Case Study: Fix your market alignment or perish
The economics of overproduction or producing quality that customers won’t pay for have always been flawed in the agriculture business. In today’s challenging trading environment, these practices can be terminal. Agribusinesses must use human, capital, and natural resources efficiently to produce only the volume and quality customers want when they want it, if they are to protect their profitability.
Profit margins in fresh food production are under intense pressure, and trading conditions are unlikely to change in the foreseeable future. No agribusiness can afford to produce more than the market desires or raw material quality customers are not prepared to pay for.
In our latest case study, we detail how we helped one of Australia’s leading vertically integrated fresh vegetable operations redesign their value chain. We focused on removing raw material supply volatility, improving Class 1 packout from 60% to 85%, reducing the planted area by 20%, cutting factory downtime by 80%, and reducing labor costs per tonne by 30%. Through a strategic and systematic approach, we transformed their operations, dramatically improving efficiency and profitability.
You can download a pdf of the full case study here.
If you want to learn more about how these strategies can benefit your agribusiness, please get with Simon Drum +61 407 567 250
Simon@psvcadvisory.com.au
Background
This agribusiness is one of Australia’s leading vertically integrated fresh vegetable operations. Quality-focused, innovative and entrepreneurial they grow, process, pack, trade and market in excess of 60,000 tonnes of fresh vegetables annually to retail, wholesale, food service and processor customers in domestic and international markets.
Disrupted by China’s entry into long-held Asian markets, the business experienced a sharp decline in competitiveness across their domestic and export markets.
The Challenges
Approximately 40% of raw material falling outside specification for premium markets
Approximately 25% more hectares being planted to meet demand
Excessive management, technical and operational resources being consumed by the enterprise
Substantial volume of non-premium raw material being transported from field to factory for processing
Periodic under and over production disrupting continuity of supply and impacting on shift management and worker fatigue
Communication and coordination between departments in the value chain below standard
Unstable processing machinery leading to availability, quality and performance issues
Over processing in the packing shed increasing wages and wear and tear on plant and equipment
Inconsistent volume impacting customer satisfaction
Marketing of unwanted non-premium product driving down return pricing
Rising processing costs and declining profitability
Market Alignment Plan Formulation
Working with the sales and factory managers, production agronomist and harvest co-ordinator, we:
Analysed prices paid and cost of goods sold for every Stock Keeping Unit (SKU) to determine most profitable SKU’s
Analysed historical packout and planting data to: Determine potential to refine the crop profile
Determine planting configuration to maximise premium carrot yields
Analysed historical carrot waste data to identify root causes of defects
Analysed production line data to understand quality control, product flows, plant, equipment and labour utilisation
Formulated an implementable multi-year improvement plan
Market Alignment Plan Implementation
A multidisciplinary value chain team was formed to drive the implementation of the multi-year improvement plan.
Utilising the expertise of the entire value chain team, improvement initiatives were prioritised based on impact, urgency and seasonal implementability.
Over three growing seasons, the team methodically reinvented the primary production system, realigned the production schedule, reengineered the processing and packing facility and redesigned the workforce.
Primary Production
› Tightened soil type, topography & location criteria for paddock selection
› Improved timing & quality of groundwork/bed forming
› Optimised planting configuration & precision
› Altered agronomic practice to reduce raw material waste
› Refined production programming to level weekly production
Manufacturing
› Levelled processing throughput
› Enhanced cooling capacity
› Stabilised shift length and rostering
Operations Management
› Introduced whole of value chain weekly planning meetings
Workforce
› Redesigned the seasonal workforce sourcing, training, supervision & performance management model
› Identified, developed & retained high-performing frontline supervisors
› Created a whole of value chain team to guide and coordinate strategic, operational & tactical decision-making
› Refined performance measurement & managed systems
Maintenance Culture
› Altered investment strategy to maintain all infrastructure, plant & equipment in ‘as new’ condition
Outcomes
Improved engagement and commitment of value chain team members and wider workforce
Increased portion of premium raw material in all crops from 60% to 85%
Improved premium packed yield per hectare farmed by 25%
Reduced planted area to produce the target number of tonnes by 20% – dramatically reducing the management, technical and operational resources consumed by the enterprise
Decreased packing shed downtime by 80% – reducing shift overruns, fatigue and wages
Increased hourly washing throughput by 40%, reducing total labour cost per tonne by 30%
Improved the integrity of the cool chain and product shelf life
Matched weekly production volumes with qualified customer demand, dramatically improving continuity of supply
The Feedback
“Simon’s unique ability to apply Lean management systems to our agricultural production has removed wasted inputs and actions resulting in a decreased cost of production. We are now experiencing an increase and efficiency in producing crop yields that is accurate, sustainable and drives continual profitability.
Simon’s skills continue past field production and into optimising processing, packing and customer delivery. The ability to provide such a broad analysis of a business makes PSVC Advisory unique.”
You can download a copy of the case study here.
If you want to discuss opportunities your agribusiness contact Simon Drum +61 407 567 250
Simon@psvcadvisory.com.au