Logistics and Supply Chain Management in Fonterra's Dairy Cooperative Limited

This report discusses the logistics and supply chain management of Fonterra's dairy cooperative limited, including integration and value generation, risk and conflict, and transportation and logistics. It also covers sustainability aspects and provides a VSM for raw material supply.

Contemporary issue
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Supply chain and
logistics

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Executive Summary
This report is primarily discussing, about Logistic and Supply chain related with Fonterra’s dairy
cooperative limited. The Whole supply chain is divided into three parts and discussed each step
separately. The basis of discussion is on Integration and value generation, risk and conflict, and
transportation and logistics. In each step there is at least one visual stream map is provided and
analyzed. Most of the analysis done on plant based in Sydney. And some inbound and outbound
supply chain is analyzed as whole. The complex logistic system of Fonterra is and example of
how a vertical supply chain is managed and exhales. The answering to the research question is
being done in part of the question, the whole company is analyzed and followed by conclusion.
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Contents
Introduction......................................................................................................................................5
Industries background..................................................................................................................5
Organizational background..........................................................................................................6
Solution 4.........................................................................................................................................7
Integration and Value Generation....................................................................................................9
Integration....................................................................................................................................9
Value generation............................................................................................................................11
Risk and conflict............................................................................................................................12
Risk Identification.....................................................................................................................12
Risk Assessment........................................................................................................................12
Risk Controlling.........................................................................................................................12
Transportation and Logistics (For students 1)...............................................................................13
Integration and Value Generation..................................................................................................15
Risks and Conflicts........................................................................................................................18
Risk Identification.....................................................................................................................18
Risk Assessment........................................................................................................................18
Risk Controlling.........................................................................................................................18
Transportation and Logistics.........................................................................................................19
Transportation............................................................................................................................19
Logistics.....................................................................................................................................20
Integration and Value Generation..................................................................................................20
Risks and Conflicts........................................................................................................................22
Risks identification....................................................................................................................22
Risks assessment........................................................................................................................23
Risks controlling........................................................................................................................23
Conflict......................................................................................................................................23
Transportation and Logistics.........................................................................................................24
Transportation............................................................................................................................24
Logistic......................................................................................................................................24
Sustainability Aspects....................................................................................................................25
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Economic Sustainability............................................................................................................25
Environmental Sustainability.....................................................................................................25
Social sustainability...................................................................................................................26
Reverse logistic..............................................................................................................................26
Conclusion.....................................................................................................................................26
References......................................................................................................................................28
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Introduction
Industries background
Just few decades back, People started to own dairy animals and milk them to supply the milk for
their families and their communities. At that time those people are not having large number of
animals and milk their animals manually. After industrialisation of villages, which become cities
now are not in a position to keep large herd of animals and do manual work, but necessity of
milk rose as the city grows, and this necessity powers the development of milk supply system in
cities. To increase the supply, the numbers of animals were also increase with the help of
farming the herd. The farmers changed their attitudes from amateur way to professional milk
supplier in an organised way (quiroz, 2012).
The application of technology also helped the framers to assists in milking the animals and
processes the milk into various products. Initially they process their milk in farm itself, milked
product such as butter and cheese, after some time they utilized the technology to separate the
cream from milk, these separated creams can be further processed in factory to get the different
product like, butter, consumer milk, butter, cheese, yoghurt, condensed milk and dried milk.
Initially it was very difficult because, logistic and transportation was not easy due to road system
and lack of refrigeration system during movement. After 1950’s when refrigeration system
started in logistics, these milk products started to travel intercontinental distances and
industrialisation of dairy product happened. Todays, the dairy product is available in one corner
of the world which is made in some other corner of the world (Gomes, 2011).
