Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University Dr. Paul A. Thomas Professor & Extension Specialist.

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

TopicPresenter Information gatheringBoth Importance of benchmarkingCharlie Operational benchmarksPaul Financial red flagsCharlie Productivity (labor) benchmarksPaul Strategic profit modelCharlie Crop production metricsPaul Key financial ratios & working capitalCharlie Sales & marketing metricsPaul Managing costsCharlie Tools for improvementPaul ResourcesBoth

1. Yes 2. No

1. Less than 1 2. 1 to 5 3. 6 to 10 4. 11 to 20 5. More than 20

1. Under 30 2. 30 to 49 3. 50 to 65 4. Over 65

1. Wholesale grower only 2. Wholesale and retail grower 3. Retail grower only 4. other

1. Year-round 2. Seasonal

1. Sole proprietorship 2. Partnership 3. S-corporation 4. C-corporation

1. Greenhouse only 2. Greenhouse and nursery 3. Greenhouse & florist 4. Greenhouse & vegetable 5. Other

1. Less than 50,000 ft 2 2. 51-100,000 ft 2 3. 101-250,000 ft 2 4. 251-500,000 ft 2 5. 501-1,000,000 ft 2 6. More than 1,000,000 ft 2

1. Low output or slow crop growth 2. Undercapitalization 3. Poor pricing 4. High labor cost 5. High materials cost 6. Waste or overuse 7. Poor cash flow 8. Other 9. Don’t know

 About 15% of firms have already exited the industry.  About 35-40% of those left are holding steady (flat sales).  About 40-45% have had declining sales and are just hanging on.  The last 15-20% or so have increased sales (& profits) during this time period.

innovate and reduce costs within the supply chain. tweak existing or develop new value proposition(s). have enough financial capital to outlast competitors.

 Major score keeping areas include:  Financial – e.g. return on assets, sales volume, and gross profit.  Operational – e.g. labor utilization rates, quality and safety measures. correlation  Educate employees about the correlation between these metrics and profit.

Importance of benchmarking Companies who benchmark achieve 69% faster growth and 45% greater productivity than those who don’t. PWC Trendsetter Barometer Survey

You can’t manage what you can’t measure!

 Time series analysis  Time series analysis – comparing your own firm’s performance against a previous time period (previous quarter, this quarter last year, etc.)  Cross sectional analysis  Cross sectional analysis – comparing your firm’s performance against similarly-sized firms in the industry.

Adopting Operational Benchmarks For Long Term Success 2009 OFA ShortCourse

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

What I will cover: Labor Efficiency Sales and Marketing Crop Production

Why Look At 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!

How many weeks is your operation open for business? Answer Number 1.11 (Spring Only) 2.22 (Spring/Fall) 3.52 (Full Year) 4.26 (Half Year) 5.44 (Eleven Mo.)

How many full time employees do you have? Answer Number 1.One 2.6 3.12 4.24 5.Over 24

How many supervisors manage those employees? Answer Number 1.One 2.Two 3.Three 4.Four to Five 5.Over 5

How do you pay your “worker bees” ? Answer Number 1.Hourly Wage 2.Piece Work 3.Task Unit 4.Sub-Contract 5.Familial Slavery

Small Changes Add Up! Several simple changes may bring you back to profitability.

Change in Profit to a 1% Increase in: Parameter Yield Production Increase Labor Hours Labor Cost (Wage) Equipment Investment Management Cost Packaging Costs Fuel Interest Rate Change + 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 / 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 sold / 58,424 produced = 0.786 = (1 - 0.786) = 21.4% shrink!

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 Profits reduced by $199.50 or 17% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

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 Profits reduced by $399 or 42% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

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 Profits reduced by $598.5 or 81% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

1. Yes 2. No

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, 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.

Example: Ask Yourself.... Is my transplant line managed effectively? Is my shipping department efficient? Are my sales team leaders meeting goals? Am I meeting company conservation goals? How much room do I have for improvement?

