In March 2006, four friends and alumni of the Indian Institute of Technology, Madras connected from different parts of the globe and started talking. Ajit Narayanan worked as a storage engineer with American Megatrends Inc. In California, Aswin Chandrasekaran was an analyst managing product strategy for Capital One Financial Services Inc. in Washington DC. Adib Ibrahim was doing technology consulting at KPMG in Dubai. And Preetham Shivanna was a software engineer with Infosys Technologies, in Mysore, India.
They started talking about their desire “to build a product-based company that would solve some real problems of India.” By mid 2007, the four were all in Chennai, and had set up shop as Invention Labs. They began by providing services in building electronic systems and designing embedded systems for other companies. They have since made their first foray into building a product - ‘Milk Tree,’ a vending machine for milk sachets.
The Producer Cooperatives and Supply Chain
In India, the supply chain for milk from the dairy farm to the customer has five or six links. First, small dairy farmers, typically owners of one or two cows, deliver milk to the local collection point often located at the village itself. From here it is transported to a Bulk Milk Cooling centre, which is the first point of refrigeration. Next the milk is transported to a processing plant. Processing plants are usually located on the outskirts of towns and cities. A large metro like Chennai has two, catering to the northern and southern neighbourhoods respectively.
It is also here at the processing plant that the milk is treated for homogenisation, plus other value addition, like skimming, pasteurisation and so on..
From the processing plant the milk is transported to warehouses in different localities inside the city from where it is supplied to the milk dealers of the city. The final link in this chain is made of the ‘milk boys’ who pick up the milk from the dealer, fill their trolleys full of milk sachets and deliver them on foot, to the customer’s doorstep.
Dairy farmers in India are part of cooperative societies supported by the government. At the village level, the dairy farmers form part of a Village Cooperative Society. At the district level, they form a District Producer’s Union. Although the Board of this district level body is composed of farmers, they hire professional managers to run it (this is what differentiates it from the village level organisations). Finally, at the state level, they form a Federation, which is managed by Civil Service government officials.
For the district of Ernakulam in the state of Kerala, the numbers are illustrative. There are three District Level Producers Unions and one state-level Federation in the state. The total population impacted by dairy farming in this state is 2400 Village Co-operatives, and about 150,000 families.
What Are the Problems?
There are several problems associated with this procurement and supply model. The only points in the chain where refrigeration are used are at the Bulk Milk Cooling Centres and the processing plant. This lack of a proper cold chain is the single biggest problem and causes spoilage to the tune of 1% to 3% annually to the cooperatives, directly impacting farmer incomes. To put this in context, annual milk production in India in 2007-08 was approximately 100 million tonnes; losses therefore, amounted to about 1 to 3 million tonnes.
The flimsy nature of plastic sachets often results in leakage and further loss of milk by the time it reaches the customer. Under the current supply system, the customer pays an additional Rs. 0.80-1.50 as delivery cost. Also, since the milk boys have limited carrying capacity, the customer places an order at the beginning of the month, for how many sachets should be delivered every morning. He or she does not have the option of...