Dr. Charlie Hall
Ellison Chair in International Floriculture
Texas A&M University
charliehall@tamu.edu
Dr. Paul A. Thomas
Professor & Extension Specialist
University of Georgia
pathomas@uga.edu
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
27%
No
2.
73%
Yes
No
Ye
s
1.
1.
2.
3.
4.
5.
Less than 1
1 to 5
6 to 10
11 to 20
More than 20
67%
20%
11%
2%
0%
1
2
3
4
5
1.
2.
3.
4.
Under 30
30 to 49
50 to 65
Over 65
0%
7%
38%
55%
1
2
3
4
24%
Re
d
an
le
sa
ot
he
r
on
l
we
r
ta
i
re
lg
ro
ta
i
gr
ow
er
o
lg
r..
.
nl
y
y
6%
le
4.
28%
W
ho
le
3.
43%
sa
2.
Wholesale grower
only
Wholesale and retail
grower
Retail grower only
other
W
ho
le
1.
1.
2.
Year-round
Seasonal
0%
0%
1
2
1.
2.
3.
4.
Sole proprietorship
Partnership
23%
S-corporation
C-corporation
29%
26%
23%
Sole proprietorship
Partnership
S-corporation
C-corporation
31%
1.
39%
2.
6%
3.
14%
4.
10%
5.
Greenhouse only
Greenhouse and nursery
Greenhouse & florist
Greenhouse & vegetable
Other
26%
1.
20%
2.
19%
3.
15%
4.
10%
5.
10%
6.
Less than 50,000 ft2
51-100,000 ft2
101-250,000 ft2
251-500,000 ft2
501-1,000,000 ft2
More than 1,000,000 ft2
18%
17%
12%
11%
8%
6%
5%
sl
o
w
U
nd c r
er op
ca
g
pi r..
.
ta
liz
Po ati
or on
H
pr
i
ic
H gh
ig
la ing
h
bo
m
at r c
o
e
W
as ria st
t e ls
or co
st
Po ov
or e ru
ca se
sh
f lo
w
O
D
t
on he
’t r
kn
ow
5%
r
to
tp
u
ou
6.
7.
8.
9.
w
2.
3.
4.
5.
19%
Low output or slow crop
growth
Undercapitalization
Poor pricing
High labor cost
High materials cost
Waste or overuse
Poor cash flow
Other
Don’t know
Lo
1.
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both




About 15% of firms have already exited
the industry.
About 35-40% of those left are holding
steady (flat sales).
About 40-45% have had declining sales
and are just hanging on.
The last 15-20% or so have increased sales
(& profits) during this time period.
innovate and reduce costs
within the supply chain.
tweak existing or develop
new value proposition(s).
have enough financial capital
to outlast competitors.

Major score keeping areas include:
 Financial – e.g. return on assets, sales volume, and
gross profit.
 Operational – e.g. labor utilization rates, quality and
safety measures.

Educate employees about the correlation
between these metrics and profit.
Companies who benchmark
achieve 69% faster growth and
45% greater productivity than
those who don’t.
PWC Trendsetter Barometer Survey

Time series analysis – comparing your own
firm’s performance against a previous time
period (previous quarter, this quarter last
year, etc.)

Cross sectional analysis – comparing your
firm’s performance against similarly-sized
firms in the industry.
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Adopting Operational Benchmarks
For Long Term Success
2009 OFA ShortCourse
Credits: Thank you Wen Fei and Steven!
New York Greenhouse Business Summary
and Financial Analysis. Pub. EB-2003-12
Wen-Fei Uva and Steve Richards, 2003
What I will cover:
Labor Efficiency
Sales and Marketing
Crop Production
Why Look At
Operational Benchmarks?
• Many financial parameters are based on
operational expenses and outputs.
• Small improvements in outputs, sales and
reduction of losses (shrink) can have
significant impact on financial outcomes.
• Operational benchmarks are essential to
management and staying on track!
How many weeks is your
operation open for business?
64%
1.
2.
3.
4.
5.
11 (Spring Only)
22 (Spring/Fall)
52 (Full Year)
26 (Half Year)
44 (Eleven Mo.)
13%
11%
7%
5%
1
2
3
4
Answer Number
5
How many full time
employees do you have?
1.
2.
3.
4.
5.
One
6
12
24
Over 24
41%
25%
14%
10%
1
2
3
11%
4
Answer Number
5
How many supervisors
manage those employees?
29%
1.
2.
3.
4.
5.
One
Two
Three
Four to Five
Over 5
20%
20%
17%
14%
1
2
3
4
Answer Number
5
How do you pay your
“worker bees” ?
94%
1.
2.
3.
4.
5.
Hourly Wage
Piece Work
Task Unit
Sub-Contract
Familial Slavery
1
0%
1%
2
3
0%
4
Answer Number
4%
5
Small Changes Add Up!
Several simple changes may
bring you back to profitability.
Change in Profit
to a 1% Increase in:
Parameter
Change
Yield
Production Increase
Labor Hours
Labor Cost (Wage)
Equipment Investment
Management Cost
Packaging Costs
Fuel
Interest Rate
+ 26.90 %
+ 24.63 %
- 7.17 %
- 5.25 %
- 4.18 %
- 3.93 %
- 2.28 %
- 2.18 %
- 0.97 %
Source: Kirschling and Jensen, 1974
Crop Production Metrics
• Units Produced / Person, Team, Line
• Units Per Hour / Person, Team, or Line
• Waste Units / Person, Team, or Line
______________________________________
• Percent Loss by Crop or “% Shrink”
 Number units Invoiced / Number units produced.
 Example: 45,906 sold / 58,424 produced = 0.786
= (1 - 0.786) = 21.4% shrink!
Dollars and Sense
• Examples: (5% shrink)