The current global dairy industries are recorded as USD 421.2 billion at the end of 2017. In in
the current year it is expected to grow up with 10% increase. The most consumable product in
this sector is Milk. The global dairy market is measuring volume growth of 1.8% during the last
5 years. The dairy product is operated and trans ported by some world renown organisation,
some of them are top organisation in this sector, and in this sector one famous name is Fonterra’s
Cooperative group
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Organizational background
The formation of Fonterra was taken place 2001, by the merger of two largest cooperative group,
in which one is New Zealand dairy group, and another is Kiwi Cooperative dairy. The mergers
process was handled by New Zealand dairy board. The annual turnover for this cooperative
group is around NZ$ 18 billion, as most of the company in New Zealand, has export-based
company, and Fonterra is one of them. There are numbers of subsidiaries companies which is
associated with Fonterra group, some of them are Dairy farmers, National food Australia. Only
in Australia alone the revenues generated from Australia is NZ $ 1 billion, In 2015, Fonterra
acquisition of yogurt and dairy desert from Nestle (Simon Israel, 2018).
Now we will come to the question that, how this company is making more impact on
International market by value addition in Supply chain. As we discussed earlier acquisition is the
prime strategy for this company, the activity is not limited to Australia only, it goes beyond
Asian and American market. The volume, value and velocity, signifies, the strategical approach
for this company. As far as its supply chain strategy is concerned, its diversified geographic
presence is the main
impact tool for global market. So, risk of operating as a single company is insulated by doing this
approach. The overall revenue generation from china is 17.58%, Similarly, from Australia it is
around 6.5 %, the New Zealand itself providing around 11% of revenue, the portion from US and
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Figure 1- Overall Strategic approach for Fonterra's

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Europe is 6.48% and 4.38% respectively, rest are earned from other part of the world (Dunn,
2012).
The second strategic approach which is related with supply chain is growth in revenue, the
average annual growth for this company is around 10.1 %. The sustained revenue growth is
acclaimed by high liquidity position, keeps the companies in advantageous position. The current
ratio for liquidity is 1.28 higher than its competitors Nestle. It is a clear indication of company’s
strong liquidity position as compared to its competitors. In such stage company always trying to
fund any potential market opportunity in the world. The cash and equivalent for the company is
around NZ$ 400 and increasing by 6.1% per annum. As we said earlier its diversification policy
is its main approach for integrating supply chain. The current joint venture with Tillamook,
County creamery association (TCCA), Three-mile Canyon farms, helped this company to expand
its network in all over USA, which provides the reliable and efficient supply chain (Simon Israel,
2018).
Solution 4
The figure given below is about the raw material movement in Australia for different Fonterra
plant.
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Figure 2 VSM for Raw material Supply in Fonterra's Australia

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In this case of VSM process, this VSM is related with movement of raw material to different
plant The VSM show that the major raw material is collected from Victoria northern, and
western part, Gipps land, and Tasmania, the unit given is K.g.MS which means kilogram of solid
milk. The collection occurs around the designated are is given in the box. The collected milk is
sent to the warehouse, where quality assessment and specification assessment is being carried-
out. If the raw material is as per required specification, then this is accepted as a raw material for
further processing and sent to the processing plant.
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Integration and Value Generation
(For students 1)
Integration
The integration of Fonterra organisation is vertically integrated supply chain, this means that,
each stage of supply chain is being owned by the same company. As we know that it is
cooperative company, most of the local dairy farmers has left the own production and started to
delivery their milk to the giant company there is benefit it. They are getting fair price and they
own some ownership with this company, in the other way consumer get ensured low price of
dairy product. This kind of corporate investment in dairy business results reduces cost of
products across all stage of supply chain and has high presence of raw material supplier like
dairy farmers. As far as legal implication is concern, this vertical integration is safe for any
organisation, this is due to the reason that the shareholder are owners are getting optimum
amount of benefits in this kind of model (Gordon, 2012).
In case of company like Fonterra, integration of supply chain means more benefit, because this is
supported by government as well as global milk pools. The integration provides strong
foundation to growth strategy. The vertical integration lead to lowest cost production for any
place in this globe. The foundation is so strong that, it leads to great impact on global business.
