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Business Case Analysis for Company X’s Integrated Solution for Cattle Production Final Report
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Business Case Analysis for Company X’s Integrated Solution for Cattle Production
Final Report
Company X’s Integrated Solution
3
Integrated Solution Program
Company X’s Integrated Solution seeks to provide three (3) “customized solutions” that work seamlessly together. The Integrated Solution focuses on the Producer, Program Development, and Creating Value. Value is defined as:
Meeting unmet needs Mitigating risks Performance guarantees
Company X Predicting
performance Market assisted
Management Programming
Improvement Mating/selection
Traceback
Animal Health SureHealth
Disease diagnostics Portfolio Flexibility
Safety Assurance
Data Management Software Applications
Certifications Traceability/Age/
Source Measuring
Performance
Company X – the Hypothesis
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FinisherCow Calf Packer
Despite being a largely satisfied AH market, there is an opportunity to improve profitability by addressing significant unmet needs.
• Brand Support; Consistent quality
• Marketing Options• Supply Chain alignment
• Tools to maintain/recruit retained ownership clients
• Consistent supply of low risk cattle that meet specs
• Better tools to predict optimal harvest
• Individual performance analysis that enables herd improvement
• Risk Mitigation (health, market, cash flow)
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Project Scope
It is understood that Company X is seeking to introduce a new Integrated Solution platform of innovative technologies and information systems in order to build comprehensive animal profiles. This Integrated Solution applies real-time knowledge that will result in profitable decision making for Company X’s customers.
Harrison Hayes specifically focused on Cow-Calf Producers, Feed Yards, and Packers in the United States.
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Project Objectives
The primary and overall objective of this project is to develop a thorough and complete business case outlining the value of Company X’s Integrated Solution concept across the entire value chain. Specific objectives are outlined below:
Development of a business case from the Cow – Calf perspective Development of a business case from the Finisher perspective Development of a business case from the Packer’s perspective Development of a complete and overall Business case outlining the three items above. Analysis of the competitive landscape
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Research Methodology
Market research for this project consisted of Primary and Secondary market research. Primary research included the conduction of thirty-nine (39) Key Opinion Leader interviews across the different market sectors.
13 Cow-Calf Producer interviews 14 Feed Yard Expert interviews 12 Packer Procurement interviews
To supplement these Key Opinion Leader interviews, Harrison Hayes also conducted secondary research from publicly available information and syndicated sources.
Project Observations
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Study Observations
1. There is a perceived value in “Integrated Solutions.”
2. A clear disconnect exists in the supply value chain from Packers to Producers.
3. The cattle industry looks to the swine and poultry industry for methods of improvement
4. Cow-Calf Producers appear to be the industry segment that has the most to gain and utilize from an Integrated Solutions approach.
5. Wal-Mart is having a dramatic effect on the cattle industry.
Cow-Calf ArenaBusiness Case and Findings
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Project Objectives for the Cow-Calf Arena
Analysis of overall trends within the cow-calf arena.
Identification of how cow-calf producers are measuring cattle quality and improvement.
Assessment of animal prediction technology.
Identification and assessment of value points within the overall supply chain.
Identification and assessment of critical success factors.
Identification and assessment of unmet needs in the cow-calf arena.
Overview of the competitive landscape.
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Cow-Calf Producer Key Opinion Leaders
Harrison Hayes conducted a total of eleven (11) interviews with cow-producers. These producers represent a wide range of operation size, from, 250 head of cattle to 15,000 head of cattle.
Examples of Cow-Calf Key Opinion Leaders:
Wayne Fahscholtz: Chief Executive Officer of Padlock Ranch
John Welch: President and Chief Executive Officer of Spade Ranch
Hugh Peltz: Superintendent of True Ranches
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Primary Out of Scope Observation
The factor that each Key Opinion Leader referenced as one of the primary critical success factors was the weather.
The weather, according to the Key Opinion Leaders interviewed, played the greatest role in cow-calf production.
