Lessons learned for a brighter dairy industry future

The COVID-19 pandemic devastated businesses in every industry worldwide. Dairy operations were hit especially hard, as the industry had to navigate negative effects on business operations, logistics and an abrupt change in demand.

Restaurants shut down or limited services to takeout and/or delivery only. Schools changed to online learning and stopped buying milk, which created a huge demand shift.

Some dairy manufacturers were forced to decide whether to try to stay open or to close their operations. COVID-19 didn’t eliminate the need for dairy products, but it severely disrupted dairy supply chain operations. In response, most dairy businesses struggled.

Manufacturers had to go back to relearn the basics. They were somewhat unprepared from an operational, process and supply chain perspective.

To meet these changing market demands and prevent further product waste, dairy producers needed to quickly ramp up production for the retail market.

The pandemic brought inefficiencies to light

Leading up to the pandemic, most dairy executives and leaders were focused on things such as technology and innovation to drive profitability. Then COVID-19 came along. It’s worth noting that, while unexpected, the pandemic didn’t necessarily create new issues for dairy businesses. Instead, it substantially magnified existing problems faced by the industry.

Dairy businesses have experienced ebbs and flows in demand and shifts due to the changing industry environment. Mechanical outages, labor shortages and other challenges have also taken a toll on dairy businesses in the past. However, these challenges had never occurred simultaneously like they did at the start of the pandemic.

One problem was that crisis-management protocols were not set up to handle the volatility in demand, along with the associated impact on mechanical, operational and supply chain dynamics. And as an industry with classically high turnover, dairy manufacturers were certainly not prepared from a “people perspective.” Management often didn’t know who was coming to work, and turnover rates skyrocketed at some client sites we visited — up to 50% on any given day. Adding to the challenges, the need to pay overtime for employees who did report to work created spikes in total labor costs.

These daily operational challenges made the lack of data, technology and innovation more acute, since insight-rich data allow leaders to more readily pivot to succeed. 

The current state of the dairy industry

Because of the challenges created by COVID-19 and those that existed prior to the pandemic, the state of the dairy industry is unsettled. The forecast for the start of 2021 looks relatively unstable, with schools in and out of session and not all businesses and restaurants resuming operations. Dairy alternatives such as soy and oat “milk” continue to draw market attention, and research, development and innovation in the industry seems to be even more in play.  

What does the future hold?

As we move ahead in the dairy industry, it’s time to look at the things that were challenging before the pandemic. Dairy manufacturers should examine their day-to-day operations and ask themselves: “Are we in trouble, or are we exposed in a manner that if something happened, would we be unprepared?” Now is the time to do the right thing operationally in the industry.

Dairy manufacturers need to focus on the following areas to set the course for a brighter 2021:

• Production: Look at loss-tracking and analysis more closely, as well as production planning and scheduling. This involves implementing labor management tools to align forecasted production with appropriate labor requirements.
• Maintenance: Develop an asset strategy (managing conversion costs by reducing waste regarding filler maintenance and downtime) and an overall equipment effectiveness (OEE) program that focuses on production, maintenance and management operating systems (MOS).
• People: Capture knowledge for training and employee development and understand temporary and overtime labor costs. Do a better job of cross-training employees so they are more prepared for unplanned events and fluctuating staffing levels.
• MOS: Capture data/information for benchmarking and key performance indicators (KPIs), behaviors and metrics. Put the right MOS in place to capture data that allow manufacturers to make fact-based decisions.
• Service-level agreements (SLAS): Study SLAs with customers to make sure that they are fair and equitable. Manufacturers tend to do a good job of maintaining relationships with the dairy farmers, but where they’re not that close is with the end use customers. A more collaborative relationship will help with forecasting, which then impacts production levels and accountabilities.

It is really going to take a comprehensive look within all four walls of dairy operations. Then it will require plans and strategies to reduce labor costs, downtime and finished goods losses. And it really comes down to developing a crisis strategy that matches operational readiness.

Dairy manufacturers need appropriate MOS in place to drive the right behaviors to ensure sustainability. And they need to be aware of the triggers and signs of an inefficient operation. You can ignore the red flags and KPIs and keep producing milk, but you won’t change behaviors that activate processes to make your company profitable and sustainable.