Dairy farmers looking to reduce their cost of production to help maximise profitability are being encouraged to conduct on farm benchmarking. Promar’s Jonathan Hill believes this management step is key to producers taking greater control of their long-term business sustainability.
“With volatility set to continue to affect the British dairy industry, it’s important that producers take steps to help them understand how their business is performing. This will allow them to make better informed decisions to help future-proof their businesses,” says Jonathan. “Benchmarking allows you to take a more tailored approach to identifying key areas of strength and opportunity, and then plan to seize on those opportunities.”
In order to make the most of the benchmarking process, Jonathan recommends following a three-step process.
1. Know your numbers
It is important that all businesses know how their business is performing, says Jonathan.
“If you don’t measure then you cannot analyse performance and make informed decisions on where to take the business next. Understanding your cost of production as pence per litre, is vital. This not only gives you a quick snapshot of business performance should milk prices change, but is also the easiest measure to compare directly with other businesses. You can then look at more in-depth figures such as herd gross margin and overhead costs to develop a wider picture.”
2. Analyse, compare and identify
Analysing and comparing your businesses data against others is the next step
“Whether it’s against your peers, those in a working group, or other Promar Farm Business Accounts (FBA) clients, the important thing is to compare yourself with multiple businesses, to gain a full picture of how your business stacks up,” says Jonathan. “Comparing your business with those running a similar system allows you to fully evaluate your cost of production and identify whether, and how, things can be done better. This isn’t just about looking at the negatives, you should also be looking to identify your areas of strength, so you can continue to drive these areas.”
3. Action plan
Jonathan adds that knowledge without action will not benefit your
“It’s all well and good identifying your areas of strength to build on, and weaknesses that could provide opportunities, but you need to develop a plan to gain from any analysis. You will likely have a number of areas where improvements could be made, but it’s important to analyse the data and then focus on just one or two areas that the data indicates will help generate the best return on your investment of time and resources.”
Once the key areas of focus have been identified, Jonathan recommends developing an action plan that includes short, medium and long-term goals, and a timeline for making them happen.
“Not everything can be changed at once, and some areas of focus may be a continual process of improvement. However, setting yourself goals with a clearly defined time frame to achieve them in gives you and your staff a drive to achieve what could otherwise seem like a daunting list of tasks. Continual improvement is vital for all businesses to survive, and benchmarking is one of the most important and influential management tools that a farmer can use in order to take control of their business.”