Dairy Crest Operation Management Review
Operation Management Review
Introduction
The purpose of this report is to analyse Dairy Crest from an operation management point of view. After the initial introduction of the company a financial summary will be carried out to highlight the how the organisation maintains and grows it’s market share in the dairy industry within the UK. After that the review of corporate and marketing strategy will express concerns with the organisation in respect of current theories in operation management. Furthermore, a comparison will be carried out with one of a competitor in the sector. Subsequently, operation management definitions followed by problem solving and decision-making processes, suggested within the current business environment will be drew. In addition, the provision of Dairy Crest inputs will demonstrate the complexity of this organisation and how managers and corporate decision-making on a day-to-day basis could affect the value adding processes; transforming its inputs to outputs, in the long term. In order to better understand this process, this section will finally summarise a full working day of an Operation Manager within a Dairy Crest. Afterwards an explanation of order qualifiers and order winners theories the report will be cross-referenced to the organisations main products and services. Thereafter, Dairy Crest’s competitive priorities and company infrastructure will be investigated with examples mentioned. Eventually a short summary of recommendations will be added with a complete reference list.
Dairy Crest Background
The Milk Marketing Board established Dairy Crest in 1983, with the main objective to process milk. The public body was founded in 1933 to manage the production and distribution of milk in the UK. In the following years they grew to become an integrated dairy business with 2 market-leading categories, namely foods and dairies. The company floated in the London Stock Exchange in 1996. Dairy Crest is present in the UK with its five market leading brands and family favourites. The dairy, butter and spreads division of the company produces Country Life and Clover with high market shares. Whereas cheeses such as Cathedral City and milk shakes, Fiji are market leaders and sold through multiple channels.
1. 1st tier customers are the supermarkets with over 70% of the overall sales.
2. Tiers 2s are the smaller retail shops and restaurants.
3. Milk&more and Foodservices are the 3rd tiers with direct delivery to individual customers.
The company purchases more than 2.4 billion litres of fresh milk a year to resale or further process to other value added dairy products. In addition, Dairy Crest has been expanding steadily since 1992 through a chain of acquisitions and become the country’s leading chilled dairy foods company and one of the ten largest food companies in England. The group now has 16 factories and offices and over 100 depots across England and Wales. One of the most heard of joint venture is with Yoplait for the establishment of Yoplait Dairy Crest, which produces and markets chilled yogurts as well as cottage cheese, desserts and ice cream (Dc Ingredients, 2013).
The group 's on going focus on brand reinforcement and satisfaction of evolving customer needs ensures its position within the dairy sector, which is among the largest food grocery categories, worth over 8 billion GBP and growing every year.
Profit and Loss Account
Segment revenue
2007
2008
2009
2010
2011
2012
Cheese
194.6
255.5
244.2
260
223.1
229.6
Spreads
178.7
234.5
284.2
277.7
285.5
328.7
Dairies
925.7
1,067.60
1,108.20
1,081.20
1,089.80
1,069
Other
10.3
12.1
11
10.8
6.1
4.8
Group
1,309.30
1,569.70
1,647.60
1,629.70
1,604.50
1,632.10
Fig 1.1 – Dairy Crest segment revenue.
Milk wholesale is the largest capital revenue for the company, with 66% a of the group’s revenue in 2012, however the 9% profit margin is very low and growth is only 2%, thus it represents cash cow type product. Nevertheless it is vital to maintain market shares and keep suppliers selling to competitors. Dairy Crest has recently introduced a new liquid contract to farmers that tracks market conditions thus offers a more favourable contract then its competitor’s (Grocers, 2013). Spreads accounts for 20% of revenue with a growth of 12% over the previous fiscal year and the highest profit margin of 58%. Cheese revenue accounts for 14% of total revenue with growth of 3% and a 33% profit margin (Diary Crest, 2012). Dairy’s low profit margin is offset by spreads and cheeses higher profit margins and strong performance.
Fig 1.2 – 6 year revenue growth. Fig 1.3 – Percentage of Revenue 2012.
Fig 1.4 – Net profit percentage bar chart.
Net profit percentage remained steady until 2012 where exceptional non-cash impairment charges in dairies lead to a £81.7 million loss (Dairy Crest, 2012). This was due to a lost contract with retailer Tesco, forcing Dairy Crest to make closures as current trading conditions and profit margins would not be sustainable after the loss of the contract (Reuters, 2012). This move will affect Dairy Crests market share and revenue. Dairy crest should secure another dairy contract and refrain from making Dairy acquisitions in the UK until market conditions improve. The main competitors, Arla Foods UK plc, Robert Wiseman Diaries Plc and First Milk Limited are all tendering for lager market share. However the sustainability of prices offered to supermarkets are questionable, this is why contracts change hands frequently.
Fig 1.6 – Arla vs. Dairy Crest revenue comparison.
The largest rival to Dairy Crest is Arla who are the number one supplier of spreads and butter in the UK. Arla’s revenue fell in 2009 due to a combination of increased milk prices and a weak Danish Kroner against the British Pound (Nogger, 2009). Arla also have the largest milk pool available in the UK (Arla, 2013). As Dairy Crest has only UK based dairy companies it cannot benefit from international dairy profit margins increasing, and consequentially had to close facilities in the UK and France. On the other hand, Dairy Crest has secures over £10million a year in European grants and subsidies for selling over produced and backlogged by-products to under developed countries (Grocers, 2013).
Thus in the short term they must reduce costs temporarily by selling or closing Dairy facilities, this will allow the company to absorb difficult trading conditions and low dairy profit margins until conditions improve.
2007
2008
2009
2010
2011
2012
Revenue
1,309.30
1,569.70
1,647.60
1,629.70
1,604.50
1,632.10
Net Profit
49.2
54.7
74.3
52.5
57.5
-17.1
Net Profit Percentage
3.757
3.4847
4.5095
3.2214
3.5836
-1.0477
Fig 1.7 – Revenue and net profit table.
Joint venture revenue in 2009 fell £7.1 million to £0.1 million due to the sale of Dairy Crest’s 49pc share in Yoplait, the reason was due to commitments with non-current liabilities and a strategy to reduce debt provides: “more headroom under our banking arrangements"(The Telegraph, 2009).
2007
2008
2009
2010
2011
2012
Net Debt
-451
-474.8
-415.8
-337.2
-311.6
-336.4
Movement in Net Debt
-170.8
-23.8
59
78.6
25.6
-24.8
Current liabilities
122
29.3
2.4
2.7
68.5
2
Non-Current Liabilities
347.8
474.4
557.5
386.6
308.4
428.4
Fig 1.8 – Debt analysis.
Dairy Crest’s decisions have forced non-current liabilities and net debt to increase, missing net debt movement targets. Dairy Crest should focus on mergers and an acquisition of UK cheese and spreads companies in the short term, instead of focusing on diary acquisitions. This will take advantage of higher profit margins in cheese and spreads and reduce dairy losses, in the long term this will help reposition the company to make Dairy acquisitions when the market improves. This strategy would cement Cathedral City’s no.1 market position and increase market share, and contribute towards a long-term milk growth strategy.
Fig1.13 – Segmented profit table.
Fig 1.14 –
Balance sheet.
2007
2008
2009
2010
2011
2012
Group
80
104.5
101.7
105.8
108.4
108.7 Amortisation of acquired intangibles
-2.7
-9
-9.6
-9.2
-8.7
-9.1
Exceptional items
-10.4
-21.1
-24
2
-1.1
-93.9
Profit on disposal of JV
-
-
50.4
2
-
-
Finance costs
-19.2
-26.2
-29.5
-22.4
-20.6
-21 Other finance (costs) / income - pensions
9.5
10.1
6.9
-0.5
-
-
S Share of joint ventures ' net (loss)/profit
7.4
7.7
7.3
0.1
-0.2
-0.3
Profit before tax
64.6
66
103.2
77.8
77.8
-10.1 Adjusted profit before tax
70.8
86
79.5
83.5
87.6
87.4
Corporate Strategy
Dairy Crest has published what they envisage as a strong corporate strategy on their business website. The strategy they believe is focused on leading market positions:
“Our strategy is to build market leading positions in branded and added value markets; focus on cost reduction and efficiency improvements; reduce commodity risk to improve quality of earnings and generate growth through business acquisitions and disposals”
(Dairy Crest, Vision Strategy, 2013)
The Company have attained leading market positions with Cathedral city and Fiji and believe added value markets are an objective, however current profit margins on dairy would suggest to further reduce costs and streamlining operations would be secure future growth. Filtered milk accounts for 7.8% of the market where as pasteurised milk accounts for 81.9% (Diary Statistics, 2013). An element to Dairy Crests corporate strategy requires a large production of dairy in order to attain a certain level of profit. On the other hand, products such as Fiji, Cathedral City and Chedds indicate a segmentation strategy as the products cater for different needs and age ranges (Porter, Competitive Strategy, 1980). Fiji is aimed at teenagers, Cathedral City is focused towards mature, and Chedds is aimed at school children to put in their lunch boxes. Additionally some products are differentiated to create customer preferences. Cathedral City has 5 different types differentiated products, all butters have light versions and Fiji milkshakes have 3 different flavours (Diary Crest, 2013). Ultimately all strategies are in use, however diary revenue is the prime objective which facilitates the products, so I’d argue that Diary Crest uses a half low-cost supplier, ¼ segmentation and ¼ differentiation corporate strategy.
The growth strategy for the firm has been achieved so far by acquisition of high ROI companies and organic product growth. However, Dairy Crest spokesman recently revealed that due to lack of such UK companies it would focus on "consumer-driven growth" and operational efficiencies achieved through a more integrated supply chain. Between 2007 and 2012 Diary Crest made no international acquisitions since the purchase of St Hubert, this shows a bad international acquisition strategy. As dairy is the company’s background it might have been wiser to make Dairy acquisitions to begin an international starting base, as demand is greater.
