net cost of production and breakeven milk price, the starting point in managing cost control , and the usefulness of a budget . This week we will cover a few specific cost control strategies.
6 Specific Cost Control StrategiesFiguring out where to start might seem overwhelming when managing for costs. The first place that will get the biggest response in the bottom line is the largest expense— on most dairy farms, this is feed. Between purchased feed and growing forages and/or your own grains, this may arguably be the expense area that gets the most attention, and rightfully so. There are many ways to track feed and crop expense. Income-over-feed-cost can give you a good idea of the kind of return you are getting for your feeding investment, especially if you can incorporate component efficiency as well. Employing your nutritionist, feeder, herdsman, and financial manager in tracking this area will help you achieve optimal results.
Beyond converting feed into milk, the following are some tried-and-true strategies to consider for effective cost control. Along with each item are a few examples, but with a little brainstorming I’m sure you and your crew can think of many more:
- Review purchasing procedures – Who should authorize purchases and how? How loose is your operation to employees purchasing supplies? Can anyone go to the local hardware store and charge purchases on account or grab stuff off the IBA truck? If ordering items by mail, stop to consider if the part is really needed overnight. Can you inventory some items, order ahead of time, and save on shipping charges?
- Review suppliers – Is there a lower cost provider available? Will competitors match prices found elsewhere? This may be a good area to ask employees if they can find alternatives, too.
- Negotiate, negotiate, negotiate – It’s been said that everything is up for negotiation and you may be surprised just how much is – especially with terms and contracts. One that I hear many farms working out is a contract with an A.I. company for semen purchasing and/or arm service. Usually it’s a monthly price that covers so many units of specific quality and/or so many breedings. Other possible areas are cash discounts, professional service fees, and many more.
- Review policies and other contracts – Have your insurance premiums been going up? Is it possible to review coverage levels or shop around for a better deal? How about your cell phone contract? Is it just me or does it seem like new or higher fees keep slipping in to my bill every few months? Health insurance is another big area to investigate – there should be a “navigator” or someone at your doctor’s office who can help you wade through options or point you to the right direction on a health exchange.
- Bulk purchasing – Are there any items that could benefit in savings by purchasing in large quantities and storing? Copper sulfate for foot baths and hoof care has been mentioned often as going up in price recently. Can you buy by the pallet and obtain a bulk discount? How about calf grain – do you buy by the bag or will a small grain bin work?
- Repairs – Repairs is a common category that can be manipulated to reflect current cash flow. Putting off maintenance or opting for the cheap way out often happens when cash is tight; however the old adage that an ounce of prevention is worth a pound of cure can be particularly true here. How many times has something happened that you could see coming but didn’t get around to or make plans to avert? That cheap hydraulic oil on special may look like a good deal, but what does it really cost you (or your transmission) running it through your new tractor? While repairs tends to be an area to pinch in low milk price years, too much deferred maintenance can add up.
These are just a few areas to consider for managing cost control on your dairy farm. Next week we’ll go over a few employee-specific concepts as it relates to cost control.