Continuous improvement entails determining where an operation stands and planning how to make it better.
Benchmarking is a process of continual improvement. Through analysis and action, benchmarking provides a systematic approach to improving production efficiency and profitability.
Analysis begins with asking questions, such as: What is the standard level of performance? Who is the best? How do I compare with the best? How do I compare to others across the industry?
Answers to such questions are now available through the National Pork Producers Council (NPPC) Production and Financial Database. In a benchmark percentile table of breeding herd productivity (Figure 1), a popular standard measure of the output of the breeding herd is weaned pigs/breeding female/year. (WP/BF/Y).
Referring to the values in the body of the table, we see that the 90th percentile value for WP/BF/Y is 22.77. This means that less than 10% of herds in the database are producing more than 23 WP/BF/Y.
The value for our farm (org value) is 20.31, shown in the column at the far right. The shaded cell for this standard measure of output provides more information about our farm. Our value of 20.31 is closest to the 60th percentile value of 20.24. By interpolation, we can estimate that our value is at about the 61st percentile. This tells us that our productivity is better than 60% of the 55 farms represented, but it also shows that 39% of the farms are producing more pigs/breeding female/year.
Once we know where we stand, the benchmarking process continues by digging deeper. If 39% of the comparable farms are producing more WP/BF/Y, there is definitely scope for improvement. How, then, can we improve?
Inspection of the breeding herd productivity tree (Figure 2) shows that WP/BF/Y is a function of weaned pigs/wean litter (WP/WL) and litters farrowed/breeding female/year (LF/BF/Y).
Referring back to Figure 1, we can see we are at the 61st percentile for LF/BF/Y and at about the 40th percentile for WP/WL. Obviously, both branches of the productivity tree have potential for improvement.
As we continue to follow the productivity tree, we find that our value for total born pigs/birth litter (TBP/BL) is 10.53 (see Figure 4.). This value is even less than the 10th percentile value of 10.85 shown in Figure 1.
At first sight, we may be shocked to find that at least 90% of the herds in this comparison have larger TBP/BL than our herd. But, on the positive side, we are doing pretty well in LF/BF/Y.
If we are already at the 61st percentile for WP/BF/Y, just think how even a modest increase in TBP/BL would affect breeding herd output. Moreover, consider the scope for improvement.
While there are herds producing in excess of 12.3 TBP/BL, our farm would need to produce an extra 0.5 TBP/BL to be at the 20th percentile value of 11.0. Given our current productivity, it seems reasonable to set a goal of increasing TBP/BL to 11 within the next year.
To explain, a “SMART” goal is:
Specific (increase TBP/BL to 11)
Measurable(pigs are easy to count)
Attainable (80% of comparable farms are already doing it)
Rewarding (it should be profitable), and
Timed (within the next year).
Goals that are SMART and also written down are much more likely to be achieved.
Having established the room for improvement, we need to determine how much that improvement is worth to our operation.
The ROE model is used to determine which improvements potentially have the most bottom-line value. We can look at different values from the database and see what a reasonable improvement for our operation might be — based on where we are currently compared to other operations.
After we have considered a feasible level of improvement, we can change our unit's value in the ROE model to see what potential impact a change might have (Figure 3). Typically we might consider several areas for improvement.
After each potential improvement is examined and documented using the ROE model, we would decide which factors are the most important and then rank them accordingly.
Through our investigation, we have found that improvement in TBP/BL is indeed an area that would significantly impact our profitability (refer to Figure 4).
If all other factors remain constant while TBP/BL increases from the current level of 10.53 to 11.0, we could anticipate an increase in net income (pork) of more than $18,000/year after factoring in the cost of feeding the additional pigs to market weight.
While additional non-feed costs, such as vaccinations and supplies, may reduce the potential benefit, the net result would still be a significant improvement in net income from pork operations.
Leverage (the ratio of liabilities to assets) is reduced because the total value of growing pigs flowing through the production system (current assets) is increased.
Net profit margin increases because some of the non-feed costs are now shared by a larger number of pigs sold/year.
Asset turnover increases because the increase in annual revenue is large for a slightly increased asset base. As a result, return on investment, return on assets and return on equity are all significantly improved.
Big Picture Questions
Once we have found that an improvement may have a positive impact on our profitability, we need to look at the “big picture” and ask ourselves some additional questions:
Can the improvement be made?
Will additional resources be needed to make the improvement?
Do I know how to effect improvement?
What is the probability of success?
And, what is the time required for improvement?
Once we have done this and potential for success appears, we can move on.
The next step brings more questions:
- What could I do to improve?
- How can I take action?
One approach to answering these questions is to use a fishbone diagram (Figure 5) for brainstorming.
The fishbone analysis is a type of cause/effect diagram, which is used to graphically relate the causes of a problem to the problem itself.
The problem is positioned at the “head” of the fish while the potential causes of the problem are located in the “bones” of the fish. It is often useful to get a team of people to brainstorm about the possible causes for each main bone.
Once the fishbone is complete, let the ideas incubate. Come back to the fishbone after a few days. Focus your attention on major bones where there are few items. What items were missed? When you have your fishbone diagram reasonably complete, the next step is to take action.
Data must be gathered and analyzed to find and eliminate causes for the problem. Some problems are easy to solve; others are not. In difficult cases, a more formal, written action plan should be developed.
When a formalized action plan for improvement is needed, it is important to outline general procedures for the plan. This is when you specify particular steps to take, resource requirements, the responsible individual, how performance will be monitored, the timeline for the action and the consequences if the action step is not accomplished.
It is important to share this plan with employees, consultants, educators and others who work with you and your operation. By sharing, others can help ensure you haven't missed any important steps. This also will show those who work with you how and where they fit into the plan for improvement.
After an action plan is developed, it is important to regularly evaluate how the plan is progressing. In this step, you, your employees and consultants check whether your plan is progressing and what it will take to keep things on track. If progress is not being made, what will it take to get things back on track?
The check-up plays an integral part in ensuring that implementation of the action plan is progressing as it should.
Remember that a goal without a plan is only a dream. We want to help you turn your dreams into reality.
The NPPC Production and Financial Standards database, ROE model, your production and financial records and your management skills are all tools to help you create your future in the pork industry. Let's learn to use these new tools and go to work!
|Initial Value||New Value||Change||Percent Change|
|Return on Equity||14.26||18.75||4.49||31.5|
|Return on Investment (%)||7.29||9.66||2.37||32.5|
|Return on Assets (%)||13.41||15.73||2.32||17.3|
|Operating Profit Margin (%)||14.29||16.13||1.84||12.9|
|Net Profit Margin (%)||7.77||9.91||2.14||27.5|
|Net Income (Pork)||$54,345||$72,639||$18,294||33.7%|
Doris Mold, Consultant, Lauderdale, MN and Will Marsh, FarmWise Systems Inc., Little Canada, MN.
To request a printed copy of this article and accompanying sample reports and educational spreadsheets, please click here to e-mail Jenny Felt or call (800) 767-6888.