Example: Transplant Line Metrics What Do I Need to Know? Line production per day or per hour. Productivity per 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.

Productivity Assessment In-Series Task Process

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

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

Productivity Assessment Independent Task Process

Do You Regularly Track Employee Efficiency? Answer Number 1.Never 2.2-4 times a year 3.Monthly 4.Weekly 5.Daily

Productivity Assessment Independent Task Process (Piece Work) Profit Killers Best Employee! Horrid Placement !

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 5,680 per day Line 3 = 4,000 * 0.62 = 2,480 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? 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 re-training 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!)

2134InOut Production Line Management

Where Do Your Place Your Slowest Worker? 15 Answer Number 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 weakest employee

Where Do Your Place Your Slowest Worker? A. At the end of the line, with the line manager positioned at the end point. 2134InOut Manager Here! 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? 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? Answer Number 1.Yes 2.No 3.Don’t know.

Productivity Assessment Independent Task Process Positions to be eliminated!

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 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!

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 Task Productivity per line Transplant Operations ???

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

The key to success in any field is simply a matter of practicing a specific task for a total of 10,000 hours. Source: Outliers, Malcomb Gladwell

 They analyze resources & capabilities to determine competitive advantages.  They tear apart the value chain and reengineer to reduce costs (lean flow).  They implement effective financial management practices (benchmarking, etc).

1. Daily 2. Weekly 3. Monthly 4. Quarterly 5. Semi-annually 6. Annually 7. Every few years 8. Never

1. Accountant 2. Bookkeeper or own system 3. Consultant 4. Banker or lender 5. Owner(s) or yourself 6. None of above

Applying analytical techniques to financial statements and other relevant data to produce information useful for decision making. Three Issues : Financial analysis: Focus In general, each financial ratio is closely related to one of these three fundamental issues. Profitability, Liquidity, Safety (Solvency or Risk)

Profit margin Asset turnover ROI (ROA) =x Leverage factor =ROE Strategic Profit Model x

Spreadsheet version of the strategic profit model

ROIC of selected industries ROIC > Cost of capital = value created Nursery grower 3.9% / 24.1% NY Greenhouse growers 7% / 40% ROIC = (net income – dividends)/capital Design/Build Firms 14.2% Maintenance Firms 16.3%

Operational Profitability Net Income per Square Foot per Week  Net Income / GH Sq. Ft. X Weeks in Operation This adjusts income / sq. ft. for different lengths of operations. $0.034 per sq. Ft greenhouse space / week

Operations Labor As A Percent of Sales  Total Labor Cost / Total Variable Costs This is an indirect measure of labor efficiency and cost efficiency. $159,890 / $589,980 = 0.22 or 22.0% Operating Expense Ratio  Total Variable Costs / Total Revenue The average % of sales price needed to cover direct costs of crop. $440,768 / $589,890 = 0.71.7 or 71.7%

Production Efficiency Metrics Worker Equivalents. Total # of labor hours / year divided by 2760 (55h per week) This accounts for part-time labor and temporary workers. (8 wkrs x 51wks x 40hr) + (19 pt-wkrs x 36 wks x 20hr) = (16,320 hours + 13,680 part hours) = 30,000 hours 30,000 hours / 2760 hours = 10.8 worker equivalents! New York Greenhouses averaged 8.9 FTE Worker Equivalents for the average 40,000 sq. ft greenhouse.

Production Efficiency Metrics Net Income per Worker Equivalent  Net Income / Number of Equivalent Workers This measures how well labor is used to generate net income. $8,065.00 per worker equivalent is average. Sales per Square Foot  Total Sales / Sq. Ft. Production Space This establishes how well use is used to generate sales $14.00 is the average for NY Greenhouses

Production Efficiency Metrics Square Feet per Worker Equivalent  Sq. Ft Production / Number of Equivalent Workers This is an indirect measure of worker efficiency / responsibility. 8,502 sq. ft per FTE worker Greenhouse Area per Operator  Total Sq. Ft. Space / Production Managers An indirect measure of how efficiently the greenhouse is managed 1.2 FTE-Managers per 40,000 sq. ft operation

 Current Ratio = Current Assets ÷ Current Liabilities  Ideal level? – 2 : 1  A ratio of 5 : 1 would imply the firm has $5 of assets to cover every $1 in liabilities  A ratio of 0.75 : 1 would suggest the firm has only $0.75 in assets available to cover every $1 it owes  Too high – Might suggest that too much of its assets are tied up in unproductive activities – too much inventory, for example?  Too low - risk of not being able to pay your liabilities.

