Up

Combined Annual Report and Sustainability Report 2018

From the factories

As the largest German dairy cooperative, DMK processes .around 8.0 billion kilos of milk every year, 5.3 billion kilos of which are produced by the cooperative’s dairy farmers, to make top quality food for customers such as food retailers, the manufacturing industry and bulk consumers like hospitals or canteens, the hospitality sector, fuel stations and wholesalers. For this purpose, around 190 milk collection vehicles pick up between 600 and 650 truck loads of milk 365 days a year from the dairy farms and take them to the factories, which use them to manufacture cheese, curd, yoghurt, butter, UHT milk and milk powders as well as baby food, ice cream or other dairy products, and special animal feeds.

Specialisation bundles know-how

DMK operates factories in the areas where the dairy farms are located: mainly in rural regions from Waldefeucht-Haaren, North Rhine-Westphalia, in the west to Prenzlau in the Uckermark to the east, and from Waghäusel, Baden-Württemberg in the south to Nordhackstedt in the north of Schleswig-Holstein. The DMK Group is also represented in the Netherlands with DOC Kaas at the Hoogeveen site. In the last few years, DMK has adopted a specialisation strategy and aligned the factories increasingly with certain product groups. For example, the second-largest production site, in Edewecht, specialises primarily in the manufacture, slicing and packaging sliceable cheese and production of whey concentrates and powders. At Zeven, the largest factory, the focus is on products such as milk, curd, cream, yoghurt and skyr - the “white line” of dairy products. DMK converted the factory in Nordhackstedt to a dedicated mozzarella facility in 2018, while Strückhausen became the new home of the baby food business unit following investments in 2017 and 2018, and ice cream production is being driven forward via Everswinkel.

A key factor for successful operation in the factories and the further development of the company in the year under review was once more the close links between sites and corporate functions such as Supply Chain Management, Innovation, Research and Development, Corporate Procurement and Corporate Quality Management.

Development of the production site structure

The loss of around one billion kilos of milk at the end of 2018 has had a significant impact on the production site structure. The alteration called for a high level of planning and preparation in order to process the milk collected up to the last day in the accustomed quality, despite closures and portfolio streamlining, and to utilise capacity at the factories afterwards at the start of the current fiscal year. Smooth execution over the Christmas and New Year period confirms the success of the tight work that all the operating units put into these far-reaching changes.

In this connection, too, DMK has shifted the focus of developments at the individual sites from volume to margins. As part of its portfolio streamlining, DMK is investing in the expansion of promising product areas and therefore in specialised production sites, thereby boosting the company's position as a modern food manufacturer.

One example is the former DMK milk factory in Strückhausen. DMK has converted it into one of the most leading-edge production facilities for baby food with an investment of around 145 million euros in state-of-the-art technology, a high-quality infrastructure and low-energy processes and equipment. Following completion of the conversion works and full commissioning in February 2019, DMK will process up to 40 million kilos of GMO-free milk every year to make top-quality powdered baby milk formulae for the German and international markets.

Investments in the factories

In addition to the major project at Strückhausen, DMK made a number of other investments in production sites in the year under review to optimise their infrastructure and further align the factories with the future. One example is the cold store in Erfurt, which went into operation in February 2018. DMK bundles deliveries from the production facilities to customers at its own central warehouses in Zeven, Edewecht and Erfurt. At the state-of-the-art, energy-efficient warehouse in Erfurt, DMK provides central storage not only for products manufactured at the facility, but also the packaging needed for these wares as well as finished goods from other DMK sites.

In 2018, DMK developed the media processing and recovery system (entitled MARS from the German acronym), which operates across several production processes, at the Altentreptow site to reduce the consumption of resources and energy. The company received a grant of around 2.4 million euros from the Federal Environment Ministry’s environmental innovation programme for the system, which was installed in March. In conjunction with the heat recovery system, MARS will ensure that the energy flows will be exchanged between the media collection system and the production processes and returned to production to be used for heating and cooling. The project will enable DMK to save more than 25,000 MWh of primary energy per year. In addition, organic pollution in the waste fed to the water treatment plant can be reduced by up to 1,000 tonnes per year and the temperature lowered by an average of 5°C. This results in a CO2 reduction potential of more than 4,700 tonnes per year. The company is currently transferring the first findings from the pilot project to the Edewecht and Georgsmarienhütte sites.

DMK also successfully digitised milk collection vehicle management: Every milk collection vehicle driver passes through various stations in the course of a shift, in which he generates important data for the downstream production process. In order to meet the market’s high quality demands and improve transparency, DMK has to document the processes in full and organise them appropriately. For this purpose, the company has now installed a RFID-based, integrated system which identifies the driver with the milk collection vehicle immediately upon arrival at the individual operating stations and documents every activity from check-in to check-out. This provides a seamless collection of all the data needed for signing in and weighing in the milk collection vehicle – starting with the inspection of the milk quality to the emptying process, cleaning and re-weighing and finishing with the signing out of the milk collection vehicle at the DMK site in Altentreptow.

