Boost Your Bottom Line:
Benchmarking Analysis
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
What I will cover:
Operation Metrics
Transportation Metrics
Resource Metrics & Virtual Grower
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 = 0.717 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.
Let’s assume we have 8 full time and 19 part time workers:
(8 wkrs x 51wks x 40hr/wk) + (19 pt-wkrs x 36 wks x 20hr/wk) =
(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.
So What?
• Once you have your worker equivalent (Full
time equivalent - FTE) you can use that
number to compare many aspects of your
operation to the human resources you are
paying!
• You can also look at how each manager is
managing his/her area based upon output and
FTE. This is a very powerful tool!
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/Manager
– 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
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%
Transportation / 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.
What’s Included In Transportation Costs?
•
•
•
•
•
•
•
•
•
Maintenance & Repairs
Freight Bills
Rental Fees
Gas / Oil
Driver Wages
Insurance
Licenses, Fees
Tolls, Tickets
Taxes
Georgia Survey Results
 Majority of participants responded that
transportation is a key limiting factor for economic
growth in ornamental production
 80% of respondents stated that their transportation
costs have increased in the last year (2009) at an
average rate of 21%*
 Transportation accounted for 10% of total cost of
production
* J. M. Compte and P.A.Thomas, 2010
Routing Analysis
Order Sharing
Total Savings with 1, 2, 3, 4 and 5 Order Sharing
15%
Total Percent Savings
10%
5%
0%
1
2
3
4
-5%
-10%
-15%
Number of Orders per Route
Cost
Miles
Driving Time
Trucks
5
Location Clusters
North Alliance
Central Alliance
South Alliance
3 depots and 57 orders
8 depots and 157 orders
4 depots and 81 orders
Cost Savings in Central, South and North Alliance
15%
10%
Total Percent Savings
5%
0%
0
1
2
3
4
5
-5%
Note: for central alliance
one must include 4 orders
per route in order to begin
to see savings
-10%
-15%
-20%
-25%
Number of orders
Central Alliance
South Alliance
North Alliance
6
Location Clusters
Central Depot Location
Major Avenue or Highway
Location
Production location
Alliance distribution center location
Shipping Relocation Savings: South Alliance
18%
16%
Total Percent Savings
14%
12%
10%
8%
6%
4%
2%
0%
Cost
Miles
South Central Loc.
Trucks
South Major. Ave.
Driving Hours
Time Windows (time taken to load/unload)
20%
Total Percent Savings
16%
12%
8%
4%
0%
-4%
90 MIN
60 MIN
30 MIN
-8%
Time windows
Cost
Miles
Driving Time
Trucks
Average Cost Savings with 30, 60 and 90 min Windows
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.
Shipping Metrics
• Gallons Fuel Used / Week / Driver
• Miles off Route Distance / Week / Driver
• Percent On-time Delivery / Driver
• Percent Follow Up Orders / Driver
Conservation Metrics
Conservation Metrics
• Gallons Water Used / Week
• KWH Electricity Used / Week
• KWH Used Per $ Gross Income Generated / Week
• Gallons Heating Fuel Used / Week
• Gross Value In Truck per Shipment
• Per Mile Cost per Dollar Gross Revenue
Water Conservation
An In-Line Flow Meter
Automated watering system
Datalogger and
control system
Nemali and van Iersel, 2006
Scientia Horticulturae
EC-5 probes
Water
Solenoid
unit
Probe in container
Quality Plants Grown With 70% less Water
0.05
0.29
0.11
0.35
0.17
0.41
0.23
0.47
Using Virtual Grower To
Establish Energy Metrics
Tools:
…… to Help You Make Decisions:
Virtual Grower
RET Canada
Microsoft Excel
Quickbooks
Academic Software
NC State
Rutgers
Ecke’s
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 from
Wen Fei Uva, on Page 47. Table 34 of their publication.
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:
Cost per Square Foot:
Maximum BTU Draw :
$ 96,179.00
$ 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 =
$ 108,724.00 – $68,365.00 =
$40,359.00
..
Strategic Profit Model
Sales
Gross Margin
$1,345,803
35%
less
Gross Profit
COGS
$467,170
$878,633
less
Operating
Expenses
Pre-Curtain
Operating
Profit
$74,246
$392,924
less
Expense
percent
Federal
Taxes
29%
$0
After-tax
Profit
$74,246
divided
by
Net Profit
Margin
5.52%
Sales
$1,345,803
Inventory
Turnover
1.61
Age of Accts.
Rec.
55
Inventory
X
$833,393
Sales
+
Accts
Receivable
$202,085
$1,345,803
Current
Assets
$1,070,980
divided
by
Asset
Turnover
+
+
Total Assets
0.88
Cash
Fixed Assets
$1,535,303
$35,502
$464,323
Return on
Assets
4.84%
X
6.19%
Total Assets
Total Assets
$1,535,303
Current
Liab
$69,406
$1,535,303
divided by
less
Net Worth
+
Long-term
Liab.
$266,970
Total Liab.
$1,198,927
$336,376
Return on
Equity
Financial
Leverage
1.28
Strategic Profit Model
Sales
Gross Margin
$1,345,803
35%
less
Gross Profit
COGS
$467,170
$878,633
less
Operating
Expenses
Post Curtain
Operating
Profit
$114,246
$352,924
less
Expense
percent
Federal
Taxes
26%
$0
After-tax
Profit
$114,246
divided
by
Net Profit
Margin
8.49%
Sales
$1,345,803
Inventory
Turnover
1.61
Age of Accts.
Rec.
55
Inventory
X
$833,393
Sales
+
Accts
Receivable
$202,085
$1,345,803
Current
Assets
$1,070,980
divided
by
Asset
Turnover
+
+
Total Assets
0.88
Cash
Fixed Assets
$1,535,303
$35,502
$464,323
Return on
Assets
7.44%
X
9.53%
Total Assets
Total Assets
$1,535,303
Current
Liab
$69,406
$1,535,303
divided by
less
Net Worth
+
Long-term
Liab.
$266,970
Total Liab.
$1,198,927
$336,376
Return on
Equity
Financial
Leverage
1.28
What Did We Forget?
Real-World 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
Sales
Gross Margin
$1,345,803
35%
less
Gross Profit
COGS
$467,170
$878,633
less
Operating
Expenses
Spreadsheet version of the strategic profit model
Energy Curtain Alone
1%...Every Year!
Operating
Profit
$86,148
$381,022
less
Expense
percent
Federal
Taxes
28%
$0
After-tax
Profit
$86,148
divided
by
Net Profit
Margin
6.40%
Sales
$1,345,803
Inventory
Turnover
1.61
Age of Accts.
Rec.
55
Inventory
X
$833,393
Sales
+
Accts
Receivable
$202,085
Current
Assets
$1,070,980
divided
by
Asset
Turnover
+
+
Total Assets
0.88
Cash
Fixed Assets
$1,535,303
$35,502
$464,323
Return on
Assets
5.61%
$1,345,803
X
7.19%
Total Assets
Total Assets
$1,535,303
Current
Liab
$69,406
$1,535,303
divided by
less
Net Worth
+
Long-term
Liab.
$266,970
Total Liab.
$1,198,927
$336,376
Return on
Equity
Financial
Leverage
1.28
FOR MORE INFORMATION:
Ellisonchair.tamu.edu