Dairy Crest disposes of inefficient companies, or acquires companies, streamlines the operations and then sells them off. The most recent business sale was the French company St Hubert that was sold for £340 million and made a pre-tax profit of £47.7 million (Dairy Crest, 2012). Being that St Hubert was Dairy Crests only international company, a sell-off suggests a lack of an international strategy and a lack of international research & development. The company’s focus should have been on its core operations, and this could have avoided the selloff of St Hubert. I suggest future research and development be funded towards other countries like Greece, Iceland, Sweden or Finland as the consumption rates are also very high in these countries.
Top Cheese Consumers (lbs. per capita)
Pounds
Greece
68.5
France
57.5
Iceland
55.9
(USDA, Top Cheese Consumers, 2012)
Marketing Strategy
Dairy Crest have pushed branded products such as Country life butter through TV advertising campaigns, In 2009 country life butter sales increased 25% after an advertisement with John Lydon was aired (Dairy Crest Annual Report, 2009). Dairy Crests product portfolio lacks differentiation, Spreads have 250g and 500g sizes and only two have “light” versions. Cathedral City is the most varied product with five versions available. Dairy Crest acquires companies producing a competitor’s product and produce Cathedral City or another leading product (Diary Crest, 2013). This strategy increases production flexibility and market share, however this strategy risks losing the acquired companies original product popularity while forcing a brand that might not be too popular in the area. Dairy Crest’s marketing strategy is Resource-based as the dairy products they supply are in constant demand for necessities. Dairy Crest does not use a customer-led strategy as differentiation in the market is constrained due to difficulties in adding value. Dairy Crest’s strategy involves moving products to a leading market position, producing TV advertisement campaigns and creating more variations to capitalise on its market position. Further product developments should therefor be considered.
SWOT Analysis
Strengths
Weakness
Strong Distribution Network
Geographical Concentration
Strong Market Position
Overdependence on Dairy Business
Strong Operational Performance
Opportunities
Threats
Health Awareness
Consumer Preferences
On going Investments
Raw Material Prices
Fig. 3.1 - SWOT Analysis of Dairy Crest.
The SWOT (Fig. 3.1) shows us a strong UK base of operations, which needs strong national coverage to deliver revenues, as milks life cycle is short. Dairy Crests dependency on milk makes the company vulnerable to market price changes, as delivering profits with volatile profit margins can only be achieved through large-scale production. An international excursion of its milk production could provide a stepping-stone in light of international acquisition failures.
PrPProduct Life Cycle
Milk
Spreads
Cheese
Short (1-2 weeks)
Medium (Weeks - Months)
Long (Year or longer)
Fig 3.2 – Product life time cycle.
Fig 3.3 – BCG Matrix on Dairy Crest.
The BCG matrix shows Milk&More to be a declining revenue stream in line with the doorstep market decline of 3.1% (Dairyco, 2013), this gives retailers a higher buyer power (Porters 5 forces, 2008). Milk&More will become unprofitable and should be sold off to reduce risk of future losses. Milks cash cow growth is at the mercy of the market giving farmers moderate supplier power (Porters 5 forces, 2008). Because Dairy Crests produces dairy they can create high profit margin products such as cheese and spreads cheaper than purchasing from a supplier, this should incentivise the company to keep milk procurement operations. The sale of St Hubert was a short-term solution as long term it would have been beneficial. New entrants to the industry remain strong at a small level (Porters 5 forces, 2008), large companies require mergers and acquisitions to increase market share. The top 3 competitors hold 16% of market share (Marketline, 2013) suggesting strong levels of competition (Porters 5 forces, 2008). Milk has a low threat of being replaced, as it is a staple and dietary need at a daily level for consumers (Porters 5 forces, 2008).
Operation Management
Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs (Slack, 2001). Raturi and Evans (2005) extended this hypothesis by adding emphasis to the continuously changing internal and external business environment:
“The business activity that involves the design, development, and maintenance of systems and processes that transform resources, such as raw materials, technology, and labor, into goods and services that meet customers’ needs”
Consequently, in order to critique and evaluate Dairy Crests’ complex operation management, it is vital to have a clear understanding of the nature and the full context of problems that may surface during the day-to-day running of the company. This is to be in respect of the managers and the organisations’ ability to responses to such findings whilst maintaining shareholders interest, operational objectives and individual authority. Furthermore, losing sight of the long term corporate strategy during this decision making process will have vast financial drawback at a later stage, even though the solution seems straight forward at that particular moment. Johnson et al (2003) therefore suggest a careful and continuous cyclical reassessed analysis of all stages during this problem solving process. Decision Making Process Source: Own (2013)
Observe
Although this section seems the most obvious for managers, the inexperienced decision maker may oversee some very important steps within that. Reading facts from a sheet, should only serve as base for building a full picture by adding information gained from hearsay, speculation, assumption and inference.
Jumping to conclusions too soon, without putting the information in to context is the first of Johnson et al’s (2003) warnings. It is also necessary to revisit this section after the full decision making process in order to make further adjustments accordingly. Follow objectives in context
This section should follow the corporate strategy and review historical decision making flaws. Also any suggestions arising may be run in theory to highlight pros and cons further down the line. It could save large amounts of both money and manpower, if communication with different departments highlight similar problems elsewhere.
Analyse the situation
In order to fully understand the problem, the break down and route analysis of the issue is paramount. Most managers come across issues that resulted in backlogs or underperformance within their department, however it roots lay elsewhere. Therefore are unable to fully correct the problem without going beyond their authority.
Determine the options
The syntheses of all components remains the most creative section within the process, providing the previous sections were undertaken with due care; a map with possible routes should emerge by now. Brainstorming and evaluating evolving options are important as suggestions are now put forward to the next stage.
Evaluate and choose
The options are now clearly visible, however, to choose the best one they have to be prioritised by answering set of questions.
1) How feasible is the option?
2) How acceptable is it to all stakeholders?
3) How risky is the option?
Once the questions are answered a champion should emerge, ready to be put in place!
Implement
By setting an agenda of implementation, further benefits may materialise which make the decision maker appreciated more. 1) When to start?
2) Where to start?
3) How fast to act?
This process is not only recommended for problem solving but to be used in all part of the operation management, whether its design, planning, control or improvements is the objective.
In addition, Waters (2006) differentiates decision-making by the organizational level it’s made at. This allows a better level of understanding, which is required to make the best choice. Type of decision
Strategic
Tactical
Operational
Importance
High
Medium
Low
Timescale
Long
Medium
Short
Level of Management
Senior
Middle
Junior
Focus
Whole
Organisation
Parts of the organisation
Individual
Activities Resource used
Many
Some
Few
Risk and uncertainty
High
Medium
Low
Structure
Unstructured
Some structure
Highly structured Amount of detail
Little
Some detail
Very detailed Data available
Limited
Some
More
Management skills
Conceptual
Interpersonal
Technical
The Transformational Model
The main strategic role of an organisation is to have a comprehensive plan in place to coordinate all activities. Each organisation has their unique operational function that produces services or products; and this value adding process is where the companies differ the most from others. Thus many operations are a complicated cluster of individual operational units each with specific functions. The greater degree of interaction between these units is reflected in a better performing, more streamlined company (Chase et al, 2000).
Source: Reid and Sanders (2005)
The input-transformation-output model
Johnson et al (2003) explains that all operations transform customers, information and materials at different levels, but ultimately are all dealing with all three. This process is where the majority of decisions are made, therefore greatly effecting the output of the organisation. The outputs of this transformational process are the services or goods that the customers receive. Slack (2001) expands this view by noting that a majority of customers have either very little or no contact with the process, or with the employees responsible for the transformation. As a result, the customers’ perceptions of the quality of goods or services provided by a company are mostly based on the actual final product, rather then the entire value adding process. Nevertheless the effectiveness of the transformation process is ultimately responsibly for creating competitive advantage over other organisations (Read and Sanders, 2005). The model may be used to summarise an entire operation or individual micro operations. Each has its own inputs and outputs that may differ in subsequent models. For example an airport main inputs are the passengers whom receive services from the airlines, which are themselves inputs of the airport. The overall customer experience is therefore affected at various levels during the transformation process, however we seldom see customers complaining to airports rather then airlines. Let’s see how Dairy Crest ITO model look like:
Dairy Crest’s Input-Process-Output breakdown
A day’s work in Dairy Crest
The purpose of this section is to analyse the decision making process of a Site Operations Manager (John Doe [JD]) within a cheese processing plant at Dairy Crest. The input-process-output model is used to correlate the findings to the theories mentioned above. In this demonstration the input will be the information received in the morning which will be taken through the decision making process suggested by Johnson et al (2003). The output will be the solution to the problem in the form of a written report to the General Manager within the same processing plant. JD is a middle manager, with 11 direct reporters and a further 100+ employees, his authority falls within Water’s (2006) guide, however examples will be highlighted that fall outside this guide.
In order to maintain confidentiality, the information gathered will not disclose of any financial figures or real names. In addition, the speculation of the findings does not represent the view of the employee.
1. JD. Arrives to the office and checks his emails and reports from the last shift.
a. The figures are below the operational quota set for the shift’s output.
b. The note from the shift leader mentions considerable backlog in the cheese processing at 8pm and 6am.
c. The note from the logistic manager says: the order to Sainsbury’s was not complete as the cheese order arrived too late for delivery.
d. A note from the GM: external company (DF Ltd) asking for trial of their forklifts
2. JD decides to investigate the backlog issue (observe)
a. Visits the cheese processing plant and talks to the duty manager as well as line operatives
b. Requests information on frequency, timing and duration of similar backlogs from his secretary.
c. Meets the sales manager to find out overall cost of lost order.
d. Sets up meeting with the sales rep from DF Ltd
3. JD reviews findings and puts them in to context with company operational objectives.
a. He finds out that the backlog of transporting the processed cheese is to do with the low weight load of the forklifts available at 8pm and 6am as the packaging department using the heavy-duty lifts to restack pallets from 7pm and 5am once a month.
b. Apparently the backlogs are reoccurring on a monthly basis but only when it coincides with the packaging departments restacking routine.
c. The sales department expresses concern for the large amount of loss of sales due to the lack of completed orders.