Improved fire and explosion protection

DMK also invested in fire and explosion protection at all factories in 2018. The company carried out extensive architectural and equipment-related measures to improve fire protection. DMK also continuously maintained the entire Strückhausen factory, spray drying plant 1 and the new boiler-house in Zeven as well as the Everswinkel, Prenzlau and Waldefeucht-Haaren ice cream production sites at the latest state of the art in fire and explosion protection.

External companies and visitors in the factories

DMK works solely with service providers who undertake to comply with the current framework conditions on safety, environmental protection, fire protection and hygiene. Trained coordinators are responsible for the management of external companies at the production sites. DMK inducts all external companies into site-specific risks and rules relating to the contracts they are about to perform, with top priority given to accident prevention, environmental protection and economical use of resources.

In 2017, DMK developed a standardised, software-based visitor management system for all sites and introduced it at several. This system documents visits and ensures that visitors are informed of the rules on safety, environmental protection, fire protection and hygiene at our factories and that these rules are complied with. In the year under review, DMK integrated Zahl more sites, adding Zahl sites at the beginning of 2019.

Solutions for supply chain management

Preparing for the change in volume was also the main preoccupation of the Support Business Unit Supply Chain Management (SCM) in the year 2018. This had a major impact on logistics, since the difference in the quantity of raw milk influenced both milk collection and the production landscape. Together with the business units, SCM developed solutions and implemented the required changes at the production sites.

To optimise the future distribution of the milk volumes to the individual business units from the Group point of view, SCM further developed the operational planning processes in the year under review on the basis of the reorganisation which was launched in 2017. DMK is implementing the new processes, designed for the business unit structure, in the current fiscal year.

To ensure a transparent overall view of results and business processes, DOC Kaas and DDP were integrated into the SAP system in mid-2018. Working from the SCM unit, business processes relating to planning, production, materials management and logistics were analysed and, as far as possible, harmonised with DMK’s standard processes. Integrated collaboration with DOC Kaas and DDP within the DMK Group was enabled by implementing the processes in the operational business and mapping them in the SAP system.

In parallel, milk collection had to be prepared in 2018 for the new milk volume in 2019. For this purpose, SCM made adjustments, some of them extensive, at service providers and in DMK’s vehicle fleet and reorganised milk collection and raw materials management.

 

Central steering of Research and Development

To enable the DMK Group to develop innovative products and services for its target markets faster and more efficiently, the Group makes use of cross-departmental synergies. The company developed several core processes for this purpose during the reorganisation project. They include, for example, the “Idea to Market” process, which ensures that new products and services can be realised across all possible kinds of departments.

Since successful positioning in a dynamic market demands a constant stream of new ideas, DMK also makes targeted investments into the exploration of milk as a raw material, the development of new products and manufacturing methods for them, and into technologies. These put the company in a position to achieve tailor-made products for its customers. DMK steers the initiation of new products systematically along the “Idea to Market” process across all the company’s functional departments from idea to realisation.

The development of engineering processes for tailor-made, high-quality products and packaging for the German and international markets also demands creative ideas and wide-ranging skills. These are supplied by DMK’s Milk Innovation Centers (MICs), one at Zeven and one at Edewecht, which are centres of competence for the development of products, processes, technology and packaging. Experienced developers and technicians work there on new products, a wide range of process optimisations, various types of packaging and new applications for raw milk.

Successful research activities

DMK published a total of 25 technology patent specifications in the year under review. These include, for example, patents for processes in the field of lactose-free or lactose-reduced products, milk powder with specific sensoric properties, basic curd with improved flavour properties and processes for the manufacture of UHT milks with sensoric optimisation. By comparison with the previous year’s figure of 14 patents, this reflects a significant increase.

In the year under review, DMK participated with various German and international partners in external research projects on sustainable and smart packaging. In addition, the company also implemented materials flow projects focusing on value flows, as part of the measures for the “big bets” defined for the business units in the context of the realignment. By applying a focused and community-based approach, an additional profit improvement contribution (PIC) for one business area of more than one million euros was identified and has been realised in full at one site in the year under review. This change will also produce an additional profit improvement contribution of similar dimensions in the current financial year. Against this background, DMK will continue to systematically identify further PIC value flows in production material flows (material flow to value flow) with additional business units and different approaches.

DMK also tapped systematically in 2018 into further research collaborations with highly-reputed institutes, universities, universities of applied sciences, R&D institutions, suppliers and other partners, in Germany and internationally, In addition to its own R&D potentials and capacities. The company also actively helps to financially support German R&D in the dairy field through the "Arbeitskreis Forschung" ("Research Working Group") of the Association of the German Dairy Industry (MIV) and the Federal Ministry for Economic Affairs and Energy's FEI, which funds research, development and innovation.

