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Gözegir, N., Ertek, G., Büyüközkan, G. (2008) “Dairy logistics: a tutorial” . CELS 2008, Jönköping, Sweeden. (presented by Nilay Gözegir). Note: This is the final draft version of this paper. Please cite this paper (or this final draft) as above. You can download this final draft from http://research.sabanciuniv.edu. DAIRY LOGISTICS: A TUTORIAL Nilay Gözegir, Gürdal Ertek and Gülçin Büyüközkan Abstract This paper discusses fundamental issues in dairy logistics in a tutorial format. We summarize findings of more than twenty student groups who carried out independent literature surveys and interviewed professionals in the industry. The critical issues in carrying out dairy products logistics, the logistics strategies that are employed by dairy producers in the world and some newly introduced products in the industry and in what ways the introduction of these new products changes the logistics operations are pointed out. The importance of hygiene, cooling, time, humidity, cost, distance, flexibility and meeting the demand is emphasized under the subtitle of critical issues. Except those critical issues, there are some others like short shelf life, quality, emulsion, pasteurization, UHT which depend on the characteristics of the milk and milk products. Logistics strategies in dairy industry are studied by dividing it into two subtitles: the ones that are used in the world and the ones in Turkey. A benchmarking between Turkey and the 1 world is also included at the end. As the variety of milk and milk products increase day by day, the new ingredients of new products also affects the transportation plans. Those impacts are also discussed as a part of our paper. Some descriptive drawings and figures are also embodied. Throughout this paper, only the production, warehousing and transportation of milk, cheese, yoghurt, and similar dairy products are discussed. Ice-cream especially is set out of the scope as it completely differs from actual dairy products as milk, cheese and yoghurt in the means of production and distribution. Keywords Dairy Industry, Dairy Logistics, Cross docking, Direct Shipment, Raw Milk, Warehousing INTRODUCTION As the producing lines of dairy products increase daily, the logistics of milk, cheese and yoghurt- like products continues to gain more importance. To plan a better transportation system of those products, the first step might include analyzing the market and finding already made approaches. Dairy products have a life time of production, warehousing and transportation which is in the following phases: collecting the raw milk, warehousing it in a dairy plant, bringing it to the retailer and selling it to the customer. Those steps acquire a special conditioned journey, as dairy products have characteristics different from those of other food products. Freshness, for example, is very significant for the dairy products’ perish ability and requires a temperature sensitive system. That temperature sensitive system will create a proper cold environment, but on the other hand, it will necessitate timing and cost. So the aim might be decreasing the operation, distribution, and transportation costs, utilizing the raw material, increasing the market share, and profits of dairy products while meeting the expected customer demand. The Turkish Ministry of Agriculture claims that a person should consume everyday at least 1 liter of milk or a dairy equivalent . As milk and milk products are greatly significant for people because they are rich in protein and vitamins, the logistics of dairy products gains importance. Both dairy product producers and their logistics firms want to have an arrangement that will create benefits for both sides. Despite the real problem of dairy industrial firms in finding the optimized logistic network, other kinds of issues are also applicable to operations research 2 branch. This utilization by operations research has created great savings for the dairy product producing firms as only buying one of the already constructed software packages will be sufficient. For these reasons, in this paper, this subject will be studied under three main categories in details. ISSUES IN DAIRY LOGISTICS What are the Most Critical Issues in Carrying out Dairy Products Logistics? The main aim in the logistics of dairy products is to enable a high standard of qualified, fresh products with a limited shelf-life. The best time for delivery of perishable products is at most 11 days as the key challenge is maximizing the remaining shelf-life . Thus, an effective logistics strategy for dairy products must face critical issues that consider the shortest time, the freshest products, the least cost for transportation and the most utilized customers whom demands are met. Daily transporting of dairy products is one way to keep food fresh. Unless the time that is spent between collections and selling is short enough, quality problems may occur. The possibility for fat and proteins in the milk’s breaking down after 48-72 hours will lead to bacteria reproduction below certain temperatures . In conclusion, the dairy producers and retailers obviously are in the need of logistics firms that will care about the special needs and problems in their working