4. JD analyses the findings:
a. The removal of the forklifts was authorised by the GM 6 months ago on a quarterly meeting with the packaging department, furthermore the last meeting was cancelled due to illness.
b. The implications are substantial: The area manager for Sainsbury’s is threatening to cancel the contract if orders are incomplete. This would affect the entire plant’s output as Sainsbury’s is taking 30% of cheeses produced. The GM would have to report to the board of directors and possibly face losing his job.
c. The sales rep from DF Ltd offers a heavy-duty lift to be trialled for 3 months and a very competitive price for leasing their lifts.
5. Determine options:
a. Negotiate with packaging department for a different time for restacking. Possible outcome that it may cause issues in other departments which can not be afforded due to sensitiveness of the Sainsbury’s contract
b. Accept offer from DF ltd on trial, however JD has no authority to accept lease.
c. Discuss findings with GM and ask for authority for lease.
6. Implementation
a. Option “C” seems the most suitable.
b. GM is grateful for analysing situation and processing all information.
c. GM gives immediate authority to trial and purchase of lease on 3 lifts.
d. JD is happy with the output of the decision process.
e. JD scheduled a review of the implementation of the plan in a month’s time. In conclusion, the response to the problem was dealt with high level of understanding of theoretical and practical approaches to Operational Management. The question is whether the same manager could have picked up on this issue sooner or should have the GM analyse and observe internal reports with more care.
My suggestion would be to maintain operational meeting schedules as set out in the corporate operation by the board of directors. Furthermore, the sales department should notify all operational managers of shortcomings.
Order Qualifiers and Order Winners
Terry Hill (2005) argues the criteria required in the marketplace can be split into two groups: order qualifiers and order winners. An order qualifier is a characteristic of a product or service that is required in order for the product/service to even be considered by a customer. An order winner is a characteristic that will win the bid or customer 's purchase. Companies must meet the qualifiers in order to get into or stay in a market and to provide qualifiers; they need only to be as good as their competitors. Failure to do so may result in lost sales. However, to provide order winners, firms must be better than their competitors. Hill (2005) also feels it is important to note that order qualifiers are not less important than order winners; they are just different.
Horte and Ylinenpaa (1997) detail three types of criteria for winning orders
1. Order qualifying – Firm must meet in order for customers to consider it a possible supplier.
2. Order losing – Some qualifiers are more sensitive than others and if a firm does not meet the necessary standards it will lose orders and more often than not any potential future orders.
3. Order winning - those criteria, which win orders.
Unless an organization has successfully identified and is meeting the entry requirements it will fail. Having identified the entry requirements firms can then seek to gain competitive advantage by improving its performance with respect to the order winning criteria.
The products below are all part of the Dairy Crest range, in general the company seeks to cover a diverse range of products and services related to dairy production and produce.
Given the nature of the products being made order qualifiers will be similar for all dairy products as these are closely governed by legislation dictated by the Food Standards Agency (http://www.food.gov.uk/business-industry/guidancenotes/dairy-guidance/) and the Department for Environment, Food and Rural Affairs (https://www.gov.uk/food-standards-labelling-durability-and-composition). These cover all aspects from manufacture, storage, transportation and labelling to name a few.
In this respect order Criteria strategies are key to differentiating products and securing sales. The table below details the main dairy crest products and their order winning criteria.
Product
Order winning Criteria
Half the saturated fat of Butter.
Only leading butter brand to carry Red Tractor Seal of approval. (http://www.redtractor.org.uk )
Made in the UK “Never travelled too far by the time it’s purchased”.
Supports The Princes Countryside Fund & displays logo on all products
Easy to spread from Fridge
Suitable for Vegetarians
70% less saturated fat than butter.
Rich in Vitamin E
Virtually trans-fat free & contains no hydrogenated oils.
Caters for people who are lactose intolerant.
Traditional cooking and baking features of butter, with the benefits of a spread
Virtually trans-fat free & no hydrogenated veg oils.
Packaging features a range of cooking tips and recipes.
Promotion highlights the health benefits of cheese as part of a balanced diet.
Thicker than ordinary milkshakes and satisfies hunger.
60 year history making cheese
Has won a number of awards
Cathedral City cheese which is packaged as a snack for children.
Milk &more combines the tradition and familiarity of the milk delivery service with the convenience of online shopping (http://www.milkandmore.co.uk )
Comparing other services such as Tesco online, Asda Online and Iceland order qualifying and order winning criteria are detailed below.
Order Qualifying
Order Winning
Facility to order and pay online.
Guaranteed before 9am
Range of products / brands
Free delivery (no minimum spend to qualify)
Delivered to your door.
No minimum spend
Competitive pricing
Change order up to 9pm night before.
Special offers
Same delivery person
Add holiday dates
In terms of Order losing criteria reviewing the comments about Milk & More on the review website Trust Pilot, there are a number of negative references to the aftersales / customer service department with customers stating they would not place future orders because of disappointment with this aspect of the business rather than the actual delivery service.
Dairy crest also offer a Foodservice specialising in premium branded dairy and chilled products. Looking through the promotional material, many of the promotional arguments such product availability, flexible delivery quantities and schedules and healthy alternatives would be characteristic of other similar services such as 3663 (www.3663.co.uk) and Brake’s (www.brake.co.uk ). In this business area cost is likely to be the main order winning criteria.
In terms of supplying milk to the large retailers the main order winning criteria would be price, although issues such as environmentally friendly packaging might also be considered.
Competitive Priorities
Spring and Boaden (1997) define the competitive priorities as:
Cost. Production and distribution of products at low cost.
Quality. Manufacture of products with high quality or performance standards.
Delivery dependability. Meet delivery schedules or promises.
Delivery Speed. React quickly to customer orders
Flexibility. React to changes in the product, changes in product mix, modifications to designs, fluctuations in materials, changes in sequence or routing of manufacture.
Innovativeness. Introduction of new products and processes.
For Dairy Crest cost is important as they have to compete with other manufacturers / distributors based on cost, and cost also become significant when dealing with the major retailers such as Tesco, Asda and Morrison as their buyers tend to be particularly ruthless when it comes to the price they are willing to pay (The Telegraph, 2007).
Quality is important, as this will need to be comparable to other products, or even better (possibly to command a higher price). The quality of service is also important in the Milk and More sector and the Food Service.
Delivery dependability would also be a significant priority for Dairy Crest, as all the different aspects of the business, Milk and More, Food Service, and supply to the major retailers will depend on meeting delivery schedules or promises.
Delivery speed is again key to all aspects, whilst the time taken to make the deliveries is important factors such as reacting to increased quantities or order changes will also be key to successful business relationships. For the Milk and More service this is exemplified by the fact customers can change their orders up to 9pm at night.
In terms of flexibility the company covers a broad range of products although they do appear to be made at different locations. With reference to changes in product a move to healthier eating as meant core products now offer “light” or “low fat alternatives”.
In terms of innovativeness items such as the Cheds product for children or the Frijj drink are a good example, the company’s 2012 Annual Report states that 10% of sales now derived from products and services developed in the last three years, such as Chedds and Frijj.
The company also saw a cost reduction by designing innovative new milk bottles, which are lighter and use 15% less plastic. In conjunction with this the company saw further cost savings by moving to a standard tub design for it UK and French spreads.
The 2012 Annual Report also details £22 million a year saving through improved technology and particularly a move to e-sourcing, incorporating e-auctions for the provision of services such as gas, plastic packaging and logistics.
Company Infrastructure
Slack & Lewis (2011) states that operations strategy content is concerned with strategic decisions that shape and develop the long-term direction of the operation. These decisions can be divided into structural and infrastructural decisions. Structural decisions relate to the physical configuration of operations, whilst infrastructural decisions consist of systems and policies required to operate the former.
Finch (2008) categorises the structural decisions as those relating to capacity, sourcing, facilities, and information and process technology and the infrastructural decisions consisting of resource allocation and capital budgeting systems, human resource systems, work planning and control systems (e.g., purchasing, aggregate planning, scheduling, inventory control, and waiting time), quality systems, measurement and reward systems, product and process development systems, and organization.
In the UK Dairy Crest’s processing sites are predominantly for liquid processing, with six liquid milk processing plants, one cheese processing facility and one facility producing butter, cream and powder.
Dairy crest is the UK’s largest dairy company by turnover and processes around 2.1bn litres of milk each year into liquid milk, cheese, butter and spreads. Around 72% of this milk comes from 1350 direct suppliers in England and Wales.
Dairy Crest set aside £75m for investment into its liquid milk facilities between 2010/11 and 2012/13. This included the extension of Foston to more than double its capacity, a £13m upgrade to facilities at Severnside, aimed at increasing capacity for both conventional poly-bottles and for Frijj and the installation of a new line to produce Jugit. Processing and cold storage capacity at Chadwell Heath was increased from a £4m investment and £3m went towards new biomass boilers at Davidstow.
The company states the operational focus of these investments is to reduce waste, increase production efficiency and enhance supply chain planning.
In addition to the production aspect of the business the company is very much supply chain focused. Slack et al (1997) discuss the dairy producer supply chain in more detail. Linking this to Dairy Crest, in addition to the milk suppliers (first tier suppliers), the company will also source other products (e.g. herbs) and services (e.g. packaging) from other suppliers (second tier suppliers). Moving to the other end of the process the company then passes these goods onto large distributions centres, for example the Morrison’s distribution centre in Northwich (first tier customers) or direct to independent retailers such as shops and restaurants (second tier customers).
