Bulk Milk Cooler Decision at an Alwar Dairy Cooperative
A dairy cooperative in Alwar collects 4,200 litres of milk a day: 70% in the morning and 30% in the evening. Morning milk is valued at ₹34 per litre, and evening milk at ₹36 per litre because of its higher fat. At present, milk is kept in cans at the collection centre until the 4 p.m. pickup. In summer, the afternoon temperature reaches 38°C, and about 3% of the day’s milk is rejected for acidity, earning nothing. A 3,000-litre bulk milk cooler costs ₹6.5 lakh installed, uses ₹450 a day in power and maintenance, and is expected to cut rejection to 0.5%. The cooperative has ₹2 lakh in reserves and can get a loan at 9% simple interest. The secretary wants to know whether the cooler will pay for itself and whether a 3,000-litre unit is the right size.
1. Calculate the current daily and annual loss from rejected milk.
Read the worked answer
Morning volume = 0.70 × 4,200 = 2,940 L; evening = 1,260 L.
Daily value = (2,940 × 34) + (1,260 × 36) = 99,960 + 45,360 = ₹1,45,320. Average value = 1,45,320 ÷ 4,200 = ₹34.60/L.
Rejected volume = 3% × 4,200 = 126 L/day. Daily loss = 126 × 34.60 = ₹4,360/day (approximately). Annual loss = 4,360 × 365 = ₹15.9 lakh/year (approximately).
This is the value of milk that earns nothing; it does not include the labour and can-cleaning cost of handling milk that is later rejected.
2. Estimate the net daily saving and simple payback period if the cooler is bought. Include the interest cost on the loan.
Read the worked answer
New rejection = 0.5% × 4,200 = 21 L/day. Saved milk = 126 − 21 = 105 L/day. Value saved = 105 × 34.60 = ₹3,633/day. Net before interest = 3,633 − 450 = ₹3,183/day.
Loan required = 6,50,000 − 2,00,000 = ₹4,50,000. Simple interest at 9% = ₹40,500/year = ₹111/day. Net after interest = 3,183 − 111 = ₹3,072/day. Payback = 6,50,000 ÷ 3,072 = about 212 days, or roughly 7 months.
The case is financially strong even with interest, but only if the 0.5% rejection target is actually achieved through timely cooling and pickup.
3. Is a 3,000-litre cooler the right size? Recommend a size or operating change, with reasoning.
Read the worked answer
Morning milk alone is 2,940 L, so a 3,000 L cooler has only a 2% margin. If morning collection arrives in a short window, or if pickup is delayed, the cooler overflows or milk waits outside. Evening milk is only 1,260 L, so the unit is underused later. A 4,000–5,000 L cooler gives a safer buffer and room for growth, but costs more and may be idle in the evening.
A better recommendation is either a 4,000 L unit or a 3,000 L unit plus staggered morning collection and a guaranteed 4 p.m. pickup. Add a power backup because a cooler that stops in a 38°C afternoon recreates the original risk. Check the quoted price for the larger unit; if the extra capital pushes payback beyond about 18 months, the operating fix may be better.