Grow 1,000 - 4 ½ annuals
Selling price = $3.99
Gross revenue = $3,790.50
Cost of growing = $2,650
Net profit = $1,140.50
Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire
Profits reduced by
$199.50 or 17%
Dollars and Sense
• Examples: (10% shrink)





Grow 1,000 - 4 ½ annuals
Selling price = $3.99
Gross revenue = $3,591
Cost of growing = $2,650
Net profit = $941
Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire
Profits reduced by
$399 or 42%
Dollars and Sense
• Examples: (15% shrink)





Grow 1,000 - 4 ½ annuals
Selling price = $3.99
Gross revenue = $3,391.50
Cost of growing = $2,650
Net profit = $741.50
Roberto Lopez, Purdue Univ. and Brian Krug, Univ. of New Hampshire
Profits reduced by
$598.5 or 81%
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
1.
Ye
s
35%
No
Yes
2. No
65%
1.
Ye
s
43%
No
Yes
2. No
57%
89%
Yes
2. No
1.
No
Ye
s
11%
93%
Yes
2. No
1.
No
Ye
s
7%
1.
Ye
s
40%
No
Yes
2. No
60%
69%
Yes
2. No
1.
No
Ye
s
31%
51%
Yes
2. No
1.
No
Ye
s
49%
50%
50%
Yes
2. No
No
Ye
s
1.
64%
Yes
2. No
1.
No
Ye
s
36%
56%
No
44%
Ye
s
Yes
2. No
1.
70%
Yes
2. No
1.
No
Ye
s
30%
Yes
2. No
63%
1.
No
Ye
s
37%
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Benchmarking
Operational Metrics
Each operational metric is based
on, and will tie into, the financial
metrics to be used by your
company.
Labor metrics are assessed by
work unit / process
Benchmarking
Operational Metrics
External benchmark metrics are useful for
establishing company to company comparisons,
if you can find benchmarks for a industry
segment similar to yours.
Internal or “historic” metrics are the most useful
guides for assessing improvements to
efficiency, organization, production flow and
marketing.
Example: Ask Yourself....
• Is my transplant line managed effectively?
• Is my shipping department efficient?
• Are my sales team leaders meeting goals?
• Am I meeting company conservation goals?
• How much room do I have for improvement?
Example: Transplant Line Metrics
What Do I Need to Know?
• Line production per day or per hour.
• Productivity per person, per day or per hour.
• Overall labor cost / hourly cost
• Number of labor hours utilized by crop.
• Loss (shrinkage) at transplant line by crop.
Productivity Assessment
In-Series Task Process
100
80
60
40
20
0
Line 1
Line 2
Line 3
Line 3
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Do You Seed Or Transplant
Using Human Labor?
51%
1.
2.
3.
4.
5.
Yes : Just my family
Yes : 2-10 Workers
Yes : 10-15 Workers
Yes : 15 + Workers
No – I’m automated!
21% 19%
5%
s
Ye
:
m
st
Ju
..
y.
s:
Ye
10
2-
5%
W
...
s
Ye
15
01
:
W
..
o.
s
Ye
:
15
+
Answer Number
. ..
W
No
...
–
I’m
m
to
au
Productivity Assessment
In-Series Task Process
100
80
60
40
20
0
Poor Line Manager
62%
76
75
74
Line 1
Line 2
6652%
Line 3
28%
Line 3
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Poor Pace Setter
Productivity Assessment
Independent Task Process
100
80
60
40
20
0
Line 1
Line 2
Line 3
Line 3
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Do You Regularly Track
Employee Efficiency?
Never
2-4 times a year
Monthly
Weekly
Daily
30%
13%
Answer Number
ly
8%
Da
i
y
W
ee
kl
y
on
th
l
ay
es
24
t im
M
er
e.
..
7%
Ne
v
1.
2.
3.
4.
5.
42%
Productivity Assessment
Independent Task Process (Piece Work)
Horrid Placement !
Best Employee!
100
80
60
40
20
0
Line 1
Line 2
Line 3
Line 3
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Profit Killers
So What?
Let’s assume we have a production goal of 12,000 units
/ day. (4000 units per line…or 500 units / hour)*
