shri Morarjibhai Desai. 3). Shri Verges Curian NUMBER OF EMPLOYEES Approximately 1200. TOTAL NUMBER OF SOCIETY MEMBERS Approximately 2.28 million.

TOTAL NUMBER OF SHIFTS First Shift Time Second Shift Time Third Shift Time 8:30 a.m. to 4:30 p.m. 4:30 p.m. to 12:30 a.m. 12:30 a.m. to 8:30 a.m.

E-MAIL ADDRESS www.amul.com www.amuldiary.com www.amuldairy@kairaunion.coop

CASH MANAGEMENT
Cash is the most important factor in financial management. It is also the most important current asset for the operation of the business. Every activity in an enterprise revolves round the cash because the cash is limited in an enterprise and it cannot be raised as and when one likes it. It is there fore desirable that available cash must be managed properly. Cash management involves the management of cash in such a way so that it is sufficient always to meet the obligation of the company. It should neither be short nor would surplus otherwise company lose its credit in the market or minimize its profit. Cash is required to meet a firms transaction and precautionary needs. A needs cash to make payment for acquisition of resources and services for normal conduct of business. It keeps additional funds to meet any emergency situation. Some firms also maintain cash for taking advantages of speculative changes in prices of input and output. Management of cash involves three things: a) Managing cash flows into and out of the firm, b) Managing cash flow within the firm, c) Financing deficit or investing surplus cash and thus, controlling cash balance at a point of time. It is an important function in practice because it is difficult to predict cash flows and there is hardly any synchronization between inflow and outflows. Motives for holding cash The following three primary motives govern the holding of cash: 1] Transaction motive: This to the holding of cash to meet routine cash requirement to finance the transaction of a firm in the ordinary course of business. For example, cash payments are made for purchase, wages, operating expenses, financial expenses etc. There is a regular inflow of cash to the firm from sale operation etc. To meet its obligation, a firm must have an adequate cash to meet anticipated obligation whose timing is not synchronized with cash receipt. A major part of transaction balance is held in cash. 2] Precautionary motive: Precautionary motive of holding cash implies the need to hold cash to meet unpredictable obligation. Besides the anticipated expanses a firm may have to pay cash for unanticipated purpose. These may be the result of the following circumstances:  Floods, strikes and failure of important customers  Sharp increase in cost of material  Cancellation of some order for goods  Unexpected slow down in collection of bills receivable 3] Speculative motive: it refers to the motive of the firm to take advantage of opportunities which represent themselves at unexpected moment and which are typically outside the normal course of business. Speculative motive is positive and aggressive. It offers following advantage:

 An opportunity to purchase raw material at reduce price on payment of immediate cost.  A chance to buy securities.  Delay in purchase of raw material.  To make purchase at favorable price. Models of cash management: Recently several type of mathematical model designed have been developed to help determine optimal cash balance. This model should not be applied blindly as there are difficulties in estimating parameters and probabilities. A model unaware of relevant information might provide completely erroneous advice. Cash management model should be used as a guide to intelligent decision making tempered with the managers own judgment. There are two important model of cash management: 1] Baumols mathematical model: William j. Baumol applied the economic order quantity model of inventory management to the cash management problem. He recognized the fundamental similarities of inventories and cash from a financial point of view. In this model, cash is taken as an inventory item which flows out at a constant rate and is replenished instantaneously by borrowing or selling securities. He assumed that size and timing of cash inflow are fully controllable to which fixed cost per order (cost of converting securities in cash) and variable carrying cost per rupee (the return on marketable security) are attached. As the cash outflow are known the cash management decision is confined to the volume of cash and frequency at which cash is to be produced. Some cash should kept even in a state of no change. Transaction demand for cash will vary in proportion to money value of transaction with the object of minimizing total cost. Based on unreal assumption this model does not provide an applicable tool for cash management. 2] Miller & Orr Model: As against the assumption of Baumols model for the constant flow of cash, this model assumes that there are no uniform and certain flows of cash. Instead cash might flow in when we might not have even expected. The Miller & Orr Model assumes that cash balances randomly fluctuate between an upper bound and a lower bound. When the cash balances hit the upper bound, the firm has too much cash and should buy enough marketable securities to bring the cash balances back to the optimal bound. When the cash balances hit zero, the finance manager must return them by selling/converting securities into cash. There is no particular method or process followed for cash management by Amul. It is no lower limit for holding cash. But has got an upper limit. The Senior Executive can hold cash only up to Rs. 1 lack per day. If the cash balance at the end of the day exceeds Rs. 1 lack, he has to take permission from the AGM giving explanations why more cash balance is held.

