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Benchmarking: The Right Tool for the Times

by 5m Editor
22 June 2010, at 12:00am

Lee Whittington, president of the Prairie Swine Research Centre, explains the benenfits of benchmarking for the pig industry in the latest issue of the Centre's Centred on Swine.

Benchmarking is commonly spoken of but rarely implemented in pork production. The term ‘benchmark’ can be traced to land surveyors, who erected ‘benchmarks’ on high ground that could then be used as references for mapping the terrain. A ‘benchmark’ is in the truest definition a point of comparison. In business literature the creation of formalized benchmarking is often attributed to Rank Xerox Corporation, in fact the practice dates back to ancient times. Japan sent teams to China in 607AD to learn best practice for business, government and education. In pork production we have regularly posted benchmarks for productivity such as top indexing herd in the county, or reproduction awards like the one presented at Banff to Kyle Colony in Saskatchewan with over 30 pigs weaned per mated female. These are a tremendous accomplishment and a reminder of how our industry has ramped up productivity consistently over the past quarter century.

All too often however the complexity of benchmarking cost of production, the next natural step in comparing production units, does not receive the same attention as productivity. There is good reason for this since the age of assets, debt load, labour costs and accounting practices make comparisons difficult if not impossible. That however should not dissuade us from trying to benchmark cost of production, because the power of having that information is indeed worth the effort.

Take, for example, a survey of western Canadian mid-sized farrow-to-finish producers that was recently shared with the author. The top 10 per cent of producers demonstrated significant productivity measure improvements over the average and bottom 10 per cent for key measures such as shown in Table 1.

Table 1
Top 10% Avg Bottom 10% Top vs Bottom
Sow mortality rate 4.4% 6.7% 10.5% 57% decrease
Marketed hogs/mated female/yr 24.0 22.3 20.6 16.5% better
Whole herd feed conversion 2.98 3.25 3.44 13.4% better

Looking at these measures we are immediately aware of two things: 1) The variation within each measured factor is large, and 2) with such large variation there is significant motivation to do better regardless of where your particular herd stands. There is a third factor we should be aware of – that is this variation in productivity pales in comparison to the variation in financial performance seen between these same farms (Table 2 – all financial measures taken for same time period as productivity data above).

Table 2
Top 10% Avg Bottom 10% Top vs Bottom
Revenue per hog marketed 154.75 145.28 134.47 15% better
Utilities per hog marketed $2.58 $3.65 $5.21 50.5% better
Margin over recorded cost* 34.74 25.62 12.75 2.72 times better
* note that labour, depreciation, interest removed to allow for comparison of variable costs only

The reason benchmarking works is it provides a tool to see beyond our current practices. Termed “paradigm blindness”, individuals become so focused and or entrenched in their operation they fail to see other possibilities to address the activity.

Common Misconceptions in Benchmarking

  1. Confusing benchmarking with participating in a survey
  2. Thinking there are pre-existing benchmarks to be found.
  3. Not all production and economic parameters can be benchmarked – example service delivery and customer satisfaction.
  4. The process is too large and complex to be manageable.
  5. Benchmarking is not research
  6. Misaligned benchmark targets – what is the overall farm strategy that you are trying to benchmark?
  7. Picking a topic that is too intangible and difficult to measure
  8. Not establishing a baseline
  9. Not researching benchmarking partners thoroughly
  10. Not having a code of ethics and contract agreed upon with partners.

The Bottom Line

Accepting the inaccuracies that come with such comparisons there is significant opportunity to improve productivity and profitability through comparison (benchmarking) to other similar farms.

June 2010

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