When milk profits go down the drain
The dairy industry must meet the challenge of improving the quality of its products and services while cutting costs and increasing profits to survive in today’s competitive market place. Controlling product losses (commonly referred to as “shrinkage”) is essential to profitability, regardless of the type of plant (fluid milk, ice cream, cheese or butter and powder).
Although controlling shrinkage is important in all dairy operations, it receives more attention in Grade A fluid plants. This is due to the monthly accounting required by the Federal Milk Market Administration. FMMA requires an accurate accounting of all milk received, processed and sold. Consequently, the FMMA report is an overall review of the efficiency of a plant’s operation and one of the first documents to review when investigating possible causes of product losses.
Consider a fluid milk plant that packages 100,000 gallons a day, five days a week. This plant is experiencing a product loss of 2.25%. How serious a problem is this?
Product shrink (skim pounds and butterfat pounds) in an efficiently run fluid plant should not exceed 1.25% loss. Therefore, this plant has a 1% excess loss. The excessive amount of milk loss is 1,000 gallons a day, 5,000 gallons a week or 260,000 gallons a year.
52 tankers, down the drain
That yearly loss of 260,000 gallons (equal to approximately 52 tankers) would have to be received to make up for the excessive losses in the plant. Much of the lost product goes down the drain, causing increased sewer surcharges. Losses at the filler means lost containers and increased packaging costs. To make up for the losses, a plant needs to receive more milk, which also increases processing, packaging and labor costs.
When you add the increased cost of receiving, processing, packaging, and the impact on sewer surcharges, excessive shrink can easily cost a dairy company a staggering $750,000 to $1 million a year!
Plant shrinkage (skim and butterfat pound losses) generally occurs in five major areas of the operation:
- Raw receiving and storage
- Refrigerated/frozen storage
Product losses in dairy plant operations are classified as either accountable or unaccountable losses. Accountable losses are those that can generally be measured and have causes assigned.
Unaccountable losses are those that are not readily identified and causes are generally unknown. Unaccountable losses appear on the FMMA Report as pounds of shrink (product and butterfat pounds). Generally, unaccountable losses occur in areas where there are no controls or inaccurate measurements are being performed.
To achieve the shrinkage target, you need to form a loss committee. Its function is to establish timely loss reporting, review unaccepted variances, implement new loss control measures and monitor their effectiveness. Furthermore, control points must be set up in each of the five major areas listed above so losses can be measured where they are occurring in the operation. More importantly, plant employees must be trained in proper procedures and understand the importance of controlling losses and recording accurate data.
Where to look for losses
When losses exceed the goal, it is time to investigate. Product losses can usually be identified throughout the facility. Accurate, reliable records are essential to controlling shrink. Following are some areas of concern.
When the FMMA Report indicates high product-pounds lost, but low butterfat-pounds lost, this would indicate a loss of finished product. Look into:
- Raw receiving receipts (Is the plant getting what it is paying for?)
- Load-out errors
- NFDM accountability
- Billing errors
- Excessive credits “given out on the street” (that is, not returned to the plant)
- Excessive product loss (inaccurate inventories, overfills, spills, theft)
- When the FMMA Report indicates low product-pounds lost but high butterfat-pounds lost, this would indicate a loss of high-fat items. Look into:
- Inaccurate batching report
- Cream handling practices
- Cream testing
- Surplus cream BF test settlement practices
- Excessive high-fat product losses (Inaccurate inventories, overfills, HTST flushes, leaks, spills, theft, etc.)
When the FMMA Report indicates high product-pounds lost and high butterfat-pounds lost, this would indicate a loss of high-fat items and a loss of finished products. Look into:
- All items listed previously and probably more!
Remember: People, not process equipment or software programs, control shrinkage. If you do not measure it, you cannot control it.