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Friday, March 15, 2013

The Power of Continuous Improvement

This post expands upon the brief mention of Continuous Improvement in another post

Everybody in the chicken supply chain seems to assume that the price of their chicken and their profits should rise forever, equal to or greater than the cost of living increase.

That's quite an assumption.  I wonder who suggested that to them, or gave them permission to make that glaring assumption?

CFO says they continuously improve.  Do they? 


In 1936, T.P. Wright discovered the Learning Curve where we can expect a certain rate of improvement every time the total units produced has doubled.   If CFO had adopted a philosophy of continuous improvement, and helped its chicken producers, suppliers, and the entire value-added chain to understand, adopt, and apply these concepts, we would have seen the following improvements in retail chicken prices.
Chicken Learning Curve, at 4% per doubling.

"CumAvgCost" is Cumulative Average Cost.  Item cost is highest for 1st item produced, and lowest for the most recent item produced, so this sums the aggregate total cost of all items produced to date, divided by the total number of items produced, giving the overall average cost.
"Unit Cost" is defined as the cost of production for this specific item.

For systems that are truly limited by raw material costs, improvements rates are typically 4% per doubling, one of the lowest improvement rates for all processes (ie. other processes have an Improvement Rate as high as 25% per doubling for repetitive manufacturing systems).

Since CFO feels that the cost of chicken is primarily determined by the input costs to purchase chicken feed (ie. a raw material), we will use this 4% as the limiting step for this example. 
That would be nice for consumers to look forward to, chicken prices that are getting more and more affordable each year.  Instead, what do we get in reality?
The above graph shows that the Canadian Supply Management System has built in an annual inflation in the cost of chicken for 2.53% per year.

Why does our chicken prices go up by 2.53% per year, when according to Learning Curve, our prices should go down by 4% per year?

The simple answer, until proven otherwise, is that neither CFO, nor CFC, nor anybody in the entire chicken value-added supply chain is practicing what they preach:  Continuous Improvement

They spout nothing but hypocrisy.  They use fancy, politically correct words that mean nothing.  If they truly knew what they are supposed to be talking about, we could call them bold faced liars.

However, we need to give them the benefit of the doubt.  They may not be liars.  The simplest, most obvious answer is plain incompetency.

Unfortunately, every Canadian gets to pay the price for the lies and incompetency of a few.

3 comments:

  1. The learning curve is about improving efficiency over time of performing a task because you learn how to do it better.
    It does not apply to growing animals. The bird is at its genetic potential, and inputs into the system keep going up - feed cost, electricity etc. The birds can only convert feed so well, and only grow so big and produce so much meat. If the costs go up, how is it possible for humans to produce birds more efficiently?
    You have some very dodgy assumptions and faulty logic in a lot of these posts.

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    Replies
    1. An excellent question. Facts are always better than assumptions. So here are some facts that prove CI (Continuous Improvement) can work.

      NASA is one of the leading experts in the use of the Learning Curve. They have found that for raw materials, a 4% learning can usually be achieved. This is one of the smallest values for all the industries examined by them.

      Can we apply the Learning Curve to agriculture?

      FAO (Food & Agriculture Organization) of the United Nations reports that Canada's dairy farmers have achieved a 2.5%/yr improvement in the kg of milk per cow per year from 1960 to 2007 (latest available data, ). That is, from 2787.7 kg/cow/yr to 7,961.7 kg/cow/yr. That is 2.86 times better, or keep one cow, sell 2 cows for hamburger, one third the feed bill, one third the acreage needed.

      Corn is the main ingredient in chicken feed. Statistics Canada reports that Canadian grain corn yields (kg per hectare) improved by 1.39%/yr from 1960 to 2012. That means we now get 2.6 times more corn per hectare. The power of CI at work.

      Soybeans is often a major part of feed costs. From 1960 to 2012, Stats Canada reports that the Canadian average of soybean yields have improved by 195% for kg per hectare, so we can almost get twice the tonnage for the same land farmed.

      Wheat is often the third ingredient in chicken feed. Stats. Canada reports that the average yield for all of Canada for all types of wheat went from 1,420 kg/hectare in 1960 to 2,900 in 2012. This is a steady improvement of 1.33%/yr, which compounded to an aggregate total that is more than double the wheat from the same acreage.

      Those savings can be kept as higher profits for the producer, or shared with the consumer.

      If the farmer is producing more per acre, shouldn't the cost be going down, or at least staying the same?

      If you have the benefit of a monopoly, and customers are trapped, forced to pay whatever a small group of people decides, why would you ever want to share the improvements with the end customer as lower cost chicken? So of course the price keeps going up.

      The details on this are shown and discussed in more detail at the post "Does CI Work?"

      http://canadiansmallflockers.blogspot.ca/2013/03/does-ci-work.html

      You also say that I have dodgy assumptions and faulty logic in many of my posts. Please point specifically to where you think this is true. I'd love the opportunity for a dialogue, to show you the data I have to back up the statements I made, then you can tell me if I have convinced you, or perhaps you have alternative facts that overwhelm my example. You are also welcome to submit a Guest Post, and I will publish it in this Blog.

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    2. After thinking about it some more, I'd like to expand on what I previously wrote.

      Right now, this Blog is written by one person, on behalf of all Small Flockers across Canada.

      So far, more than 1,200 people have read this Blog in the 2 weeks that it has existed.

      I believe that the combined knowledge and experience of 1,200 people far exceeds what I or anybody else can possibly achieve in their lifetime.

      Small Flockers need a viable alternative to the current Supply Management system and its arcane rules and regulations.

      Based on my personal experience, plus the ideas and concerns of other Small Flockers who have shared their experiences with me, we have proposed a framework for improving the current Supply Management System for chicken.

      I don't claim that this proposed solution is perfect at this time. I suspect that it needs to be reviewed, poked at, challenged, questioned, what if questions asked, and validated by the public, the current masters of the monopoly for chicken, and many more Small Flockers.

      By testing and pounding upon this proposed solution, any weaknesses in the current proposal will be exposed. That gives us the opportunity to fix those current shortcomings. If they can't be fixed, then the current proposal need to exposed as a bad idea, it then can be removed, making way for an even better idea that can improve on the current Supply Management System.

      The 1,200 people who have so far visited this Blog can help greatly. Ask questions. Pose potential problems. Bring additional facts that we can use to verify our current solution is either poor or excellent.

      By doing this validation work now, we prepare ourselves for the day when the government and the Monopoly Masters are ready to consider alternatives to the current disaster that has delivered chicken tyranny onto the Canadian public.

      Delete

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