 (Current assets – inventory) ÷ liabilities  1:1 seen as ideal  The omission of inventory gives an indication of the cash the firm has in relation to its liabilities (what it owes).  A ratio of 3:1 therefore would suggest the firm has 3 times as much cash as it owes – very healthy!  A ratio of 0.5:1 would suggest the firm has twice as many liabilities as it has cash to pay for those liabilities. This might put the firm under pressure but is not in itself the end of the world!

 Liquidity – One of the most important things we will talk about today. Banker’s analyze it by first looking at your working capital.  Working Capital = Currents Assets – Current Liabilities  Every business has a minimum WC requirement for two reasons: 1)To pay bills on a timely basis 2)To provide a proper collateral margin for your line of credit Hat tip to Barry Sturdivant, Bank of The West

Current Liabilities Long-Term Liabilities Net Worth Current Assets Fixed Assets Long-Term Investments and Other LTA Assets = Liabilities + Net Worth

-- Seasonal increase & decrease in A/R & Inventory. Corresponding increase & decrease to revolving line of credit used to finance seasonal increase to trading assets and later get repaid from collection of A/R. (Fixed Assets & Long-Term Investments) (Long-Term Liabilities) (Net Worth) Working Capital

Banks need one or both of two things: 1.Have the RLOC brought to a zero balance; and/or 2.Have the RLOC remain within borrowing base parameters. (Fixed Assets & Long-Term Investments) (Long-Term Liabilities) (Net Worth) Working Capital (1) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (3) (2) 1.Working Capital You Need 2.Working Capital You Have 3.RLOC isn’t getting paid, or Trade isn’t being paid on time.

 You can’t pay bills on a timely basis  You don’t have enough availability on your line of credit

Working Capital can only be impacted by changes in the long-term portions of the balance sheet and how they affect the cash level.

New Level of Fixed Assets (sell $1MM of fixed assets and use cash to pay down the line of credit) (Long-Term Liabilities) (Net Worth) Old Level of Working Capital New Level of Working Capital Old Level of Fixed Assets

Fixed Assets Old Level of LTD (Net Worth) Old Level of Working Capital New Level of Working CapitalNew Level of LTD 1)This option simply moves short-term debt to the long-term section of the balance sheet. 2)To do this you must have term debt borrowing capacity which is determined by profitability, cash flow, collateral and net worth position.

 Net Worth can be increased in these ways: 1) Sell part of your company to an investor 2) Inject your own cash 3) Generate additional earnings (Fixed Assets & Long-Term Investments) (Long-Term Liabilities) (Net Worth) Working Capital

 This is done by lowering your investment in trading assets. In other words, instead of building your working capital level, you lower your working capital requirement to meet your level. 1) Increase Inventory Turnover 2) Increase A/R Collections Fixed Assets Level You Have Level You Need    (Long-Term Liabilities) (Net Worth)

 A lack of cash will get you into trouble before a lack of earnings.  Although you should take trade discounts, be careful not to do so at the expense of not having cash when you need it most.  Banks are less likely these days to bail you out during the production and shipping season with an increase (even temporary) to your line.  If banks do come to your aid, it will likely involve fees and a rate increase.

 Delay non-strategic investments.  Refinance what they can.  Exercise the full length of credit terms.  Sell unused assets (if possible).  Apply for credit long before it is needed.  Reduce estimated tax payments.  Review insurance premiums.  They aggressively manage working capital (liquidity).

