Milk Production Significant variations in production efficiencies between farms Farmers never critically examinie their production processes

s Focus on Agronomy or Capex

Milk Specification Considerable variation in milk characteristics (fat/protein/casein) even across small milk fields This can lead to improvement of end product quality/consistency and also save considerable costs for the processor

Milk Output Profile Weekly and daily milk production figures show considerable variation in the profile of milk output between individual farms. Viewed as an unavoidable function of natural variability for reasons such as the spring-flush, variable output per animal or different farming approaches Answer probably lies in more discussion between dairies and farmers and in better incentives This will result in reduction of considerable inefficiencies in, transport, inventory, production at the dairy and distribution

Dairy Ops Improvement Oppurtunities in Operations through shop floor operations

Oppurtunities for Improvement in Dairy Supply Chain

Operational Management

Issues

Suggestions

Explore ways to improve the efficiency of working practices in processes such as milking, calving, feeding, or output management Supplier associations are increasingly common in many industries as they provide a well accepted structure for achieving improvement and sharing information

Provide incentives for farmers to produce milk to a particular specification through a structured price mechanism.

Better layout of equipment to reduce unnecessary handling of product Improved equipment effectiveness particularly for bottling and packaging operations Greater flexibility and a different focus in production planning to reduce batch sizes and stockholding

Milk Collection

Milk Distribution All of the large national dairy operators are involved in the bulk transfer of milk between collection points and processing plants Oppurtunities in increasing efficiency exists

Transport Efficiency

Issues

Milk collection from farms is the responsibility of individual dairies Overall this has reduced efficiency because there is now duplication of rounds by competing dairies

Suggestions

Some dairies collect from farm every-other-day rather than daily. Although this requires increased capital expenditure for larger storage tanks on farm, it is normally justified by savings in transport costs. The impact on processing efficiency and shelf life is not always factored in to the financial equations.

Overall Vehicle Effectiveness (OVE) could be introduced.. Use of computerised vehicle routeing and scheduling packages on larger fleets (typically those above 12 to 15 vehicles) has the potential to reduce not only the size of fleets, but also the costs of operations of the remaining vehicles Scope exists to eliminate multiple handling points in the chain between dairy and consumer

Reducing Complexity in Information Flow

Information Complexity

Oppurtunities for Improvement in Dairy Supply Chain

Issues Suggestions

An important element involves tracking information flows through the chain from actual consumer sales to deliveries and production schedules upstream Information is tracked both within and between companies. Problems includes duplication of information between computer and manual systems; multiple entry of data into unconnected IT systems, errors in data entry and lack of coordination between dairies, depots and the retail customer Launch initiatives to update and simplify the information flow

Dealing with BullWhip Effect

Information Complexity

Issues

Demand patterns showed us that consumer demand for fresh milk and cheese is quite stable on a week by week profile However, demand signals that are passed up the chain are often much more variable BullWhip Effect The variation in orders experienced by suppliers happens as organisations pass orders along the supply chain making logical adjustments at each step This can result in too much stock, poor production planning, idle time and irregular shift patterns - all unnecessary and unwanted costs. The root cause of this problem in the dairy industry is a lack of collaborative planning between supply chain partners There is an opportunity for chain partners to develop more cooperative approaches to demand management, which could be achieved at relatively low cost Supply chain information systems and practices could be improved at individual company locations Understand Customer Value

Suggestions

Issues Customer Value

Need to gain a much clearer and more consistent understanding of value from the point of view of the end consumer VALUE ATTRIBUTES:Doorstep Milk Is delivered by a friendly reliable milkman Is fresh daily Is a very convenient way to get my milk Is delivered early in the morning Is healthy Is always delivered on time Supports local communities and farmers Is a local product Comes in returnable glass bottles Travels a short distance from farm to customer Has a low impact on the environment Is Good value for money VALUE ATTRIBUTES:Organic Milk through Supermarket Outlet Available when looked for Local product Supports local communities & farmers Low food miles Free of pesticides Free of antibiotics Good size portions Healthy Good for the environment Good value for money Product range Label information

Suggestions

Limited degree of cooperation between dairy chain In a competitive market economy, all benefits from improved efficiency will eventually flow through to consumers.- FIRST MOVER ADVANTAGE

Customer Value
Better Understanding Approach To The Issue
Understanding of the key constituents of customer value and of the relative importance of these attributes A clear statement of customer value becomes the touch stone for all improvement

Horizontal Cooperation
Farmer Supplier Associations
A Supplier Association is a club of suppliers who form together formutual self-help and learning & involve a long term relationship Improving the delivery schedule Improving quality: feedback of product performance, sharing best practices Facilitating strategy formulation and the flow of information including the latest market developments

Vertical Cooperation
Demand Management
Large swings in demand reverberate along the chains causing problems for inventory management, efficiency etc. Aim is to align production and activity along the chain to the rate of real end customer demand. Develop simple mechanisms to share demand information captured at the consumer end of the chain, with the upstream partners.

Lean Techniques
Improve Operational Performance
Operations along the dairy supply chain could benefit by the adoption of simple, basic lean approaches Focus should be given to improving overall equipment effectiveness, plant layout etc.

It focuses effort into key areas of improvement

Importantly avoids resource going to initiatives that may be of little or no perceived value by the customer.

Distribution depots could also benefit from a review of operational processes

Source : AHDB Report, DairyCo

Factors Affecting Milk Production Weather Conditions

Weather patterns in the UK have continued to be abnormal since the start of 2012 Dairy farmers who did not have access to tracks and good infrastructure had to rehouse animals during this period. Increased Feed Costs

Pricing Relationships along liquid Milk SC

RETAIL
SP/Retail Price Consumer Budgets

PROCESSOR
Buying Price/SP of Liquid Milk Costs of production for liquid milk processor Number of alternative suppliers Excess capacity Bargaining power

FARMER

Buying Price/SP of Raw Milk Wholesale markets for dairy products Demand for milk for alternative uses (ie cheese)

Factor affecting milk production

Producer Numbers

The number of dairy producers continues to fall Last year was the lowest % of producers leaving the industry in UK This may have been due to increased confidence levels in Dairy Industry

Consumer demand for grocery bundle Relative prices to competitors Market shares

Cow Numbers

Mature herd continues to fall and as of June 2011 but younger herds are on the rise Recent currency movements have made cattle import from Europe favorable for UK farmers Risks are there from new rules imposed under cattle endemics

Calving Pattern

There are normally two calving peaks in the UK dairy herd Feb/March coincides with spring grass production Sept/Oct results in high milk yield in Nov/Dec

Key Drivers Consumer budgets constrained Competition for Market share among retailers

Effect on Price

Segment RETAIL RETAIL PROCESSOR PROCESSOR PROCESSOR FARMER

Milk Yields

Yield per cow in the UK is quite high relative to other European countries, Expectation that the yield per cow to increase in 2012/13 at the same level as seen in recent years Impact on milk production growth is predicted to be minimal at national levels

Overcapacity in processing capacity Inability to pass on increased costs to retailers Increased production costs of liquid milk processors

Milk Price to Input Cost Ratio

Reductions in the UK farmgate milk price : Reduction in Farmer Confidence Feed prices are high while farmgate milk prices are falling Farm input costs have also been becoming more expensive, notably fuel, fertiliser, electricity, water,wages and financing costs

Increased competition for raw milk supplies arising from investment in processing capacity Strong wholesale dairy markets

FARMER

Factor affecting milk production