environment, mind the customers’ needs and act accordingly. At that point, the transportations system will be customized and rearranged according to the particular dairy firm’s requirements. Implementing dairy products logistics requires consideration of some critical issues as listed as below. Cleanliness and Hygiene: Milk production is done under hygienic environment to enable a superior quality. Actual hygiene is divided into three distinct groups: physical, chemical and microbiological hygiene. Physical hygiene is facilitated according to density, freezing point, osmotic pressure and acidity of the milk or dairy product. The solution is neutrality; meaning that having a pH around 7, is significant. Chemical hygiene depends on the product’s transportation and storage. There is a possibility of having oxidation/breakdown of the fat and protein in the milk or dairy product, so protecting the food from oxygen and direct sunlight is really important in the transportation and storage of milk and dairy products. The last kind of hygiene is microbiological and consists of a temperature critical issue which prevents microbiological reproduction . A precaution that can be done in this case is consciously 3 choosing the material of milk containers used for transportation. The material might be one that is effortless to wash, clean and antisepticise; rustproof and doesn’t displace any substance to the milk. . In the Philippines, they use wood, metal or thermoplastic solids to surround the fresh dairy products in the vehicle that transports the dairy product. . On the other hand, if the vehicle doesn’t have any cooling system, the pasteurized, fresh milk is placed in isolated boxes which have ice packets around. A firm referenced by Nestle about professionalism in Material Handling Automation advises an overhead monorail system. The overhead monorail system is able to transport the dairy food from production to distribution centers with pallet transportation. This monorail system seems to be suitable and advantageous because they are not floor mounted and this makes the ordinary cleaning of the floor much less problematic . Cooling and Temperature: As temperature is a significant effective on the reproduction of bacteria, the control of milk’s temperature is a critical issue in dairy logistics. Bacterial spoilage can be prevented by controlling the existing temperature. For controlling the temperature of the environment of dairy food, proper cooling systems are obviously needed. Time: Time is the third section of the most important critical issues list that contains hygiene and temperature, because with time there is likeliness for bacterial spoilage or non- freshness of a dairy product. That is why there are batch numbers and best before dates for each product. For maximizing the delivery of perfect products to the customers, the best before dates and batch numbers should be cautiously scrutinized. Humidity: Humidity is another significant environmental characteristic for high- qualified milk production. Sometimes air might not be appropriate for milk transportation because of being too moist or dry. Moist or dry air has the probability to create a suitable condition for bacteria and other germ reproduction. However, maintaining proper air circulation inside the transportation vehicle and the needed humidity is not so easy. Actually, the trucks are constructed in such a way to let in the air flow. With the air flow, the vehicle will then have the requisite condition. Cost: Cost is not exactly effective factor on dairy product freshness but very much so on the profit. The transportation cost, the loss from dairy products remaining after best before dates, the refrigeration cost-- all effects the entire cost manner of logistics of dairy products. The transporting cost is about 25% of total production cost of a dairy product in the USA . According to this high percentage, different solutions for decreasing the cost of transportation are tried to be found. One way is reducing the frequency of gathering milk from producers. Another is reducing the transportation cost from delivery to central depots. Actually, the main challenge of having depots is decreasing the transporting cost of milk and milk products. 4 Distance: Distance is a supplementary, but critical issue according to time and cost, because time is important for the product’s transportation as it has to meet a specific best before date and cost is also significant as the amount that perishes before purchase returns to the dairy firm as a loss in that term. Thus, transportation communications are effective on the firm’s profit. Flexibility: Flexibility and throughput are also critical issues under the specific times. As one can have less and the other one more demand in the consecutive period of time, the logistics firm should be reasonable and easily adapted to the new demand. Meeting demand: After the flexibility issue, meeting demand shares great importance as the utilization of customers has high vitality. If the customer satisfaction is relatively low, the firm will lose customers and sales. Since dairy products have short shelf life and some best before dates to be projected, forecasting becomes more critical in the dairy firms’ operation. Because a better