hiral -amul

8/4/2019 Hiral -amul

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A

PROJECT REPORT ON

CASH FLOW MANAGEMENT

UNDERTAKEN AT

SUBMITTED BY:

HIRAL.R.JANI

GUIDED BY:

PROF. HEMANT AGRAWAL

MBA PROGRAMME

2010-2012

R.H.PATEL INSTITUTE OF MANAGEMENT

GOBLEJ, KHEDA.

A

M

U

L


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Title: Cash flow Management

Organization: Amul

Company Guide: Mr. Manoj ChauhanFaculty Guide: Prof. Hemant Agrawal

Name: Hiral Jani

Amul is a co-operative society where farmers from different places supply milk toAmul 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 societiesdo 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 undertakesmarketing 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 thisproject 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 Amuland 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 knowthe intensity of work done at Amul.


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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 KAIRADISTRICT CO-OPERATIVE MILK PRODUCERS UNION. The union selected the brandname 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 Anandsuggested 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 forA Anand

M MilkU Union

L Limited

In the early 40s, the main sources of earnings for the farmers of Kaira districtwere farming and selling of milk. However, the income from selling of milk was not

dependable since milk-marketing system was controlled by private traders andintermediaries 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 heldmonopoly over the supply of milk at Bombay from the Kaira district. This again led tothe 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 leadingactivist 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 aco-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 ameeting 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 ontheir 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 tosell 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 anegative response by turning down the demand for the milk. The farmers responded by


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going on a strike. For nearly 15 days, not a single drop of milk was sold to the traders. Asa result, the Bombay milk scheme was severely affected. The milk commissioner of

Bombay then visited Anand to assess the situation. Having seen the farmers conditionand studying their demands the commissioner decided to fulfill the farmers demand.

In this manner, the co-operative unions were formed at the village and districtlevels to collect and sell milk on a co-operative basis, without the intervention ofGovernment. Mr. Varghese Kurien showed main interest in establishing unions and he

received support from Mr.Tribhovandas Patel who educated the farmers about the co-operative 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 themilk 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 thefirst 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 on31/10/1955.

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, thecollection 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 preservemilk 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 thoughtout 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 than150 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 throughvillage society workers. A mobile veterinary service rendered animal health care at the

doorstep of the farmer. The veterinary first aid programmed organized by the unionthrough 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 hasbecome 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


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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 1231societies 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 dayduring 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 ledAmul 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 theworld 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 theMogar 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 launchedChocozoo (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.


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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 haveexisted .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.


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Third Hand is of marketers without whom the product would not have been able to reachthe customer.

Fourth Hand is of customers without whom the organization would not have reachedsuch 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 theabove four hands.

MOTTO

The main motto of Amul is to help farmers i.e. Milk Producers. Amul system worksunder 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 forthe 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 fourmain 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 andsafe food of excellent quality to remain market leader through deployment of quality

management system ,state -of-art technology innovation and eco-friendly operation to achievedelightment of customer and betterment of milk producers .


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Organization Profile

Name:

Kaira District Co-operative Milk Producers Union Limited

Address:

KDCMPU Ltd.Amul Dairy Road,

Anand 388001

Date ofEstablishment:14 December, 1946

Form of unit: A Co-operative Society, registered under Co-operative Societies Act, 1912.

Bankers:

1. Kaira District Central Co-operative Bank Limited.2. Axis Bank

3. Bank of Baroda4. Corporation Bank

5. State Bank of India6. State Bank of Saurashtra

7. Oriental Bank of Commerce

Plants:

1. Anand Plant

Anand plant is the main plant. Most of the raw-milk is procured here. Products beingmanufactured 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


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Cattle feed is produced here.

4. Khatraj Plant

This plant is situated between Nadiad and Mhemdabad highway. Cheese is producedhere.

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 MEMBERSApproximately 2.28 million.

TOTAL NUMBER OF SHIFTS

First Shift Time - 8:30 a.m. to 4:30 p.m.Second Shift Time - 4:30 p.m. to 12:30 a.m.

Third Shift Time - 12:30 a.m. to 8:30 a.m.

E-MAIL ADDRESSwww.amul.com

[email protected]


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CASH MANAGEMENT

Cash is the most important factor in financial management. It is also the most important currentasset 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 isthere 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 thecompany. 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 financethe 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 inflowof 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 majorpart of transaction balance is held in cash.