Linked with this the business relies heavily on its logistics and distribution network, experience and knowledge of this provide synergies with new services such as Milk and More and the Food Service. Infrastructural Decisions
(Yudoko, 2012)
Looking at the table above by Yudoko (2012) that examines infrastructural decisions from economic, social and environmental perspectives, examples can be found with reference to Dairy Crest; most of these are detailed in the Dairy Crest Annual Report 2012
In terms of strategic resource allocations and capital budgeting system decisions, as part of the companies review (Jan, 2012) they state part of its growth strategy will come from businesses acquisitions and disposals. In June 2012 the company sold its St Huberts spread business based in France to Montagu Private Equity for €430m (£347m) represents a £90m return on investment. Whilst the company had improved the standing of St. Huberts it was finding it difficult to expand its French business (Financial Times, 29th June 2012)
From a social perspective the company promotes itself as looking after the interest of farmers and the countryside in general, particularly through the Countrylife brand. Similarly environmental considerations run through the promotion of many of its products,
Looking at human resource decisions, in 2012 the company closed 2 dairies leading to a staff reduction of 500. In terms of training and location the company operates an online eLearning portal which gives staff the opportunity to complete a variety of online qualifications. The company also has a “My Career” initiative offering mentoring support to managers who want to develop further, and also anothet eLearning portal linked to the Swiss IMD business school.
With reference to quality decisions, as mentioned the company is investing heavily in its plants to improve efficiency, speed, quality and dependability of its products and services. Dairy Crest’s manufacturing sites and distribution centre’s are also independently accredited to the environmental management system (EMS) ISO 14001 (http://www.sharecare.ltd.uk/dairycrest.php)
Strategic work planning and control decisions can be seen throughout the operation, most notably a desire to increase its number of direct suppliers from 76% to a target 85%, as a ratio against 3rd party suppliers. Inventory control and scheduling will form the backbone for the companies logistics and distribution networks. Socially the company promotes its links with the community and particularly the red tractors scheme mentioned earlier. As discussed the company also introduced an number of green initiatives including the installation of biomass boilers at the Davidstow Creamery and more environmentally friendly packaging. They have also recently taken delivery of a number of new tankers and vehicles with Euro 5 standard engines.
Looking at forecasting, inventory control and aggregate planning Dairy Crest purchases vegetable oil and products derived from crude oil such as resins and diesel. As these markets can be unpredictable they have implemented sophisticated risk management strategies via a multi-functional Risk Committee, designed to give them the best
possible insight into volatile markets. As part of this various daily market reports are produced by the supply chain departments and they have developed contingency plans for key commodities and ingredients.
Strategic new product decisions are reflected in the 10% of sales which now come from products developed in the last 3 years. New services such as Milk & More (the doorstep division) offer extra opportunities but also additional outlets for the companies milk supply.
With reference to strategic performance system decisions, economic performance indicators are measured in comparison key performance indicators whilst Social Responsibility and environmental performance are judged by 3rd parties. In terms of Social Responsibility the company was awarded a Business in The Community (BiTC) Gold Award in 2012 and are included in the Corporate Knights Global 100 List of the world’s most sustainable businesses. The company also works with the with the Carbon Trust and has its own Internal Carbon Management Group which aims to reduce its carbon emission by 30% compared to 2007 levels.
References
Dairy Crest Annual Report 2009, Country life butter growth, [Online] Available at: http://hsprod.investis.com/ir/dcg/download/dairycrest_annual-report-2009.pdf [Accessed 27 April 2013].
Dairy Crest PLC, Annual Report 2012, [Online] Available at: http://hsprod.investis.com/ir/dcg/download/Dairy-Crest-AR-2012.pdf [Accessed 23 April 2013].
Dairy Crest PLC, At a Glance, 2013, [Online] Available at: http://hsprod.investis.com/ir/dcg/ar_2012/At_a_glance2.html [Accessed 23 April 2013].
Dairy Crest PLC, Board of Directors, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/board-of-directors/ [Accessed 01 May 2013].
Dairy Crest PLC, Farming Relations, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/farming-relations/ [Accessed 01 May 2013].
Dairy Crest PLC, Key Facts, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/ [Accessed 23 April 2013].
Dairy Crest PLC, Vision Strategy, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/vision-strategy/ [Accessed 23 April 2013].
DairDairy Crest, Acquisition History, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/our-history/, [Accessed 27 April 2013].
Dairy Crest, interim results November, 2012, [Online] Available at: http://www.dairycrest.co.uk/press-media/news/dairy-crest-announces-interim-results-november-2012/ [Accessed 28 April 2013].
Dairyco, Dairy Statistics, 2012, [Online] Available www.dairyco.org.uk/non_umbraco/download.aspx?media=8570 [Accessed 29 April 2013].
DiaryCo, Dairy Crest Company Review, 2012, Pg. 5-10.
Finch, B.J. (2008), “Operations Now: Profitability, Processes, Performance.” Third Edition. McGraw-Hill-Irwin, New York.
Galloway,R (1993) “Principles of Operations Management” Routledge, London.
Hill, C.W.L., Jones, G.R., 2001, Strategic Management, Houghton Mifflin, Pg. 339-370.
Hill, T. (2005) “Operations Management” 2nd Edition, Palgrave MacMillan, Hampshire.
Horte, S & Ylinenpaa (1997) “The firms and its customers views on order winning criteria” International Journal of Operations & Production Management, Vol. 17, No.10, pp.1006-1019.
Hooley, G., Saunders, J., Piercy, N.F., Marketing Strategy and Competitive Positioning (4th Edition) 2008, Prentice Hall, Pg. 12-14.
Johnston, R. et al. (2003) Cases in operation Management (3rd edition), Pearson Education Limited, Harlow
Kotler, P. & Armstrong, G. (2005) Principles of Marketing (11th edition), Prentice Hall.
MarketLine. (2011) Diary Industry competition analysis Available at: http://advantage.marketline.com/Product?pid=MLIP0903-0041&view=d0e833 [Accessed 29 April 2013].
Nogger, Arla revenue losses, 2009, Available at: http://nogger-noggersblog.blogspot.co.uk/2008/11/arla-sees-profits-falling-in-2009.html [Accessed 29 April 2013].
Porter, M.E., 1980, Competitive Strategy: Techniques for analysing industries and competitors, New York: The Free Press.
Porter, M.E., 2008, The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008.
Reid R.D., and Sanders N. R., (2005) Operations Management, 2nd Edition, Wiley Publication.
Reuters, Dairy Crest loses contract with Tesco, 7th April 2012, [Online] Available at: http://uk.reuters.com/article/2012/04/17/uk-dairycrest-idUKBRE83G0A820120417 [Accessed 30 April 2013].
Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall.
Slack, N., & Lewis, M. (2011), “Operations Strategy”. Third Edition, Prentice Hall, Parson Education Limited, England.
Slack, N.,Chambers,S.,Hartland,C.,Harrison, A. and Johnston,R. (1997) “Operations Management”, 2nd Edn, Harlow, FT/ Prentice Hall.
Spring,M & Boaden,R. (1997) “One more time: how do you win orders?: a Critical reappraisal of the Hill manufacturing strategy framework” International Journal of Operations & Production Management, Vol.17, No.8 pp.757 – 779.
The Telegraph, Dairy Crest sells off shares in Yoplait, 27th March 2009, [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/5059564/Dairy-Crest-sells-Yoplait-stake-to-reduce-debt.html [Accessed 30 April 2013].
USDA, Top Cheese Consumers, 28th September 2012, Food and Agricultural Organization
Online http://www.trustpilot.co.uk/review/www.milkandmore.co.uk http://www.streetdirectory.com/food_editorials/beverages/beverages/packaging_of_milk_and_dairy_products.html https://www.gov.uk/food-standards-labelling-durability-and-composition “Dairy Crest Sells St Hubert” http://www.ft.com/cms/s/0/693db296-c1fc-11e1-8e7c-00144feabdc0.html#axzz2SjQdKXit, accessed 06/05/13.
“Farmers complain of ruthless buyers”, http://www.telegraph.co.uk/news/uknews/1560696/Farmers-complain-of-ruthless-buyers.html, accessed 01/05/2012.
Appendixes
Segment profit
2007
2008
2009
2010
2011
2012
Cheese
20.5
34.8
34.3
16.9
28
35.5
Spreads
32.4
38.1
59.5
54
53.3
63
Dairies
27.1
31.6
7.9
34.9
27.1
10.2
Associates & joint ventures
10
7.7
7.3
0.1
-0.2
-0.3
Group including share of joint ventures
90
112.2
109
105.9
108.2
108.4
Less: share of associates & joint ventures
-10
-7.7
-7.3
-0.1
0.2
0.3
Balance sheet summary
2007
2008
2009
2010
2011
2012
Property, plant & equipment, goodwill and intangibles, investments
767.8
817.8
837.1
794.4
800.6
713.9
Inventories, receivables, payables, deferred income & provisions
105.3
98.2
86.8
43.7
21.9
45.8
Total operating assets
873.1
916
923.9
838.1
822.5
759.7 Financial instruments excluding amounts included in net debt
6.5
12.5
4.2
0.9
5
0.9
Tax
-85.1
-97.6
-92
-70.3
-90.3
-70.1
Retirement obligations
-0.4
31.6
-63.3
-142.4
-60.1
-79.8 Disposal group held for sale (excluding cash)
-
-
-
3.7
-
-
Net debt
-451
-474.8
-415.8
-337.2
-311.6
-336
Net assets
343.1
387.7
357
292.8
365.5
274.3
Non-controlling interests
-4
-5.1
-4.7
-3
-
-
Shareholders ' equity
339.1
382.6
352.3
289.8
365.5
274.3
Fig 3.3 – Dairy Crest production structure.
