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Boost Your Bottom Line: Benchmarking Analysis Dr. Charlie Hall Ellison Chair in International Floriculture Boost Your Bottom Line: Benchmarking Analysis Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University charliehall@tamu. edu Dr. Paul A. Thomas Professor & Extension Specialist University of Georgia pathomas@uga. edu

What I will cover: Reducing Shrinkage Crop Production Metrics Labor Efficiency Metrics What I will cover: Reducing Shrinkage Crop Production Metrics Labor Efficiency Metrics

Credits: Thank you Wen Fei and Steven! New York Greenhouse Business Summary and Financial Credits: Thank you Wen Fei and Steven! New York Greenhouse Business Summary and Financial Analysis. Pub. EB-2003 -12 Wen-Fei Uva and Steve Richards, 2003

Benchmarking Operational Metrics Each operational metric is based on, and will tie into, the Benchmarking Operational Metrics Each operational metric is based on, and will tie into, the financial metrics to be used by your company. Labor metrics are assessed by work unit / process

Benchmarking Operational Metrics External benchmark metrics are useful for establishing company to company comparisons, Benchmarking Operational Metrics External benchmark metrics are useful for establishing company to company comparisons, if you can find benchmarks for a industry segment similar to yours. Internal or “historic” metrics are the most useful guides for assessing improvements to efficiency, organization, production flow and marketing.

Why Operational Benchmarks? • Many financial parameters are based on operational expenses and outputs. Why Operational Benchmarks? • Many financial parameters are based on operational expenses and outputs. • Small improvements in outputs, sales and reduction of losses (shrink) can have significant impact on financial outcomes. • Operational benchmarks are essential to management and staying on track!

Change in Profit to a 1% Increase in: Parameter Change Yield Production Increase Labor Change in Profit to a 1% Increase in: Parameter Change Yield Production Increase Labor Hours Labor Cost (Wage) Equipment Investment Management Cost Packaging Costs Fuel Interest Rate + 26. 90 % + 24. 63 % - 7. 17 % - 5. 25 % - 4. 18 % - 3. 93 % - 2. 28 % - 2. 18 % - 0. 97 % Source: Kirschling and Jensen, 1974

Crop Production Metrics • Units Produced / Person, Team, Line • Units Per Hour Crop Production Metrics • Units Produced / Person, Team, Line • Units Per Hour / Person, Team, or Line • Waste Units / Person, Team, or Line ___________________ • Percent Loss by Crop or “% Shrink” – Number units invoiced / Number units produced. – Example: 45, 906 UI/ 58, 424 UP = 0. 786 = 78. 6% ……. (Subtract 78. 6% from 100%) = 21. 4% shrink!

Dollars and Sense • Examples: (5% shrink) – Grow 1, 000 - 4 ½ Dollars and Sense • Examples: (5% shrink) – Grow 1, 000 - 4 ½ annuals – Selling price = $3. 99 – Gross revenue = $3, 790. 50 – Cost of growing = $2, 650 – Net profit = $1, 140. 50 Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire Profits reduced by $199. 50 or 14. 9%

Dollars and Sense • Examples: (10% shrink) – Grow 1, 000 - 4 ½ Dollars and Sense • Examples: (10% shrink) – Grow 1, 000 - 4 ½ annuals – Selling price = $3. 99 – Gross revenue = $3, 591 – Cost of growing = $2, 650 – Net profit = $941 Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire Profits reduced by $399 or 29. 78%

Dollars and Sense • Examples: (15% shrink) – Grow 1, 000 - 4 ½ Dollars and Sense • Examples: (15% shrink) – Grow 1, 000 - 4 ½ annuals – Selling price = $3. 99 – Gross revenue = $3, 391. 50 – Cost of growing = $2, 650 – Net profit = $741. 50 Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire Profits reduced by $598. 5 or 44. 66%

Change in Profit to a 1% Increase in: Parameter Change Yield Production Increase Labor Change in Profit to a 1% Increase in: Parameter Change Yield Production Increase Labor Hours Labor Cost (Wage) Equipment Investment Management Cost Packaging Costs Fuel Interest Rate + 26. 90 % + 24. 63 % - 7. 17 % - 5. 25 % - 4. 18 % - 3. 93 % - 2. 28 % - 2. 18 % - 0. 97 % Source: Kirschling and Jensen, 1974

Do You Regularly Track Employee Efficiency? 1. 2. 3. 4. 5. Never 2 -4 Do You Regularly Track Employee Efficiency? 1. 2. 3. 4. 5. Never 2 -4 times a year Monthly Weekly Daily Answer Number

Human Resource Metrics • Percent Turnover by Production/ OP Unit • Percent Turnover Company-wide Human Resource Metrics • Percent Turnover by Production/ OP Unit • Percent Turnover Company-wide / Year • Total HR Expense Accrued Per Employee • Number of Accidents / Injuries / Disciplinaries

Example: Transplant Line Metrics What Do I Need to Know? • Line production per Example: Transplant Line Metrics What Do I Need to Know? • Line production per day or per hour. • Productivity person, per day or per hour. • Overall labor cost / hourly cost • Number of labor hours utilized by crop. • Loss (shrinkage) at transplant line by crop.

