The Three Steps of Dairy Production in Need of a Better ERP

October 10, 2019

Posted by Jack Payne

Food & Beverage, ERP

 

Think about the last time you enjoyed a juicy cheeseburger (apologies if you haven’t eaten lunch yet). Each component of that burger went through an extensive supply chain before arriving on your plate, but none were more complicated than for the slice of Wisconsin Cheddar that sat atop your burger. In fact, the process is so involved that many dairy manufacturers still struggle to track it.

This is the challenge dairy manufacturers face multiple times a day: tracking their product. It’s important that manufacturers understand the composition of their raw milk, anticipate what their monthly costs will look like, and blend the proper components of milk to achieve optimal outputs. And when manufacturers seek an enterprise resource planning (ERP) solution to address these challenges, they may find the technology is prepared to manage the process of turning multiple ingredients into one product – not the other way around.

Let’s take a dive into the three steps of dairy production that could benefit from a technology revamp – and how to find the right ERP for your specific challenge.

Evaluating the Product

Milk that cows give is not consistent. It varies in terms of its components, whether that’s butterfat, protein, or non-fat solids. Each is valuable for a different dairy-based product. When a manufacturer accepts 40,000 gallons of milk, he/she must determine the amount of each component within the supply. For example, the average butterfat component is 3.5%, but it can be up to or even above 4%. Of course, the state of each component makes it nearly impossible to inventory, as it can’t be physically counted, but it still must be calculated.

When selecting an ERP, it’s critical to find a solution that can assist in quality tests to measure your components, as accurately costing your milk supply can improve inventory valuation and milk payments. Adopting a next-generation ERP allows you to better understand what kind of a product and how much of that same product you can create from each tank, improving your forecasts and taking guesswork out of the valuation.

Understanding What You’ll Pay

The final cost a manufacturer pays for its milk is determined by government regulations. However, manufacturers need a good grasp of the class system to adequately predict their monthly spend.

Dairy products are divided into classes based on output product. Most manufacturers aren’t certain how much of each product they’ll produce in a month. They “class-add,” or determine what milk goes where after it is accepted as unclassed and how much of a specific farmer’s product they’ll use to make that product. Although advanced pricing at the month’s beginning gives farmers and manufacturers some idea of the final cost, the announced price isn’t available until the next month. Manufacturers often wind up trying to fix the discrepancy later in other business transactions.

In addition, many ERPs aren’t designed to handle the “pooling” involved in dairy production. For example, combining 30 percent of one farmer’s milk and 40 percent of another farmer’s milk to develop Class 1 products makes it difficult to properly calculate the milk’s final value.

Selecting an ERP designed specifically for dairy manufacturers allows you to track what percent of which milk went into which class of product while keeping track of each supply’s components. This kind of tracking ensures that discrepancies between advanced and announced pricing can be fixed quickly.

Tracking Input-Based Production

Perhaps the most critical challenge for a standard ERP in the dairy space is its multiple-products-to-one design. ERPs track recipes to ensure the right amount of each ingredient is used to produce a single item. Conversely, dairy manufacturers work with an input-based product. A single product – milk – enters the process, but multiple products, including cream and skim, are extracted from the milk. While cream and skim will ultimately be blended to produce a new product, they must be tracked at all stages of the manufacturing process.

In addition, ERPs aren’t designed to trace products as they’re co-mingled. As manufacturers pull cream and skim, they’re often combining different lots of raw milk into one tank. And because federal regulations require cleaning for a maximum of up to 72 hours between CIP tank cleanings, multiple lots are merged. Next-generation ERPs can support your team as they trace the components of each lot moved into a tank, giving you a better idea of how much of each component you’ve used and how much is left.

Complicated Processes Call for Advanced Technology

Today’s manufacturers are laser-focused on efficiency – how we can maximize quality product with the fewest number of resources. Understanding the value of your raw materials and keeping track of their components at each stage of production, gives manufacturers a better idea of cost, and it helps them maximize the content of each lot. But it takes an advanced ERP to obtain this level of visibility.

If you’re looking at investing in new technology for dairy manufacturing, talk to each vendor about how their product was designed with your special requirements in mind. Don’t settle for a one-size-fits-all solution – invest in an ERP you can milk for all its worth.