Hourly wages are paid @ $10.50 per hour.
Line 1 = 4,000 * 0.28 = 1,120
Line 2 = 4,000 * 0.52 = 2,080
Line 3 = 4,000 * 0.62 = 2,480
5,680 per day
12,000 / 5680 = 2.11 (days) * 8 hr = 16.9 hours
Line efficiency is only 47.3% !!!!!
Cost = 12 employees * $10.50 * 16.9 = $2130.00
*Based upon previous performance standards!
So What?
…………..5680? Can we do better? Probably!
Let’s assume we can impart a 20% increase in
productivity (units) by rearranging personnel in the
lines: Yield = 8040 Units
Let’s also assume we can increase productivity by 20%
by re-training or replacing poorly performing
employees: Yield = 10440 units
12,000 / 10440 = 1.15 * 8 = 9.20 hours to complete the
job!
12 employees * $10.50 * 9.20 hours = $1159.00
$2130.00 – $1159.00 = $971.00 savings ….(in one day!)
Production Line Management
In
1
2
3
4
Out
Where Do Your Place
Your Slowest Worker?
15
0%
0%
...
po
te
ve
r
At
wh
a
In
th
e
en
d
fro
nt
of
o.
..
. ..
0%
At
th
e
1. At the end of the line
with the manager at the
end point.
2. In the front of the line
with the manager at the
front.
3. At whatever position has
the weakest employee
Answer Number
Where Do Your Place
Your Slowest Worker?
In
1
2
3
4
Out
Manager
Here!
A. At the end of the line, with the line manager
positioned at the end point.
This allows the manager to monitor overall
output, the slow employee and line pace!
Are We Done?
• What if I cleaned house and eliminated a
transplant line? Can I do the whole job for
the same money in the same # of days?
• Could I actually get rid of one supervisor’s
salary?
Do you think it would be more
efficient to eliminate one
transplant64%
line?
1. Yes
2. No
3. Don’t know.
18%
1
2
Answer Number
18%
3
Productivity Assessment
Independent Task Process
100.00
80.00
60.00
40.00
20.00
0.00
Line 1
Line 2
Line 3
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Positions to be eliminated!
Line 3
Productivity Assessment
In-Series Task Process
100.00
80.00
60.00
40.00
20.00
0.00
Line 1
Line 2
66%
68%
Line 2
Line 1
Pos 1
Pos 2
Pos 3
Pos 4
Reconfigured In-Series Process = 67% average efficiency
(assumes training, and effective management implemented)
Eliminating a Transplant Line?
Two lines operating at 67% efficiency yields
8040 units per day.
12,000 / 8040 = 1.49 @ 8 = 11.94 hours
8 Employees * $10.50 * 11.94 hours = $1002.28
Our previous best was $1159.00…We can get the job
done for $157.00 less by firing four employees and
only running two transplant lines!!!!
……..and we free up a supervisor!
Benchmarks?
In this example you would set your new
benchmark at 67 % efficiency and explore!
Track production (by task) to get perspective.
Reward managers that exceed a benchmark
Troubleshoot if productivity fails to reach a
benchmark at any point in the future.
Tracking Benchmarks Visually
Transplant Operations
100
???
Productivity per line
90
80
70
60
Line 1
Line 2
50
40
30
20
10
0
Snaps
Pansies
Dianth
Vinca
Task
Salvia
Begonia
If the production issue cannot be
fixed……What should I do?
61%
Increase assigned cost
Decrease # units goal
Increase # units goal
Fire the manager!
17%
17%
ag
...
ni
. ..
m
th
e
Fir
e
se
ea
In
cr
an
#u
un
i
#
as
e
De
cr
e
ea
se
as
sig
...
...
6%
In
cr
1.
2.
3.
4.
Answer Number
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
The key to success in
any field is simply a
matter of practicing a
specific task for a total
of 10,000 hours.
Source: Outliers, Malcomb Gladwell

They analyze resources & capabilities to
determine competitive advantages.

They tear apart the value chain and
reengineer to reduce costs (lean flow).

