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By: Hill Pratt
Senior Vice President, Dairy.com

Less than 100 years ago, dairy farmers still transported milk with five-gallon aluminum cans, horses, and wagons. Transportation logistics for the dairy supply chain were straightforward but limited; the local plant was only three to four miles up the road. Time and temperature dictated that milk not travel any further.

Now, modern equipment and nationwide supply and demand dynamics mean that milk and milk products routinely travel hundreds, and sometimes even thousands, of miles to their intended destination. Still, the process of moving milk remains time-sensitive, and dairy supply chain logistics are extremely complex.

Complexity and Waste in Today’s Dairy Supply Chain Logistics and Transportation

How complex? Roughly 2,000 haulers move more than four million loads of milk and milk products from 50,000 domestic dairy farms to and between 500 plants — with little margin for error.

And, the associated transportation costs have grown—A LOT. The industry now spends over $2.5 billion annually on hauling and intake. However, the sad truth is that far too much of that cost—we estimate in excess of $200 million annually—is wasted.

Wasted on what? Well, excess wait time and detention costs, overpaying some haulers while underpaying others (ultimately resulting in hauler consolidation and higher rates), running outmoded, small, high-maintenance equipment, excess intake time and labor, and moving milk and milk products further than necessary, for example.

Historically, the dairy industry has had to live with the waste; accurately determining true hauler costs, benchmarking haul rates, assessing and optimizing intake performance, optimizing hauling efficiency, finding a hauler with an empty truck when needed, finding sales or sources in real-time was extremely challenging. There were too many different routes, too many plants, too many haulers, too many different approaches to farm pickup, delivery, and receiving, too many equipment types—just too much information to process and optimize.

Dairy Logistics and Transportation

By the Numbers

HAULERS

LOADS

DAIRY FARMS

PLANTS

+$2,500,000,000

SPENT ANNUALLY IN HAULING & INTAKE

+$200,000,000

IS WASTED

Innovations that Improve the Dairy Supply Chain

So, what did responsible dairy cooperatives and processors do? First, they relied on old-timers—people who been around a long time, knew everyone, had a gut feel for things, and at least seemed confident in their judgments.

Did it work? Sort of… The old-timers got on the phone and got the product picked up, delivered, and received. But, of course, management, particularly more progressive management, didn’t like the opaqueness, over-dependency, and lack of quantifiable proof.

Understandably, they craved operational and haul rate benchmarks, transparency, a real-time view of dairy markets — so they could measure the performance of their processes and organizations and improve that performance.

That is precisely the domain in which so much exciting innovation has occurred. And, its evolution is centered around five key areas:

1. Digitization and Outsourcing of Dairy Scheduling and Trading

Dairy scheduling and trading platforms are where it all began—the development and adoption of technologies for connecting the supply chain—plants, dispatchers, haulers, trading partners—for the purpose of scheduling, trading, scheduling contract hauls, and obtaining real-time bids from spot haulers—while, of course, capturing all of that juicy trading and rate data.

Digitization opened up another opportunity as well. Having all critical information available online and in real-time enables operators to manage their own supply chains better—or leverage outside experts to manage their supply chains for them. These experts may have more focus and knowledge about market conditions, hauling, and trading options—and the personnel to pick up the phone day or night to handle problems when they arise. 

2. Plant-to-Plant Haul Cost Optimization

Applying statistical analysis and business intelligence tools to these vast datasets yielded the second significant innovation—benchmarking rates for any plant-to-plant spot or contract move anywhere in the country—in real-time. This enables dairy and hauling procurement leaders to determine which of their rates are competitive and which aren’t. From here, they can quickly determine which ones should be renegotiated or re-bid.

The analysis also shows whether better rates can be found through contracting or on the spot market. In fact, spot rates have been so attractive that spot volumes have increased 10x in the last two years.

3. Detailed Farm-to-Plant Route Cost Modeling

For farm-to-plant movements, detailed route cost modeling has become a powerful reality. Tools that accurately generate miles for the tens of thousands of segments inherent in large manifest sets, apply dozens of cost factors for drivers, fuel, and equipment of every size and type, and generate time factors for all varieties of farm pickup and plant delivery.

Every farm pickup, route, and delivery can be costed out accurately, enabling precise calculation of hauler margins, design of fair and consistent hauler pay structures, and calibration of member hauling contributions appropriate to each farm type, size, and location—so haulers can be paid competitively, yet sustainably, and cooperatives can eliminate hauling subsidies. This capability is a game-changer, putting milk handlers in the driver’s seat and arming them with bulletproof data.

4. Intake Benchmarking and Optimization

Above all else, intake delays are likely the biggest single source of wasted time and cost in the dairy supply chain—well over $100 million per year. The variety of ways plants agitate, sample, test, pump, wash, and seal is wondrous and terrifying in terms of physical layout, equipment, process, receiver, and driver roles—and these differences translate to cost.

Today, the best intakes process loads at roughly one-third the cost of the worst intakes—meaning hundreds of thousands, or even millions of dollars down the drain in a poorly performing intake—often choking profits of the plant, supplier, and hauler. The fourth innovation, intake benchmarking and optimization, addresses this issue— providing time, resource, and cost benchmarks for every intake process step (and end-to-end), best practices, and rigorous time and cost measurement and modeling.

While the variety of different environments in which intakes operate means there is no single best approach, these innovative solutions enable determination and quantified business case in support of the most cost-effective set of improvements.

5. Plant Design With 3D-Simulation

Optimizing the design of a plant—particularly one with complex interactions between people, equipment, process, and layout, with a variety of products with individual paths competing for the same work centers, and with variability in demand and process time, has been a confounding, if not impossible task. Traditional tools like CAD and spreadsheets just don’t reflect the complex realities that plant managers and operators face.

The good news is the fifth innovation: 3D simulation modeling. The most progressive companies in the dairy industry have seen it and appreciate the value of seeing their plant operating—equipment, people, and material moving and interacting all in accordance with product recipes and time factors—all before the operation is built.

With 3D simulation modeling, those building or expanding plants can engage every function in identifying problems and creating solutions—measuring how a design performs on the dimensions of throughput, process time, people, and equipment utilization. They can adjust and assess resource levels, roles, and automation alternatives—yielding better designs, clearer specs for engineers, and plants that perform exceptionally well in the real world.

The Future of the Digital Revolution for the Dairy Supply Chain

The theme of a digital revolution is clearly visible throughout each of these innovations—not as a replacement for judgment, but as an enhancer. By putting more high-quality information in the hands of industry leaders, they can do the right thing and drive better performance—for their organizations, shareholders, and members.

Moving forward, the dairy industry has an incredible opportunity to save hundreds of millions of dollars by using the insights derived from these digital innovations to become much more efficient and effective. We’ve come a long way from the horse and wagon, and there’s still more exciting work and evolution to be done. The innovations are real. They’re tried, tested, and truly remarkable in the results they produce. They’re exciting. And they’re here now.

This is the second post in our Dairy Innovation blog series for June Dairy Month. If you missed the first post, click the link below to read it.

How Convenience Impacts the Dairy Industry’s Approach to Packaging, Perishability, and Portability