Analysis of Supply Chain and Lean Management at Bega Cheese Limited

This report examines the supply chain management and lean manufacturing principles applied by Bega Cheese Limited, an Australian dairy company. It analyzes the company's production design, from raw material procurement (pasture and milk) to processing and distribution, considering factors influencing the manufacturing process. The report explores literature on process management and lean manufacturing to identify wasteful processes. It then applies these principles to Bega Cheese Limited to suggest strategies for waste elimination, cost reduction, and improved operational efficiency, ultimately aiming to enhance the company's competitiveness in the dairy industry. Various internal and external risks, such as supply chain disruptions, environmental factors, and legal liabilities, are also considered, with recommendations for mitigation strategies.

Running head: Logistic and Supply Chain Management
Logistic and Supply Chain Management

Logistic and Supply Chain Management 1
Executive Summary
Supply Chain Management refers to the management of flow of products and services within an
organization. It comprises of mobilization and procurement of raw materials, storage of work-in-
progress inventory and finished goods from point of origin and point of consumption.
Lean Manufacturing is the systematic method for minimization the waste arising from the
process of Supply Chain Management. The motive of lean manufacturing is that it reduces the
waste and adds value without sacrificing the productivity.
The above mentioned principles would be evaluated in the context of Bega Cheese Limited, an
Australian Dairy Company based in Bega. The company deals in cheese and dairy products. The
production design of the company consists of procurement of raw materials such as purchase of
feed, production of fresh milk and cheese and processing and distribution of the products in the
market.
So, in this report, the analysis of the principles of supply chain and lean management of Bega
Cheese Limited would be conducted and assessed .Also, the theory of lean and process
management would be assessed in the light of literature review. The above mentioned principles
would be applied to eliminate the wastage processes so that the company can become cost
effective in its operations.

Logistic and Supply Chain Management 2
Contents
Executive Summary.....................................................................................................................................1
Introduction.................................................................................................................................................3
Literature Review........................................................................................................................................3
Main Factors influencing the Manufacturing Process Design in Bega Cheese Limited...............................4
Elimination of Wasteful Processes for Cost Reduction by Applying Lean Manufacturing Principles.........9
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13

Logistic and Supply Chain Management 3
Introduction
Supply Chain Management is an important part of the business and is crucial for its success and
customer’s satisfaction. Lean Manufacturing principles are the essential elements in the supply
chain. With the help of these principles companies are able to create high valued products with
the help of fewer resources of time, materials and with fewer errors. So, these principles would
be applied to Bega Cheese Limited which is a wholly owned and operated Australian cheese and
dairy company. It is headquartered at Bega Valley in New South Wales. It was established in
1899. With the help of its product design and manufacturing processes, it is able to produce and
distribute its products to consumers in more than fifty countries around the world including
Australia (Business Chief, 2018).
The manufacturing design and production of Bega Cheese Limited consists of procurement of
pastures in the form of raw material. The company produces fresh dairy products with the help of
Artificial Insemination. The last stage of supply chain is the processing and distribution of dairy
products through subcontracted marketing (PWC, 2011).
So, in this report, the product design of Bega Cheese Limited would be analyzed along with the
literature review of the theories of lean manufacturing and process management. The above
mentioned principles would be implemented to eliminate wastages from the operations of the
company to make it cost effective.
Literature Review
According to Adriana and Ioana (2014) process management refers to alignment of the processes
with the goals and objectives of the organization. It also indicates the application of the process
design and establishment of the process measurement systems which align with the goals of the
organization. It also comprises of various automated systems including work flow and ERP
systems introduced to make the processes easier and less dependable on the human resources.
Thus in Bega Cheese there are three stages of product design and manufacturing viz. pre-
production, production and processing and distribution. The pre-production stage refers to the
procurement of the pastures or feed for the cows which consists of 30% of the total expenditure.
The dairy industry is focused on the technology of Artificial Insemination (AI). It is observed