References: Dairy Crest PLC, At a Glance, 2013, [Online] Available at: http://hsprod.investis.com/ir/dcg/ar_2012/At_a_glance2.html [Accessed 23 April 2013]. Dairy Crest PLC, Board of Directors, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/board-of-directors/ [Accessed 01 May 2013]. Dairy Crest PLC, Farming Relations, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/farming-relations/ [Accessed 01 May 2013]. DairDairy Crest, Acquisition History, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/our-history/, [Accessed 27 April 2013]. Dairy Crest, interim results November, 2012, [Online] Available at: http://www.dairycrest.co.uk/press-media/news/dairy-crest-announces-interim-results-november-2012/ [Accessed 28 April 2013]. Dairyco, Dairy Statistics, 2012, [Online] Available www.dairyco.org.uk/non_umbraco/download.aspx?media=8570 [Accessed 29 April 2013]. DiaryCo, Dairy Crest Company Review, 2012, Pg. 5-10. Finch, B.J. (2008), “Operations Now: Profitability, Processes, Performance.” Third Edition. McGraw-Hill-Irwin, New York. Galloway,R (1993) “Principles of Operations Management” Routledge, London. Hill, C.W.L., Jones, G.R., 2001, Strategic Management, Houghton Mifflin, Pg. 339-370. Hill, T. (2005) “Operations Management” 2nd Edition, Palgrave MacMillan, Hampshire. Horte, S & Ylinenpaa (1997) “The firms and its customers views on order winning criteria” International Journal of Operations & Production Management, Vol. 17, No.10, pp.1006-1019. Johnston, R. et al. (2003) Cases in operation Management (3rd edition), Pearson Education Limited, Harlow Kotler, P Porter, M.E., 1980, Competitive Strategy: Techniques for analysing industries and competitors, New York: The Free Press. Porter, M.E., 2008, The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Reid R.D., and Sanders N. R., (2005) Operations Management, 2nd Edition, Wiley Publication. Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall. Slack, N., & Lewis, M. (2011), “Operations Strategy”. Third Edition, Prentice Hall, Parson Education Limited, England. Slack, N.,Chambers,S.,Hartland,C.,Harrison, A. and Johnston,R. (1997) “Operations Management”, 2nd Edn, Harlow, FT/ Prentice Hall. Spring,M & Boaden,R. (1997) “One more time: how do you win orders?: a Critical reappraisal of the Hill manufacturing strategy framework” International Journal of Operations & Production Management, Vol.17, No.8 pp.757 – 779.
Introduction
The purpose of this report is to analyse Dairy Crest from an operation management point of view. After the initial introduction of the company a financial summary will be carried out to highlight the how the organisation maintains and grows it’s market share in the dairy industry within the UK. After that the review of corporate and marketing strategy will express concerns with the organisation in respect of current theories in operation management. Furthermore, a comparison will be carried out with one of a competitor in the sector. Subsequently, operation management definitions followed by problem solving and decision-making processes, suggested within the current business environment will be drew. In addition, the provision of Dairy Crest inputs will demonstrate the complexity of this organisation and how managers and corporate decision-making on a day-to-day basis could affect the value adding processes; transforming its inputs to outputs, in the long term. In order to better understand this process, this section will finally summarise a full working day of an Operation Manager within a Dairy Crest. Afterwards an explanation of order qualifiers and order winners theories the report will be cross-referenced to the organisations main products and services. Thereafter, Dairy Crest’s competitive priorities and company infrastructure will be investigated with examples mentioned. Eventually a short summary of recommendations will be added with a complete reference list.
Dairy Crest Background
The Milk Marketing Board established Dairy Crest in 1983, with the main objective to process milk. The public body was founded in 1933 to manage the production and distribution of milk in the UK. In the following years they grew to become an integrated dairy business with 2 market-leading categories, namely foods and dairies. The company floated in the London Stock Exchange in 1996. Dairy Crest is present in the UK with its five market leading brands and family favourites. The dairy, butter and spreads division of the company produces Country Life and Clover with high market shares. Whereas cheeses such as Cathedral City and milk shakes, Fiji are market leaders and sold through multiple channels.
1. 1st tier customers are the supermarkets with over 70% of the overall sales.
2. Tiers 2s are the smaller retail shops and restaurants.
3. Milk&more and Foodservices are the 3rd tiers with direct delivery to individual customers.
The company purchases more than 2.4 billion litres of fresh milk a year to resale or further process to other value added dairy products. In addition, Dairy Crest has been expanding steadily since 1992 through a chain of acquisitions and become the country’s leading chilled dairy foods company and one of the ten largest food companies in England. The group now has 16 factories and offices and over 100 depots across England and Wales. One of the most heard of joint venture is with Yoplait for the establishment of Yoplait Dairy Crest, which produces and markets chilled yogurts as well as cottage cheese, desserts and ice cream (Dc Ingredients, 2013).
The group 's on going focus on brand reinforcement and satisfaction of evolving customer needs ensures its position within the dairy sector, which is among the largest food grocery categories, worth over 8 billion GBP and growing every year.
Profit and Loss Account
Segment revenue
2007
2008
2009
2010
2011
2012
Cheese
194.6
255.5
244.2
260
223.1
229.6
Spreads
178.7
234.5
284.2
277.7
285.5
328.7
Dairies
925.7
1,067.60
1,108.20
1,081.20
1,089.80
1,069
Other
10.3
12.1
11
10.8
6.1
4.8
Group
1,309.30
1,569.70
1,647.60
1,629.70
1,604.50
1,632.10
Fig 1.1 – Dairy Crest segment revenue.
Milk wholesale is the largest capital revenue for the company, with 66% a of the group’s revenue in 2012, however the 9% profit margin is very low and growth is only 2%, thus it represents cash cow type product. Nevertheless it is vital to maintain market shares and keep suppliers selling to competitors. Dairy Crest has recently introduced a new liquid contract to farmers that tracks market conditions thus offers a more favourable contract then its competitor’s (Grocers, 2013). Spreads accounts for 20% of revenue with a growth of 12% over the previous fiscal year and the highest profit margin of 58%. Cheese revenue accounts for 14% of total revenue with growth of 3% and a 33% profit margin (Diary Crest, 2012). Dairy’s low profit margin is offset by spreads and cheeses higher profit margins and strong performance.
Fig 1.2 – 6 year revenue growth. Fig 1.3 – Percentage of Revenue 2012.
Fig 1.4 – Net profit percentage bar chart.
Net profit percentage remained steady until 2012 where exceptional non-cash impairment charges in dairies lead to a £81.7 million loss (Dairy Crest, 2012). This was due to a lost contract with retailer Tesco, forcing Dairy Crest to make closures as current trading conditions and profit margins would not be sustainable after the loss of the contract (Reuters, 2012). This move will affect Dairy Crests market share and revenue. Dairy crest should secure another dairy contract and refrain from making Dairy acquisitions in the UK until market conditions improve. The main competitors, Arla Foods UK plc, Robert Wiseman Diaries Plc and First Milk Limited are all tendering for lager market share. However the sustainability of prices offered to supermarkets are questionable, this is why contracts change hands frequently.
Fig 1.6 – Arla vs. Dairy Crest revenue comparison.
The largest rival to Dairy Crest is Arla who are the number one supplier of spreads and butter in the UK. Arla’s revenue fell in 2009 due to a combination of increased milk prices and a weak Danish Kroner against the British Pound (Nogger, 2009). Arla also have the largest milk pool available in the UK (Arla, 2013). As Dairy Crest has only UK based dairy companies it cannot benefit from international dairy profit margins increasing, and consequentially had to close facilities in the UK and France. On the other hand, Dairy Crest has secures over £10million a year in European grants and subsidies for selling over produced and backlogged by-products to under developed countries (Grocers, 2013).
Thus in the short term they must reduce costs temporarily by selling or closing Dairy facilities, this will allow the company to absorb difficult trading conditions and low dairy profit margins until conditions improve.
2007
2008
2009
2010
2011
2012
Revenue
1,309.30
1,569.70
1,647.60
1,629.70
1,604.50
1,632.10
Net Profit
49.2
54.7
74.3
52.5
57.5
-17.1
Net Profit Percentage
3.757
3.4847
4.5095
3.2214
3.5836
-1.0477
Fig 1.7 – Revenue and net profit table.
Joint venture revenue in 2009 fell £7.1 million to £0.1 million due to the sale of Dairy Crest’s 49pc share in Yoplait, the reason was due to commitments with non-current liabilities and a strategy to reduce debt provides: “more headroom under our banking arrangements"(The Telegraph, 2009).
2007
2008
2009
2010
2011
2012
Net Debt
-451
-474.8
-415.8
-337.2
-311.6
-336.4
Movement in Net Debt
-170.8
-23.8
59
78.6
25.6
-24.8
Current liabilities
122
29.3
2.4
2.7
68.5
2
Non-Current Liabilities
347.8
474.4
557.5
386.6
308.4
428.4
Fig 1.8 – Debt analysis.
Dairy Crest’s decisions have forced non-current liabilities and net debt to increase, missing net debt movement targets. Dairy Crest should focus on mergers and an acquisition of UK cheese and spreads companies in the short term, instead of focusing on diary acquisitions. This will take advantage of higher profit margins in cheese and spreads and reduce dairy losses, in the long term this will help reposition the company to make Dairy acquisitions when the market improves. This strategy would cement Cathedral City’s no.1 market position and increase market share, and contribute towards a long-term milk growth strategy.
Fig1.13 – Segmented profit table.
Fig 1.14 –
Balance sheet.
