Rationalisation & Contraction

Contraction of production activities is rarely envisaged unless a specific part of the business is an evident loss-making activity. Prior to such a decision, which may be irreversible, a number of options are available to the manager for assessment that include the following items which can equally be considered as part of the rationalisation process.

Rationalisation can be an effective route to obtain growth and should reflect the best use of the assets available.

All strategies that are to be employed in the reduction of production costs require accurate measurements in order to assess their effectiveness and their impact on profitability, particularly since many should imply improved productivity per unit cost. Inaccurate assessment can lead to faulty decision-making.

• Examine your plant and machinery and eliminate the less productive items or sell off low profit assets.
• Concentrate your production on the most efficient plants or sites or on the most profitable products. Such an exercise allows focus on areas that are those in which the company should expand or abandon.

Cost-cutting

An essential requirement for increasing immediate profitability and/or reducing losses is to scrutinise all costs very carefully before making any decision concerning expenditure reduction (e.g. staff cuts, less advertising etc.).

Paradoxically, savings can be made by the carefully planned use of financial incentives for staff and also by capital investment in new equipment. Both of these may lead to substantial rationalisation in labour resources and productivity improvement without any loss in production or the quality of the product.

AquaTT has done a European survey of the industry where the majority of the companies reported that automation was seen as an important element in obtaining reductions in operating costs, a reasoning that implies a reduction of labour costs. Such actions obviously require the accompanying investment.

There are other classic cost-reducing measures such as:

• Improving food conversion and reducing feed costs.
• Maximising stock performance (faster growth rate, higher survival rate).
• Reducing unit production costs per employee.
• Reducing energy costs

Questions

Before taking an irreversible decision to invest in new equipment it is wise to consider whether optimum use is being made of the equipment available on the farm.

Have you invested in any of the following or any other new equipment during the past five years ?

• Water pumping system
• Re-circulation system
• Computer and software
• Automatic grading system
• Automatic feeding system
• Heavy machinery (i.e. lifting gear; fish pumps, fork lift etc.)
• Boats

If you are using any piece of equipment to only half its capacity your company is not deriving the planned financial benefit from the initial investment and is thus losing money.

Did you receive appropriate training to maximise the potential of such equipment for your company's operations?

Would minor changes improve equipment performance?

Danger Points

Failure to evaluate fully the financial implications of each or any of the above (since each involves outlay/expenditure as well as subsequent savings) can lead to immediate and long-term cash-flow difficulties or a drop in the quality of the products with similar results.

If you are using any piece of equipment to only half of its capacity your company is not deriving the planned benefit from the initial investment and is thus losing money.

Training checklist

Do you need to up-date training in the use and maintenance of any of this equipment?