Performance of Milk Processors in Kenya (Essay Sample)

ABSTRACT
Dairy is a key contributor to the Kenyan economy and help in poverty alleviation and food nutrition in rural and urban areas. Dairy processing acts as a link between dairy farmers and the consumers in Kenya. However, milk processors have been facing numerous challenges that consequently affect their performance. Poor quality of milk, post-harvest losses resulting from inadequate cooling plants and seasonality of milk production in the country are among the problems the milk processors face. Raw milk, the main inventory for milk processors is highly perishable and requires processing immediately after collection. However, this has not been the case. In fact, 54% of the invested capacities of milk processors remain underutilized. This calls for leanness in inventory that will ultimately reduce waste and improve firm performance through reduced complaints. The study was guided by resource orchestration and lean theory. The study was a census and the unit of analysis was all milk processors in Kenya licensed by the Kenya Dairy Board. A pilot study was conducted to enhance the questionnaire’s quality. A Cronbach Alpha of 0.8 was used. Before the regression was run, diagnostic tests were conducted to check for assumptions of linearity. An analysis of variance was conducted to test the variables significance and ultimately a multiple regression analysis was run. Maintain zero inventory and use of technology to order inventory and maintain zero inventory had positive and significant coefficients while collaboration with suppliers and members in a supply chain had a negative insignificant coefficient. The study concludes that zero inventory and use of technology to order have significant positive correlation coefficients. This implies the two can help a firm reduce customer complaints and in return improve performance.
1 INTRODUCTION
The dairy sector plays a critical role in poverty alleviation and malnutrition in rural and urban areas of Kenya through increased household income and a consistent supply of milk products (KAM, 2018; Joto & Odock, 2019). The dairy processing industry which acts as a link between the dairy farmers and the consumers in Kenya is dominated by 4 major players (New KCC, Sameer, Githunguri, and Brookside). The industry has been turbulent. Consolidation of firms have resulted in mergers and acquisitions (Brookside acquired spin knit, Buzeki, Delamere, and Ilara firms) and now there are about 36 milk processors in Kenya (Kibogy, 2019). Milk processors purchase raw milk and help in the delivery of value-added products (yoghurt, ghee, milk powder, cheese) to the end consumers.
Milk processing and marketing help in the growth and development of the dairy industry. However numerous challenges face milk processors in Kenya. Seasonality in milk production is one major problem prevalent in Kenya. Kenya has been the largest dairy producer in Sub-Saharan Africa but recently has been facing a continuous decline in milk production and processing making her 3rd in position from Ethiopia and Tanzania (Ibrahim, Akylo & Kanuya, 2018). Secondly there has been a consistent problem regarding the quality of milk supplied by the dairy farmers. Dairy farmers deliver the milk to the dairy processors in most cases. This is as a result of lack of collection facilities in most rural areas in Kenya. Milk is a highly perishable commodity that requires boiling or processing immediately after collection. If the milk is not processed most of the milk inventory is lost through deterioration (FA0, 2020). In addition, disruptions in the supply of inventory result to customer dissatisfaction as the delivery of quality services is not maintained (Abdul, 2018).
To roundup the problems facing the dairy industry in Kenya is the inadequate capacity utilization prevalent in the country. Milk processors have invested in heavy value-adding machinery that
remains idle to about 54% per annum. The low-capacity utilization is a problem as the demand for processed milk products is expected to grow with over 20% in the next 5 years (FAO, 2020). If the demand stretches more than the supply, milk processors will arguably face performance decline. There has been a reported 6.7% decline in the performance of the dairy industry in 2019 (Kenya Dairy Board, (KDB), 2020).
A competitive dairy processing sector ought to provide affordable products that are easily accessible in the market. Therefore, dairy processing firms must recognize the role of lean inventory management in improving performance. Seefried, (2014) postulates that lean focuses on waste elimination. Waste is something and anything that does not add value to the customer thus the customer is not willing to pay for it. Waste is commonplace in the dairy industry (Gupta, Singh & Kumar, 2012). Milk, the main input and inventory for milk processors is prone to deterioration. Inventories determine long term competitive advantage to a firm and also if not managed well, poor performance can be faced. This is because inventory levels in a firm determine quality, price and capacity (Abdul, 2018). Lean inventory management is therefore considered a critical aspect in the development of the agricultural dairy industry to meet the demand of dairy products globally (Muhammad, Akhter & Ullar, 2014).
Lean practices in the dairy sector entails the effective management of a supply-side, which is mainly characterized by the need for raw materials inventory. Lean inventory management in a dairy firm will translate to the efficient ordering and transportation of milk, which is a perishable product; thus, the firm will not have excess obsolete stock and will reduce wastes (Atnafu & Balda, 2018). This practice brings to better firm performance (Atnafu and Balda, 2018) through better capacity utilization (Lokuruka, 2016). Lean focuses on the customer, therefore when a firm is lean
non-value-added activities are reduced. When adopted, lean improves a firm performance (Abdul, 2018).
Despite the benefits that leanness offers in a firm in terms of value generation, improving products and cost saving low adoption is seen in the dairy industry. To the best of the authors knowledge no study has been done on leanness in milk processors in Kenya. Therefore, this study seeks to bridge this gap by looking into lean inventory management practices and performance of milk processors in Kenya.