They implement effective financial
management practices (benchmarking,
etc).
Daily
Weekly
Monthly
Quarterly
Semi-annually
Annually
Every few years
Never
43%
18%
16%
10%
9%
4%
0%
N
ev
er
ly
Q
ua
rt
Se
er
m
ly
i-a
nn
ua
lly
A
nn
Ev
ua
er
lly
y
fe
w
ye
ar
s
th
M
on
W
ee
k
ly
0%
D
ai
ly
1.
2.
3.
4.
5.
6.
7.
8.
48%
37%
14%
cc
kk
e
ep
er
A
0%
0%
ou
nt
an
or
t
ow
n
...
C
on
B
su
an
lta
ke
nt
O
r
w
o
ne
r
le
r(
nd
s)
er
or
yo
ur
N
on
se
e
lf
of
ab
ov
e
2%
oo
3.
4.
5.
6.
Accountant
Bookkeeper or own
system
Consultant
Banker or lender
Owner(s) or yourself
None of above
B
1.
2.
Focus
Financial analysis: Applying analytical techniques to financial
statements and other relevant data to
produce information useful for decision
making.
Three Issues : Profitability, Liquidity, Safety (Solvency or Risk)
In general, each financial ratio is
closely related to one of these
three fundamental issues.
Strategic Profit Model
Profit
Asset
margin x turnover
=
ROI
(ROA)
x Leverage =
factor
ROE
Net profit
Net sales
Net profit Total assets Net profit
x

x

Net sales Total assets Total assets Net Worth Net worth
ROIC = (net income – dividends)/capital
ROIC > Cost of capital = value created
Nursery grower 3.9% / 24.1%
NY Greenhouse growers 7% / 40%
Design/Build Firms 14.2%
Maintenance Firms 16.3%
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Operational Profitability
• Net Income per Square Foot per Week
 Net Income / GH Sq. Ft. X Weeks in Operation
This adjusts income / sq. ft. for different lengths of operations.
$0.034 per sq. Ft greenhouse space / week
Operations
• Labor As A Percent of Sales
 Total Labor Cost / Total Variable Costs
This is an indirect measure of labor efficiency and cost efficiency.
$159,890 / $589,980 = 0.22 or
22.0%
• Operating Expense Ratio
 Total Variable Costs / Total Revenue
The average % of sales price needed to cover direct costs of crop.
$440,768 / $589,890 = 0.71.7
or
71.7%
Production Efficiency Metrics
• Worker Equivalents.
Total # of labor hours / year divided by 2760 (55h per week)
This accounts for part-time labor and temporary workers.
(8 wkrs x 51wks x 40hr) + (19 pt-wkrs x 36 wks x 20hr) =
(16,320 hours + 13,680 part hours) = 30,000 hours
30,000 hours / 2760 hours = 10.8 worker equivalents!
New York Greenhouses averaged 8.9 FTE Worker Equivalents
for the average 40,000 sq. ft greenhouse.
Production Efficiency Metrics
• Net Income per Worker Equivalent
 Net Income / Number of Equivalent Workers
This measures how well labor is used to generate net income.
$8,065.00 per worker equivalent is average.
• Sales per Square Foot
 Total Sales / Sq. Ft. Production Space
This establishes how well use is used to generate sales
$14.00 is the average for NY Greenhouses
Production Efficiency Metrics
• Square Feet per Worker Equivalent
 Sq. Ft Production / Number of Equivalent Workers
This is an indirect measure of worker efficiency / responsibility.
8,502 sq. ft per FTE worker
•
Greenhouse Area per Operator
 Total Sq. Ft. Space / Production Managers
An indirect measure of how efficiently the greenhouse is managed
1.2 FTE-Managers per 40,000 sq. ft operation
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both

Current Ratio = Current Assets ÷ Current Liabilities

Ideal level? – 2 : 1

A ratio of 5 : 1 would imply the firm has $5 of assets to
cover every $1 in liabilities

A ratio of 0.75 : 1 would suggest the firm has only $0.75 in
assets available to cover every $1 it owes

Too high – Might suggest that too much of its assets are
tied up in unproductive activities – too much inventory,
for example?

Too low - risk of not being able to pay your liabilities.

(Current assets – inventory) ÷ liabilities

1:1 seen as ideal

The omission of inventory gives an indication of the cash
the firm has in relation to its liabilities (what it owes).

A ratio of 3:1 therefore would suggest the firm has 3
times as much cash as it owes – very healthy!