  • *25 patent specifications from the technological field published

New structure in procurement

In the new corporate structure, purchasing has been established as the Corporate Procurement function with aim of achieving holistic value added and synergies for the business units. In addition to such aspects as quality, availability and cost, sustainability plays an important role here. DMK therefore closed DMK GmbH’s factory purchasing at the production sites as of 1 January 2018 and integrated it into Corporate Procurement in Bremen. In addition, 16 purchasing jobs were moved from Everswinkel to the corporate headquarters in Bremen and the operational procurement business was incorporated into Global Business Services, a new organisational unit, as of 1 May 2018. In the course of this reorganisation, around half of the employees from Corporate Procurement took on new roles, including new responsibilities.

More quality through know-how transfer

Number of certified sites 2018 DMK
GmbH
DMK subsidiaries
 
International Food Standard (IFS) 11 12
British Retail Consortium (BRC) 4 8
ISO 22000 /
Food Safety System Certification (FSSC) 22000
3 2
Q&S (feedstuffs standard) 9 4
VLOG Association for Food without Genetic Engineering) 9 3
Organic 1 0
Meadow Milk 4 2
RSPO 3 1
Kosher 3 1
Koscher 11 1
Halal 12 3

The area of quality provides a direct demonstration of the consequences of the new corporate structure with its autonomous business units. DMK's new structure is aimed at thinking from the point of view of the customer, and empowers the six business units to operate largely autonomously in the market and pursue focused further development of their brands and products in harmony with the corporate strategy. The business units benefit here from collaboration and the transfer of knowledge within the company, in which Corporate Quality Management (CQM) plays an important role. This department replaced Quality Management in the year under review and has authority to issue directives, as it is responsible for strategic control and the bundling of expert knowledge.

For DMK, quality assurance means meticulous handling of raw ingredients and machinery, and includes hygiene standards during production and the whole of the downstream packaging and transport process. The company does not compromise here and sees itself as committed to meeting the quality expectations of consumers and customers from retailing and the food industry. DMK therefore guarantees end-to-end quality assurance from the farm to the fridge, careful selection and inspection of the raw ingredients, regular checks on the farms, innovative production methods and state-of-the-art test laboratories. The quality management system at DMK is part of the Integrated Management System (IMS) and is guided by DIN EN ISO 9001. It complies with the regulations of the International Food Standard (IFS) and the British Retail Consortium (BRC).

Retail Consortium (BRC).

In all product lines, DMK tests products thoroughly for quality and safety along the entire value chain. To do so, the company uses the legally prescribed HACCP concept (HACCP = Hazard Analysis and Critical Control Points). External bodies perform quality tests regularly in addition. All sites are certified in accordance with a quality and product safety standard (IFS, BRC, FSSC 22000), for example.

In addition, extensive audits were performed in the factories in 2018 according to various quality standards. In the BRC audit, the eight sites audited achieved an A, the highest level, in the IFS audits all sites audited were in the Higher Level. Corporate Quality Management also performed 31 internal quality audits at the sites and eleven audits at suppliers in the year under review. Twenty-eight customer audits at various DMK sites also scrutinised the quality system. The audit results were consistently good, confirming high standards in quality and product safety. Not least, the awards regularly received by DMK products bear witness to the success of the company’s efforts. In 2018, these included 214 gold, 37 silver and one bronze DLG award.

SMETA social standard

Some DMK customers also require the “Sedex Members Ethical Trade Audit” (SMETA) from their business partners in order to ensure high social standards. SMETA audits were successfully conducted by recognised certifying companies at five DMK sites in 2018. SMETA certificates are available for ten sites in total. DMK is planning two audits for the current fiscal year as certificates are due to expire. DMK deposits information on working standards, health and safety, the environment and business practices in the Sedex database. A SMETA team ensures that the social standards are implemented in practice at the sites.

Rising customer requirements

Industry and retail customers’ quality requirements have also changed significantly in past years. For example, they now demand more transparency with regard to animal welfare, environmental protection and compliance than in the past. DMK once more processed a large number of customer enquiries in the reporting period, involving close collaboration between Sales, Purchasing, Quality Management and Sustainability Management. The number of new topics, such as animal welfare and packaging, is rising steadily, as is the level of detail for the individual aspects.

In 2016, DMK carried out its first Meadow Milk certification at one of its sites at the request of a customer, and also involved selected nearby dairy farms as well as the processing factory. The company continued down this path with Meadow Milk certifications for three more sites in 2017 and two additional sites in the year under review.

QM Business Partners at the factories

Since the topic of quality plays a central role for DMK in all business activities, the company makes continuous quality-related improvements in the organisation and the teams. These improvements include a new function, created in 2017, in those business units with manufacturing facilities. QM Business Partners, as they are known, have been in operation in those units since then as an interface between the factories and the corporate centre, also ensuring that networking between the factories is improved. Experience in the year under review having confirmed that the exchange of information and experiences had improved, know-how transfer had taken place and synergies had been realised, DMK also assigned two QM Business Partners in the course of the year for the Business Unit International and the Supply Chain Management unit.

World Quality Day at DMK

DMK participated in World Quality Day (WQD) in 2018 for the first time. WQD serves to obtain increased attention and relevance for the topic of quality, world-wide and across sectors. The company used WQD 2018 for a detailed conversation about quality with employees from production, warehousing, service and maintenance in particular.

 

More chapter topics

Milk processing