As a CEO, you’re never operating in a utopia. There will always be constraints. Tight budgets. Volatile input costs. Fierce competition. Stakeholder expectations. And the ever-present pressure to do more with less. In such an environment, improving operating margins isn’t just a finance team’s job. It’s a strategic imperative—and often, a litmus test for leadership.
Having led companies through thick and thin in the dairy and food processing industry, I’ve come to realize that margin improvement is not about one silver bullet. It’s a series of carefully orchestrated moves across procurement, production, logistics, product strategy, and financial governance. Below is a structured blueprint—a playbook—I’ve often returned to when steering the ship toward better profitability.
1. Procurement Optimization
Strategic sourcing of raw materials: In dairy, raw milk is the largest cost component. Building a reliable, localized milk pool not only reduces transport costs but also provides bargaining power.
Long-term supply contracts: Partnering with vendors through volume-linked contracts or seasonally pegged pricing helps hedge against market volatility. In times of price hikes, these contracts can protect margins significantly.
Digital procurement tools: Leveraging tech to monitor inflow, pricing trends, and supplier performance introduces transparency and curbs leakages. A well-structured procurement dashboard is indispensable.
2. Yield Improvement & Waste Reduction
Loss mapping: Every plant has invisible leaks—spillage, over-processing, under-yield. Mapping these loss points plant-wise can surface surprising drains on profitability.
Standard yield norms: Establish benchmarks for product yields—whether it’s butterfat recovery in ghee, solids-not-fat in powder, or moisture loss in cheese. Regular variance analysis must follow.
Quality-at-source: Training farmers and suppliers on quality standards reduces rejections and rework downstream. In dairy, SNF (solids-not-fat) and fat corrections at procurement points can prevent significant revenue loss.
3. Manufacturing Excellence
TPM (Total Productive Maintenance): A machine that breaks down costs more than just repair. Downtime affects throughput, order fulfilment, and reputation. TPM is about preventive culture.
Automate repetitive tasks: Think auto-pouching, robotic cleaning-in-place systems, auto-packing. These investments reduce long-term manpower costs and improve hygiene compliance.
Energy optimization: Energy is a silent cost-eater. Switching to solar rooftops, biomass boilers, or heat recovery systems can yield substantial savings—especially in energy-intensive operations like UHT or spray drying.
4. Logistics & Distribution Efficiency
Route rationalization: Delivery routes must be optimized regularly. Fuel prices change, customer geographies evolve. A good logistics dashboard flags suboptimal routing fast.
Shared warehousing & secondary transport: Collaborations with non-competing FMCG players can reduce cold storage and trucking costs. Particularly useful in Tier 2/3 cities.
Hub-and-spoke model: Establish cold chain hubs and connect smaller spokes via insulated vans rather than full reefer fleets. This model cuts down fixed costs and improves reach.
5. Product Mix Management
Focus on higher-margin SKUs: Every SKU has a different contribution margin. UHT milk, cheese, Greek yogurt, and branded butter typically offer better margins than plain pouched milk.
Rationalize low-margin SKUs: Review your bottom quartile regularly. If an SKU is eating line time, adding complexity, and contributing little—drop it.
Co-manufacturing opportunities: During low plant utilization phases, producing for white-label or institutional partners can cover fixed costs and improve line productivity.
6. Client Profitability Tracking
Client-level margin dashboards: Especially for B2B-focused companies, not all clients are equally profitable. Some may demand special packs, deliveries, or credit terms that dent margins.
Renegotiation frameworks: Establish internal red flags. If contribution margin falls below a defined level, it must trigger an automatic review with the sales team.
7. Strategic Capex Planning
Modular automation: Full automation isn’t always viable. Modular upgrades—automated sealing, dosing, or labeling—can give significant ROI without disrupting operations.
ROI-first investments: Every rupee must justify itself. Energy audits, digital QC systems, and milk route digitization often pay back faster than large-scale expansions.
8. Workforce Productivity
Right-size plant teams: Use throughput vs. headcount metrics to identify overstaffing. But always account for compliance and peak load variability.
Multi-skilling & training: A well-trained operator who can shift across lines or run a CIP cycle saves at least one extra hand. Investing in people multiplies returns.
9. Finance & Governance Levers
Centralized procurement of capex & indirects: This reduces price disparity and curbs rogue buying behavior.
Cost accounting systems: Plant-wise P&L and real-time variance analysis keep everyone honest. Margin improvement is driven by clarity.
Review depreciation strategies: Especially for capex-heavy units, how you structure asset life can impact bottom lines. Consult with auditors but be strategic.
In Closing: Margin Is Not a Department. It’s a Mindset.
As a CEO, you must internalize this: margin improvement is not just for the CFO. It’s for the factory head. The procurement team. The logistics lead. The IT manager. Everyone.
When you create a culture that treats every rupee saved as equal to a rupee earned, you shift the company’s centre of gravity. You go from firefighting costs to proactively building value.
And that—more than any balance sheet—is what truly defines a successful enterprise.