2007
2008
2009
2010
2011
2012
Group
80
104.5
101.7
105.8
108.4
108.7 Amortisation of acquired intangibles
-2.7
-9
-9.6
-9.2
-8.7
-9.1
Exceptional items
-10.4
-21.1
-24
2
-1.1
-93.9
Profit on disposal of JV
-
-
50.4
2
-
-
Finance costs
-19.2
-26.2
-29.5
-22.4
-20.6
-21 Other finance (costs) / income - pensions
9.5
10.1
6.9
-0.5
-
-
S Share of joint ventures ' net (loss)/profit
7.4
7.7
7.3
0.1
-0.2
-0.3
Profit before tax
64.6
66
103.2
77.8
77.8
-10.1 Adjusted profit before tax
70.8
86
79.5
83.5
87.6
87.4
Corporate Strategy
Dairy Crest has published what they envisage as a strong corporate strategy on their business website. The strategy they believe is focused on leading market positions:
“Our strategy is to build market leading positions in branded and added value markets; focus on cost reduction and efficiency improvements; reduce commodity risk to improve quality of earnings and generate growth through business acquisitions and disposals”
(Dairy Crest, Vision Strategy, 2013)
The Company have attained leading market positions with Cathedral city and Fiji and believe added value markets are an objective, however current profit margins on dairy would suggest to further reduce costs and streamlining operations would be secure future growth. Filtered milk accounts for 7.8% of the market where as pasteurised milk accounts for 81.9% (Diary Statistics, 2013). An element to Dairy Crests corporate strategy requires a large production of dairy in order to attain a certain level of profit. On the other hand, products such as Fiji, Cathedral City and Chedds indicate a segmentation strategy as the products cater for different needs and age ranges (Porter, Competitive Strategy, 1980). Fiji is aimed at teenagers, Cathedral City is focused towards mature, and Chedds is aimed at school children to put in their lunch boxes. Additionally some products are differentiated to create customer preferences. Cathedral City has 5 different types differentiated products, all butters have light versions and Fiji milkshakes have 3 different flavours (Diary Crest, 2013). Ultimately all strategies are in use, however diary revenue is the prime objective which facilitates the products, so I’d argue that Diary Crest uses a half low-cost supplier, ¼ segmentation and ¼ differentiation corporate strategy.
The growth strategy for the firm has been achieved so far by acquisition of high ROI companies and organic product growth. However, Dairy Crest spokesman recently revealed that due to lack of such UK companies it would focus on "consumer-driven growth" and operational efficiencies achieved through a more integrated supply chain. Between 2007 and 2012 Diary Crest made no international acquisitions since the purchase of St Hubert, this shows a bad international acquisition strategy. As dairy is the company’s background it might have been wiser to make Dairy acquisitions to begin an international starting base, as demand is greater.
Dairy Crest disposes of inefficient companies, or acquires companies, streamlines the operations and then sells them off. The most recent business sale was the French company St Hubert that was sold for £340 million and made a pre-tax profit of £47.7 million (Dairy Crest, 2012). Being that St Hubert was Dairy Crests only international company, a sell-off suggests a lack of an international strategy and a lack of international research & development. The company’s focus should have been on its core operations, and this could have avoided the selloff of St Hubert. I suggest future research and development be funded towards other countries like Greece, Iceland, Sweden or Finland as the consumption rates are also very high in these countries.
Top Cheese Consumers (lbs. per capita)
Pounds
Greece
68.5
France
57.5
Iceland
55.9
(USDA, Top Cheese Consumers, 2012)
Marketing Strategy
Dairy Crest have pushed branded products such as Country life butter through TV advertising campaigns, In 2009 country life butter sales increased 25% after an advertisement with John Lydon was aired (Dairy Crest Annual Report, 2009). Dairy Crests product portfolio lacks differentiation, Spreads have 250g and 500g sizes and only two have “light” versions. Cathedral City is the most varied product with five versions available. Dairy Crest acquires companies producing a competitor’s product and produce Cathedral City or another leading product (Diary Crest, 2013). This strategy increases production flexibility and market share, however this strategy risks losing the acquired companies original product popularity while forcing a brand that might not be too popular in the area. Dairy Crest’s marketing strategy is Resource-based as the dairy products they supply are in constant demand for necessities. Dairy Crest does not use a customer-led strategy as differentiation in the market is constrained due to difficulties in adding value. Dairy Crest’s strategy involves moving products to a leading market position, producing TV advertisement campaigns and creating more variations to capitalise on its market position. Further product developments should therefor be considered.
SWOT Analysis
Strengths
Weakness
Strong Distribution Network
Geographical Concentration
Strong Market Position
Overdependence on Dairy Business
Strong Operational Performance
Opportunities
Threats
Health Awareness
Consumer Preferences
On going Investments
Raw Material Prices
Fig. 3.1 - SWOT Analysis of Dairy Crest.
The SWOT (Fig. 3.1) shows us a strong UK base of operations, which needs strong national coverage to deliver revenues, as milks life cycle is short. Dairy Crests dependency on milk makes the company vulnerable to market price changes, as delivering profits with volatile profit margins can only be achieved through large-scale production. An international excursion of its milk production could provide a stepping-stone in light of international acquisition failures.
PrPProduct Life Cycle
Milk
Spreads
Cheese
Short (1-2 weeks)
Medium (Weeks - Months)
Long (Year or longer)
Fig 3.2 – Product life time cycle.
Fig 3.3 – BCG Matrix on Dairy Crest.
The BCG matrix shows Milk&More to be a declining revenue stream in line with the doorstep market decline of 3.1% (Dairyco, 2013), this gives retailers a higher buyer power (Porters 5 forces, 2008). Milk&More will become unprofitable and should be sold off to reduce risk of future losses. Milks cash cow growth is at the mercy of the market giving farmers moderate supplier power (Porters 5 forces, 2008). Because Dairy Crests produces dairy they can create high profit margin products such as cheese and spreads cheaper than purchasing from a supplier, this should incentivise the company to keep milk procurement operations. The sale of St Hubert was a short-term solution as long term it would have been beneficial. New entrants to the industry remain strong at a small level (Porters 5 forces, 2008), large companies require mergers and acquisitions to increase market share. The top 3 competitors hold 16% of market share (Marketline, 2013) suggesting strong levels of competition (Porters 5 forces, 2008). Milk has a low threat of being replaced, as it is a staple and dietary need at a daily level for consumers (Porters 5 forces, 2008).
Operation Management
Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs (Slack, 2001). Raturi and Evans (2005) extended this hypothesis by adding emphasis to the continuously changing internal and external business environment:
“The business activity that involves the design, development, and maintenance of systems and processes that transform resources, such as raw materials, technology, and labor, into goods and services that meet customers’ needs”
Consequently, in order to critique and evaluate Dairy Crests’ complex operation management, it is vital to have a clear understanding of the nature and the full context of problems that may surface during the day-to-day running of the company. This is to be in respect of the managers and the organisations’ ability to responses to such findings whilst maintaining shareholders interest, operational objectives and individual authority. Furthermore, losing sight of the long term corporate strategy during this decision making process will have vast financial drawback at a later stage, even though the solution seems straight forward at that particular moment. Johnson et al (2003) therefore suggest a careful and continuous cyclical reassessed analysis of all stages during this problem solving process. Decision Making Process Source: Own (2013)
Observe
Although this section seems the most obvious for managers, the inexperienced decision maker may oversee some very important steps within that. Reading facts from a sheet, should only serve as base for building a full picture by adding information gained from hearsay, speculation, assumption and inference.
Jumping to conclusions too soon, without putting the information in to context is the first of Johnson et al’s (2003) warnings. It is also necessary to revisit this section after the full decision making process in order to make further adjustments accordingly. Follow objectives in context
This section should follow the corporate strategy and review historical decision making flaws. Also any suggestions arising may be run in theory to highlight pros and cons further down the line. It could save large amounts of both money and manpower, if communication with different departments highlight similar problems elsewhere.
Analyse the situation
In order to fully understand the problem, the break down and route analysis of the issue is paramount. Most managers come across issues that resulted in backlogs or underperformance within their department, however it roots lay elsewhere. Therefore are unable to fully correct the problem without going beyond their authority.
Determine the options
The syntheses of all components remains the most creative section within the process, providing the previous sections were undertaken with due care; a map with possible routes should emerge by now. Brainstorming and evaluating evolving options are important as suggestions are now put forward to the next stage.
Evaluate and choose
The options are now clearly visible, however, to choose the best one they have to be prioritised by answering set of questions.
1) How feasible is the option?
2) How acceptable is it to all stakeholders?
3) How risky is the option?
Once the questions are answered a champion should emerge, ready to be put in place!
Implement
By setting an agenda of implementation, further benefits may materialise which make the decision maker appreciated more. 1) When to start?
2) Where to start?
3) How fast to act?
This process is not only recommended for problem solving but to be used in all part of the operation management, whether its design, planning, control or improvements is the objective.
In addition, Waters (2006) differentiates decision-making by the organizational level it’s made at. This allows a better level of understanding, which is required to make the best choice. Type of decision
Strategic
Tactical
Operational
Importance
High
Medium
Low
Timescale
Long
Medium
Short
Level of Management
Senior
Middle
Junior
Focus
Whole
Organisation
Parts of the organisation
Individual
Activities Resource used
Many
Some
Few
Risk and uncertainty
High
Medium
Low
Structure
Unstructured
Some structure
Highly structured Amount of detail
Little
Some detail
Very detailed Data available
Limited
Some
More
Management skills
Conceptual
Interpersonal
Technical
The Transformational Model
The main strategic role of an organisation is to have a comprehensive plan in place to coordinate all activities. Each organisation has their unique operational function that produces services or products; and this value adding process is where the companies differ the most from others. Thus many operations are a complicated cluster of individual operational units each with specific functions. The greater degree of interaction between these units is reflected in a better performing, more streamlined company (Chase et al, 2000).