The one more benefit to Fonterra for being vertically integrated supply chain is that, it has end to
end supply chain which provides greater level of quality and traceability. The Fonterra
cooperative developed seven integration strategy to develop themselves into global and they are
strictly associated with these rules (Gulc, 2017).
 Cheapest supplier of dairy products with highest quality-
It is one of the most important believe that, they must reduce yearly 3% of cost across its supply
chain to gain main competitive advantage.
 Capable to setting price and top inventory management in global commodity
market
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This organisation always in search of opportunity to increase its global market with the help of
accessing improved information. In result Fonterra developed enhanced analytical system to
supply chain management and product development.
 Partnership with top developer of dairy product in global market
There is team in Fonterra who always trying to find the improved integration and collaboration
with key customers. These improved interactions further strengthen the relationship with
customers and provide opportunity with relationship with other customers.
 World class nutritional milk marketer.
As per forecast done by company, there is certain increased demand for nutritional milk product,
in this condition providing the innovative product could create a new customer and niche market.
 World class dairy marketer for food services in markets
Fonterra is providing premium services in food market industries by supplying dairy product in
best available price.
 Leading dairy marketer to food services in key markets.
It is a Fonterra believes that, there are lot of opportunity which could be identified and grabbed
in global market but doing this there is need of integrated strategies across the value chain.
 Vertical integration in four key regional market
Fonterra’s one of the initial projects which was named as Jedi. This project was group of about
forty interconnected projects, which aims to enhance the strategic goals to be world leader in
their sectors. Now it has in place (Laing, 2012).
These are the advantages which is related to integration of Fonterra supply chain which is
identified as vertical integration, but this kind of integration also has some major disadvantage
which is stated below.
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It is not possible to do all the integration vertically, because we cannot own all the services
around the globe. Ata some point and some product we need to procure from other supplier or
marketed by other retailers, in this condition the vertical integration also consist of some part by
horizontal integration. Vertical integration is more likely to occur where there is chance of
market failure, and transaction cost is high. The food market especially dairy market is
susceptible to this problem (Rydberg, 2012).
Value generation
(For students 1)
The value generation related with raw material concern, there is not much difference in Fonterra
and other leading industries in this sector. But still it is not zero marks for Fonterra cooperatives,
from least 10 years they started container system for grabbing milk from dairy farm and removed
the use of plastic. Fonterra is a global company, and it is liable to face national as well as
international market in the whole world, the regulation imparted by different countries,
agreement and treaties for gaining access to the market of other countries food system,
environmental safety and quality. Keeping all this in mind Fonterra established world class
research lab with the cost $100 million. The research is being carried out in this laboratory is
categorised in six level, Food and environment assurance, Food system, Bioactive and health,
Process technology, On farm productivity and intellectual property. Fonterra is a company who
wants to lead the race to explore the health and nutritional potential of raw milk and to strive
through innovation to develop products to meet the needs of an increasingly health conscious
world and it ranges from quality ingredient of the food to fast moving consumer goods. The
company also established a PAN analytical ‘MiniPal’ system by which they can test the milk in
very frequently, so that action can be taken immediately. The company is responsible for entire
cow to customer value chain addition stating from milk collection through logistics and
marketing of quality ingredients to international food industries (Anvar, 2013).
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Risk and conflict
(For students 1)
The risk associated with raw material for Fonterra company enlist various risk associated with
farmers and price of milk.
Risk Identification
The uncertainty related with price of milk, is a significant risk for their business, because of 95%
of new eland milk is exported to other countries and there is always ups and downs for milk price
in global market. Like other countries there is no provision for domestic demand dependability
and subsidies given by government in the time of trouble.
Risk Assessment
The farmers of New Zealand are not able to clearly predict the fluctuations in price. The
government is also restructuring the Global supply and demand dynamics along with the
Fonterra cooperatives.
Risk Controlling
Many farmers are trained/under training to use the risk management tools, the use of insurance
fixed interest, fix price contract management by Fonterra is very supportive tools for Farmers.
Fonterra cooperative also in development of risk management plan which is very important for
procurement of raw material and their suppliers. The availability of various risk management
tools ensures the resilience in price of milk volatility and provide strong base for price. After
initiation of future & option in New Zealand milk industries also going to help to their farmers.
