Project on ERP in

Dairy Industry

Project By:- AASHISH TYAGI

B-61

NISHIT SRIVASTAVA B-58

1. INTRODUCTION

ON THE DAIRY INDUSTRY AND ITS

PROCESS.
DIARY INDUSTRY IN INDIA:-

Operation Flood, launched in 1970 is a project of the National Dairy Development

Board (NDDB), which was the world's biggest dairy development program, that made
India, from a milk-deficient nation to the world's largest milk producer, surpassing the
USA in 1998, with about 17 per cent of global output in 201011, which in 30 years
doubled milk available per person, and which made dairy farming Indias largest selfsustainable rural employment generator. It was launched to help farmers direct their
own development, placing control of the resources they create in their own hands. The
growth of milk dairy business since Operation Flood or White Revolution led by
Dr. Kurien through the highly innovative co-operative model has created a unique
model for the milk industry.

The Anand pattern experiment at Amul, a single, cooperative dairy, was the engine
behind the success of the program. Verghese Kurien was made the chairman of
NDDB by the then Prime Minister of India Lal Bahadur Shastri, and he was the
chairman and founder of Amul. Kurien gave the necessary thrust using his
professional management skills to the program, and is recognized as its architect.

The reason behind white revolution was to reduce the gap between large demand
and less supply of milk and also to earn reasonable amount for pure milk supplied by
farmers by giving them an opportunity to connect to almost 700towns where there
was limited stock.

All this was achieved not merely by mass production, but by production by the
masses. The small farmers accounted for about 70 per cent of milk production, and
22.5 per cent of the rural households' income came from milk.

India is one of the largest producers of milk, and is now preparing to become the
largest food factory in the world. But in its course of journey to zenith, the Indian
dairy industry faces a multitude of challenges and opportunities in procurement of raw
milk and processing it into products such as consumer milk, butter, cheese, yoghurt,
condensed milk, dried milk (milk powder), ice cream etc., using varied processes such
as chilling, pasteurization, and homogenization et all. There is a clear demand supply
gap in the domestic milk scenario.

The focus of Dairies on increasing efficiencies, reducing costs, and ensuring

compliance with food regulations over the whole supply chain are hampered by a
number of non-integrated processes and system which is affecting the efficiency as
well as overall growth of the organization. To overcome these road blocks there is a
need to standardize all the scattered processes and information on a single platform.

For any entity dealing with this highly perishable animal produce, the procurement
and distribution process is of paramount importance. The quality requirement,
controls, and statutory regulations governing this process also tend to be stringent.
Organizations therefore need to adopt best practices to make profit in this highly
competitive market space. For this ERP is the best solution.

ERP for Dairy Procurement and Distribution comprises of industry leading

functionalities for Enterprise Resources Planning (ERP), Customer Relationship
Management (CRM), Supply Chain Management (SCM).

 PROCESS OF DAIRY INDUSTRY:The normal process in a dairy is to first collect milk from various vendors and
farmers. After collecting milk they will pasteurize the milk so as to increase its life
and reduce its perishability to some extent. Then they will use milk for various other
by products of milk i.e, to make Butter, Cream, Ghee, Curd, Condensed Milk, Paneer,
Khoya, Ice cream, etc. the allocation of milk depends upon demand for every
individual by product.

The below mentioned diagram is an e.g. of that how traditionally a dairy works as the
procedure of only milk and its sales is shown which depicts that milk department is
working in isolation with other by products of milk. The dairy is not functioning as a
whole.

Fig 1.1

 ERP IN DAIRY INDUSTRY PROCESS

ERP can easily help and channelize such activity by smooth functioning at every step
right from receiving milk up to channelizing it for various by products and its sales
and distribution along with financial management and less possible cost.

Fig 1.2
After the milk is ready it is sent either to make paneer or khoya and the process is linked
which is in fig 1.3. The process of separating cream is done along with pasteurization which
is depicted in fig 1.4. This is all connected to ERP and hence its input and output is recorded
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at every step of by product preparation which will make it easy to know the pedagogy of
dairy as whole and not in isolation.

Fig 1.3

Fig 1.4

2. PRODUCT PLANNING
ERP also helps in product planning as it takes into consideration all the departments
information and has facts regarding which product of dairy is sold the most and
accordingly give rankings an importance to production of items in great demand.

Raw materials can be planned well in advance if the quantity and lot size of the
product is decided well in advance.

Fig 2.1

3. MATERIAL PURCHASING
Now, in ERP schedules after fixing the products planned the time comes for material
purchasing. ERP software will give us the actual figure for required material to be
purchased for the planned delivery of the orders and suffice the demand in stipulated
time. Such data reports are already received as soon as we feed in the required inputs
of what products are planned in what quantity.

