I suspect the majority of companies in the dairy and ice cream industry have never actually taken a step back and considered fundamental alternatives to their traditional distribution methods—alternatives that are more comprehensive and beyond mere tweaks and updates to the company’s traditional approach. Experience says this is particularly the case with milk distribution, where many still view distribution as merely a necessary added cost to their processing business. It’s quite likely the majority of dairy and ice cream companies don’t actually have the in-house expertise, knowledge and technical capabilities required to adequately evaluate the almost unlimited combinations of methods possible today.

Distribution strategies may be developed to address a host of variable goals and objectives. Strategies might be focused on improving delivered product quality or to improve or guarantee certain levels of customer service or for the purpose of expanding market radius. They might be used to reduce capital investment and/or working capital requirements. Alternative strategies might be to provide certain proprietary and exclusive added-value distribution services to customers, or simply to reduce delivered product cost or some combination of multiple objectives.

New environment

Today’s combination of deregulated transportation, affordable communications, access to real-time information, GPS locators, and economical RF sensors permit virtually limitless combinations of distribution strategy.

When considering these alternatives, the starting point should be to identify company needs, objectives and possible product or market opportunities.

Does the company need additional volume to absorb fixed and overhead costs? Is there a desire to grow the market size or radius for higher margin, long life, and brand-name products? Could the company achieve additional distribution advantage using third-party services to replace capital equipment and facilities investment? Can value-added proprietary distribution services be used to capture additional margins and/or more deeply tie large high-volume, low-margin fluid customers? When does the wholesale product sale currently take place—as it goes out the plant’s dock door, when it’s delivered to the customer or when it’s going out the customer’s door? Are there possible advantages to be gained by changing that location?

Next is identification of products by their category characteristics, such as proprietary, value added, high or low margin, brand names, retail sales unit size, short or extended shelf life, value/cube and weight ratio, one-way or re-usable shipping containers, volumes, commodity or specialty product category characteristics and temperature requirements. If third parties are to be involved, it is also critical to clarify specific temperature ranges required for product categories.

Now it’s time to consider which (if any) of the range and types of third-party service providers may contribute added value to particular distribution alternatives or to create entirely new alternatives. Today they bring technology, distribution expertise, geographic scope, substitution of lessor capital equipment and facilities investment, replacement of working capital, replacement of company-owned software investment costs with online “pay-for-what-you-use” logistics and warehouse management systems, warehouse operating companies, inventory and replenishment management, direct store delivery or many other combinations of service and operating support.

Today’s challenge for dairy and ice cream executives is learning how (or securing outside professional expertise) to truly identify, explore and create broad alternative distribution strategies as tools to grow and improve the business.