A ratio of 0.5:1 would suggest the firm has twice as many
liabilities as it has cash to pay for those liabilities. This
might put the firm under pressure but is not in itself the
end of the world!
Ratio
Current Ratio
Quick Ratio
Debt to Equity
EBIT to Total Assets
Times Interest Earned
Cash to Currrent Liab.
Sales to Working Capital
Calculation
Current Assets/Current Liab
(Cash+AR) ÷ Current Liab.
Total Liab ÷ Net Worth
EBIT ÷ Total Assets
(EBT + I) ÷ Interest
Cash ÷ Current Liab
Net sales ÷ (CA - CL)
Value
2.0 or >
1.0
1:1
2+% > CoC
6-8X
10-20%
varies
Average Collection Period
Inventory Turnover
Inventory Holding Period
Sales to Fixed Assets
AR ÷ (Credit Sales ÷ 365 days)
COGS ÷ Average Inventory
365 days ÷ Inventory Turnover
Net Sales ÷ Net Fixed Assets
1.3x terms
varies
varies
varies
Hat tip to Barry Sturdivant, Bank of The West


Liquidity – One of the most important things we will talk
about today. Banker’s analyze it by first looking at your
working capital.
Working Capital = Currents Assets – Current Liabilities
 Every business has a minimum WC requirement for two
reasons:
1) To pay bills on a timely basis
2) To provide a proper collateral margin for your line of
credit
Assets = Liabilities + Net Worth
Current Liabilities
Current Assets
Long-Term Liabilities
Fixed Assets
Long-Term Investments
and Other LTA
Net Worth
Working Capital
(Long-Term Liabilities)
(Fixed Assets & Long-Term
Investments)
(Net Worth)
-- Seasonal increase & decrease in A/R & Inventory.
 Corresponding increase & decrease to revolving line of credit used
to finance seasonal increase to trading assets and later get repaid
from collection of A/R.
(1)
(2)
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (3)
Working Capital
(Long-Term Liabilities)
(Fixed Assets & Long-Term
Investments)
1. Working Capital You Need
2. Working Capital You Have
3. RLOC isn’t getting paid, or Trade
isn’t being paid on time.
(Net Worth)
Banks need one or both of two things:
1. Have the RLOC brought to a zero
balance; and/or
2. Have the RLOC remain within
borrowing base parameters.

You can’t pay bills on a
timely basis

You don’t have enough
availability on your line
of credit
Working Capital can only be
impacted by changes in the
long-term portions of the
balance sheet and how they
affect the cash level.
New Level of Working Capital
Old Level of Working Capital
(Long-Term Liabilities)
Old Level of Fixed Assets
New Level of Fixed Assets
(sell $1MM of fixed assets and use
cash to pay down the line of credit)
(Net Worth)
New Level of Working Capital
New Level of LTD
Old Level of Working Capital
Old Level of LTD
Fixed Assets
(Net Worth)
1) This option simply moves short-term debt to the long-term section
of the balance sheet.
2) To do this you must have term debt borrowing capacity which is
determined by profitability, cash flow, collateral and net worth
position.
Working Capital
(Long-Term Liabilities)
(Fixed Assets & Long-Term
Investments)

(Net Worth)
Net Worth can be increased in these ways:
1) Sell part of your company to an investor
2) Inject your own cash
3) Generate additional earnings
Level You Need
  
(Long-Term Liabilities)
Level You Have
Fixed Assets

(Net Worth)
This is done by lowering your investment in trading assets. In other
words, instead of building your working capital level, you lower your
working capital requirement to meet your level.
1) Increase Inventory Turnover
2) Increase A/R Collections

A lack of cash will get you into trouble before a lack
of earnings.

Although you should take trade discounts, be careful
not to do so at the expense of not having cash when
you need it most.

Banks are less likely these days to bail you out
during the production and shipping season with an
increase (even temporary) to your line.

If banks do come to your aid, it will likely involve fees
and a rate increase.