Source: Reid and Sanders (2005)
The input-transformation-output model
Johnson et al (2003) explains that all operations transform customers, information and materials at different levels, but ultimately are all dealing with all three. This process is where the majority of decisions are made, therefore greatly effecting the output of the organisation. The outputs of this transformational process are the services or goods that the customers receive. Slack (2001) expands this view by noting that a majority of customers have either very little or no contact with the process, or with the employees responsible for the transformation. As a result, the customers’ perceptions of the quality of goods or services provided by a company are mostly based on the actual final product, rather then the entire value adding process. Nevertheless the effectiveness of the transformation process is ultimately responsibly for creating competitive advantage over other organisations (Read and Sanders, 2005). The model may be used to summarise an entire operation or individual micro operations. Each has its own inputs and outputs that may differ in subsequent models. For example an airport main inputs are the passengers whom receive services from the airlines, which are themselves inputs of the airport. The overall customer experience is therefore affected at various levels during the transformation process, however we seldom see customers complaining to airports rather then airlines. Let’s see how Dairy Crest ITO model look like:
Dairy Crest’s Input-Process-Output breakdown
A day’s work in Dairy Crest
The purpose of this section is to analyse the decision making process of a Site Operations Manager (John Doe [JD]) within a cheese processing plant at Dairy Crest. The input-process-output model is used to correlate the findings to the theories mentioned above. In this demonstration the input will be the information received in the morning which will be taken through the decision making process suggested by Johnson et al (2003). The output will be the solution to the problem in the form of a written report to the General Manager within the same processing plant. JD is a middle manager, with 11 direct reporters and a further 100+ employees, his authority falls within Water’s (2006) guide, however examples will be highlighted that fall outside this guide.
In order to maintain confidentiality, the information gathered will not disclose of any financial figures or real names. In addition, the speculation of the findings does not represent the view of the employee.
1. JD. Arrives to the office and checks his emails and reports from the last shift.
a. The figures are below the operational quota set for the shift’s output.
b. The note from the shift leader mentions considerable backlog in the cheese processing at 8pm and 6am.
c. The note from the logistic manager says: the order to Sainsbury’s was not complete as the cheese order arrived too late for delivery.
d. A note from the GM: external company (DF Ltd) asking for trial of their forklifts
2. JD decides to investigate the backlog issue (observe)
a. Visits the cheese processing plant and talks to the duty manager as well as line operatives
b. Requests information on frequency, timing and duration of similar backlogs from his secretary.
c. Meets the sales manager to find out overall cost of lost order.
d. Sets up meeting with the sales rep from DF Ltd
3. JD reviews findings and puts them in to context with company operational objectives.
a. He finds out that the backlog of transporting the processed cheese is to do with the low weight load of the forklifts available at 8pm and 6am as the packaging department using the heavy-duty lifts to restack pallets from 7pm and 5am once a month.
b. Apparently the backlogs are reoccurring on a monthly basis but only when it coincides with the packaging departments restacking routine.
c. The sales department expresses concern for the large amount of loss of sales due to the lack of completed orders.
4. JD analyses the findings:
a. The removal of the forklifts was authorised by the GM 6 months ago on a quarterly meeting with the packaging department, furthermore the last meeting was cancelled due to illness.
b. The implications are substantial: The area manager for Sainsbury’s is threatening to cancel the contract if orders are incomplete. This would affect the entire plant’s output as Sainsbury’s is taking 30% of cheeses produced. The GM would have to report to the board of directors and possibly face losing his job.
c. The sales rep from DF Ltd offers a heavy-duty lift to be trialled for 3 months and a very competitive price for leasing their lifts.
5. Determine options:
a. Negotiate with packaging department for a different time for restacking. Possible outcome that it may cause issues in other departments which can not be afforded due to sensitiveness of the Sainsbury’s contract
b. Accept offer from DF ltd on trial, however JD has no authority to accept lease.
c. Discuss findings with GM and ask for authority for lease.
6. Implementation
a. Option “C” seems the most suitable.
b. GM is grateful for analysing situation and processing all information.
c. GM gives immediate authority to trial and purchase of lease on 3 lifts.
d. JD is happy with the output of the decision process.
e. JD scheduled a review of the implementation of the plan in a month’s time. In conclusion, the response to the problem was dealt with high level of understanding of theoretical and practical approaches to Operational Management. The question is whether the same manager could have picked up on this issue sooner or should have the GM analyse and observe internal reports with more care.
My suggestion would be to maintain operational meeting schedules as set out in the corporate operation by the board of directors. Furthermore, the sales department should notify all operational managers of shortcomings.
Order Qualifiers and Order Winners
Terry Hill (2005) argues the criteria required in the marketplace can be split into two groups: order qualifiers and order winners. An order qualifier is a characteristic of a product or service that is required in order for the product/service to even be considered by a customer. An order winner is a characteristic that will win the bid or customer 's purchase. Companies must meet the qualifiers in order to get into or stay in a market and to provide qualifiers; they need only to be as good as their competitors. Failure to do so may result in lost sales. However, to provide order winners, firms must be better than their competitors. Hill (2005) also feels it is important to note that order qualifiers are not less important than order winners; they are just different.
Horte and Ylinenpaa (1997) detail three types of criteria for winning orders
1. Order qualifying – Firm must meet in order for customers to consider it a possible supplier.
2. Order losing – Some qualifiers are more sensitive than others and if a firm does not meet the necessary standards it will lose orders and more often than not any potential future orders.
3. Order winning - those criteria, which win orders.
Unless an organization has successfully identified and is meeting the entry requirements it will fail. Having identified the entry requirements firms can then seek to gain competitive advantage by improving its performance with respect to the order winning criteria.
The products below are all part of the Dairy Crest range, in general the company seeks to cover a diverse range of products and services related to dairy production and produce.
Given the nature of the products being made order qualifiers will be similar for all dairy products as these are closely governed by legislation dictated by the Food Standards Agency (http://www.food.gov.uk/business-industry/guidancenotes/dairy-guidance/) and the Department for Environment, Food and Rural Affairs (https://www.gov.uk/food-standards-labelling-durability-and-composition). These cover all aspects from manufacture, storage, transportation and labelling to name a few.
In this respect order Criteria strategies are key to differentiating products and securing sales. The table below details the main dairy crest products and their order winning criteria.
Product
Order winning Criteria
Half the saturated fat of Butter.
Only leading butter brand to carry Red Tractor Seal of approval. (http://www.redtractor.org.uk )
Made in the UK “Never travelled too far by the time it’s purchased”.
Supports The Princes Countryside Fund & displays logo on all products
Easy to spread from Fridge
Suitable for Vegetarians
70% less saturated fat than butter.
Rich in Vitamin E
Virtually trans-fat free & contains no hydrogenated oils.
Caters for people who are lactose intolerant.
Traditional cooking and baking features of butter, with the benefits of a spread
Virtually trans-fat free & no hydrogenated veg oils.
Packaging features a range of cooking tips and recipes.
Promotion highlights the health benefits of cheese as part of a balanced diet.
Thicker than ordinary milkshakes and satisfies hunger.
60 year history making cheese
Has won a number of awards
Cathedral City cheese which is packaged as a snack for children.
Milk &more combines the tradition and familiarity of the milk delivery service with the convenience of online shopping (http://www.milkandmore.co.uk )
Comparing other services such as Tesco online, Asda Online and Iceland order qualifying and order winning criteria are detailed below.
Order Qualifying
Order Winning
Facility to order and pay online.
Guaranteed before 9am
Range of products / brands
Free delivery (no minimum spend to qualify)
Delivered to your door.
No minimum spend
Competitive pricing
Change order up to 9pm night before.
Special offers
Same delivery person
Add holiday dates
In terms of Order losing criteria reviewing the comments about Milk & More on the review website Trust Pilot, there are a number of negative references to the aftersales / customer service department with customers stating they would not place future orders because of disappointment with this aspect of the business rather than the actual delivery service.
Dairy crest also offer a Foodservice specialising in premium branded dairy and chilled products. Looking through the promotional material, many of the promotional arguments such product availability, flexible delivery quantities and schedules and healthy alternatives would be characteristic of other similar services such as 3663 (www.3663.co.uk) and Brake’s (www.brake.co.uk ). In this business area cost is likely to be the main order winning criteria.
In terms of supplying milk to the large retailers the main order winning criteria would be price, although issues such as environmentally friendly packaging might also be considered.
Competitive Priorities
Spring and Boaden (1997) define the competitive priorities as:
Cost. Production and distribution of products at low cost.
Quality. Manufacture of products with high quality or performance standards.
Delivery dependability. Meet delivery schedules or promises.
Delivery Speed. React quickly to customer orders
Flexibility. React to changes in the product, changes in product mix, modifications to designs, fluctuations in materials, changes in sequence or routing of manufacture.
Innovativeness. Introduction of new products and processes.
For Dairy Crest cost is important as they have to compete with other manufacturers / distributors based on cost, and cost also become significant when dealing with the major retailers such as Tesco, Asda and Morrison as their buyers tend to be particularly ruthless when it comes to the price they are willing to pay (The Telegraph, 2007).
Quality is important, as this will need to be comparable to other products, or even better (possibly to command a higher price). The quality of service is also important in the Milk and More sector and the Food Service.
Delivery dependability would also be a significant priority for Dairy Crest, as all the different aspects of the business, Milk and More, Food Service, and supply to the major retailers will depend on meeting delivery schedules or promises.
Delivery speed is again key to all aspects, whilst the time taken to make the deliveries is important factors such as reacting to increased quantities or order changes will also be key to successful business relationships. For the Milk and More service this is exemplified by the fact customers can change their orders up to 9pm at night.
In terms of flexibility the company covers a broad range of products although they do appear to be made at different locations. With reference to changes in product a move to healthier eating as meant core products now offer “light” or “low fat alternatives”.
In terms of innovativeness items such as the Cheds product for children or the Frijj drink are a good example, the company’s 2012 Annual Report states that 10% of sales now derived from products and services developed in the last three years, such as Chedds and Frijj.
The company also saw a cost reduction by designing innovative new milk bottles, which are lighter and use 15% less plastic. In conjunction with this the company saw further cost savings by moving to a standard tub design for it UK and French spreads.