The company is always trying to establish the information flow between farmers and market
problem, so that they can understand the whole scenario easily (Oscar Dowson, 2018).
The conflict for any organisation is a kind of friction, or discord arising within an organisation,
when the belief or action by people of organisation are either resisted by or unacceptable one or
more members of same or other organisation. The rises of conflict can be within same
organisation or different organisation. In Fonterra Cooperatives, conflict can arise, when a
related person in company during work gets information or influence by company and uses it for
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Figure 3-Routing network diagram used in Fonterra
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benefits of their own family, friends or companies, in which he has financial or personal interest.
As far as raw material is concern, Farmers are always keen to do business with organisation and
in favour they return some personal favour or other benefit is termed as conflict of interest,
unless the offer is made available to all Fonterra employee. As we stated earlier there are more
than 10,000 farmers associated with this company, in such situation there are number of
decision-making process taking place, and the may be possibilities of rise of conflict of interest
among this decision makers. Fonterra groups have numbers of measures to eradicate such type of
conflict of interest (Ambanpola, 2018).
Transportation and Logistics (For students 1)
Fonterra is biggest company in New Zealand as afar as export is concern. It means that its supply
chain including logistics will also have some significant figure. Only tankers run by Fonterra for
are around 520. The whole tankers are being run by their truck operators in those countries. In
general Fonterra pick up the milk from around 10600 farms daily. The total distance covered by
Fonterra’s fleet is around 95 million kilometres to collect 19 billion litres of milk. In recent years
there is increase in change of mode of transport, from truck to rail. The change has provided
positive effect to the company. The cost of transporting raw material is reduced by 10 percent
and carbon foot print is also reduced to some extent. The collection of milk is generally taken
place in two ways, first is churn collection, it has capacity around 20 to 50 litters, with
cylindrical forms
and are made of tin steel or aluminium. This is useful for short distances. The second milk
collection procedure is through tankers. Its capacity ranges from 300 to 30,000 litres. The tanker
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consists of segmented partition and agitators in it. which is helpful in keeping the temperature
and concentration homogenous. Every churn and tanker have its own identification number that
matches with farm provider, the milk is unloaded after weighing. The routing of churn and
tanker is based on system which is installed on all the processing plant. The routing of milk
collection varies according the amount and distances, the weather condition also responsible in
routing problem. The routing problem is being solved by the specialised person scheduler. The
entire routing problem and their solution is taken care by scheduler with the help of routing
system software (Paul dunne, 2015).
The six important warehouses are located in the map. The capacity, specialisation from this place
is tabulated below.
Table 1 - some important warehouse and its specialities
Major ware houses location Capacity Speciality
Auckland 11000 square meter Raw material for 50 million
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Figure 4- Major ware houses of Fonterra

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litre ice-cream annually
Waikato 22000 square meter 40000 ton SM annually
Taranaki
28000 sq meter Raw material for cheese,
lactose
Manawatu
20000 sq meter Major source of raw milk, R&
D centre
Canterbury 24000 sq meter Butter cheese and mozzarella
Otago & Southland 26000 sq. meter “r” rolls, Cheddar
Integration and Value Generation
(Students 2)
The VSM for manufacturing plant is given above in fig-5; this figure especially depicts the
Sydney manufacturing plant. The entire major product is being manufactured for Australia
supply chain of Fonterra. The left side indicates the supply of ray material and right side
indicates the supply of finished product to the customers. The middle portion which is magnifies
further describes that, there are five major activity taking part in this processing unit these
activities are Separation, Preheating, Evaporation, Spray drying, packaging and storage. The total
processing time is around 185 minutes; process lead time is around 25 days (Flynn, 2014).