Logistic and Supply Chain Management 4
that with the help of AI, the cows generate 1000 liters of more milk per year. The second stage
comprises of production of fresh milk which amounted to 2, 38,156 tons in FY2016 thereby
reporting an increase of 5.9 % from the previous year (Bega Cheese Limited, 2016).
The third stage comprises of processing and distribution. In the domestic market, the dairy
products move mainly through three supply networks viz supermarkets, the route trade and food
service channels. The supermarket channels includes major supermarkets, smaller chains and
independent stores which represent the biggest and developing channel of distribution while the
route trade comprising of convenience stores is the second largest distribution channel for dairy
production. While the food service channel is the third biggest distribution channel consisting of
caterers, restaurants and fast food outlets (Muehlhoff, Bennett and MacMahon, 2013).
Lean manufacturing or lean production is a systematic method to reduce the wastage arising out
of manufacturing systems without sacrificing the productivity. Lean Manufacturing focuses on
eliminating the processes which does not add worth to the manufacturing or product designing
process.
According to Vignesh and Kumar (2015) lean management takes care of the wastages arising in
transport, inventory, motion, overproduction, over processing and defects in the dairy industry.
This can be achieved through planning a simple manufacturing system and improving it on
continuous basis.
Thus the concept of process management and lean manufacturing assist in providing higher
quality with low cost of production.
Main Factors influencing the Manufacturing Process Design in Bega Cheese Limited
The manufacturing process of cheese consists of three stages, viz. pre-production, production of
fresh milk and processing and distribution of cheese to wholesalers and retailers. It also
comprises of exporting it to more than 50 countries.
There are various factors influencing the manufacturing process design in Bega Cheese Limited.
The foremost component in the manufacturing process of cheese is raw materials i.e. pasture
which comprise of 30% of the total cost of production (Dairy Australia, 2018). The cost of

Logistic and Supply Chain Management 5
agricultural inputs such as pasture for the feeding of the cows represents a high share of the total
costs of the firms operating in the dairy industry. Pastures help in maximizing the production of
milk which in turn is used for manufacturing other dairy products. Fertilizer is an important
output to support the growth of pastures which comprise of 10% of the total cost of production.
Besides this, the characteristics of raw materials such as their bulkiness and high perishability
are crucial elements to govern the manufacturing process design of the company. Most of the
manufacturing centers of Bega Cheese Limited tend to locate near the local dairy farms for easy
accessibility of raw milk supply.
Another important component of production of cheese is milk. Due to less availability of milk,
there has been an effect on the production of cheese. Also, there has been a noticeable move of
the consumer preference from cheddar to non –cheddar cheese. The dairy industry is mainly
focused on genetic progress. The Artificial Insemination (AI) is widely used to increase the
production of milk. The consumption of milk and cheese regulate the prices and manufacturing
of the dairy products.
Also, there are various risks affecting the manufacturing process design of Bega Cheese Limited.
The internal risk comprise of Supply or Commercial Risks. It is the risk amounting to the risk of
relationship failing or succeeding depending upon the loss of key supervisory resulting in
business interruption or appointment of competent managerial personnel resulting in efficient
production (Gitau, 2013).
The operational risk pertains to the risk of human mistakes or carelessness which obstructs the
supply chain. It includes the product design mistakes, risk of employee practices and
interruptions in the manufacturing process. It is essential for the suppliers of milk to have enough
capacity and safety in terms of collection and storage of milk. Due to lack of chilling and
cooling centers, there is an increase in the storage cost and decline in the milk quality (Tamime,
2017).
The strategic risks comprises of risk of plan failures such as imperfection of marketing and
business strategy leading to failure in the execution of processes (Australian Water Recycling
Centre of Excellence, 2014). For manufacturing of cheese, cows are milked two times a day and

Logistic and Supply Chain Management 6
it can be stored in the refrigerators for not more than 48 hours. It increases the milk handling and
storage costs leading to financial and performance loss.
The technical risks pertain to the breakdown or failure in the operation of machinery or
equipment. It affects the execution of processes relating to manufacturing or infrastructure.
Degraded infrastructure for collection and storage of milk will influence the manufacturing
process of cheese in the company. The lack of proper tools and techniques for milk storage will
intensify the food safety and spoilage risks. The manufacturing process of cheese is affected by
lack of an efficient refrigeration system for storage of milk. Long distances of transportation and
insufficient chilling facilities affect the acquiring costs along with adversely affecting the quality
of milk (Yazdaninasab and Sabaghi, 2016).
The external risks affecting the manufacturing process design pertains to the risk of supplier and
logistic failures. The risk of withdrawal of the suppliers of raw materials and disagreement on
the payment terms can lead to disruption in the supply of raw material which can lead to
disturbance in the production processes and finally on the revenue.
The environmental risks comprise of natural disasters affecting the manufacturing process design
of Bega Cheese Limited. It is one of the significant factors affecting the manufacturing product
design of the dairy industry. The production of milk is affected by the season. Animals produce
more milk in the spring season when the fields are lush whereas it reduces in the autumn and
winter seasons. In order to avoid this problem, the farmers have to compensate with feed
supplement to ensure that the production is carried out evenly throughout the year.
Similarly, the quality of milk is also affected during the dry season. In the spring seasons, cows
produce more milk with good quality as compared to winter and autumn seasons.
Other important factors affecting the manufacturing and distribution processes are bad weather
and volcanic eruptions. They cause delay in the manufacturing process including the
transportation thereby increasing the transport, labor and opportunity costs. As milk and cheese
are perishable products, delivery on time is crucial to meet the needs of the consumers. Due to
the natural disasters, delays in the manufacturing and transportation processes may lead to
spoilage of the product and rejections by the customers (Bajrami et al.,2017).