Delay non-strategic investments.
Refinance what they can.
Exercise the full length of credit terms.
Sell unused assets (if possible).
Apply for credit long before it is needed.
Reduce estimated tax payments.
Review insurance premiums.
They aggressively manage working capital
(liquidity).
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Sales and Marketing
Metrics
How Many Employees Work
As Sales Reps For You?
78%
1.
2.
3.
4.
5.
One – Three
Four – Six
Seven- Nine
Ten to Fifteen
Over 15
16%
2%
1
2
3
2%
4
Answer Number
3%
5
Generated Sales $1,000
Salesperson Performance
70
60
50
40
Mike
Roger
Pam
30
20
10
0
2001
2003
Year
2005
Who Was The Most
Consistent Sales Person?
Answer Number
ike
0%
M
Ro
ge
r
8%
Pa
m
1. Pam
2. Roger
3. Mike
92%
Salesperson Performance
Generated Sales $1,000
Graphs alone are hard to interpret!
70
60
Pam is !
50
40
Mike
Roger
Pam
30
20
10
0
2001
2003
Year
2005
Who Would You Fire If You
Had to Cut Back?
91%
1. Pam
2. Roger
3. Mike
Answer Number
ike
M
Ro
ge
r
Pa
m
2%
8%
Southern Living
Promotion*
Three rainy
Weekends
Rainy
Weekends
Two, Cool,
Sunny
Weekends
2007
2006
2005
December
November
October
September
August
July
June
May
April
March
Drought / Watering Bans
February
700
600
500
400
300
200
100
0
January
Sales
Thousands of Dollars
Tracking Temporary Effects
Customer Metrics
• Units Rejected by Customer / Week
• Customer Complaints / Week
• Follow-up Customer Contacts Made
• Consecutive Years as Customer
• Percent of Total Sales per Customer
This is best used by wholesalers who sell to
large clients. More than 35% to any one
customer is not good!
Sales Metrics
• Percent New Customer
Total new customers / Total customers that year
This is a direct measure of customer base growth
21 / 74 = 28% New Customers
• Percent Customers Dropped / Lost
Total New Customers / Total Dropped Customers
This is a direct measure of customer turnover.
17 / 74 = 22% Customer Base Loss
Net Increase In Customer Base: 5%!
Sales Team Metrics
• New Contacts / Week
 Total number of new contacts / Number of weeks of sales
event. … or number of sales weeks / year.
This is a direct measure of sales team efficiency.
• Customer Value Ratio
 Number of Orders / Dollar Value of Orders
This is an indirect assessment of overall customer
value. You can also apply this metric on a per
customer basis to evaluate customer base.
Remember, we want customers - not costomers!
Marketing Metrics
• Market Impact (Sales per dollar spent)
 Total Sales / Market Program Costs
Sum of advertising, sales expenses, etc.
divided into total sales generated for that
particular program. Track every event!
Remember, a marketing program can be
divided by market segment, product line,
etc. You can track by segment to measure
effectiveness that might not show up in
overall market assessments!
Marketing Must Have Strategy!
Marketing Benchmarks Allow You to Evaluate
The Effectiveness of Your Strategy and Your Implementation
Marketing Metrics
• Program Contact Efficiency
 Total Program Costs / # Customers Contacted
• Program Customer Yield
 Program Costs Per Buying Customer
• Program Product Yield
 Program Costs / Individual Product Line Units Sold
Marketing Metrics
• Sales per Worker Equivalent
 Sq. Ft. Production Space / Number of Equivalent Workers
This establishes how well use is used to generate sales
$101,981.00 wholesale gross income / FTE
• Hired Labor Cost as Percent of Sales
 Cost Of Labor / Total Sales Income
This establishes how well use Labor is used to generate sales
24.1 % is average for NY Greenhouses.
Do You Track Shipping Costs,
Routing & Driver Efficiency?
15
1.
2.
3.
4.
5.
No, Don’t Have Time
Fuel Costs Only
Routes & Time
Driver Efficiency
Yes - All Three
0%
1
0%
0%
2
3
0%
0%
4
5
Answer Number
Are My Shipping Costs In Line
With Other Businesses?
The national average for shipping costs is
1.5% of Total Sales. In the greenhouse
industry, we average between 2.0 and 2.5%
What’s Included In
Transportation Costs?
•
•
•
•
•
•
•
•
•
Maintenance & Repairs
Freight Bills
Rental Fees
Gas / Oil
Driver Wages
Insurance
Licenses, Fees
Tolls, Tickets
Taxes
Transportation and Shipping
Costs are Rising Rapidly
Total shipping costs have increased 87% in
the last 5 Years, and predictions are that
costs will increase another 30% in two years.
• Transportation Expense
 Cost of Shipping and Transportation / Total Sales Income
This establishes how well use transportation and shipping
technology is used to generate sales
2.0 % is average for NY Greenhouses.
Shipping Metrics
• Gallons Fuel Used / Week / Driver
• Miles off Route Distance / Week / Driver
• Percent On-time Delivery / Driver
• Percent Follow Up Orders / Driver
Shipping Metrics
• Route Efficiency
 Dollars spent per mile
 Dollars spent per unit load value
 Load value per mile driven
 Load value per hour driven
 Number of client visits per day
 Dollars spent per number clients on route.
Conservation Metrics
• Gallons Water Used / Week
• KWH Electricity Used / Week
• KWH Used Per Dollar Gross Income Generated / Week
• Gallons Heating Fuel Used / Week
• Gross Value In Truck per Shipment
• Per Mile Cost per Dollar Gross Revenue
Do You Track Water Use?
15
1.
2.
3.
4.
No
Via Water Bill
Via Flow Meter
Via Computer
0%
1
0%
2
0%
3
0%
4
Answer Number
5
An In-Line Flow Meter
Human Resource Metrics
• Percent Turnover by Unit
• Percent Turnover Company-wide
• Total HR Expense Accrued Per Employee
• Number of Accidents / Injuries / Disciplinaries
Do You Track: Employee infractions,
Sick days, Turn-over?
15
1.
2.
3.
4.
5.
No
Sick Days
Infractions
Turn-over/year
2 to 3 of the above
0%
1
0%
0%
2
3
0%
0%
4
5
Answer Number
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both