Sales and Marketing Metrics

How Many Employees Work As Sales Reps For You? 1.One – Three 2.Four – Six 3.Seven- Nine 4.Ten to Fifteen 5.Over 15 Answer Number

Salesperson Performance Year Generated Sales $1,000

Who Was The Most Consistent Sales Person? Answer Number 1.Pam 2.Roger 3.Mike

Salesperson Performance Year Generated Sales $1,000 Pam is ! Graphs alone are hard to interpret!

Who Would You Fire If You Had to Cut Back? Answer Number 1.Pam 2.Roger 3.Mike

Tracking Temporary Effects Thousands of Dollars Drought / Watering Bans Two, Cool, Sunny Weekends Three rainy Weekends Southern Living Promotion* Sales Rainy Weekends

Customer Metrics Units Rejected by Customer / Week Customer Complaints / Week Follow-up Customer Contacts Made Consecutive Years as Customer Percent of Total Sales per Customer This is best used by wholesalers who sell to large clients. More than 35% to any one customer is not good!

Sales Metrics Percent New Customer Total new customers / Total customers that year This is a direct measure of customer base growth 21 / 74 = 28% New Customers Percent Customers Dropped / Lost Total New Customers / Total Dropped Customers This is a direct measure of customer turnover. 17 / 74 = 22% Customer Base Loss Net Increase In Customer Base: 5%!

Sales Team Metrics New Contacts / Week  Total number of new contacts / Number of weeks of sales event. … or number of sales weeks / year. This is a direct measure of sales team efficiency. Customer Value Ratio  Number of Orders / Dollar Value of Orders This is an indirect assessment of overall customer value. You can also apply this metric on a per customer basis to evaluate customer base. Remember, we want customers - not costomers!

Marketing Metrics Market Impact (Sales per dollar spent)  Total Sales / Market Program Costs Sum of advertising, sales expenses, etc. divided into total sales generated for that particular program. Track every event! Remember, a marketing program can be divided by market segment, product line, etc. You can track by segment to measure effectiveness that might not show up in overall market assessments!

Marketing Must Have Strategy! Marketing Benchmarks Allow You to Evaluate The Effectiveness of Your Strategy and Your Implementation

Marketing Metrics Program Contact Efficiency  Total Program Costs / # Customers Contacted Program Customer Yield  Program Costs Per Buying Customer Program Product Yield  Program Costs / Individual Product Line Units Sold

Marketing Metrics Sales per Worker Equivalent  Sq. Ft. Production Space / Number of Equivalent Workers This establishes how well use is used to generate sales $101,981.00 wholesale gross income / FTE Hired Labor Cost as Percent of Sales  Cost Of Labor / Total Sales Income This establishes how well use Labor is used to generate sales 24.1 % is average for NY Greenhouses.

Do You Track Shipping Costs, Routing & Driver Efficiency? 15 Answer Number 1.No, Don’t Have Time 2.Fuel Costs Only 3.Routes & Time 4.Driver Efficiency 5.Yes - All Three

Are My Shipping Costs In Line With Other Businesses? The national average for shipping costs is 1.5% of Total Sales. In the greenhouse industry, we average between 2.0 and 2.5%

What’s Included In Transportation Costs? Maintenance & Repairs Freight Bills Rental Fees Gas / Oil Driver Wages Insurance Licenses, Fees Tolls, Tickets Taxes

Transportation and Shipping Costs are Rising Rapidly Transportation Expense  Cost of Shipping and Transportation / Total Sales Income This establishes how well use transportation and shipping technology is used to generate sales 2.0 % is average for NY Greenhouses. Total shipping costs have increased 87% in the last 5 Years, and predictions are that costs will increase another 30% in two years.

Shipping Metrics Gallons Fuel Used / Week / Driver Miles off Route Distance / Week / Driver Percent On-time Delivery / Driver Percent Follow Up Orders / Driver

Shipping Metrics Route Efficiency  Dollars spent per mile  Dollars spent per unit load value  Load value per mile driven  Load value per hour driven  Number of client visits per day  Dollars spent per number clients on route.