Cost sheet
2006-'07 2007-'08 2008-'09 2009-'10

Opening stock of raw material Add: purchase of raw material Add: direct expense relating to purchase of RM

154.85 64030.16 207.39

207.39 93690.87 266.58

266.58 114617.8 415.92

415.92 111402.4
26967.26

527.77

Less: proceed of scrap of raw material COST OF RAW MATERIAL CONSUMED Add: Direct labor Add: Other direct expense Add : Opening stock of WIP Less: Closing stock of WIP PRIME COST Manufacturing expense: Add: Processing expense Add: Packaging expense Add: Research and Extension expense Add: Power and Fuel expense (60%) Add: Salaries and Wages (60%) Add: Staff PF, gratuity & other amenities (60%) Add: Repair and Maintenance expense 60%) Add: Insurance Premium (60%) Add: Rent, Rates and Taxes (60%) Add: Total Depreciation( 60%) Factory cost Administration overheads/expense: 711.64 6438.42 954.67 1729.42 822.084 282.216 511.78 50.826 24.864 401.514 1089.17 8363.9 1182.62 2284.72 1006.188 288.06 6638.13 36.312 26.172 344.262 1581.04 10477.66 910.43 3002.99 1067.712 343.152 768.46 27.066 66.39 481.308 2912.69 10946.73 1423.57 2942.51 1183.73 779.72 819.67 27.77 80.08 672.85
21789.32

63977.62

93631.68

114468.46 138257.77

1821.55 1902.08 63897.09

1902.08 2319.85 93213.91

2319.85 2539.55

2539.55 3709.66

114248.76 137087.66

11927.43 21259.534

18726.208 158876.98

Add: Audit Fees Add: Administrative expense Add: Postage, Telegram, Telephone, Printing and Stationary expense Add: Power and Fuel expense (40%) Add: Salaries and Wages (40%) Add: Staff PF, gratuity & other amenities (40%) Add: Repair and Maintenance expense 40%) Add: Insurance Premium (40%) Add: Rent, Rates and Taxes (40%) Add: Total Depreciation (40%) Cost of production/Office cost Opening stock of Finished goods Add: Finished goods stock Add: Stock in Transit Add: Parlour stock Closing stock of Finished goods Less: Finished goods stock Less: Stock in Transit Less: Parlor stock COST OF GOODS SOLD Selling and Distribution expense: Add: Freight and forwarding expense Add: Marketing expense COST OF SALES Add: Profit or Less: Loss

92.87 133.51 56.51

99.66 166.77 56.14

103.79 198.96 63.05

162.65 255.16 59.39 1961.67 789.15 519.82 546.44 18.52 53.39 448.56
4814.75

576.472*2 761.572*2 1000.996*2 548.056 188.144 170.592*2 33.884 16.576 267.664


318.124

670.792 192.04 425.42 24.208 17.448 229.508 1559.416

711.808 228.768 512.304 18.044 44.26 320.872

1877.54 163691.73

5741.55 270.27 1.4

4699.15 143.07 1.1

10204.15 683.27 3.01

12583.97 791.41 3.65

3807.86 480.1 1063.55 979.834

10204.15 683.27 3.01 -4487.694

12583.97 791.41 3.65

11121.03 0 3.94

-611.06 165945.79

695.21 106.17 801.38

1015.17 109.99 1125.16

1554.12 125.87

1807.78 136.06

1926.54 167889.63 135285.81

80830.31 106062.13

1049.1

SALES

81631.69 107187.29

137212.35

168938.7