Costs establish the price floor.
Everyone’s costs are different!
Growers have to
calculate the costs
for their firm!
…or be eaten alive!



“Potting” process generally accounts for
20-25% of total direct labor.
“Care as needed” cultural practices
account for about 25% of total labor.
“Harvesting and shipping” process can
consume up to 50% of direct labor.
Look for the repetitive, tedious, time-consuming
tasks and look to automate!

Every time you touch a plant,
it costs money!
Source: J. Bartok, GPN, June 2003.
• Retail consolidation
• Fewer buyers
• Oversupply
• Retail price pressure
• Lowball competitors
• Oversupply
• Product tags/labels
• Rising fuel costs
• JIT delivery, setup & care
• Labor costs (wages) and
availability (H2B)
• Barcode/pre-pricing
• Returnable shipping
equipment
• Increased costs of
materials (top soil,
mulch)
• Pay-by-scan
• Increased workers’
compensation rates
• Take back unsold product
• Consistent pricing
• Cost of health care
insurance
• Continuous volume
replenishment
• Increased equipment
costs
• Rising input costs (e.g. fuel)
• Regulatory compliance
(air & noise)
• Labor availability

“These staggering costs have us scared to death”

“We are surviving, but profit-wise, it’s a squeeze.”

“Costs of energy, labor, fumigants, pots,
polyethylene, delivery – everything is going up. It’s
really beginning to hurt.”
Quotes from article in a trade journal.
MAY 10, 1979!