forecasting system brings greater efficiency in inventory holding, more utilization of machines will result in a high increases in firm profits. Besides forecasting, packaging is another essential issue in dairy production because packages have a crucial role on keeping the milk fresh for a long time. Last, according to the critical issues listed above, transportation vehicles should be designed or chosen according to those properties’ availabilities. The trucks should be able to provide needed equipment for making the existing properties remain from collection to retailing time, but those changes are expensive and the most cost-effective ones are always best for dairy firms. Critical Issues Related with the Characteristics of Dairy Products According to milk’s chemical content, it is a product that spoils easily. It should be consumed closest after placement on market shelves. Before it takes its place on the shelves, milk should be kept and carried in fairly low temperature to avoid perishing before its best before date. It is a difficult process for retailers to keep dairy products on a specific desired level. The reason for this difficulty obviously relates to the short time for storage and hygiene. However, only some establish cold chains for the transportation of raw milk from villages. The fact that not all firms establish cold chains is due to the high costs of establishing and maintaining cold chains for dairies. However, milk and its constituents are able to create a suitable environment for the micro-organisms inside the food to reproduce and increase. Some micro-organisms already exist in the milk but their reproduction does not start immediately after the milking process finishes. Hence it is required to instantly cool the milk and checking the amount of micro- organisms will be helpful afterwards. Normally, there are around 10 and 10 antibodies per ml 5 in the milk and that kind of milk can be protected for 2 days when the temperature is around 4 Celsius. When the number of antibodies is more than 10 , that milk is called low quality milk and not suitable for use. When antibodies are around 10 and 10 and 2 days pass, there are two kinds of change. One is caused by the microorganisms in the milk and the other one by chemical changes . Those changes may have different reasons to occur. One is about the internal conditions of the food such as pH, and the other is chemical conditions of the food such as temperature, level of oxygen in the atmosphere and humidity . There are a few characteristics of dairy products that affect their logistics : Short Shelf Life: As the dairy products do not have ability to long last because of its chemical ingredients, these products should be delivered and consumed in a short period of time. Quality: The quality of dairy products depends on some known, accepted standards. Those standards are considering the cooling of the milk on farms and the microbiological contents of the milk. Quality is a significant aspect of milk’s long lastingness, as it is mentioned that poor quality and controlling enables the pasteurized milk to last for only three days . Therefore, this kind of milk should be transported in the fastest way, in order not to perish. Emulsion: Milk is actually a kind of emulsion constructed from little fat drops inside water. There is a thin protein layer in the milk and when heated, a thin coating is created. That is because of protein coagulation in the milk which can be avoided by agitation to milk. It is obvious that dairy products can become easily corrupted. There are some ways to longer their qualified periods. Two are pasteurization and UHT (Ultra High Temperature) processes. Pasteurization: Pasteurization is cleaning the harmful bacteria off the food by heating it to a specific temperature. The limit temperature is the one that will not affect the proteins inside the food. When the food is heated till the limit temperature, some harmful bacteria will begin to thicken their cell walls and some will become spores to protect themselves. Then at that point the food is immediately cooled. The bacteria prepared for the hot environment cannot do transduction and their cell walls break down while they die . Generally, pasteurization is a process to create healthy food, but it is important to keep the food at constant refrigeration such as some degree about 8 Celsius after the pasteurization process. UHT: The best way for keeping dairy food fresh and unthreatened is the cold chain. The cold o o chain implies “Afford to keep dairy products between 0 C and 4 C during the process of production, transportation, sales and storage.” . In spite of pasteurized milk that is more perishable and a cooling required food, UHT milk is able to stay fresh from up to 6 months 6 without any temperature requirements . The substructure of UHT is cleaning the bacteria off the raw milk and filling the cleaned milk in pre-cleaned packages. One more UHT cleaning o step is sterilization. Milk pasteurized over 135 C will have a much longer shelf-life even when the package is subjected to fairly hot temperatures. There are pasteurization and homogenization phases throughout UHT processing. There are many advantages of UHT such as: 1. High quality: Decreasing the concocting time by increasing the temperature to high values and immediately decreasing it makes firms offer better quality products. 