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6 min read

5 Steps in responsible dairy sourcing

The procurement of milk within the supply chain can be an essential mechanism in creating a positive (or negative) impact on the world. McKinsey found that within the typical company's operations and processes – their supply chain accounts for far more significant environmental impacts than in any other area - "accounting for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources."

How does this relate to milk procurement? For dairy companies, the procurement of milk is their single most significant cost within their supply chain. Therefore, the processes involved with milk procurement (e.g., milk transportation, milk testing, and ensuring farm compliance) have a significant economic, social, and environmental impact that dairy companies are increasingly required to mitigate.

The milk supply chain is complex. Many suppliers, haulers, partners, and third parties are involved within milk procurement alone. How can this all be coordinated to source milk responsibly?

What is responsible milk procurement?

First, let's address what is involved with responsible milk procurement. Put, responsible milk procurement is when a dairy company actively and consciously sources and procures milk ethically, socially, environmentally, sustainably, and financially positive.

This means that a dairy company will ensure that its business practices – both internally and across the milk supply chain – will bring a net positive benefit. Responsible procurement will bring sustainable and future-proofed long-term practices to a dairy company.

There is no quick fix for responsible procurement. It requires long-term objectives and outcomes. Thus, the following framework is designed to guide dairy companies to understand how to reach responsible milk procurement practices.

1. Identifying vulnerability and risk

For a dairy company to improve its milk sourcing to become more responsible, it must first identify risks and vulnerabilities within its milk supply chain. These risks and vulnerabilities would include anything that will bring reputational damage to the dairy company and negative benefits to society and the environment. This risk can come in many forms, including pollution, unethical practices, environmental harm, or unfair labor practices.

For example, is there any exploitation of migrant workers where the milk is being sourced from? Or is the transportation and payment of milk occurring with transparency and traceability, reducing the risk of fraud or milk contamination.

Once risks have been identified across the milk supply chain, ethical sourcing targets can be set. For example, establishing a supplier framework where the producers must demonstrate they are producing high-quality milk and achieving a particular social or environmental performance level before they can supply.

2. Increase cost savings

Increasing efficiency has a part in developing a responsible milk procurement strategy. Applying strategy and logic to your sourcing processes will increase your bottom line and, thus, cost savings. Develop a model to assess supplier/producer contracts and current spending. Collaboration between these two critical business units will help identify any leakages in spending or cost-draining activities. This can be optimized through technologies.

For example, reliable, flexible producer payments can allow a dairy company to have significant savings per year by avoiding inaccurate and costly mistakes and payment irregularities. This alone can create substantial cost savings.

3. Implement a centralized repository system

A centralized repository system (CR) defines, stores, and manages all mission-critical data. It provides a single-source, trusted view of data across the milk supply chain. Dairy leaders from companies of any size, language, or location can use a centralized repository to remove redundant data and succeed in leveraging data for their competitive advantage.

A CR helps consolidate, cross-reference, cleanse, validate, and store data automatically, providing a transparent, all-inclusive end-to-end view of the milk supply chain.

With a CR, information like milk quality tests, milk costs, procurement data, tanker tracking, and forecasting are standardized and accessible to everyone across the milk supply chain. Hence, it allows data to move in real-time, accurately, and with optimization. Thus, a CR gives a dairy company the tools, visibility, and flexibility to actively and consciously source and procure milk in a responsible manner.

For example, by implementing a CR into their milk supply chain, Madcap customers have the tools to help HQ to analyze and report on carbon emissions occurring end-to-end. This enables them to establish goals to help them achieve their sustainability policies and carbon emission targets. It was easier for these dairy companies to adapt and deliver a responsible milk procurement supply chain with a modern and centralized system. This approach has future-proofed their milk procurement activities. It reassures these dairy companies that their business practices – both internally and across the milk supply chain – will bring a net positive benefit.

4. Measure and reward supplier/producer performance

Supplier/producer performance historically used to be solely evaluated on the ability to deliver the correct quantity and quality of milk at the right time. However, to create a responsible milk procurement strategy, more is now required.

One way to achieve more responsible sourcing is, as mentioned previously: establishing a supplier framework where the producers must also demonstrate they are performing a particular level of social or environmental performance before they can supply. Nevertheless, this approach is primarily practical for new suppliers/producers. What about ensuring current suppliers/producers are meeting these goals?

For current suppliers/producers measuring and rewarding farms that align with company goals is a successful approach. For example, suppose a dairy company wants to reduce its environmental footprint. In that case, it can align its farms with the same objectives by helping their producers implement these new initiatives and incentivize them by offering bonuses or penalties based on the recorded farm activities and not just quality of the milk test results - such as less fertilizer applied, health and safety compliance, and increased animal welfare, etc.

By utilizing a CR, a dairy company can put logic into the system. Thus, access to this information and automatic incentives can be performed seamlessly for all parties involved. This helps create more direct buy-in and responsibility for all those across the milk supply chain toward a responsible milk procurement strategy.

5. Link your processes with technology

Responsible milk procurement is moving ahead at a swift pace. This creates a considerable demand to keep up with these changes. To be successful, link your milk procurement processes with advanced technology. Technology gives dairy leaders the ability to gain a holistic view of every function across their milk supply chain. This facilitates fair, responsible, and timely decisions. The technology eliminates the barrier and discontinuity created by geography, legacy systems, and people-based systems. Every function and department across the milk supply chain can be coordinated for improved productivity and social, ethical, and environmental considerations. Investing in smart milk supply chain technology makes it easier to track information across the milk supply chain and accelerates communication for improved supplier/producer relationships.

When considering intelligent milk supply chain technology do your research, check references, and choose a proven solution. Make sure you select a world-leading expert who can adapt to the dairy industry's ongoing changing requirements, and you will benefit from improved efficiency, measurable savings, and a more responsible milk procurement strategy.