In dairy industry the main material to be purchased is milk which forms 95% of the
material and some other materials required are citric acid, sugar, packing material, etc.
ERP will reduce 3-5% purchase cost on packaging material and federation
purchases.

Milk Procurement is a complex process that needs to be executed swiftly on a

continuous basis. ERP on Cloud helps you to organize the procurement process.

Fig 3.1

Formulate route-based material procurement plan

Track material procurement on a real-time basis

Track the logistics and manage the time schedule for procurement

Make multiple purchases at the same time from multiple farmers

Track the quality of the milk procured

Facilitate material receipts without Purchase Orders

Enable bulk receipts across Suppliers

Make payments based on the quality of milk supplied (attribute-based pricing)

Regulate your milk distribution process

Plan better. Realize less wastage.

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4. INVENTORY MANAGEMENT
ERP will enable smooth functioning of inventory because as all the departments
information are directly related to one another, the dispatch of one order will
automatically reduce stock and also add on to the requirements of purchase of raw
material.
Dairy industry is dealing with perishable product that is milk so it is foremost
necessary for them to maintain their inventory right from receiving raw materials,
managing work-in-progress products upto finished products ready to be sold in
market.
As all the products have very limited life a planned schedule is put in ERP and
accordingly all the departments will come to know where they are and where they
would reach in stipulated time and accordingly plan out their schedules to meet the
goal of the dairy and also with minimum blockage in stock.

Fig 4.1
ERP will reduce inventory management cost by 20%

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ERP in dairy will help take better decisions regarding how much stock should be
maintained and in what time the finished stock should be sold at max.
ERP will automatically generate details on procurement of milk and also after it
pasteurises it moves to different department so again a note is taken in cream section,
ice cream section, butter section, paneer section, condensed milk section, milk powder
section that how much milk has been received and how much is pending work in each
department and what is the finished good stock received from each department.
ERP also is connected to the cold house in case of dairy where raw material as well as
finished goods are stored in cold storage as they are perishable in nature so a data
entry is even given there that how much stock is been dispatched as different serial
number coding are given to products and with help of software a laser on barcode
would make complete entry right from inventory register up to financial accounting
even.
ERP will help in reducing lead time or stock out and will help in taking better
decision for re-order level, Economic Order Size, safety stock level, buffer stock
level, minimum inventory level, maximum inventory level, etc. In case of milk we
definitely need to give more concern to availability of milk from various fixed
vendors or farmers and also the perishable nature. As soon as the vendor sends milk
and is received in dairy it is checked in stock register and at the end of the day who
has supplied and who has not is also known and quality of milk is also checked so that
those who have supplied should be given money accordingly.

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5. DISTRIBUTION
In diary industry with the use of ERP along with inventory management it also helps
and smoothens the distribution. It deals with the execution of the finished good to the
market. In terms of big dairies the dealers or whole sellers of the milk and dairy
products are the customers. The track of the distribution of milk and by products is
also kept in ERP.

ERP provides a sophisticated solution to distribute milk and milk products to retail
outlets and also to end-customers.

Enable stores-based sales through bulk booking

Sell milk at specified times

Formulate route-based procurement plan

Pricing based on quality attributes of the product

Efficient handling of the product shelf-life

Provide quota-based sales to retail users and distributors

Expiry-based lot system

Returning of spoilt milk

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6. ACCOUNTING & FINANCE

ERP software in dairy will make direct entries in accounting. The process goes as
soon as the order is placed the arrangement in finance department is done keeping a
check on materials.

As soon as the milk is received from the vendor entries are done in accounts in stock
as well as creditors both will increase, and on the other hand when milk or other by
products are sold the entries will be passed in stock directly and stock will reduce as
well as debtors will increase so we dont need to have havoc for preparing accounts.

Dairies can use a very important software application with application of joint
product and by product costing as well as process accounting.

Joint product and by product costing method using ERP will directly transfer the
cost of main product and consider it automatically with other by product costing. If it
is set properly it would be easy to find cost of milk, cheese, paneer, etc.

Process costing will automatically transfer the cost of one process to other and the
advantage is we can even transfer the mil to paneer or cheese after adding profit
margin at every processes. This would be the real integration of Technology,
Accounting and efficient management which is all because of ERP. So, it is very
advantageous in all senses in dairy industries.

Working Capital requirement can be easily traced out if every dairy product
departments are on ERP and every product earns what extent of revenue and needs
what extent of raw material and finance can also be planned out. As dairy maintains
everything with ERP it reduces its inventory management cost up to 20% which will
directly save cash and dairies will need to borrow less funds and so chances of
revenue will also increase.

