Cost Cost Cost
With milk prices unpredictable, inflation and interest rates going up and up in this part of the world, and all input costs increasing constantly, managing cost within your farm business well is absolutely crucial. Any waste allowed in your business is just adding to more cost. We did a quick analysis of how much costs have increased over the the last season. While milk prices had increased by around 36% over the last couple of seasons (reduced again now to about a 20% increase), most other costs increased substantially more which wiped out the benefit of a higher milk price.
Here is a quick snapshot of just some of the increases between 2021 to 2022 we saw:
- Diesel – 79% increase
- Petrol – 22 % increase
- Urea – 109% increase
- Meal – 26% increase
- PKE – 54% increase
- Interest rates – around 200%
You can see how suddenly any potential profit made from a higher milk price can be quite easily wiped out with huge increases in costs. Unfortunately we have no control over the price of these items. But we do control how we use them, when and how much. And what we waste! Focusing on these costs daily and ensuring there is no waste of any inputs such as materials, labour etc is our best chance to minimise our costs as much as possible and therefore maximise our profits. I call this the “Cost Reduction” model to profit.
Lean = Cost reduction
This is why thinking in a lean way is so critical. Minimising any waste or non value added activities such as errors and defects. And it must flow through every one in your team/ business if you do work with others. Everyone is responsible for cost control and must understand it.
Cost Control is everyones responsibility daily!
At the start of each season we have a Strategy Day with our team in which we set the budgets and targets for the next season. This means that the team understand and commit to the targets and can drive them during the season. We then talk about cost every month with our team at our Monthly Big Picture session. We run through our monthly and YTD targets vs actuals against key operating expenses and totals. We also present this information in a graphical format so that everyone can see trends and where we are sitting during the season. These cost graphs are also printed and displayed on our team Visual Management Boards. This creates focus on cost and better visibility around what costs we need to control all through the season. It should not be just a one-off discussion once during the year.
Cost visibility monthly minimum
Being very vigilant with your cost reconciliation every month and graphing these costs against targets is essential to be able to have a good handle on where you are sitting each month and be able to convey this to your team monthly to set strong disciplines around cost controls.