The Hidden Friction in Dairy Transactions (and Why It Costs Everyone)

# The Hidden Friction in Dairy Transactions (and Why It Costs Everyone) Dairy margins get squeezed by milk price cycles and input volatility. Everyone sees that coming. What gets talked about less is the quiet erosion that happens inside the buying and selling process itself. I came into dairy after more than a decade in B2B software and a business education at Notre Dame that taught me to think in systems and standardization. What surprised me was not how hard people work. It was how much time and money get burned on things that should be routine: figuring out what to buy, confirming what the price really means, chasing paperwork, and reconciling surprises that show up weeks later. This article examines where that friction lives for both producers and suppliers, why it shows up so consistently, and what it costs when the market gets choppy. ## Quick Highlights - Dairy procurement is a supply chain function now, but many farms still run it through calls, texts, spreadsheets, and even the old-fashioned paper mailer. - The biggest leaks are rarely dramatic. They are small losses repeated across freight, rebates, substitutions, invoice mismatches, and missed terms. - "Fair price" is hard to define without landed-cost context: freight, tiers, programs, payment terms, timing, and geography. - Multiple buyers are normal on a farm. The problem is missing shared context and a traceable workflow. - You can reduce leakage tomorrow with basic standards: a landed-cost template, quote rules, exception tracking, and a monthly rebates and terms check. ## The Modern Dairy Supply Chain A dairy farm's purchasing reality is broad and constantly shifting: - Feed and ingredients - Bedding, chemicals, and consumables - Herd health, repro, and genetics - Equipment, parts, maintenance, and service providers - Freight, utilities, financing, and payment terms As herds scale, labor tightens, compliance expectations rise, and reporting expands, procurement stops being "buying stuff" and becomes an operational system. Many dairies still run that system through phone calls, text threads, and email chains. That can work when markets are calm. But when markets move fast, the cracks show. ## Three Buying Categories Procurement friction depends heavily on what you are buying. The pain points are different by category, and farms get frustrated when people treat it like one problem. ### Commodity Ingredients This is where farms usually have the best instincts. Market references exist, benchmarking is possible, and decisions can move quickly when you know your numbers. The friction shows up in landed cost, not the headline price: freight, shrink, moisture, minimums, delivery windows, and the "we needed it tomorrow" premium. ### Proprietary Inputs (Additives, Animal Health, Programs) Price is only one variable. You are buying outcomes, protocols, and consistency. In many cases you are also buying through a channel with rebates, tiers, bundling, and post-period credits layered in. Even sharp operators struggle to compare apples to apples because the economics live in enrollment details and back-end credits. ### Capex, Software, and Service Work This is where switching costs and downtime risk dominate. Things like a parlor upgrade, a pump, a scraper system, AI-based camera systems, manure separation changes, and ventilation work are not line-item purchases. They come with install coordination, training, service response, parts availability, and the consequences of something going sideways during a busy week. A lot of transaction pain comes from mixing these categories up and expecting the same buying process to work across all three. ## On-Farm Friction Points ### Price Opacity and Defining "Fair" Two farms can buy the same item and pay different totals because of timing, freight, tiers, relationship pricing, rebates, bundling, and contract structure. Even within the same farm, the real price can be unclear because it is scattered across: - Base price - Freight and fuel surcharges - Early-pay discounts (or missed discounts) - Rebates that may or may not show up later - Substitutions and backorders Most farms can tell you what they paid. Many cannot tell you whether it was competitive for their spec, delivery window, payment terms, and geography. Size makes this worse. Volume breaks show up everywhere. Large dairies unlock tiers, freight efficiencies, preferred programs, and contract structures that smaller operations cannot access. Small and mid-size farms feel that penalty, but they often cannot prove it, and suppliers are not going to volunteer the tier sheet. The USDA has even published research on how volume discounts and shipping charges contribute to economies of size. [1] Without benchmarks and clean comparisons, farms end up stuck on the wrong question, "what did I pay last time," instead of the useful one, "is this competitive right now for my specs and delivery window?" ### Quote Drift in Volatile Markets When ingredients, fuel, and materials move quickly, quotes go stale fast. That creates a gap between what was discussed, what was ordered, what was delivered, and what was invoiced. Then the farm spends time reconciling exceptions that should not be mysteries: price changes, freight adjustments, minimums, add-ons, and substitutions. ### Fragmented Buying and Costly Handoffs On a dairy farm, multiple people influence purchasing because that is how work gets done: - Owners and GMs care about terms, risk, and total cost - Feeders and managers care about availability and consistency - Nutritionists and vets influence product choice and protocols - Shop teams need parts now, not next week Fragmentation is not the problem. Lack of shared context is. When there is no shared system, you get rush orders, duplicate orders, inconsistent specs, missed rebates, off-contract purchases, and inventory surprises. ### Rebate and Program Verification Gaps Many input categories rely on rebates, incentives, and program pricing. The challenge is visibility: - Was the farm enrolled correctly? - Did volumes