Tracking and Costing Dairy Components
Dairy is a unique industry. Unlike other beverages, dairy is both a batch and process industry, with dairy liquids representing 60-85% of product cost. As a result, traditional ERP systems simply can’t accurately keep up at the product level. Instead, item codes are used for tracking components, which ultimately results in poor reporting information, frustrated users, and extra time spent rekeying information into the system. This usually causes financial reporting to lag behind production, hiding any potential problems until it’s already too late.

Traditional ERP tracking methods also lack crucial information when it comes to losses, providing little help in identifying root causes. Facilities that run at the lowest levels of shrink not only know exactly what they’re losing, but also where that loss is coming from.

To compensate for dairy’s complexities, technology separates facilities into several segments, reducing the amount of shrink and pinpointing opportunities to improve the bottom line. These three segments are classified as: procurement and silo shrink, production shrink, and distribution shrink.

Procurement Shrink and Silo Storage

Depending on your facility, milk is either sourced from individual producers or from cooperatives. Weights and tests typically differ from load to load, as do the costs associated with each load. Most facilities typically do not receive exactly what they’re paying for. As a result, the difference between the amount paid and what actually ends up in the silos is the first point of shrink.

As milk and other dairy liquids arrives throughout the day, the amount deposited and drawn from silos needs to be accounted for – not only for costing purposes, but also for traceability between CIP functions. The basic accounting functions associated with a roll forward help create a divisible line between the procurement and production losses.

The best way to manage procurement shrink is to establish a method for tracking total and component weights of payment and delivered product. Ideally, this would track both the supplier and carrier information, pinpointing exactly where variances are occurring.

Production Shrink and Production Runs

Once dairy liquids move out of the silos and into the production zone, tracking becomes much more difficult. However, this is also the zone with the largest ROI potential. While management may be able to tell you exactly what went into production and what came out on the other end, what happens during the actual production process is much less clear.

The following six steps can provide some clarity in this segment:

  1. Start on the ends and work towards the middle. Begin with receiving and establish tracking there. Do the same with the last step of production.
  2. Analyze measurement points with supervisors to establish a “gold standard” for tracking data.
  3. Keep track of byproducts to maximum value stream.
  4. Revaluate CIPs to capture components in the pipe.
  5. Establish a report format and share with plant supervisors and line employees.

Finished Goods and Distribution Shrink

The final place for shrink is usually attributed to human error: poor inventory management, incorrect product shipment, employee theft, product spoilage, leaks, and many other common mistakes. However, this is typically the segment that is easiest to resolve and prevent using simple procedures and some help from technology. These include establishing procedures to ensure production data is accurate, analyzing inventory by aging and shelf life, and tracking inventory adjustments by type and initiating weekly reports.

What Now?

Establishing these initiatives in your facility may seem overwhelming, especially if you’re utilizing a traditional ERP system. Ever.Ag’s solutions provide more accurate data, allowing you to leverage your staff’s experience and existing technology to achieve large gains.

© 2022 Ever.Ag, Confidential and Proprietary