Controlling Your Production Costs

One of my favorite business quotes is Jack Welch’s: “Face reality as it is, not as it was or as you wish it were.” I remember reading an article in Inc. magazine written by Adam Hanft that was entitled, “The Risk of Doing Nothing.” I thought the article had some themes that were particularly fitting for the dairy industry today. Yes, I realize that it is often more comfortable to avoid talking about production costs when cash flow is so negative! However, doing nothing can often put you at greater risk than boldly moving forward with what looks like the correct option. Look what happened to Montgomery Wards as they stood by and watched Wal-Mart become, not only the largest retailer around, but also one of the largest companies of any kind. How about Starbucks’ success compared to the track record of Folgers or Maxwell House? The key is to break the “Continuum of Paralysis.” As Adam Hanft so accurately states, “No one decision to defer action ever looks all that monumental at the time.” However, over time, look out! The sad part is that indecision rarely punishes current management. It often “mortgages the future.” Thus, for those of you with another generation potentially coming into your business, is that what you want? Can you do better for them? Here are some things to do to stay on track: *     Do not misinterpret the current milk price (whether high or low) as an excuse to keep your finger on the “Hold” button. *     Look at your cost/cwt, your volume of milk, labor utilization, and how you might spread fixed costs out even further. *     Just as important – Ask yourself, “Is there a better way we could perform…?” Perhaps, your management team could offer you some suggestions. Recently, one of my clients made some changes in their feeding program that saved them over $1.00/cwt. This will be monumental to their bottom line! Along that same line, be open to new ideas. We must overcome the ongoing temptation to think that it is more risky to try new ways of completing tasks than it is to keep everything unchanged. In the dairy industry, doing nothing can get you run over! Put together an action audit and see how well you stack up against the industry. Are you currently doing everything you can to stay competitive? Are you taking time to complete and measure the small tasks that can have such a large impact on your operation? This is not just about costs per cwt. It is also about how your operation is faring in terms of cows milked per hour, labor efficiency (cwt. shipped/employee), heifer efficiency (e.g. age at first calving) and many other items. One other thought. As you compare yourself to the industry, you will likely see that you are doing better than others in terms of costs/cwt in some areas and not as well as other producers in some other areas. Don’t forget to check your current levels against those that you have historically achieved. One of the hazards of having high milk prices in the past is that we can tend to add some expenses (such as extra labor, benefits or other items) that may not seem all that cost effective in times of $13.00 milk. You may not find any problems such as this, but please make a point to at least look. “Sacred cows” can be expensive. For additional help on measuring your costs, check out To summarize, don’t fear change. Make an appointment with greater levels of success. As one of my favorite motivational speakers, Les Brown, stated, “Wherever you are in life, you made an appointment to be there!” Consider the possibilities!