Logistic and Supply Chain Management 7
The complexity of legal liabilities is yet another factor affecting the manufacturing process of
Bega Cheese Limited. The European Union health and safety regulations affect the procurement
and supply of milk for the manufacturing of cheese. These regulations test the quality of milk. If
it fails to meet the safety standards, then it can’t be moved further for production of cheese. The
high cost of safety processes to meet the safety regulations will increase the pressure on margins,
cost and efficiency of manufacturing processes (Schirone, Visciano, Tofalo and Suzzi, 2017).
Reduction in the supplier base is another problem affecting the manufacturing processes of the
company. It leads of shortage of the availability of raw materials such as milk which will finally
lead to decrease in the production of cheese.
Due to financial risks, the company faces the problem of fluctuating milk prices. It leads to less
availability of milk to produce the cheese. The company has to pay more prices for their milk
and it significantly affects the cost structure of the company.
The shortage of skilled labor also affects the manufacturing process of Bega Cheese Limited.
Due to high labor turnover ratio and exit of the skilled work force, the production of cheese is
affected to a great extent. Moreover, the training and recruitment expenses of labor also affect
the company financially. While automation may assist to fill the labor gap, humans will still be
required by the company for their unique capability of problem solving, analyzing the issues and
managing the outputs (Elms and Low, 2013).
High competition also affects the manufacturing processes indirectly. To mitigate the global
competition, the company has to introduce more efficiency and effectiveness in the
manufacturing process.
According to Australian Competition and Consumer Commission (n.d.) the factors affecting the
manufacturing processes are inefficiency of the processing plants to produce more goods. Also,
there is lack of transparency or accountability in pricing and the processors are unable to
negotiate with the farmers thereby causing disruption in the supply of milk for the production of
cheese.

Logistic and Supply Chain Management 8
Another constraint in the development of the manufacturing process is low productivity of the
animals to produce milk. There has been a decline in the contribution of the animals to yield milk
in the recent years. Also, machine milking of these animals was not practiced till recent times.
The challenges faced by the manufacturing processes in Bega Cheese Limited are lower quality
and lack of infrastructure. Although the produced milk is reasonably hygienic but there is lack of
infrastructure for handling it. There is inefficiency of cold storage and inappropriate
arrangements to obtain quality milk from the producers.
Furthermore, the milk produced from the buffaloes has different constituents from that produced
from cows. So, technologies developed to manufacture the dairy products from cow’s milk
cannot be implemented to buffalo’s milk without effective modifications (Guth, 2017).
Additionally, with the changes in the target markets, there is a need to modify the manufacturing
processes accordingly. With the increase in the life expectancy, number of older population has
increased, so there is an increasing demand for special nutritional products.
With the growing automation and changing methods of cooking in the kitchens, there is a need
for manufacturing new and innovative dairy products to match the needs of the changing
demands of the consumers (Bhattacharya, 2014).
With the increasing awareness about the safety and hygiene of the products, the quality has to be
maintained along with the price. Also, a remarkable growth has been projected for the
convenience foods by the analysts. With the increasing awareness about the health, consumers
are demanding for products which have high nutritional value but are low in fat. So, the
manufacturing processes are to be modified accordingly. Also, the urban customers are
demanding products with longer shelf life. All these trends indicate that the manufacturing
processes of the dairy products demand innovations in their manufacturing styles (Kurajdova
and Petrovicova, 2015).
Appropriate training of the human resources is necessary for up gradation of the manufacturing
processes according to the changing trends of the market. Besides this, Bega Cheese is facing
certain challenges in the production of cheese and other dairy products such as implementation
of cost effective and modern technologies to manufacture good quality products , diversification

