1. 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 Boost Your Bottom Line: Benchmarking Analysis

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

3. 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

4. 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

5. 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.

6. 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!

7. 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

8. 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!

9. 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 14.9% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

10. 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 29.78% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

11. 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 44.66% Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire

12. 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

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

14. 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

15. 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.

16. 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!

17. Productivity Assessment In-Series Task Process Percent Efficiency

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

19. Productivity Assessment Independent Task Process Percent Efficiency

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

21. 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 units 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!

22. 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 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!)

23. 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 easiest task!

24. Where Do Your Place Your Slowest Worker? 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!

25. 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?

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

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

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

29. 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!

30. 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.

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

32. 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!

33. Subtract Cost Savings Here! Strategic Profit Model

34. FOR MORE INFORMATION: Ellisonchair.tamu.edu