2. Long shelf-life: UHT enables 6 month duration shelf lives for dairy products without any cooling. This opportunity makes more flexible logistics of dairy products . 3. Packaging size: There is no necessity to use a specific package as processing of UHT has anything to do with container size. This actually allows producers to fill huge containers. 4. Cheaper packaging: Packaging, storing and transporting UHT processed dairy products are simply much cheaper than other strategies . UHT is done with special carton packages, and thus packaging becomes cheaper. Glass bottles have relatively high costs and are mainly used for delivering pasteurized milk . As dairy products can be grouped into pasteurized and UHT processed, their transportation from factories to demand points differ. As expected, the fresh milk transportation requires much more interest than does UHT milk does, fresh milk is transported in frigo trucks that are specially cooled vehicles as there is a specific value of temperature to be met. To summarize, milk can be brought to the dairy plant in 3 possible ways, as illustrated in Figure 1: 1. Cooled collection centers 2. Un cooled collection centers 3. Farmers bringing their milk directly to the dairy plant. 7 FIGURE 1 Different ways of transporting raw milk Dairy and Other Retail Products Differences Dairy products are perishable and need special care while transportation. For example, the milk that will be carried cannot be collected from all different producers as it will significantly consume too much time to visit each producer and take milk. On the other hand, the quality of produced milk differs from one other, so they should not be carried together in the same truck. As a result, in each transporting procedure large amounts of milk are carried to a distinct number of central depots that belong to dairy retailers. In conclusion, the simple logistics of milk are between factory and central depots. This one-to-one transportation of dairy products is called direct shipment. These directly shipped products are under significant observation as usually they are controlled by a temperature monitoring system put inside the truck. This system is able to keep all the temperature data during transportation and locates the problems at accurate times. Consequently, they are always capable of avoiding spoilage and its probable costs. On the other hand, for products apart from dairies, direct shipment is not a usual choice to transport nonperishable products. Warehouse storing is an important preference in those kinds 8 as the shelf lives of them are not even a problem. Detergents as being storable products can be carried with warehousing strategy. Besides, the non-perishable products such as beans or beer can be carried by using cross-docking strategy. Even around a year is suitable for non- perishable products not to decay. To sum up, the differentiated term in the dairy product transportation is in the means of conditions and amount of costs. These conditions affect retailers as they are never able to keep dairy products in warehouses. This means dairy products can never be kept as safety stock during either in raw milk collection or at the dairy plant and safety stock which is the amount that is stocked in the warehouses is not possible for dairies. Although safety stock provides always the relevant amount and is a way to increase the service excellence to customer, in dairy products that is not possible as no warehousing occurs . LOGISTIC STRATEGIES IN THE DAIRY INDUSTRY World-wide Logistics Strategies by Dairy Producers Supply Chain is an important branch that starts with the production and ends with distribution. There are three main transporting strategies that are warehousing (Figure 2), direct shipment (Figure 3) and cross docking (Figure 4). Warehousing is storing goods for a specific time throughout the entire transportation process. This strategy involves a special procedure where the product is taken back and prepared for packaging and being sent to customers. Cross docking is the newly introduced and mostly chosen way. It is again a method that concerns storing, but when it is compared to the warehousing, the storing period is much less. It is typically around 1 day, but there are times when it is less than one hour. Direct shipment strategy is directly transporting products from plants to retailers . 