The dairy industry has long been at the forefront of supply chain planning. With its unique blend of biological variability, perishability and product complexity, coordinating dairy supply chains has always required rigorous planning to balance supply and demand, manage by-products, and meet tight freshness requirements. But while the sector has historically led in innovative planning, emerging risks pose a threat to this reputation.
Today, the industry stands at a tipping point. Evolving technology, climate volatility and shifting consumer expectations are reshaping the sector’s established ways of working. Once aspirational goals, like real-time scenario planning, AI-driven forecasting and end-to-end visibility, are now within reach, meaning the challenge is no longer whether these capabilities are possible, but how quickly and effectively they can be adopted.
A sector defined by constraints
Dairy is a notoriously low-margin business. Every small saving counts, and capital investment is often difficult to justify. As a result, many companies operate with ageing infrastructure and limited automation. This makes agility harder to achieve and amplifies the impact of disruptions.
Freshness is another defining counter-constraint. With short shelf lives and strict safety standards, dairy products cannot be stockpiled to buffer against uncertainty. Strategic safety stocks are used selectively – often to support campaign-based production runs – but they are no substitute for real-time responsiveness.
Compounding these issues is the nature of dairy production itself. Milk can be transformed into more than 20 different products, each with its own by-products. For example, producing milk powder yields cream, which must pass through its own value chain to be sold profitably. Cheese, which has ageing requirements that span months or even years, introduces further complexity for supply chains by making planning for short-notice promotions with retailers a delicate balancing act.
Towards connected supply chains
Like other agricultural sectors, dairy operates in a push-pull dynamic. On the supply side, production is biologically and seasonally driven, affecting what can be produced and when. On the demand side, consumer preferences, retail promotions and export markets exert constant pressure for responsiveness. Under pressure from the supply and demand side, dairy’s often-siloed and static planning systems struggle to keep up with the pace and complexity of modern operations.
To better manage the growing stresses facing dairy companies, truly connected supply chains that directly link farmers to consumers through seamless data flows offer one solution. With data from upstream suppliers filtering through to the rest of the value chain, dairy businesses can better communicate with retailers and suppliers, and build further resilience and agility into their business model.
When data flows efficiently across the value chain, decisions can be made faster and with greater confidence. Processors can optimise production runs based on real-time inventory and sales data, and retailers can plan promotions with full visibility into supply constraints and lead times.
Though transforming supply chains in this way poses challenges, its upsides can lead to reduced waste, improved service levels and a more resilient supply chain.
AI and the next frontier of forecasting
AI can play an important role in how businesses build more resilient supply chains, and is already unlocking new possibilities. For example, AI is already helping to forecast milk protein levels ahead of time by analysing weather patterns, feed quality and historical yield data. With this data being passed along the supply chain, processors can plan product mix and capacity more accurately, in turn reducing inefficiencies and boosting profitability
AI is also being used to enhance demand forecasting, optimise transportation routes and dynamically adjust plans in response to disruptions, with many modern planning systems featuring AI predictability as standard. These capabilities are especially valuable in dairy, where shelf life is short and the cost of getting it wrong is high.
As AI matures, it will increasingly serve as a decision support system by augmenting human judgment with data-driven insights and enabling planners to focus on strategic exceptions rather than routine tasks.
Scenario planning in an age of disruption
Climate-related events such as floods and bushfires are becoming more frequent and severe, impacting the availability of milk supply with little warning. Scenario planning has always been important in countering emerging threats, but AI is now helping planners manage and respond to scenarios in real time by testing alternatives and evaluating trade-offs. Through intuitive APS platforms, for example, businesses can benefit from real-time scenario modelling that supports fast decision-making on both long-term options and short-term disruption response. These capabilities are transforming the ability of companies to make the right choice and not just the fast choice.
An important tool in the arsenal of the sector will be digital twins – virtual replicas of supply chain networks. These will help companies rigorously simulate different scenarios, test responses to disruptions and evaluate the impact of strategic decisions before implementing them in the real world.
Asset optimisation and maximising milk solids
In addition to bolstering resilience and risk planning, dairy businesses embarking on a transformation of their supply chains can also benefit from improved asset optimisation.
A defining feature of dairy processing is the need to optimise the return on milk solids. After satisfying consumer demand – particularly for fresh milk – most dairy companies focus on maximising the value extracted from the remaining solids. This includes converting milk into products like cheese, butter, powders and other derivatives, each with its own yield, by-products and market dynamics.
Optimising this mix is a complex, high-stakes exercise. It requires balancing profitability, shelf life, production capacity and market demand all while ensuring that by-products are monetised effectively. This is one of the key differentiators of the dairy sector and a major driver of planning sophistication.
A note on emissions transparency
While sustainability may not be the primary driver of planning transformation, it is an important co-benefit. A more connected and data-rich supply chain provides greater clarity on Scope 3 emissions—those generated across the value chain, including feed inputs, on-farm production and logistics. As regulatory and investor scrutiny increases, this transparency will become increasingly critical.
By embedding tracking of emissions and the many other ESG impacts into planning systems, companies can not only meet compliance requirements but also identify opportunities to reduce environmental impact in ways that align with operational efficiency.
Planning for the human factor
Technology is a powerful enabler of capable and agile supply chains, but people remain at the heart of supply chain success. So, as dairy businesses shift to intelligent, agile supply chains, they should also look at the skills, mindset and ways of working that will be crucial to any business transformation.
Organisations should invest in upskilling their workforce by training planners to use advanced tools, interpret data and make strategic decisions. They should also foster a culture of collaboration, experimentation and continuous improvement that ensures nobody feels left behind.
Creating smarter and stronger dairy supply chains
The future of supply chain planning in the dairy industry is not just about managing milk – it’s about managing complexity, uncertainty and change. By embracing digital innovation, building connected ecosystems and empowering people, dairy companies can build supply chains that are not only more efficient, but also more resilient, responsive and ready for what’s next.
As the world’s appetite for dairy continues to evolve, those who plan smarter and faster will lead the way. Find out how we can help you transform your supply chains and prepare your businesses for the future.
This is the first article in our 4 part mini-series titled ‘The future of dairy: how technology, trade and transformation can drive performance in a changing industry’
Upcoming articles to look out for…
Article 2 – The next frontier of dairy: the four technologies shaping the future of the dairy industry
Article 3 – Unlocking value through sustainability: the opportunities of circularity for dairy businesses
Article 4 – The Shifting Landscape of Global Dairy Trade: A Look to the Future
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