Do You Seed Or Transplant Using Human Labor? 1. 2. 3. 4. 5. Yes Do You Seed Or Transplant Using Human Labor? 1. 2. 3. 4. 5. Yes : Just my family Yes : 2 -10 Workers Yes : 10 -15 Workers Yes : 15 + Workers No – I’m automated! Answer Number

Productivity Assessment Percent Efficiency In-Series Task Process Productivity Assessment Percent Efficiency In-Series Task Process

Productivity Assessment In-Series Task Process Poor Line Manager Percent Efficiency 62% 52% 28% Poor Productivity Assessment In-Series Task Process Poor Line Manager Percent Efficiency 62% 52% 28% Poor Pace Setter

Productivity Assessment Percent Efficiency Independent Task Process Productivity Assessment Percent Efficiency Independent Task Process

Productivity Assessment Independent Task Process (Piece Work) Percent Efficiency Best Employee! Profit Killers Productivity Assessment Independent Task Process (Piece Work) Percent Efficiency Best Employee! Profit Killers

So What? Let’s assume we have a production goal of 12, 000 units / So What? Let’s assume we have a production goal of 12, 000 units / day. (4000 units per line…or 500 units / hour)* Hourly wages are paid @ $10. 50 per hour. Line 1 = 4, 000 * 0. 28 = 1, 120 Line 2 = 4, 000 * 0. 52 = 2, 080 Line 3 = 4, 000 * 0. 62 = 2, 480 5, 680 units per day 12, 000 / 5680 = 2. 11 (days) * 8 hr = 16. 9 hours Line efficiency is only 47. 3% !!!!! Cost = 12 employees * $10. 50 * 16. 9 = $2130. 00 *Based upon previous performance standards!

So What? …………. . 5680 hours? Can we do better? Probably! Let’s assume we So What? …………. . 5680 hours? Can we do better? Probably! Let’s assume we can impart a 20% increase in productivity (units) by rearranging personnel in the lines: Yield = 8040 Units Let’s also assume we can increase productivity by 20% by retraining or replacing poorly performing employees: Yield = 10440 units 12, 000 / 10440 = 1. 15 * 8 = 9. 20 hours to complete the job! 12 employees * $10. 50 * 9. 20 hours = $1159. 00 $2130. 00 – $1159. 00 = $971. 00 savings …. (in one day!)

Where Do Your Place Your Slowest Worker? 1. At the end of the line Where Do Your Place Your Slowest Worker? 1. At the end of the line with the manager at the end point. 2. In the front of the line with the manager at the front. 3. At whatever position has the easiest task! Answer Number

Where Do Your Place Your Slowest Worker? In 1 2 3 4 Out Manager Where Do Your Place Your Slowest Worker? In 1 2 3 4 Out Manager Here! At the end of the line, with the line manager positioned at the end point. This allows the manager to monitor overall output, the slow employee and line pace!

Are We Done? • What if I cleaned house and eliminated a transplant line? Are We Done? • What if I cleaned house and eliminated a transplant line? Can I do the whole job for the same money in the same # of days? • Could I actually get rid of one supervisor’s salary?

Do you think it would be more efficient to eliminate one transplant line? 1. Do you think it would be more efficient to eliminate one transplant line? 1. Yes 2. No 3. Don’t know. Answer Number

Productivity Assessment Independent Task Process Positions to be eliminated! Productivity Assessment Independent Task Process Positions to be eliminated!

Productivity Assessment In-Series Task Process 66% 68% Reconfigured In-Series Process = 67% average efficiency Productivity Assessment In-Series Task Process 66% 68% Reconfigured In-Series Process = 67% average efficiency (assumes training, and effective management implemented)

Eliminating a Transplant Line? Two lines operating at 67% efficiency yields 8040 units per Eliminating a Transplant Line? Two lines operating at 67% efficiency yields 8040 units per day. 12, 000 / 8040 = 1. 49 @ 8 = 11. 94 hours 8 Employees * $10. 50 * 11. 94 hours = $1002. 28 Our previous best was $1159. 00… We can get the job done for $157. 00 less by firing four employees and only running two transplant lines!!!! ……. . and we free up a supervisor!

Re-setting Benchmarks? In this example you would set your new benchmark at 67 % Re-setting Benchmarks? In this example you would set your new benchmark at 67 % efficiency and explore! Track production, (by task) to get perspective. Reward managers that exceed a benchmark Troubleshoot if productivity fails to reach a benchmark at any point in the future.

Tracking Benchmarks Visually Transplant Operations Productivity per line ? ? ? Task Tracking Benchmarks Visually Transplant Operations Productivity per line ? ? ? Task

If the production issue cannot be fixed……What should I do? 1. 2. 3. 4. If the production issue cannot be fixed……What should I do? 1. 2. 3. 4. Increase assigned cost Decrease # units goal Increase # units goal Fire the manager! Answer Number

Strategic Profit Model Subtract Cost Savings Here! Strategic Profit Model Subtract Cost Savings Here!

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