9 FIGURE 2 FIGURE 3 Transportation with Warehousing Transportation by Direct Shipment Generally speaking, countries around the world use warehousing and direct shipment as cross docking is a newly introduced term. In spite of regulations that restrict selling milk without pasteurization, farmers in some countries continue to sell unhealthy milk firsthand. Kenya is a good example of that kind of country. Farmers in Kenya are used to this kind of distribution as they earn more revenue by this kind of selling because of the customers’ unwillingness to buy high priced dairy products . Except for Kenya’s people’s contravention against high-priced milk, India does not have a well-developed healthy system for keeping raw milk because the plants are very far from collection centers. The long distance is the reason that Kenya’s government collects raw milk twice a day. For solving this problem, either cooling basic facilities might be introduced or collection centers should be placed near farms . On the other hand, in Mexico and India, attempts to introduce a new strategy to be introduced for selling the milk are based on automatic vending machines that do not even require packaging. Because this strategy allows customers to come to vending machine and get their own milk, this practice is beneficial for the firms as they are not spending any money for packaging . In general, countries prefer the much cheaper direct shipment and cross docking strategies instead of classical warehousing. A large number of the dairy producers exploit third party firms for the logistics of their products as accomplishing all transportation activities with actual processes would be difficult. Such outsourcing can significantly decrease the costs of transportation, and the firms can concentrate on their core competencies. 10 FIGURE 4 FIGURE 5 Transportation by Cross docking Consumption of Milk in Turkey Logistics Strategies Employed by Dairy Producers in Turkey The strategies used in Turkey are analogous to the worldwide strategies. At first, as the demand for dairy products was not so high, the usage of cross docking method was not high either. On the other hand, cross docking has been newly introduced in the big cities such as Istanbul, Ankara or Izmir as they are the ones with higher demand. Opposite to that, direct shipment is a broadly used strategy because there are many local producers around Turkey who usually prefer distributing their products directly to demand spots. Warehousing is another unpopular way for transporting dairies in Turkey. The giant worth of having a warehouse disables firms from using the warehousing strategy. The number of big companies is fairly less than the number of local ones. Regarding that the local ones do not prefer to use warehouses as much as big companies do, it would be said that the demand for warehousing also decreases. The dairy industrial firms in Turkey can simply be divided in two: professional companies and small dairy barns. Professional companies prefer to use logistics methods employed worldwide with novel technological machinery and large production. On the other hand, there are small dairy barns that work with the neighborhood grocery in a small informal distribution channel . Apart from these strategies, there are various distribution channels for all of the dairy producers. Despite the existence of distribution channels, the geographical structure is 11 particularly harsh in eastern Turkey. That can be one reason why companies use their own trucks for transportation as they are concerned about the quality of dairies. Also optimization is not occurring in the self-transporting dairy firms as there are not enough experienced workers and professional firms. In comparison, the 3PL (third party logistics) users are professional firms which work with known brands. These kind of dairy firms bargain with that professional transportation firms which take their job seriously. Differences between Logistics Strategies in the World and Turkey There are many differences between Turkey and other countries around the world regarding dairy logistics. The top rated companies usually use cross docking strategy as long as the newly introduced information technology systems permit them for following the actual status. Additionally those systems are too expensive for small Turkish firms. Next, geographical disparities greatly affect the logistics of milk and milk products. In European and American countries distribution channels have been already well planned and established, reducing logistics and warehousing costs. However, in Turkey, the existence of farmers in rural areas is one of the reasons that complicate the transportation of dairy products. Another special and very significant differentiation of Turkey is the absence of refrigerated farms while uncooled farms exist everywhere. The milk thus must be collected periodically to prevent spoilage. Unless there are refrigerator systems in the farms, the amount of transportation should increase and this will lead to an increase in cost. Farms, in more developed countries, are definitely constructed with refrigerators. By this way, that raw milk will be able to be more durable without bacteria or any other kind of spoilage. There is also the reality of the small dairy barn’s existence in Turkey. Even in countries smaller than Turkey, the small dairy barns either come together and form bigger companies or may not have a right to exist in the market and shut down. Lastly, 3PL usage is another issue which differentiates Turkey from other countries. In Turkey, outsourcing is an almost brand-new tendency although other countries have already been using it for a few years. THE IMPACT OF INCREASING PRODUCT VARIETY Milk could be taken may be a component of many different healthy delicious food . As an illustration, some people love to drink milk and fruit-juice at breakfast. For that reason, a milk- 12 juice drink could be a pleasant originality for those people. Except that one, pro-biotics and pre- biotics are collaborators for