The dairy industry is a supplier of fresh products on a daily basis, so the cost of transport is a major cost element. Apart from the cost of purchasing raw milk and distributing dairy products this sector which already suffers high transport costs through political intervention (environmental taxation, fuel prices) has to take account of increase in its logistics costs. The introduction of motorway charges for heavy goods vehicles has result in further increases of about 15 %. There are new EU-Regulations since April 2007 about reduced lead- and calmtimes of the Drivers. This brings further increases.

These changes will have a significant effect on the competitiveness of the sector which is facing increasing competition from abroad. Despite increasing logistics costs, the excess production of raw milk is exerting a downward pressure on market prices. Consequently it is vital to optimise the process costs of the logistics procedures whilst meeting customer expectations efficiently.

One logistics problem for dairies is the high cost of collecting raw milk from the producer. The cost of collecting milk depends to a large extent on logistics organisation.

As a result of structural changes in raw milk producers the collection of raw milk by the dairies has changed too. Because there are now fewer milk producers there are also of course fewer milk collection points. The trend towards higher milk quantities per supplier makes collecting milk from each collection point more efficient, but it also means the collection points are further apart.

The dairy milk tankers consequently have to travel further to collect the same volume of milk. Because of the high cost of transport and the collection points being further apart, the location of the dairy relative to its suppliers is an extremely important factor. In this respect we should not forget the high costs associated with collection (packaging, additives etc.).

One method of reducing the number of vehicles, the mileage covered and the time involved would be to reduce the frequency of milk collection. Collecting on alternate days instead of every day would halve the number of collection points to visit and double the milk quantity for collection at each point. This would affect the associated maintenance and cleaning costs of the changed fleet size. There are additional cost benefits to be obtained in quality checking and calculating milk payments. The fact that milk is obtained from collection points which are further apart is potentially more cost-effective. The agricultural reforms¹, which are likely to result in a considerable reduction in dairy production in some areas, will certainly affect the distance between collection points.

As the dairy industry is very dependent on the proximity of collection points to each other and the dairy, the significance of the ease of collecting milk will play a major role in investment and location considerations in the industry.

Apart from the high logistics costs involved in the collection of raw milk, the dairy industry also has to contend with the logistics costs of distribution. There is continued reduction in local deliveries in favour of deliveries to central depots as food retailers are increasingly taking over logistics functions. In principle this development should have a cost reducing effect on distribution costs for the dairy industry.

Because of food retailing being concentrated on fewer retailers both at home and abroad the result has been a significant increase in average demand for dairy products per individual retailer. At the same time the number of dairies has been decreasing. Many dairies have found it necessary to change from a regional to at least a national distribution structure. The significance of local deliveries, direct supply of the retail branches, has reduced considerably in favour of deliveries to central depots, as food retailers want to take over the main logistics functions for dairy products too. Currently approximately 90% of all dairy products are distributed via central trade depots.

In the main, the manufacturers operate their own fresh food depots. Generally dairy products are only stored for a short time, to comply with quarantine and maximum cold storage period requirements and until Quality Assurance releases the goods for sale.

The maximum storage period for chilled or deep frozen butter depends on the temperature (1 - 2 months at -1 to 4°C and up to 12 months at -18 to -24°C). The maximum storage period for cheese depends on the type (e.g. Roquefort may be kept for up to 4 weeks, Camembert for 4 - 6 weeks and Gouda or Tilsiter for up to 4 months).

Especially in the fresh foods area the food retailers are increasingly interested in "Just In Time” deliveries, so that they can reduce their own storage costs. Any failure to deliver the required quantity at the required time may result in de-listing or exclusion from special sales drives. For dairy product manufacturers this development means increasing frequency of delivery of smaller quantity orders. Transport costs are increasing for manufacturers of dairy products.

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An important factor in optimising logistics is the harmonisation of the logistics processes. Various processes have been developed to meet customer requirements and these run parallel to existing processes. The increasing trend towards co-operation and mergers in the dairy industry results in asymmetrical processes in the supply chain. For this reason there is continuous identification and analysis of the processes in the whole supply chain, with the aim of achieving positive cost benefits.


¹ Since 2005 most subsidies will be available independent of the production volume. In order to prevent discontinuation of production, member states are permitted, under strictly laid down conditions and within clearly defined limits and only to a limited extent, to maintain a linking of subsidies to production levels. The new "single farm payments” will in future be linked to environmental, food safety and animal protection standards, designed to make European agriculture more competitive and market oriented whilst at the same time guaranteeing stable income levels for the farmers.