Conservation Metrics Gallons Water Used / Week KWH Electricity Used / Week KWH Used Per Dollar Gross Income Generated / Week Gallons Heating Fuel Used / Week Gross Value In Truck per Shipment Per Mile Cost per Dollar Gross Revenue

Do You Track Water Use? 15 Answer Number 1.No 2.Via Water Bill 3.Via Flow Meter 4.Via Computer

An In-Line Flow Meter

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

Do You Track: Employee infractions, Sick days, Turn-over? 15 Answer Number 1.No 2.Sick Days 3.Infractions 4.Turn-over/year 5.2 to 3 of the above

 Costs establish the price floor. Everyone’s costs are different! Growers have to calculate the costs for their firm! …or be eaten alive!

 “Potting” process generally accounts for 20-25% of total direct labor.  “Care as needed” cultural practices account for about 25% of total labor.  “Harvesting and shipping” process can consume up to 50% of direct labor. Look for the repetitive, tedious, time-consuming tasks and look to automate!

 Every time you touch a plant, it costs money! Source: J. Bartok, GPN, June 2003.

Retail consolidation Fewer buyers Oversupply Product tags/labels JIT delivery, setup & care Barcode/pre-pricing Returnable shipping equipment Pay-by-scan Take back unsold product Consistent pricing Continuous volume replenishment Rising input costs (e.g. fuel) Labor availability Retail price pressure Lowball competitors Oversupply Rising fuel costs Labor costs (wages) and availability (H2B) Increased costs of materials (top soil, mulch) Increased workers’ compensation rates Cost of health care insurance Increased equipment costs Regulatory compliance (air & noise) The Cost-Price Squeeze

 “These staggering costs have us scared to death”  “We are surviving, but profit-wise, it’s a squeeze.”  “Costs of energy, labor, fumigants, pots, polyethylene, delivery – everything is going up. It’s really beginning to hurt.” Quotes from article in a trade journal. MAY 10, 1979!

 Costs establish the price floor.  Lower break-even point – go lean.  Analyze employee productivity.  Lock in energy contracts at lower rates.  Look at long-term distribution options.  Buy in pre-finished and turn the margin.  Do NOT cut marketing expenses!

Using Virtual Grower

Tools to Help You Make Decisions: Virtual Grower RET Canada Microsoft Excel Quickbooks Academic Software NC State Rutgers Ecke’s

Have You Heard Of and Used Virtual Grower? 15 Answer Number 1.Yes but Never have 2.Yes – Tried It Once 3.Yes – Several Times 4.Yes – Use It Often 5.Never Heard of It

It’s Easy To Input Data

Calculated Costs by Month

Generates Reports

Features Virtual Grower 2.0 Allows you to estimate energy costs Allows you to verify crop / heating schedule Allows you to play what if on technology upgrades and retrofits. Allows you to measure / track system efficiencies and weather / cost per hour metrics.

One Little Problem Our “Example” is based upon data provided to you on Page 47. Table 34. See “Heating Fuel” = $53,073.00 Please note that in 2001, the price of No. 2 heating oil was 97 cents / gallon. The 2009, price was 207 cents / gallon. To make this example more “real,” we corrected the fuel cost to reflect price increases. The cost of fuel for an average NY Wholesale firm would now be just over $112,000.00 We used a model GH in Virtual grower with a final heating fuel cost of $108,724.00 That should be close enough!