2] Precautionary motive: Precautionary motive of holding cash implies the need to hold cash tomeet 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 receivable3] 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 normalcourse of business.

Speculative motive is positive and aggressive. It offers following advantage:


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An opportunity to purchase raw material at reduce price on payment of immediatecost.

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 inestimating parameters and probabilities. A model unaware of relevant information might provide

completely erroneous advice. Cash management model should be used as a guide to intelligentdecision 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 thefundamental 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 replenishedinstantaneously 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 andfrequency 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 theobject 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 ofcash, 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 andshould 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/convertingsecurities 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 toRs. 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.


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Cost sheet

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

Opening stock of raw material 154.85 207.39 266.58 415.92Add: purchase of raw material 64030.16 93690.87 114617.8 111402.4

Add: direct expense relating to purchase of RM26967.26

207.39 266.58 415.92 527.77

Less: proceed of scrap of raw material

COST OF RAW MATERIAL CONSUMED 63977.62 93631.68 114468.46138257.77

Add: Direct laborAdd: Other direct expense

Add : Opening stock of WIP 1821.55 1902.08 2319.85 2539.55

Less: Closing stock of WIP 1902.08 2319.85 2539.55 3709.66

PRIME COST 63897.09 93213.91 114248.76137087.66

Manufacturing expense:

Add: Processing expense 711.64 1089.17 1581.04 2912.69Add: Packaging expense 6438.42 8363.9 10477.66 10946.73

Add: Research and Extension expense 954.67 1182.62 910.43 1423.57

Add: Power and Fuel expense (60%) 1729.42 2284.72 3002.99 2942.51

Add: Salaries and Wages (60%) 822.084 1006.188 1067.712 1183.73

Add: Staff PF, gratuity & other amenities (60%) 282.216 288.06 343.152 779.72

Add: Repair and Maintenance expense 60%) 511.78 6638.13 768.46 819.67

Add: Insurance Premium (60%) 50.826 36.312 27.066 27.77

Add: Rent, Rates and Taxes (60%) 24.864 26.172 66.39 80.08

Add: Total Depreciation( 60%) 401.514 344.262 481.308 672.85

21789.32

Factory cost 11927.43 21259.534 18726.208158876.98

Administration overheads/expense:


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Add: Audit Fees 92.87 99.66 103.79 162.65

Add: Administrative expense 133.51 166.77 198.96 255.16

Add: Postage, Telegram, Telephone, Printing and

Stationary expense

56.51 56.14 63.05 59.39

Add: Power and Fuel expense (40%) 576.472*2 761.572*2 1000.996*2 1961.67

Add: Salaries and Wages (40%) 548.056 670.792 711.808 789.15

Add: Staff PF, gratuity & other amenities (40%) 188.144 192.04 228.768 519.82

Add: Repair and Maintenance expense 40%) 170.592*2 425.42 512.304 546.44

Add: Insurance Premium (40%) 33.884 24.208 18.044 18.52

Add: Rent, Rates and Taxes (40%) 16.576 17.448 44.26 53.39

Add: Total Depreciation (40%) 267.664 229.508 320.872 448.56

4814.75

Cost of production/Office cost 318.124 1559.416 1877.54163691.73

Opening stock of Finished goods

Add: Finished goods stock 5741.55 4699.15 10204.15 12583.97

Add: Stock in Transit 270.27 143.07 683.27 791.41

Add: Parlour stock 1.4 1.1 3.01 3.65

Closing stock of Finished goods

Less: Finished goods stock 3807.86 10204.15 12583.97 11121.03

Less: Stock in Transit 480.1 683.27 791.41 0

Less: Parlor stock 1063.55 3.01 3.65 3.94

COST OF GOODSSOLD 979.834 -4487.694 -611.06165945.79

Selling and Distribution expense:

Add: Freight and forwarding expense 695.21 1015.17 1554.12 1807.78

Add: Marketing expense 106.17 109.99 125.87 136.06

COST OF SALES 801.38 1125.16 1926.54167889.63

Add: Profit or Less: Loss 80830.31 106062.13 135285.811049.1


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SALES 81631.69 107187.29 137212.35 168938.7

hiral -amul

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