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Transcript of Achieving greater efficiency and profitability. Utilize production records for management...
![Page 1: Achieving greater efficiency and profitability. Utilize production records for management decisions including: Problem shooting Evaluating alternatives.](https://reader035.fdocuments.us/reader035/viewer/2022062804/5697bf861a28abf838c88063/html5/thumbnails/1.jpg)
Production Management
Achieving greater efficiency and profitability
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Utilize production records for management decisions including:
Problem shooting Evaluating alternatives Streamline current practices
Objectives
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Production management is more than your daily activities on
the farm.
It involves: Cost analysis cash flow planning, break-even price and yield,
cost of production, risk management Human resource management job description/specification,
communicating/motivating with employees Budgeting enterprise budgeting, partial budgeting Strategic Management SWOT analysis, goal setting
Production Management
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Growth Strategy:
Expand – most common strategy, over-used Diversify – addition of new enterprises, may spread management
time and resources too thin Replicate – copy existing operation in at a different site Integrate – moving forward, backward, horizontal into
production/processing
Nine Strategic Alternatives
“Positioning the Farm Business” by Miller, Boehlje, and Dobbins
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Rightsizing Strategy:
Focus/Specialize – committed to improving efficiency and reducing cost
Intensify/Modernize – increase production with same asset base Network – creating economies of scale through alliances and
partnerships Delay/Wait and See – short-run inaction, but need to have a
decision trigger Downsize – reduce the size of the business to help improve focus
or efficiency of the business (does not necessarily mean business exit)
Nine Strategic Alternatives
“Positioning the Farm Business” by Miller, Boehlje, and Dobbins
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Decision
Improve
Focus
Intensify
Expand
Diversify
Replicate
Integrate
Network
Downsize
Exit
Delay
Decision Trigger
“Positioning the Farm Business” by Miller, Boehlje, and Dobbins
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Financial records – needed to file taxes, apply for loans, and make strategic
management decisions
Crop production records – chemical application, fertilizer, field records, and production yields
Livestock production records – breeding records, vaccination, feeding, identification
Human resource – I-9 Form, W-4 Form, job description, job specification
Miscellaneous – equipment repairs and inventory
Record Keeping is Important
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Proper record keeping will:
Streamline your financial statement preparation Streamline your strategic planning process Help you identify strengths and weaknesses Help you identify ways to cut costs or increase efficiency
Record Keeping
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Cost Analysis
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Importance of Cost Analysis
Cost analysis is critical for farm management: Manage margins Production planning Impact of changing costs/purchasing Manage impact of sales growth Evaluate expansion opportunities Decision making tools
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Understand the impact of fixed vs. variable costs on flexibility Cost composition influences breakeven and strategic planning
Cost Analysis Tools: Break-even Price Break-even Cost Contribution Margin Break-even Throughput Cash Flow Break-even
Cost Analysis
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Break-even Price
Break-even Price (Budget)
Break-even Price =
Break-even Price (Income Statement)
Break-even Price =
Break-even Price = = $5.46/bu.
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Break-even cost is the total cost to produce unit excluding non-farm income.
Variable Costs – Cost of Goods Sold Fixed Costs – General repairs and overhead, land rent, living
expenses, interest expense, deprecation
Break-even Cost =
Break-even Cost = = $6.19/bu.
Break-even Cost
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Contribution margin is the amount of cash available per unit after variable costs are paid.
Cash left over to pay fixed costs
Contribution Margin =
Contribution Margin = = $1.42/bu.
Contribution Margin
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The number of units that need to be sold to cover fixed costs.
Changes in fixed costs and contribution margins influence profitability
Increased fixed costs require additional liquidity and margin risk management
Need to still consider principal payments
Break-even Throughput =
Break-even Throughput = = 26,761 bu.
Break-even Throughput
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The amount of cash inflow to cover all cash obligations per unit.
This is a short-run break-even
Cash Flow Break-even Units =
Cash Flow Break-even Units = = 65,282 bu.
Cash Flow Break-even
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Homework
Discuss what record keeping systems you need in your business to make production management easier.
Do a cost analysis for your farm. Discuss how this will impact your production decisions for the year.
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Take a minute to write down one or two ideas or takeaways
from this lesson.
One Minute Takeaway
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Sieverkropp Consulting LLC.
Contact: Elizabeth Sieverkropp [email protected] (509) 398-6858
Website: www.sieverkroppconsulting.com
Training Program Homepage:www.sieverkroppconsulting.com/fsa-borrower-training-program-homepage