As we discussed earlier that, Fonterra’s integration of supply chain is vertically integrated, the
incoming raw material is collected at the silos, and from their automation starts along with the
process. For the purpose of automation and control, the company has chosen a wide range of
supplier. For Sydney plant it is Allen-Bradley programmable automation controllers. Including
PAC and supervisory control and data acquisition system, all procured from Rockwell –
Automation system including motor and motor controlled technology. The main benefit of this
kind of automation is that, it can measure, and can control after analysing the process. The
powerful integration of process with the help of state of the art automation and backed by
Rockwell-automation, Fonterra opted, it for most of the processing plant in Australia and New
Zealand. An organisation with huge experience in system integration delivers the highest quality
of technical solution is always a first choice for its customers. The communication system from
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Figure 5-VSM for manufacturing unit Sydney
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shop floor to top floor, all are provided by the same supplier. The data collection is also highly
technical as compared to other supplier (Jonatthan, 2018).
One team in Fonterra always gathering the captured data from the system and analyse it very
seriously. But the other plant in Australia like Perth and western district, this plant are not so
highly automated. This reason behind this problem is that most of the plants at these places are
taken-over from other dairy company, and their automation is quite old. If the same automation
is established at these places, it can run very well and provide more value addition to their
revenues. Initially there are is expense, but long term return will definitely increase by providing
better automation to aforesaid plants. Plant level integration requires proper coordination,
making and following rules as well as flow of material along with information (Gomes, 2011).
Fonterra also implemented GPS and RFID system for most of the plant in Australia. The
development in mobile metering, and sampling technology, which has 75 mm piping and
bayonet connection to Sydney processing plant, this helps to improve the efficiency of milk
collection and distribution, at the same time it focuses on service for its stakeholder and value
generation.
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The takeover process for any plant passes through several process, it has number of functional
level and dairy chain and the acquisition will not result in any further vertical integration. Rather,
post-acquisition, Foodstuffs LNI will cease raw milk production and processing, but will retain
the pam’s private label brand and enter into a long-term milk supply contract with Fonterra to
fulfil its private label town milk requirements. The details and competitive effect of that supply
contract. Even existing large co-operatives only partially vertically integrate, starting from the
point of collecting and collating raw milk leaving the dairy farmer out of the integration model
(An, 2013).
As we know that the collection of Fonterra for milk is around 14 million litres per day, after
processing from different plant in the world, it produces largest amount of dairy product and
export it. Such value addition is not visible in any other sector or plant owned by its competitor
companies. The list of dairy product contains milk powder, cheese, cream, protein and lactic
casein ingredients. Further this product is processed to enhance the value and life for product,
such as Cheese, ice-cream, powder milk etc. By this process operation Fonterra is gaining
advantage in making more and more profit. In New Zealand, there are around 10600 farmer are
providing raw material for their product processing, but in Australia, this kind of service not
available at this stage. Implementing the same collection and warehousing process can provide
Fonterra much more profit (Tishina, 2017).
The current investment in Australia by Fonterra Cooperative shows that They are investing in
Cheese facility Stanhope, which is situated in northern Victoria. This investment will double the
milk volume production. The production of cheese will also be increased by 25%. This is one of
kind of value addition, in which investing the little amount and utilising the production to its
optimum level. The expansion of Wynyard cheese site will also be going to contribute in cheese
production, earlier it was only producing milk. The investment in Gippsland will support higher
output for milk powder. The one benefit of expansion is that, there is no requirement of
manpower for expanded capacity, this is also a kind of value addition (David, Gilbert , & Gary,
2016).
Risks and Conflicts
(Students 2)
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Risk under the plant section for Fonterra is very less. This is due to the reason that it has number
of similar plants across the world, for any reason if one plant is getting stopped the supply will
continue for another plant. But still Fonterra is company which has risk management framework
which is as follows.
Risk Identification
The plant level risk is associated with supplier of this company. There are number of suppliers,
dealt with various tools, equipment and materials, and there is a risk of supplied the material
which is not as per company standard.
Risk Assessment
Fonterra ensures its performance is optimised through the identification and management of most
plant risk to the business. The basis of this framework stands upon three criteria. Compliance is
the condition of employment. Technical function is the second criteria in this framework. The
third criteria comprise of Internal and external audit programmes. Fonterra risk management also
outline the social responsibility and the requirement of standardising the risk framework as per
company policy.
