The Hidden Thief Stealing Your Profits
Agriculture and food businesses are known to have razor thin margins. It is estimated that you can expect a profit margin on average around 10%. Not only are the margins tight, the product is also perishable which can result in more loss. It doesn’t take long for one thing after another to chip away at that profit margin and you may not even realize it. Today I want to focus on product damage and loss. Though this can happen at any stage of production, it can really hit the value-added and direct-to-consumer producers.
Product Loss can result in a variety of instances which is tough to plan and prevent. In the spirit of continuous improvement, I urge businesses to do a quick Failure Mode Effects Analysis (FMEA) and tackle the high impact failures first to see the biggest improvement.
But what is a FMEA? To sum it up quickly, it is a reflection on what could go wrong and what impact will it have. There are some people that are great at this type of reflection. It is typically that pessimistic person that is always thinking the worst is going to happen. Embrace it and use these thoughts. With brainstorming or reflection type analysis, the sky is the limit. You want to think about every possible failure regardless of the odds of it happening. Yes, this can be fun! It is helpful to have someone that is able to reign you in a little. Alien invasion and crop circles could definitely impact your yields but the failures should still be realistic. (Is alien invasion realistic? You can decide.)
Though I am not going to walk through an analysis in this blog post, I will give you a couple of failures to think about.
Transportation
Every time you move a product, there is risk in damage. It could be physical damage to the item itself, damage to the packaging, or in food service, damage from changes in temperature. In general, Operations Research would recommend to reduce the amount of transportation and handling of product as it is considered wasted motion. However, it is inevitable that some transportation will be needed. How can you monitor and mitigate these risks. Packaging is a quick easy one to address.
Consider you are a direct-to-consumer beef farmer. You have ribs packaged by the butcher in vacuum seal bags. However, the rib bones can easily pierce the bag and cause vacuum failure (especially when frozen). How many bags failed last year? What did that cost you in lost profit? Also, consider reaching out to customers are reviewing customer feedback on how many bags failed for the customer. Consider talking with your butcher on other packaging types. Is it worth paying more for a thicker bag or is it better to wrap in butcher paper?
Storage
Storage is no surprise as a point of potential failure. You could have the same packaging failure as above or there is potential for equipment failure. The obvious failure could be a fridge or freezer not getting down to the right temperature but consider other failures. Have you ever left the freezer door partially open? How about putting in too many fresh butchered chickens and not allowing air flow to properly chill? Some simple check could be putting in an alarm to notify you should the temperature be out of spec. Do you have backup power in case of a power outage? If a fridge breaks, do you have alternative storage for your products? This happened to us not long ago. We had just gotten back meat from the butcher and all stocked in the freezer. Unfortunately that was the time one of the freezers broke. (I am not an HVAC tech so I am not sure what the failure was but the husband eventually got it running). However, in the meantime, I was at 100% capacity and could not transfer the product to another freezer. So my options were to quick buy a freezer or do a flash sale. Both of which impacted the bottom line.
Ok, so now you have done the fun part of picking apart how everything can go wrong. How do you quantify the impact? This is where we can help. Make the decision on not only the current impact to your operations but what improvements can you make to improve your profits.