qualify? - Did the credit actually hit? - Did the deduction match the agreement? When the answer requires hunting across statements, invoices, and old emails, farms either leave money unclaimed or burn hours validating what should be automatic. ### Paperwork Overload Invoices, packing slips, compliance docs, and service records often live in too many places. The result is slow approvals, late payment risk, messy audit trails, and disputes that take too long to resolve. Even well-run offices get buried when transaction volume rises. In 2024, AP benchmarking showed invoices averaging 9.2 days to process, with a 14% exception rate and costs around $9.40 per invoice. Those exceptions are where time disappears. [2] ## The Hidden Labor of Buying Most dairy farms do not measure the time cost of procurement because it hides inside everyone's day. It shows up as "quick calls," "just checking on that," and "I'll handle it tonight." In reality, it is a meaningful workload. ### Category Discovery When a dairy farm is looking to purchase in a new product or service category, it is not commodity shopping. There is discovery, risk management, and implementation planning all at once. Water treatment, manure handling, ventilation retrofits, automation, specialty additives, new service providers. The team ends up answering questions that take time just to frame: which specs matter, what breaks first, parts availability, service response, and true all-in cost once you include freight, install, training, downtime, and ongoing consumables. ### Negotiation Cost Negotiation is not free. It is calls, emails, quote revisions, and re-checking numbers when the market moves. The longer it drags, the more likely the dairy pays for urgency somewhere else: expedited freight, short loads, last-minute substitutions, or an avoidable service call. Even when a farm "wins" on unit price, the process can be inefficient enough to erase the win. ### Leadership Bandwidth The people capable of evaluating and approving bigger purchases are usually the same people already carrying the most responsibility on a farm. When they get pulled into a new category, the operation pays twice: the time spent learning and what does not get done while they learn it. ### Consultant Channels and Incentive Blur Nutritionists, vets, and other consultants add real value, and many farms lean on them for product selection. The structural risk is that in some categories incentive structures may not be transparent to the farm, including supplier relationships, preferred programs, manufacturer incentives, or rebate structures. And even when everyone is acting in good faith, it introduces uncertainty and slows decisions. ## Margin Leakage Hotspots Most leakage is not a single big mistake. It is small losses repeated across hundreds of transactions. ### Freight and Accessorials Freight is the easiest place for margin to disappear because it shows up in so many forms: fuel surcharges, minimums, partial loads, detention, redelivery, tight delivery windows, and "included freight" that stops being included once the invoice hits. A common scenario: you price a load of bedding or minerals delivered. It shows up on time. Two weeks later the invoice includes a fuel line and a detention charge because the truck waited. Nobody is lying, but nobody budgeted for it either. ### Rebates, Credits, and Program Dollars Rebates can be meaningful money, and they are easy to miss. Leakage happens when enrollment is incomplete, renewals are late, volumes miss a tier by a small amount, credits land on a statement nobody ties back to the agreement, or deductions get taken incorrectly and turn into disputes. ### Substitutions and Spec Drift Substitutions are part of dairy life. The cost is that substitutions are rarely equal in the way the dairy experiences them. Sometimes it is concentration. Sometimes it is nutrient profile. Sometimes it is packaging, application, or consistency. If substitutions are not documented clearly at shipment, they show up later as performance questions, cost confusion, and invoice disputes. ### Invoice Mismatches and Cleanup Work Mismatch is the silent workload in most operations: unit-of-measure issues, price differences from quote to invoice, freight lines that do not match what was discussed, missing receiving confirmation, partial shipments, backorders, and split invoices. This kind of manual clean-up is common across industries. APQC benchmarking shows cycle times for resolving invoice errors measured in several days. [3] ### Payment Terms and Working Capital Drag Terms are not just accounting language. They are margin. Leakage shows up when early-pay discounts get missed because invoices sit unapproved, disputes delay payment, or deductions get used as a workaround for unclear credits. If a farm is offered a standard early-pay term like 2/10 net 30, that 2% discount is not small. It is roughly a 36% to 37% annualized return for paying early, assuming cash flexibility. Missing it because paperwork stalled is avoidable leakage. [4] ## Buying Groups as a Patch, Not a System Many farms fight scale disadvantages through co-ops, buying groups, and aggregators. In many cases those structures exist for a good reason: pooled volume can improve pricing, reduce some freight pain, and create more consistent program access. But they do not eliminate friction. Farms still deal with: - What is included versus excluded in group pricing - Whether the product spec is truly equivalent - How rebates and credits flow back - What happens when something is out of stock - Whether service response improves or gets slower Group purchasing can help. It does not replace having a clean internal process and clear visibility into landed cost. ## Implementation Drag After the PO This is the part most people forget when they talk about procurement. Buying is not the finish line. Implementation is. Every time a dairy switches a product, a protocol, or a vendor, there is real work: - Retraining the team and updating SOPs - Changing storage, labeling, and reorder points - Revising mixing instructions or treatment protocols - Handling the inevitable mistakes during the transition - Dealing with incompatibilities between "how it is supposed to work" and how the dairy actually runs In capex, software, and service categories, the switching cost gets sharper. You are not just buying equipment. You are buying install coordination, downtime planning, parts availability, service response, and the ability to recover fast when something fails. ## Supplier-Side Friction Suppliers feel the same friction from the other side. ### Sales-Cycle Drag Deals stall not because the product is wrong, but because the path to "yes" is exhausting: unclear benchmarks, multiple approvers, timing tied to cash flow and milk checks, and uncertainty around delivery windows and substitutions. All of these lead to larger than necessary customer churn. ### Pricing Complexity and Rework Suppliers juggle customer tiers, freight variability, contract versus spot purchasing, substitutions, promotions, rebates, and special programs. When pricing logic lives in spreadsheets and institutional memory, it creates inconsistent quotes, misapplied terms, and disputes over what was agreed. ### Manual Order Processing A surprising amount of time is spent taking orders by phone or text, re-keying into internal systems, tracking missing details, fixing delivery instructions, and reconciling what shipped versus what invoiced. Manual steps create errors. Errors create callbacks. Callbacks cost money and strain relationships. ### Collections Drain When farms manage volatility, payment timing becomes a lever. Suppliers then spend time on aging reports, follow-ups, term renegotiations, partial payments, deductions, and disputes that must be resolved before payment can be released. ## What Better Looks Like Fixing inefficiency does not mean removing relationships or forcing dairies into generic procurement software. It means making the transaction clearer and more reliable while respecting how dairies actually operate. A healthier transaction environment usually includes: - Clear price and term visibility that includes freight, discounts, and programs - A single, traceable workflow from quote to approval to purchase to delivery confirmation to invoice match - Shared context across the farm team with consistent specs and preferred products - Connected inventory and purchasing to reduce stockouts and emergency freight - Faster dispute resolution with clean audit trails tied to agreed terms ## Six Moves You Can Implement Tomorrow **Use a one-page landed-cost template for every quote** Require item and spec, unit of measure, delivered-by date, freight and fees, minimums, payment terms, program or rebate assumptions, and a "valid through" timestamp. **Write down quote rules before the market gets choppy** Make it standard that every quote includes a validity window, substitution policy, and what triggers price changes (fuel, moisture, minimums, accessorials). **Create one shared purchasing log, even if it is a simple sheet** Track what was ordered, by whom, for what spec, expected delivery date, and expected total. This reduces duplicate orders and "who ordered this?" surprises. **Hold a 15-minute weekly exceptions huddle** Review invoice mismatches, freight surprises, substitutions, and missing credits. Label the root cause so you stop solving the same problem every week. **Do a monthly rebates and terms check** One owner, one checklist: enrolled, tiers met, credits posted, deductions match, early-pay discounts captured. This is where "found money" tends to live. **Build three mini playbooks, one per buying category** - Commodity: landed cost and timing rules. - Proprietary: outcomes, program transparency, rebate verification. - Capex, software, and service: uptime risk, service response, parts availability, implementation plan. None of these moves require new investment. They require standards. ## Why It Matters Now When markets are calm, inefficiency hides in the background. When markets are volatile, inefficiency gets expensive fast. A dollar lost to opaque pricing, missed rebates, emergency freight, duplicated orders, invoice disputes, and slow approvals is a dollar that cannot go into herd health, facilities, labor stability, or resilience. On the supplier side, every hour spent untangling manual transactions is an hour not spent supporting customers or improving service. ## The Takeaway Dairy purchasing and selling is not broken because people are not trying. It is expensive because the transaction layer still relies on manual processes and incomplete information. The opportunity, industry-wide, is to make transactions more transparent, more consistent, easier to reconcile, and easier to learn from. When that happens, farms win with lower friction and better control. Suppliers win with faster cycles, lower cost to serve, and stronger relationships. ## Sources [1] USDA discussion noting that volume discounts on purchased inputs and milk shipping charges can contribute to economies of size. [USDA Economic Research Service (PDF)](https://www.ers.usda.gov/sites/default/files/_laserfiche/publications/83460/AP-076.pdf) [2] Ardent Partners AP benchmarking: average invoice processing time 9.2 days, exception rate 14% in 2024, best-in-class exception rate 9% versus 22% for "all others," cost to process an invoice $9.40. [Ardent Partners AP Metrics Report (PDF)](https://www.datocms-assets.com/80283/1744404602-ardent-partners-ap-metrics-that-matter-in-2025-pagero-final.pdf) [3] APQC benchmarking definition and sample plus median cycle time shown (4.0 days) for resolving an invoice error. [APQC Open Standards Benchmarking](https://www.apqc.org/resources/benchmarking/open-standards-benchmarking/measures/cycle-time-days-resolve-invoice-error) [4] 2/10 net 30 early pay discount annualized return estimate (about 36.5%). [HighRadius](https://www.highradius.com/resources/Blog/2-10-net-30/) --- *Here at Therio, we'd love to talk with both producers and vendors about their procurement experiences. [Schedule a time to speak with us](https://calendly.com/therio) or reach out at [info@therio.ai](mailto:info@therio.ai).*