Risk Controlling
The details of risk management policy are more clearly is being defined in sustainability, which
also include the risk of health and safety, safety food, and quality, environmental and animal
welfare risks. All this risk management policies are reviewed regularly, and change is taking
place if there is any requirement. Sometimes our business leader identifies to risk and helps in try
to mitigate it. The aim of the company to identify the key business risk as well as reporting to the
emerge risk associated with business operation (Ambanpola, 2018).
As far as conflict is concern, there is very powerful and heavily grounded code of conduct is
available for all kind of conflict mitigation. A culture of honesty and integrity is vital for
Fonterra commitment. All the code of conduct is under pinned by group policy. The ethical
behaviour group policy clearly defines the expectation of Fonterra group. The expectation by the
group especially in conflict of interest, corruption, and business gift is clearly defined and
practiced. The Fonterra is a company which do not provide any contribution to the political party
or candidate in election. The is not influenceable activity with the help of company monetary
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power. Fonterra pays fair value of tax t the government and not using any kind of tax heaven to
avoid taxation. Tax paying term is happened by Fonterra farmers, after receiving their sum from
company. Fonterra finalised the conflict of interest related with use of land with other sensitive
issue. Even the confliction information sharing is not allowed within and company and their
supplier farmers within the organisation of outside organisation (An, 2013).
Transportation and Logistics
(Students 2)
Transportation
Transpiration and logistics are the blood and vein for any company, whether it is required for
incoming of material. Out going of Material of processing the material within the plant. I t is
well known fact that, quality of dairy production during, work in progress, always be
accompanied by suitable logistical system within the plant. Reduce the spillage and handling of
raw milk
product is also a main criterion for making quality product (Szymonik, 2014).
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Figure 6 - Network diagram of forklift movement in Sydney Plant

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The figure above depicting the movement of forklift within the Sydney processing plant. Th
internal movement of milk and their supporting product is handled by either forklift or piping
system. There are about 32 forklift which is used in the operation, all are from Linde model. The
intermodal transportation model along with Vertical integration of supply chain is the key value
generator, for logistic perspective. The use of overhead crane can be good option for handling
the material. There are various options for use of overhead crane, it may be radio operated,
operated by driver, or automated system for automatic operation. Because the plant is backed
with highly automated, therefore third one is most appropriate for the entire operation (Tishina,
2017).
Logistics
For any company handling and logistics within the plant is one of the important tasks for the
company. Few years back, this was not considered as important function, but keep ahead in
competition, providing niche services within the plant, and reducing the consumption of time, the
implementation of good logistic is one of the advantageous factors in plant operation. As we
have discussed earlier, gathering the important data and analysing the data is one of the
important operations for Fonterra company. Internal movement is also being analysed, and
results of this analysis shows that, if semi-finished product area is shifted little bit toward
processing area then it can be advantageous, current a team is working on it. The next major
shut-down, this modification will take place and some logistics coast and time will be saved
(Botham, 2016).
Integration and Value Generation
(Students 3)
Starting from grassroot of the operation, The Fonterra team who is responsible for global
distribution of finished product from company to local as well as another shore of the world,
really a role model aspiration for other company, the Fonterra is not the number one company in
the world in production, but this company is number one in export. This example simply
indicates that, there are some innovative and best activity being carried in distribution phase of
supply chain. As discussed earlier, the second strategic approach which is related with supply
chain is growth in revenue, the average annual growth for this company is around 10.1 %. The
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sustained revenue growth is acclaimed by high liquidity position, keeps the companies in
advantageous position. The current ratio for liquidity is 1.28 higher than its competitors Nestle. It
is a clear indication of company’s strong liquidity position as compared to its competitors. In
such stage company always trying to fund any potential market opportunity in the world. The
cash and equivalent for the company is around NZ$ 400 and increasing by 6.1% per annum. As
we said earlier its diversification policy is its main approach for integrating supply chain. The
current joint venture with Tillamook, County creamery association (TCCA), Three-mile Canyon
farms, helped this company to expand its network in all over USA, which provides the reliable
and efficient supply chain (Bolumole, 2009). Currently, Fonterra is focusing on outbound
logistic of product with reduction of carbon foot print, we will discuss this activity in further
logistic section (Brent Goldsack, 2018).
