Production Management

Achieving greater efficiency and profitability

Utilize production records for management decisions including:

Problem shooting Evaluating alternatives Streamline current practices

Objectives

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

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

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

Decision

Improve

Focus

Intensify

Expand

Diversify

Replicate

Integrate

Network

Downsize

Exit

Delay

Decision Trigger

“Positioning the Farm Business” by Miller, Boehlje, and Dobbins

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

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

Cost Analysis

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

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

Break-even Price

Break-even Price (Budget)

Break-even Price =

Break-even Price (Income Statement)

Break-even Price =

Break-even Price = = $5.46/bu.

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

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

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

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

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.

Take a minute to write down one or two ideas or takeaways

from this lesson.

One Minute Takeaway

Sieverkropp Consulting LLC.

Contact: Elizabeth Sieverkropp esieverkropp@gmail.com (509) 398-6858

Website: www.sieverkroppconsulting.com

Training Program Homepage:www.sieverkroppconsulting.com/fsa-borrower-training-program-homepage