Least cost vs Optimal

[smcgrath76]

I just wondered at thoughts out there from farm managers regarding least cost versus optimal cost production.
Are they the same thing? I appreciate that producers are often preached to about least cost production, but does this provide profit maximization?
Do you see this changing at all with the development of grid based pricing and/or specialty/branded beef products and a slow shift away from commodity marketing? Is the marketplace just shifting so that branded products become a commodity?
Thoughts? Comments?

[ValueChainFX]

I do believe that commodity product and TRUE branded (value added product) are totally separate products. Although the big packers would like to have us think that there is something special about their Branded products, it is just a simple fact that the big guys must keep their specs close enough to handle the product on the line.

It surprises me to see that more small and medium size business have not recognized the fact that they can do a much better job on Branded product then the big guys can. As long as they try to meet the big guys head on with their products they are going to lose every time. But they have a wonderful opportunity (especially right now) to establish some very strong market connects with a Branded product that is marketed right. I have visited a lot of farms that have added value to their products and then sell them off at market price! Hello????? High demand for product that has special traits is a market waiting to explode, especially in Canada and in the export market. All I can say, is I am looking forward to be a part of the NEW market, the one that has the stable values that once made Canada so proud of their industry. The US is now doing this very thing more and more, and have receive good positive feed back on the results. I would rather get the positive feed back from our Canadian producers though. Anyone doing this kind of marketing and production now, would love to hear from you.

valuechain@home.com

[cowman]

I believe there ia fine line we walk trying to keep our costs low while still raising a product the market demands. That is the struggle every producer has, to stay in business. In a totally low cost program we would all raise smaller British type cattle, feed them pretty tough and calve in the summer. The only problem is we still have to make the payments on land, taxes, fuel, machinery and living expenses! Raising and marketing a "branded product" sounds good but who has the time? I think the way to go is to raise what the market wants(as much as is possible) and do it as cheap as possible. That is what being a "manager" is all about.

[juntersc]

Least cost is, by definition, required for profit maximization. What is often left out of the discussion of least cost is that this is the least cost to produce/market the "target" product or output. Profit maximization is determining what is the "best" product to produce and then producing this product, branded or otherwise, at the least cost. The ONLY optimal cost is operating at the least cost of producing your product to your required specifications. Costs need to include production, marketing, service and other related business costs.

Jim Unterschultz

[ValueChainFX]

Managing your business these days is something that we all must look at, what do you do best and how do you maximize your efforts and cost effectiveness. Managers look at what is going to be able to sustain the business now and into the future. Ensuring that your product meets the market demands is no easy task. However, when we already know many of the factors that have been a detriment to our operation it is not that difficult to build into your product a balance of sorts that will both meet market demands and stabilize your profits. The world is changing and collaborative alliances have become part of the normal standard of business practice. Many so called EDUCATED people out there use the click words such as "Value Added", "Branded Product", "Global Markets", and "Specialty Product", just because they are part of the new dictionary of marketing intelligence. Now that is an oxymoron if we have ever heard one. Getting back to the basics and follow some general guidelines will help you understand that adding value to your product does not have to cost more, Branding a product may be nothing more then you putting your name on the package (if you stand behind what you raise) Global markets are something that can be next door to you or on the other side of the world (as long as your customer has need for the exact product you can deliver) and specialty product may mean the way that you package it (for example two pieces in a box for food service programs, rather then twenty piece because it is to hard to run through the case sealers in the larger plants in small boxes) When planning out your business as a manager, what can you do to see the future. My suggestion is to look in the mirror see you are the expert and in areas that you do not have the experience then search out someone that thinks outside the box and does not conform to fancy words they know little about, and relies on those that would have them believe the big guys are the only players in town!

[smcgrath76]

I guess my next question or thought on the issue is do we have a target?
I realise that progressive managers do, and that many are moving towards or are already working with value chains, retained ownership, etc.
Is the majority concerned with these issues, or is it only a select few who are thinking beyond the box? Perhaps the selected few represent the majority of the cattle?
Are we so indoctrinated with least cost that we don't stop to think about what our product is, in order to optimise cost and maximise profit?
Do different producers have a different least cost, or is a weaned calf sold at auction the same product everywhere?

[ValueChainFX]

smcgrath76
I do believe that many of us do have targets for sure, but at the moment the target seems to be on the other side of a wall that has been built up over many years. Many of us lack faith or trust as we have had so many promises broken in the past, no more hand shake deals that were an oath bond!

If you look at product and costing, the simple rule of thumb goes down to the end user, quality does not mean the very very best of product! Quality is the ability to meet the customers specification each and every time you produce for that customer. Matching product with customers is the art of marketing, it is also one of the biggest advantages of being flexible and maintaining close ties throughout a group of producers that form the supply chain. It is going to take a strong group to make it happen, but I have no doubt that it will! valuechain@home.com

[cowman]

Accually most of our targets are to survive 2001 and get into 2002! At least in the short term. I live in an area that is considered "fortunate" and I'm wondering why the hell I'm still doing this! The fact of the matter is we raise a "commodity"...now you can paint it up anyway you want, but that's what it is! Yes, there is that little niche market but no way is that going to save all of us! If we all raise that phony little "niche" then once again that becomes the standard and what have we gained? The only solution to SURVIVE is to do it as cheaply as you can! All the rest is a bunch of B.S.!