The one of the examples of VSM for Australia Sydney plant is given below.
The distribution phase of Fonterra Sydney plant separated into daily, weekly and monthly plan,
the daily plan includes the following function, it starts with picklist management, in which the
product is segregated according to destination of the customer, either it is local or export. The
picking of selected product is done for export material. The quality check of product is being
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Figure 7-VSM for Fonterra distribution phase, Sydney Plant

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carried out at stage 3. The is the last checking point of material, after that it is being packed. The
packing of individual material is being done at stage 4. And packing of material in batch is done
at stage 5. All the relevant data is being sent to database, about finishing of material. At the last
stage i.e. stage 7, this material is either loaded to truck or kept in yard for some. The lead time
related to distribution centre is 8 to 10 minutes. As usual most of the finished product warehouse
is temperature controlled. The life cycle of material is ranging from 2 to 40 days, which is as per
solidification of material.
As stated, earlier Fonterra is a global company, and it is liable to face national as well as
international market in the whole world, the regulation imparted by different countries,
agreement and treaties for gaining access to the market of other countries food system,
environmental safety and quality. Keeping all this in mind Fonterra established world class
research lab with the cost $100 million. The research is being carried out in this laboratory is
categorised in six level, Food and environment assurance, Food system, Bioactive and health,
Process technology, On farm productivity and intellectual property. Fonterra is a company who
wants to lead the race to explore the health and nutritional potential of raw milk and to strive
through innovation to develop products to meet the needs of an increasingly health conscious
world and it ranges from quality ingredient of the food to fast moving consumer goods. The
company also established a PAN analytical system by which they can test the milk in very
frequently, so that action can be taken immediately. The company is responsible for entire cow
to customer value chain addition stating from milk collection through logistics and marketing of
quality ingredients to international food industries (Daniel conforte, 2012).
Risks and Conflicts
(For Students 3)
Risks identification
The risk and conflict of interest are greatly defined in sustainability policy, and alike raw
material policy. The only difference is that, the number of horizontal integrations is little bit
more for distribution policy.
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Risks assessment
It clearly means that there are number of third arty agency involved in distribution system across
the world. The joint venture with DTL, Future group, NZ herald, Auckland Airport, Britannia,
Nestle etc. There are numbers of supply chain coordinator, supply planner, scheduler is working
with continuously, for each route of outbound logistic so that, product can be reached on time.
The risk management of Fonterra also outline the social responsibility and the requirement of
standardising the risk framework as per company policy.
Risks controlling
The details of risk management policy are more clearly is being defined in sustainability, which
also include the risk of health and safety, safety food, and quality, environmental and animal
welfare risks. All this risk management policies are reviewed regularly, and change is taking
place if there is any requirement. Sometimes our business leader identifies to risk and helps in try
to mitigate it. The aim of the company to identify the key business risk as well as reporting to the
emerge risk associated with business operation (diron, 2018).
Conflict
The conflict of interest related with third party as well as own employee is clearly stated in
sustainability management policy of Fonterra. A culture of honesty and integrity is vital for
Fonterra commitment. All the code of conduct is under pinned by group policy. The ethical
behaviour group policy clearly defines the expectation of Fonterra group. The expectation by the
group especially in conflict of interest, corruption, and business gift is clearly defined and
practiced. The Fonterra is a company which do not provide any contribution to the political party
or candidate in election. The is not influenceable activity with the help of company monetary
power. Fonterra pays fair value of tax t the government and not using any kind of tax heaven to
avoid taxation. Tax paying term is happened by Fonterra farmers, after receiving their sum from
company. Fonterra finalised the conflict of interest related with use of land with other sensitive
issue. Even the confliction information sharing is not allowed within and company and their
supplier farmers within the organisation of outside organisation (Foster, 2016).
