October 20, 2007

Operations Management Lesson 9 Exercise


I will appraise the quality control systems of milk production in the UK farming industry for this excercise. I’m familiar with this process from my childhood, where I grew up on our family farm before I left home for university.

cowscowscows Figure 9.1

The dairy industry in the UK is a mature market, where consumer requirements are stable in the short to medium term. The customers to a dairy farmer are companies such as Dairy Crest (previously the Milk Marketing Board before privatisation) who are milk distributors as well as dairy food producers. Other key stakeholders in the vertical value chain are the UK’s leading supermarkets e.g. Tesco.


Prevention costs

  • Industry prevention starts with farms needing to be licensed to produce milk and demonstrating compliance with the milk quota regulations. In addition the farm has to ensure it complies with the Food Standard Agency and National Dairy Farm Assured scheme, in addition to any requirements placed on it by its milk distributor.
  • On farm systems are then in place to manage and record breeding to ensure the herd is going to provide sufficient quality yields, in addition to understanding the genetic history (including animal passports) of the cow and its medical history in the event of genetic issues being identified.
  • Each cow’s diet is then controlled and recorded to manage the quantity and quality of their milk yields.

Appraisal costs

  • Farms monitor the output of their herds using a form of statistical process control (SPC), to ensure the milk meets the quality requirements (with lower and upper control limits) of the milk distributors before being collected for treatment and bottling.

Internal costs of defects

  • Any milk produced from medicated cows is destroyed and if this milk contaminates production (usually through human error) then total production needs to be destroyed, which can significantly impact a farms income and its reputation with the distributor if it occurs regularly.
  • In the event that medically contaminated milk is handed to the distributor, then the farm is fined as this can contaminate a whole tankers milk at best.
  • Farms are randonmly inspected by DEFRA Dairy Hygiene Inspectors so any recommendations to maintain farm assured status, are alsoi internal defect costs.

External costs of defects

  • There is a very low proportion of external quality issues occurring compared to the volume of industry sales, because of the level of investment made in preventing quality problems.
  • The impact of some forms of defect could have a catastrophic impact upon the milk industry. A good example of this is the BSE, foot and mouth and blue tong cases which has significantly damaging the sales of beef and also indirectly milk sales in the UK.
  • Consumers either stop purchasing the dairy goods or find alternative sources e.g. goods produced from outside of the UK .


The potential cost of milk quality defects and pervasive farming industry issues, can have a significant damaging effect on consumer confidence. This results in the revenues and profitability of the farming industry and also its vertical and horizontal supply chains being at risk of bankruptcy. There have been many examples of this since the BSE crisis of the 1990's.

Therefore significant investment is in place by the government, industry and farming community (self regulation, to ensure the industry does not suffer at the hands of a few farms bad practice) to prevent issues occurring. This has benefits dairy farming significantly, because only a small number of iosolated cases have occured. I therefore believe that the quality control systems in place, within a significant focus on provention is working well.


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