ERP increase financial efficiency by 25-30%, it also improved profitability due to

integrated business planning and reduced time on report generation by 2-3%.

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7. SALES & MARKETING

The sales are in batches in dairy industry or we can say lots. The bar code traces and
reduces the stock of finished good as soon as it goes out of the warehouse or cold
storage.

ERP helps in taking decisions as well.

We can see many transformations in monotonous dairy industries even as many out of
the competitiveness and also increasing demand of some specific food items like
Garlic Bread dairies took this concept and did some innovations by bringing in the
market garlic butter with herbs and oregano seasoning. All this is the advantage of
Social media and also the usage of technology in collecting reviews online. This
concept is very new and on such ground we can see many more marketing examples
and techniques.

Mayonnaise and cheese has grabbed up the sales of dairy industry because of
appreciated dishes using such ingredients in India so such type of surveys and market
research can be more efficient with the help of ERP.

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8. SUPPLY CHAIN MANAGEMENT

As milk and milk products are highly perishable, it is important that the supply chain
(both inward and outward) is extremely responsive. ERP integrates the supply process
and distribution of milk.

Affords an integrated view of the financials

Provides margins across procurements and shipments

Enables bulk shipment across customers and dispatch routes

Associated statutory available as part of the standard solution

Complete stock position, along with the quality of the stock, lot-wise

Comprehensive, attribute-based stock and pricing

For Milk procurement which is the most complicated function in a dairy, one needs to
define Co-operative Societies (Suppliers) attached to a particular district or regions
Unions Dairy and details such as Address, Route, Collection time and society
information like date of registration, Membership, directors, Bank Accounts etc.
Routes can be defined on factors like Societies covered, Distances, Truck arrival time,
type of milk, Transporter and contract details.Details of Transporter including the
details of vehicle, the route which they cover, contact information etc.
Daily Milk Receipt quantity needs to be captured automatically from the Milk
Weighing machine with details like Fat and SNF contents etc.
Many Unions have Chilling plants in remote locations if distances are higher and milk
has chances of getting spoilt in the bargain. These chilling plants need to capture
similar data and work on-line or offer data upload at any given interval that can be
automated or done manually.
ERP reduces transportation and logistics expense by 1-2%, ERP reduces loss sale 3040%, reduced cold storage maintenance cost by 15-20% and reduced depot level
finished good inventory level by 3-5%.

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9. HUMAN RESOURCE
The Dairy industry only need to take care in selecting good human resource to operate
ERP or else it might create problems in life of business like it happened in case of
Hershey foods.

In dairy industry ERP will be useful to every employee who uses it, e.g, store clerk
can keep access to inventory, production supervisor can plan his activities, allows
employees to apply for the leaves, loan, travel expenses, etc.
Training can be even provided to the existing employees and only the responsible and
employees who can actually work well with this software should be selected in team
of ERP.

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10.CUSTOMER RELATIONSHIP MANAGEMENT

In dairy industries the dealers and whole sellers are its customers seemingly but its
end customers are consumers of the milk and by products at large. So in such a huge
cliental base dairy cannot maintain one to one relationship with its customers.
Quality Control Set of quality parameters can be defined for milk with basic
information like Cow milk, Buffalo milk or mixed milk, capture quality of milk from
individual societies for all parameters like Fat content and SNF. The data may be
entered manually or can be captured from the instruments directly if milk analyser
provides interface files. Raw milk procurement rates are linked to quality parameters
of milk for billing purpose.

So, ERP here can help in increasing the quality of the product which will directly
enhance its sales and its demand which is customer loyalty and its a reward in itself.

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CONCLUSION

Being a perishable commodity and low margin activity due to nature of

business, the system would need to keep track on wastages due to spoilt milk
or other products that may turn sour due to limitations of expiry, returned
goods. These critical issues can provide or take away hidden margins not
generally visible in normal operational data.

Packing material consumption, its rejection due to quality issues, spares

consumption that could indicate problems with any plant machinery also form
an integral part of ERP.

At macro-level an ERP for dairies would need to keep an eye on expected

production from given quantities of procurement, variance from the norms,
thus provide indicators about the health of operations at procurement and
manufacturing levels, losses due to returns, tracking sources of such losses and
cost escalation can provide the right kind of controls required in dairy
industry.

Thus to manage the supply chain, logistics, milk procurement, payments,

cattle feed, veterinary and operation to cost controlling and corporate services,
an Integrated solution like ERP for dairy industry can provide a single
integrated platform. The ERP for dairy industry can greatly help improve
operational efficiencies specifically in the areas of milk procurement,
distribution, transactions with Co-operative societies and Manufacturing.

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