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Contemporary issue
Transportation and Logistics
(Students 2)
Transportation
The current improvement initiative taken by Fonterra, indicates that, this company is more
towards reducing the carbon emission in their trucking system. Currently this company is
shifting their transport material through rail system.
Currently the Fonterra has
400 milk tankers, which converted the company into largest transporter of New Zealand. There
are two manufacturing site which has related to rail and using it to transport the material to the
pots. Their plan to move the material by rail is increasing by 10% every year. The size and scale
of distribution system for Fonterra in incomparable. The export 95% of what they produce here
in New Zealand, that's 25 million tonnes to 104 countries. We ship 75,000 tonnes per week
moving more than 180000, on 20 Foot containers per year. That equates to one container every 3
mins 24 hours a day 365 days per year. Their distribution centres span the country meaning we
offer real, meaningful exciting careers from Northland to Canterbury (Gilmore, 2010).
Logistic
As discussed, the current emphasis of Fonterra to ship their material through rail, and for export
purposes they are using ships and Airplane also.
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Figure 8 - Fonterra networks of Supply chain

Figure 9 The logistic network of Fonterra
Contemporary issue
As given in figure there are 2430-thousand-ton material is being shipped to the other countries
Sustainability Aspects
The team of Fonterra which is also known as the New Zealand business council for sustainable
development is continuously working towards tree pillar of sustainability, which is economic
growth, environmental protection, and social progress. As compared to the country New
Zealand, the dairy industry of this country is just a cornerstone, but as far as environmental and
future growth is concerning the Fonterra company has national level significance, which is
known as sustainability of environment and society as well as industries.
Economic Sustainability
To support the cost reduction in their final product, and provide optimum benefit from their
product Fonterra is continuously working toward collaboration and joint partnership with other
company. At present, Fonterra has collaboration with 165 international companies, which is
spread globally with more than 30 countries and 43 national and regional business councils. All
efforts are only to produce economic product and sustain the economy (Nicola Shadbolt, 2018).
Environmental Sustainability
The prime objective of this company is to reduce the emission and provide clean water to the
company. The manufacturing emission done by Fonterra is reducing 5% per annum starting from
2015, and there is a plan of reducing the emission by 30% by the end of 2030 (Pitman, 2016).
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Contemporary issue
Social sustainability
The uses of water in industries are declined by 5.1% over in 2018. Current investment in water
treatment will provide the water to manufacturing sites as per leading industries standard (James
Chalfant, 2007).
Reverse logistic
The reverse logistics related with Fonterra company is clearly stated in sustainability policy of
Fonterra. Since much of the product is come in the region of fast-moving consumer goods, but
still company is providing innovative ideas, which is related to reverse logistics. The current
expansion in Victoria, the changing the size of packs will helps in reverse logistics of the
company. Almost all warehouse operated in New Zealand, consist of recycling of garbage
collected from retail store.
The return pf pallets from other countries are also
being recycle in either Australia or Sydney (Maria Fonte, 2017).
Conclusion
The above stated reports in three stage of supply chain, i.e. inbound, processing and outbound
can be concluded in such a way that, A company like Fonterra, can be proud for any country.
And especially New Zealand which is quite small as compared to other countries are depends
upon such companies. Around 7% of per capita income is generated only from this company.
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Figure 10 The returned pallet for recycling in
Sydney

Contemporary issue
The strategic approach adopted by Fonterra is such a way that they try to take ownership of each
aspect of their business. In general, it is a costly affair, as compared to present market scenario.
But it can be compensated by making the company large or giant company. The Fonterra is
working in the same principles. The VSM provided for each stage of Supply chain is providing
in-depth operation within the company. It also provides the space for doing analytical work from
outside of the company. The functionality adopted by this company is shifting towards more
innovative approach of dairying in global industries. A lesson to learn for other industries also.
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Contemporary issue
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