Logistic and Supply Chain Management 9
of the range of products , improvement and up gradation of the useful life of the products,
evolution of proper systems of packaging, arrangements for storage, certifications of food safety,
transportation and preservation of the food products sent for sale, government legislations,
proper disposal of industrial waste, efficient management of resources and energy and customer
services .
Elimination of Wasteful Processes for Cost Reduction by Applying Lean Manufacturing
Principles
According to Manzouri et al. (2014) the lean management process consists of quality
development, process focus, continuous improvement, value stream management and worker
empowerment. The goal of lean management principle is to fulfill the consumer to the fullest
through elimination of wastage in the production processes. Reduction of wastages can be
considered in the human resources, production design processes, distribution and inventory
procurement and storage sections. The Lean management principles can be divided into six areas
viz process and equipment, manufacturing, planning and control, human resources, product
design and customer and supplier relationships.
Thus lean management principles comprise of problem identification, analysis to the cause of
problems and resolving the identified problems. Bega Cheese Limited should implement
principles such as Just –In –Time (JIT) which will help the company to procure as much
resources which are needed. It will help in reduction of wastage of financial as well as material
resources. As the company will purchase only the required resources when needed, less
inventory will be kept idle in the warehouses thereby reducing the cost of production
(Sathiyabama and Dasan, 2013).
The number of resources should be kept as minimum as possible. For example, the number of
suppliers should be less and stable. Bulk purchases should be procured from the suppliers so that
the raw materials can be purchased at low prices thereby increasing cost effectiveness.
Also, it can adopt other techniques such as Total Quality Management (TQM) which is a
management approach to improve the processes, production, services and the overall work
culture of the organization. By following this principle, the members of Bega Cheese can

Logistic and Supply Chain Management 10
participate in upgrading the production processes by using strategy data and effective
communication to integrate quality discipline into the undertakings and values of the
organization (Malathi and Prasad, 2017).
This approach is customer focused, process centered, needs involvement of the employees and a
fact based decision making method to improve the supply chain of the company.
Another method of lean management principles is Total Productive Maintenance (TPM) which is
a holistic approach to equipment maintenance to accomplish the desired production. It
emphasizes on no breakdowns of machinery, focuses to enhance the efficiency of the machinery
along with valuing a safe working environment. It aims at proactive and preventive maintenance
of machinery to increase its operational efficiency. Thus, the implementation program of TPM in
Bega Cheese shall ensure the shared accountability and greater involvement for equipment
maintenance by the plant floor workers. It can help in improving the productivity by increasing
the up time; reduce cycling times and eliminating defects in the machinery (Madanhire and
Mbohwa, 2015).
The members in the supply chain should implement the lean principles to improve their internal
activities in the first place. They should apply these principles to improve the product quality and
reduce the procurement and transportation costs. They should further generalize these

Logistic and Supply Chain Management 11
developments in all levels of the supply chain. Thus all the methods and procedures should be
applied on the basis of overall supply chain benefits. The management of Bega Cheese should
cultivate systematic thinking to improve the manufacturing processes such as improving the
genetic development and preservation of the nationally important breeds through selective
breeding in their domestic areas to increase the milk production capacity and draught ability
(Hartman, 2015).
Through genetic developments in the tolerance power, disease and pest resistance in higher
yielding animals and pasture management can enhance the milk yielding capacity in the animals.
The company needs introduce improvements in its productivity by reinforcing the use of frozen
semen technology, embryo transfer technology and cloning of embryos through biotechnology.
Additionally, the company should adopt benchmarking best practices by innovating new
technologies to produce products which meet the changing demands of the customers. To
address this, research and development interventions and newer developments in the dairy
processing areas can be utilized to enhance the processes for production of traditional milk
products.
According to Garnier, Valence and Mounier (2017) in order to resolve the problems related to
contamination of dairy products and to increase their shelf life, technologies such as air filtration
and decontamination systems, inactivation treatments, controlling of temperature and modified
atmosphere packaging should be adopted by the company to increase the productivity and to
cater to the changing needs of the customers.
Besides this, an energy cost is a crucial aspect in determination of production cost. It can be
reduced by adopting non-conventional sources of energy such as heat pumps, condensate
recovery systems and regeneration. Thus the adoption of the lean management principles can
certainly improve the performance of the company (Arslankayaa and Atay, 2015).

Logistic and Supply Chain Management 12
Conclusion
Thus to conclude, it can be said that the ultimate goal of lean management principles is to
eliminate wastage and increase the productivity of the manufacturing processes. To implement
this, the benchmarking of the best industrial practices should be done by providing the training
courses and developing adequate skills and expertise among the human resources of the
company.
Also, conducting regular meetings of the people involved in supply chain to enable effective
decision making .These endeavors will make the employees feel accountable for the activities
which will minimize system failures. Implementation of proper IT infrastructure is crucial to
help in forecasting demands, developing standard products and decreasing human errors
pertaining to the manufacturing and packing processes.

Logistic and Supply Chain Management 13
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