Example New York Greenhouse:40,000 sq ft - Old Steam Boiler Heating Schedule Sep 1 to May 1(60F-72F) Heating Efficiency: 69% Air Exchanges: 1.30 exchanges / hour No Heat Curtain! Fuel Types and Prices New York - Oil 2 at $2.07 / gallon Total Heating Costs: $ 108,724.00 Cost per Square Foot:$ 2.17 Maximum BTU Draw :4,340,579 btu’s Now let’s install a modern Hot water boiler:

Example New York Greenhouse:40,000 sq ft - Modern Heating Schedule Sep 1 to May 1(60F-72F) Heating Efficiency: 78% Air Exchanges: 1.30 exchanges / hour No Heat Curtain Fuel Types and Prices New York - Oil 2 at $2.07 / gallon Total Heating Costs: $ 96,179.00 Cost per Square Foot:$ 1.92 Maximum BTU Draw :4,340,579 btu’s Now let’s install a good quality heat curtain: Net change: $12,545.00

Example New York Greenhouse:40,000 sq ft - Modern Hot Water Heating Schedule Sep 1 to May 1(60F-72F) Heating Efficiency: 78% Air Exchanges: 1.30 exchanges / hour Energy Curtain Installed! Fuel Types and Prices New York - Oil 2 at $2.07 / gallon Total Heating Costs: $ 68,365.00 Cost per Square Foot:$ 1.37 Maximum BTU Draw :4,340,576 btu’s Net change: $27,814.00 Total Savings = $40,359.00

Annual Heat Curtain Impact Heat Curtains cost $3.00 / sq.ft. ($120,000.00) What If We Really Did This? $27,814.00 Energy Savings With Heat Curtain ($15,912.00) Cost of Loan (10 Years @ 6.00%) ______________________________________ $11,902.00 Annual Operations Savings

Spreadsheet version of the strategic profit model Subtract $11,902.00

Improving on Established Benchmarks

The Process Required To Improve Benchmarks Define Measure Analyze Plan Improve Control Lean Flow, Six Sigma, DMAIC Photo

The Process Required To Improve Benchmarks Establish Planners (Teams) Set Team Leaders Hold Kick-off Meeting – Define Project Define Metric Segments and Teams Set Baseline Goals / Metrics Record Keeping!!!! Establish Timeline for Reports Define and Organize

The Process Required To Improve Benchmarks Document Operations / Product Flow Define Product to Process Relationships  Transactions, Inventory, Labor, Grow Schedule Quantify Scrap, Loss, By Products, Rework Document Hidden Processes  Approval stops, bottlenecks, paperwork, Define customer-driven capacity Create new SOP’s, Quality Metrics, Output Metrics Measure & Collect Data

The Process Required To Improve Benchmarks Identify process cells or families Calculate resources and time for process Define working groups by task Create optimized flow pattern Validate process design Review future capacity vs business strategy Analyze Plan

The Process Required To Improve Benchmarks Document process, Change layout Train supervisors working in the process Implement an employee feedback protocol Implement employee flexibility & training plan Create SOP’s and Visual work standards Verify process meets sales expectations Improve - Make Physical Changes

The Process Required To Improve Benchmarks Reinforcement training / certification Verify SOP’s implemented at ea. cell / station Establish metric reporting responsibilities Implement control via Charts / Graphics Evaluate upper management compliance Maintain control of daily operations / work Control and Maintain

Lessons From Lean Flow Area Scheduling Production Lead Time Batch Size Inspection Layout Empowerment Inventory Turn Flexibility C.O.G.S. Traditional Forecast - Push Speculative Stock Long Large Spot Sampling Functional Low 3-4 Low Rising Lean Process Customer Order - Pull Customer Order Product Specific Small 100% at Source Continuous Flow High 5-7 High Lowering

Resources

Virtual Grower – Energy/Production Software http://www.ars.usda.gov/services/software/download.htm?softwareid=108 RET Canada – Energy Software http://www.retscreen.net/ang/home.php University of Florida – Financial Resources http://hortbusiness.ifas.ufl.edu/publications.php Cornell University – Benchmark & Financial Software & 2003 Publication http://hortmgt.aem.cornell.edu/programs/hortbusiness.htm Financial Calculators http://www.financialcalculators.com http://www.bplans.com/business calculators/

Ellisonchair.blogspot.com Ellisonchair.tamu.edu

Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University Dr. Paul A. Thomas Professor & Extension Specialist.

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Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University Dr. Paul A. Thomas Professor & Extension Specialist.

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