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Production Management

Production Management. Achieving greater efficiency and profitability. Objectives. Utilize production records for management decisions including: Problem shooting Evaluating alternatives Streamline current practices. Production Management.

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Production Management

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  1. Production Management Achieving greater efficiency and profitability

  2. Objectives • Utilize production records for management decisions including: • Problem shooting • Evaluating alternatives • Streamline current practices

  3. Production Management • 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

  4. Nine Strategic Alternatives • 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 “Positioning the Farm Business” by Miller, Boehlje, and Dobbins

  5. Nine Strategic Alternatives • 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) “Positioning the Farm Business” by Miller, Boehlje, and Dobbins

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

  7. Record Keeping is Important • 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

  8. Record Keeping • 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

  9. Cost Analysis

  10. 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

  11. Cost Analysis • 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

  12. Break-even Price Break-even Price (Budget) Break-even Price (Income Statement) Break-even Price = Break-even Price = Break-even Price = = $5.46/bu.

  13. Break-even Cost 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.

  14. Contribution Margin 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.

  15. Break-even Throughput 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.

  16. Cash Flow Break-even 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.

  17. 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.

  18. One Minute Takeaway • Take a minute to write down one or two ideas or takeaways from this lesson.

  19. 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

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