Costs establish the price floor.
Lower break-even point – go lean.
Analyze employee productivity.
Lock in energy contracts at lower rates.
Look at long-term distribution options.
Buy in pre-finished and turn the margin.
Do NOT cut marketing expenses!
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Using Virtual Grower
Tools to Help You Make
Decisions:
Virtual Grower
RET Canada
Microsoft Excel
Quickbooks
Academic Software
NC State
Rutgers
Ecke’s
Have You Heard Of and Used
Virtual Grower?
Yes but Never have
Yes – Tried It Once
Yes – Several Times
Yes – Use It Often
Never Heard of It
rd
of
...
0%
Ne
v
er
–
He
a
Us
e
al
...
Ye
s
er
0%
It
O.
..
0%
Se
v
–
Ye
s
Ye
s
–
Tr
ie
d
er
...
ev
bu
tN
0%
I t.
..
0%
Ye
s
15
1.
2.
3.
4.
5.
Answer Number
It’s Easy To Input Data
Calculated Costs by Month
Generates Reports
Features Virtual Grower 2.0
Allows you to estimate energy costs
Allows you to verify crop / heating schedule
Allows you to play what if on technology
upgrades and retrofits.
Allows you to measure / track system
efficiencies and weather / cost per hour
metrics.
One Little Problem
• Our “Example” is based upon data provided to you on
Page 47. Table 34. See “Heating Fuel” = $53,073.00
• Please note that in 2001, the price of No. 2 heating
oil was 97 cents / gallon. The 2009, price was 207
cents / gallon. To make this example more “real,” we
corrected the fuel cost to reflect price increases.
• The cost of fuel for an average NY Wholesale firm
would now be just over $112,000.00 We used a
model GH in Virtual grower with a final heating fuel
cost of $108,724.00 That should be close enough!
Example
New York Greenhouse:
Heating Schedule
Heating Efficiency:
Air Exchanges:
40,000 sq ft - Old Steam Boiler
Sep 1 to May 1 (60F-72F)
69%
1.30 exchanges / hour
No Heat Curtain!
Fuel Types and Prices
New York - Oil 2 at $2.07 / gallon
Total Heating Costs:
$ 108,724.00
Cost per Square Foot:
Maximum BTU Draw :
$ 2.17
4,340,579 btu’s
Now let’s install a modern Hot water boiler:
Example
New York Greenhouse:
Heating Schedule
Heating Efficiency:
Air Exchanges:
40,000 sq ft - Modern
Sep 1 to May 1 (60F-72F)
78%
1.30 exchanges / hour
No Heat Curtain
Fuel Types and Prices
New York - Oil 2 at $2.07 / gallon
Total Heating Costs:
$ 96,179.00
Cost per Square Foot:
Maximum BTU Draw :
$ 1.92
4,340,579 btu’s
Net change:
$12,545.00
Now let’s install a good quality heat curtain:
Example
New York Greenhouse:
Heating Schedule
Heating Efficiency:
Air Exchanges:
40,000 sq ft - Modern Hot Water
Sep 1 to May 1 (60F-72F)
78%
1.30 exchanges / hour
Energy Curtain Installed!
Fuel Types and Prices
New York - Oil 2 at $2.07 / gallon
Total Heating Costs:
$ 68,365.00
Cost per Square Foot:
Maximum BTU Draw :
$ 1.37
4,340,576 btu’s
Net change:
$27,814.00
Total Savings = $40,359.00
Annual Heat Curtain Impact
Heat Curtains cost $3.00 / sq.ft. ($120,000.00)
What If We Really Did This?
$27,814.00 Energy Savings With Heat Curtain
($15,912.00) Cost of Loan (10 Years @ 6.00%)
______________________________________
$11,902.00 Annual Operations Savings
Spreadsheet version of the strategic profit
model
Subtract
$11,902.00
Improving on
Established
Benchmarks
The Process Required To
Improve Benchmarks
Lean Flow, Six Sigma, DMAIC
•
•
•
•
•
•
Define
Measure
Analyze
Plan
Improve
Control
Photo
The Process Required To
Improve Benchmarks
Define and Organize
•
•
•
•
•
•
Establish Planners (Teams)
Set Team Leaders
Hold Kick-off Meeting – Define Project
Define Metric Segments and Teams
Set Baseline Goals / Metrics Record Keeping!!!!
Establish Timeline for Reports
The Process Required To
Improve Benchmarks
Measure & Collect Data
• Document Operations / Product Flow
• Define Product to Process Relationships
 Transactions, Inventory, Labor, Grow Schedule
• Quantify Scrap, Loss, By Products, Rework
• Document Hidden Processes
 Approval stops, bottlenecks, paperwork,
• Define customer-driven capacity
• Create new SOP’s, Quality Metrics, Output Metrics
The Process Required To
Improve Benchmarks
Analyze Plan
•
•
•
•
•
•
Identify process cells or families
Calculate resources and time for process
Define working groups by task
Create optimized flow pattern
Validate process design
Review future capacity vs business strategy
The Process Required To
Improve Benchmarks
Improve - Make Physical Changes
•
•
•
•
•
•
Document process, Change layout
Train supervisors working in the process
Implement an employee feedback protocol
Implement employee flexibility & training plan
Create SOP’s and Visual work standards
Verify process meets sales expectations
The Process Required To
Improve Benchmarks
Control and Maintain
•
•
•
•
•
•
Reinforcement training / certification
Verify SOP’s implemented at ea. cell / station
Establish metric reporting responsibilities
Implement control via Charts / Graphics
Evaluate upper management compliance
Maintain control of daily operations / work
Lessons From Lean Flow
Area
Traditional
Lean Process
Scheduling
Production
Lead Time
Batch Size
Inspection
Layout
Empowerment
Inventory Turn
Flexibility
C.O.G.S.
Forecast - Push
Speculative Stock
Long
Large
Spot Sampling
Functional
Low
3-4
Low
Rising
Customer Order - Pull
Customer Order
Product Specific
Small
100% at Source
Continuous Flow
High
5-7
High
Lowering
Topic
Presenter
Information gathering
Both
Importance of benchmarking
Charlie
Operational benchmarks
Paul
Financial red flags
Charlie
Productivity (labor) benchmarks
Paul
Strategic profit model
Charlie
Crop production metrics
Paul
Key financial ratios & working capital
Charlie
Sales & marketing metrics
Paul
Managing costs
Charlie
Tools for improvement
Paul
Resources
Both
Resources
Resources
•
•
Virtual Grower – Energy/Production Software
http://www.ars.usda.gov/services/software/download.htm?softwareid=108
•
•
RET Canada – Energy Software
http://www.retscreen.net/ang/home.php
•
•
University of Florida – Financial Resources
http://hortbusiness.ifas.ufl.edu/publications.php
•
•
Cornell University – Benchmark & Financial Software & 2003 Publication
http://hortmgt.aem.cornell.edu/programs/hortbusiness.htm
•
•
•
Financial Calculators
http://www.financialcalculators.com
http://www.bplans.com/business calculators/
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