Every farm business has a limiting factor that restricts its ability to achieve more of its objectives. The constraints come and go, as one constraint is addressed another will emerge. At any point in time, one constraint is likely to be blocking your farm’s progress more than any other, it is an ongoing process of improvement. Identifying the constraint is not always obvious, it can often be hidden in plain sight.
The purpose of the Herdscape course is to inform you about the constraints that can arise in your farm business and to assist you to address them. Profitability of the farm or one of the farm enterprises is likely to be a constraint at some time or another, for example. A lack of profitability will, sooner or later, make itself felt but what to do about it may not be an obvious choice.
If you set out to prune a fruit tree, what do you prune first? Do you prune the twigs at the edge or do you prune the deadwood at the heart of the tree? Most people would leave the healthy twigs but remove the deadwood and look for what is causing it. If profitability is the “deadwood issue” and it is reducing the value of your assets on your balance sheet then it must be addressed. Whether it is a big loss or a small loss does not matter, if it reduces your asset value (increases your liabilities) it will eventually close your business.
If the loss is 10% of the value of your assets it will take about seven years to do that, if it is not addressed. Even if the loss is less than that it will have the same effect, it will just take longer.
It will not be immediately obvious what the profitability problem is because there are three things that could be causing it. At any point in time one of those three things will be “weaker” than the others, either causing a loss or reducing the profit. The good news is there are only three things and it is not difficult to find out which one is the issue if you are prepared to look.
Fixing one of the “profitability secrets” will not help if it is not the weakest one causing the problem.
Profitability may not be the constraint but it will be something else that limits the performance of your farm business. The Theory of Constraints teaches that there is always a constraint and improving anything other than that constraint is a waste of effort.
Once the constraint is identified, the steps are:
- Exploit the constraint. Optimise its output without major investment, make the most of that resource.
- Subordinate everything else to it. All other parts of the farm should then be adjusted to support and work around this constraint, or “bottleneck”.
- Elevate it. If needed, invest in more resources to increase the constraint’s capacity.
- Repeat the process—the constraint will move. After one constraint is resolved, the process starts over by identifying the new constraint that has emerged.
Here is a list of areas of your farm where possible constraints (bottlenecks) could exist:
- Production Constraint
- Economic Constraint (profitability)
- Financial Constraint (cashflow, solvency)
- Market Constraint
- People Constraint
- Planning and Management Constraint
- External Constraint.
All of these issues are explained in in the Herdscape course to assist you to identify, for yourself, where the “bottleneck” might be. It will also show you how to collect the information you need to help you analyse, plan and manage accordingly.
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