constructing a protection cover against a range of infections in the human body ; furthermore, pro-biotics have a literal association with milk and products made from milk as dairy foods have the ability to inhibit pro-biotic bacteria. This means putting some protein and pro-biotics together by producing a kind of dairy product is a good idea since they have countless advantages for human health. With that action, a new product that is neither an exact dairy food nor a medicine will be created and there is a high demand for those kinds of products. The most acknowledged assistance is the facilitation to digestion system, support to urinary and genital organs, increased defense against infections, help for manufacturing vitamins such as biotin, B6 or folic acid and reducing the threat for some cancers . Various kinds of pro-biotic products exist in the world market. Among those different kinds, some have been introduced in different countries, some have different ingredients, but they are all mostly pro-biotics. Soy based dairy products are an example of using soy constituents and have many functions for human health. Fermentation is a rarely used method for creating new dairy products from milk such as kefir, buttermilk, cheese and yoghurt. Fermentation is accomplished with mesophillic and thermophillic bacteria, also lactose fermenting yeast . Although there are many different kinds, pro-biotic yoghurt is the mostly chosen dairy in a list which contains soy milk, juice-milks, and fermented dairies . Kefir is another kind of dairy product mostly produced in Turkey nowadays; the word kefir means ‘good feeling’ in Turkish. It is a kind of dairy product which is made from kefir granules of bacteria and yeasts . Similar to kefir in Turkey, there are new dairy drinks that contain vitamins and began in the Spanish Dairy market. Sweden launched a new dairy product that has the ability to stable the stomach and intestine activities. The United Kingdom created light version of the classical pro- biotic yoghurt . The other various products such as soy based or pro-biotic ones do not differ that much from the rest of the simple dairies. The soy based or pro-biotic products also are unpreserved; it can be claimed that some are even more unpreserved than the actual dairy food. This idea leads that the same amount of significance should be given to cool in the trucks that are used in transportation of soy based or pro-biotic dairy products. Some of the newly introduced dairy products have a more elongated shelf lives which actually simplifies transportation and storage conditions, but some of the pro-biotic dairy foods are much more vulnerable to temperature value changes as pro-biotic bacteria exists in dairy food. Thus, cooling system should be 13 outstanding enough to maintain appropriate environment. Then again, pro-biotic bacteria are anaerobic. They cannot continue living in an environment with oxygen . To make them continue living, oxygen level should stand in the least level to prevent the food from spoiling. Therefore, a distinctive characteristic of transportation trucks is the ability to keep oxygen at a specific level. Furthermore, pro-biotic dairy products have a peculiarity as hypersensitivity against a level of pH. Pro-biotic bacteria require an acidic atmosphere to endure. The pH level must be enough high and the effect of temperature on pH levels again should be considered. The new kinds of dairies also have sensitivity to the environment with humidity similar to the actual dairy foods such as milk and cheese. The most important dissimilarity of these products is their place in the market. As long as the demand of the pro-biotic food is not too high, the cost of logistics is apparently higher. In spite of some newly introduced products that have longer shelf lives, some have much shorter shelf lives. Those with shorter shelf lives require better managed transporting, which in turn needs reliable forecasts of sales volume to plan the transportation process. Apparently, trendy and new products do not usually wait on the market shelves for an extensive time of period. CONCLUSIONS In summary, this paper’s significance lies in the many valuable approaches and detailed research about the logistics of dairy products. The information is over ally gathered from the project reports of senior manufacturing systems engineering students. More comment and much more detailed analysis are included and the last version of the paper is formed. According to the latest version, the main points may be summarized as below. Sometimes there are situations where negative responses against the product or out of stock problems exist. The existence of those kinds of things will obviously cause enormous quantities of excess product and high costs. Consequently, producers and retailers are affected by the reaction of the customers about the product which usually occurs because of transportation. At what time a new product is presented, unless it is a completely different creation, the plan of transportation will remain the same. In contrast, if the demand is great, a new logistics strategy might be useful. The new strategy may be putting a new truck in the transportation system. 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