The 2012 Annual Report also details £22 million a year saving through improved technology and particularly a move to e-sourcing, incorporating e-auctions for the provision of services such as gas, plastic packaging and logistics.
Company Infrastructure
Slack & Lewis (2011) states that operations strategy content is concerned with strategic decisions that shape and develop the long-term direction of the operation. These decisions can be divided into structural and infrastructural decisions. Structural decisions relate to the physical configuration of operations, whilst infrastructural decisions consist of systems and policies required to operate the former.
Finch (2008) categorises the structural decisions as those relating to capacity, sourcing, facilities, and information and process technology and the infrastructural decisions consisting of resource allocation and capital budgeting systems, human resource systems, work planning and control systems (e.g., purchasing, aggregate planning, scheduling, inventory control, and waiting time), quality systems, measurement and reward systems, product and process development systems, and organization.
In the UK Dairy Crest’s processing sites are predominantly for liquid processing, with six liquid milk processing plants, one cheese processing facility and one facility producing butter, cream and powder.
Dairy crest is the UK’s largest dairy company by turnover and processes around 2.1bn litres of milk each year into liquid milk, cheese, butter and spreads. Around 72% of this milk comes from 1350 direct suppliers in England and Wales.
Dairy Crest set aside £75m for investment into its liquid milk facilities between 2010/11 and 2012/13. This included the extension of Foston to more than double its capacity, a £13m upgrade to facilities at Severnside, aimed at increasing capacity for both conventional poly-bottles and for Frijj and the installation of a new line to produce Jugit. Processing and cold storage capacity at Chadwell Heath was increased from a £4m investment and £3m went towards new biomass boilers at Davidstow.
The company states the operational focus of these investments is to reduce waste, increase production efficiency and enhance supply chain planning.
In addition to the production aspect of the business the company is very much supply chain focused. Slack et al (1997) discuss the dairy producer supply chain in more detail. Linking this to Dairy Crest, in addition to the milk suppliers (first tier suppliers), the company will also source other products (e.g. herbs) and services (e.g. packaging) from other suppliers (second tier suppliers). Moving to the other end of the process the company then passes these goods onto large distributions centres, for example the Morrison’s distribution centre in Northwich (first tier customers) or direct to independent retailers such as shops and restaurants (second tier customers).
Linked with this the business relies heavily on its logistics and distribution network, experience and knowledge of this provide synergies with new services such as Milk and More and the Food Service. Infrastructural Decisions
(Yudoko, 2012)
Looking at the table above by Yudoko (2012) that examines infrastructural decisions from economic, social and environmental perspectives, examples can be found with reference to Dairy Crest; most of these are detailed in the Dairy Crest Annual Report 2012
In terms of strategic resource allocations and capital budgeting system decisions, as part of the companies review (Jan, 2012) they state part of its growth strategy will come from businesses acquisitions and disposals. In June 2012 the company sold its St Huberts spread business based in France to Montagu Private Equity for €430m (£347m) represents a £90m return on investment. Whilst the company had improved the standing of St. Huberts it was finding it difficult to expand its French business (Financial Times, 29th June 2012)
From a social perspective the company promotes itself as looking after the interest of farmers and the countryside in general, particularly through the Countrylife brand. Similarly environmental considerations run through the promotion of many of its products,
Looking at human resource decisions, in 2012 the company closed 2 dairies leading to a staff reduction of 500. In terms of training and location the company operates an online eLearning portal which gives staff the opportunity to complete a variety of online qualifications. The company also has a “My Career” initiative offering mentoring support to managers who want to develop further, and also anothet eLearning portal linked to the Swiss IMD business school.
With reference to quality decisions, as mentioned the company is investing heavily in its plants to improve efficiency, speed, quality and dependability of its products and services. Dairy Crest’s manufacturing sites and distribution centre’s are also independently accredited to the environmental management system (EMS) ISO 14001 (http://www.sharecare.ltd.uk/dairycrest.php)
Strategic work planning and control decisions can be seen throughout the operation, most notably a desire to increase its number of direct suppliers from 76% to a target 85%, as a ratio against 3rd party suppliers. Inventory control and scheduling will form the backbone for the companies logistics and distribution networks. Socially the company promotes its links with the community and particularly the red tractors scheme mentioned earlier. As discussed the company also introduced an number of green initiatives including the installation of biomass boilers at the Davidstow Creamery and more environmentally friendly packaging. They have also recently taken delivery of a number of new tankers and vehicles with Euro 5 standard engines.
Looking at forecasting, inventory control and aggregate planning Dairy Crest purchases vegetable oil and products derived from crude oil such as resins and diesel. As these markets can be unpredictable they have implemented sophisticated risk management strategies via a multi-functional Risk Committee, designed to give them the best
possible insight into volatile markets. As part of this various daily market reports are produced by the supply chain departments and they have developed contingency plans for key commodities and ingredients.
Strategic new product decisions are reflected in the 10% of sales which now come from products developed in the last 3 years. New services such as Milk & More (the doorstep division) offer extra opportunities but also additional outlets for the companies milk supply.
With reference to strategic performance system decisions, economic performance indicators are measured in comparison key performance indicators whilst Social Responsibility and environmental performance are judged by 3rd parties. In terms of Social Responsibility the company was awarded a Business in The Community (BiTC) Gold Award in 2012 and are included in the Corporate Knights Global 100 List of the world’s most sustainable businesses. The company also works with the with the Carbon Trust and has its own Internal Carbon Management Group which aims to reduce its carbon emission by 30% compared to 2007 levels.
References
Dairy Crest Annual Report 2009, Country life butter growth, [Online] Available at: http://hsprod.investis.com/ir/dcg/download/dairycrest_annual-report-2009.pdf [Accessed 27 April 2013].
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Appendixes
Segment profit
2007
2008
2009
2010
2011
2012
Cheese
20.5
34.8
34.3
16.9
28
35.5
Spreads
32.4
38.1
59.5
54
53.3
63
Dairies
27.1
31.6
7.9
34.9
27.1
10.2
Associates & joint ventures
10
7.7
7.3
0.1
-0.2
-0.3
Group including share of joint ventures
90
112.2
109
105.9
108.2
108.4
Less: share of associates & joint ventures
-10
-7.7
-7.3
-0.1
0.2
0.3
Balance sheet summary
2007
2008
2009
2010
2011
2012
Property, plant & equipment, goodwill and intangibles, investments
767.8
817.8
837.1
794.4
800.6
713.9
Inventories, receivables, payables, deferred income & provisions
105.3
98.2
86.8
43.7
21.9
45.8
Total operating assets
873.1
916
923.9
838.1
822.5
759.7 Financial instruments excluding amounts included in net debt
6.5
12.5
4.2
0.9
5
0.9
Tax
-85.1
-97.6
-92
-70.3
-90.3
-70.1
Retirement obligations
-0.4
31.6
-63.3
-142.4
-60.1
-79.8 Disposal group held for sale (excluding cash)
-
-
-
3.7
-
-
Net debt
-451
-474.8
-415.8
-337.2
-311.6
-336
Net assets
343.1
387.7
357
292.8
365.5
274.3
Non-controlling interests
-4
-5.1
-4.7
-3
-
-
Shareholders ' equity
339.1
382.6
352.3
289.8
365.5
274.3
Fig 3.3 – Dairy Crest production structure.
References: Dairy Crest PLC, At a Glance, 2013, [Online] Available at: http://hsprod.investis.com/ir/dcg/ar_2012/At_a_glance2.html [Accessed 23 April 2013]. Dairy Crest PLC, Board of Directors, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/board-of-directors/ [Accessed 01 May 2013]. Dairy Crest PLC, Farming Relations, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/farming-relations/ [Accessed 01 May 2013]. DairDairy Crest, Acquisition History, 2013, [Online] Available at: http://www.dairycrest.co.uk/about-us/our-history/, [Accessed 27 April 2013]. Dairy Crest, interim results November, 2012, [Online] Available at: http://www.dairycrest.co.uk/press-media/news/dairy-crest-announces-interim-results-november-2012/ [Accessed 28 April 2013]. Dairyco, Dairy Statistics, 2012, [Online] Available www.dairyco.org.uk/non_umbraco/download.aspx?media=8570 [Accessed 29 April 2013]. DiaryCo, Dairy Crest Company Review, 2012, Pg. 5-10. Finch, B.J. (2008), “Operations Now: Profitability, Processes, Performance.” Third Edition. McGraw-Hill-Irwin, New York. Galloway,R (1993) “Principles of Operations Management” Routledge, London. Hill, C.W.L., Jones, G.R., 2001, Strategic Management, Houghton Mifflin, Pg. 339-370. Hill, T. (2005) “Operations Management” 2nd Edition, Palgrave MacMillan, Hampshire. Horte, S & Ylinenpaa (1997) “The firms and its customers views on order winning criteria” International Journal of Operations & Production Management, Vol. 17, No.10, pp.1006-1019. Johnston, R. et al. (2003) Cases in operation Management (3rd edition), Pearson Education Limited, Harlow Kotler, P Porter, M.E., 1980, Competitive Strategy: Techniques for analysing industries and competitors, New York: The Free Press. Porter, M.E., 2008, The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Reid R.D., and Sanders N. R., (2005) Operations Management, 2nd Edition, Wiley Publication. Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall. Slack, N., & Lewis, M. (2011), “Operations Strategy”. Third Edition, Prentice Hall, Parson Education Limited, England. Slack, N.,Chambers,S.,Hartland,C.,Harrison, A. and Johnston,R. (1997) “Operations Management”, 2nd Edn, Harlow, FT/ Prentice Hall. Spring,M & Boaden,R. (1997) “One more time: how do you win orders?: a Critical reappraisal of the Hill manufacturing strategy framework” International Journal of Operations & Production Management, Vol.17, No.8 pp.757 – 779.
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