Quality of Cattle and Ranch Goals
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Quality of Cattle
Every Key Opinion Leader interviewed stated that Reproduction/Fertility was the top priority at their ranches. (11 responses).
One (1) Key Opinion Leader stated that although Reproduction/Fertility was the most important element in his operation, it had “to be at the lowest cost.”
Feed Efficiency was mentioned by several Key Opinion Leaders as the second most important element in determining the quality of cow-calf production; Hugh Peltz was the most adamant on this.
Beef Quality (grade, marbling, yield, etc.) was mentioned by every Key Opinion Leader, but not as a high priority for their ranches. On a scale of 1-5, most gave Beef Quality a score of “3.” (“5” was the highest priority).
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Quality of Cattle – Key Feedback
Key Opinion Leaders in higher elevations, or ranches with severe weather, mentioned Immunity/Adaptability as a key indicator of cattle quality.
Primary locations where Immunity/Adaptability was of key interest included higher elevation ranches (Montana and Wyoming) and “dry” areas such as Texas and Oklahoma.
Immunity/Adaptability was a recurring theme in interviews when the Key Opinion Leader addressed this unaided.
One (1) Key Opinion Leader stated that he believed Reproduction was the most important element in cattle quality, there was the “combination of a lot of little things” that determined the overall quality of his cattle.
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Improving Cattle Quality (Tools/Elements)
The majority of Key Opinion Leaders stated that Bull Selection was the easiest and fastest way to improve cattle quality.
“One bad bull will affect the entire herd, while one bad heifer is less important.”
Mike Adams noted that he is utilizing Ultrasounds to screen bulls for marbling characteristics.
EPDs were mentioned by all Key Opinion Leaders as a specific tool utilized to gauge cattle improvement.
Although bull selection was the element most mentioned, one (1) Key Opinion Leader noted that he wished technology was farther along in heifer selection.
The “Eyeball Test” is utilized by half of the Key Opinion Leaders interviewed.
Wayne Fahscholtz of Padlock Ranches was the only Key Opinion Leader who stated that Data from Feed Yards/Packers is his most important tool in improving cattle quality. Specifically mentioned weight of gain and beef characteristics.
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Measuring Performance
Key Opinion Leaders noted that it is quite difficult to measure improvement and performance because of the changing weather patterns from year to year.
Key Opinion Leaders noted the following items as key measurements of cattle improvement/performance:
Weaning % Weaning weight Breed-up % Average daily weight gained Historical trends Cost per Unit produced Customer feedback Food intake Feed efficiency
Supply Chain Findings
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Marketing Cattle
When asked how Cow-Calf Producers marketed their cattle to feed yards and packers, they gave the following answers. Note: This is a stack ranking.
Cow-Calf Producer’s Reputation Historical trends Breed make-up Age Source of Verification
Two (2) Key Opinion Leaders noted that customers (Feed yards and Packers) never request data or information; Customers “just want cattle.”
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Problems in Marketing Calves
Key Opinion Leaders noted that Feed Yards typically buy on averages; Results in not receiving a premium for high quality cattle and no discount for sub-standard cattle (1 Key Opinion Leader).
Larger ranches, specifically Padlock Ranches and True Ranches, strongly felt they already received the highest sales figures for their cattle.
Key Opinion Leaders from larger ranches believed they received top dollar for cattle based on their reputation, “all-natural” program, and that they always had cattle available.
Majority of Key Opinion Leaders noted that they have a multitude of data, but it is never requested from their customers; Key Opinion Leaders are frustrated by this.
Predicting Animal Performance
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Current Performance Prediction Methods
When asked how Cow-Calf Producers currently predict animal performance, they gave the following tools/methods. Note: This is a stack ranking.
Historical trends EPDs IRM (Integrated Resource Management)
All Key Opinion Leaders noted that current animal prediction models occur on an annual basis.
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Valuable Predictive Points
When what the most valuable predictive performance data points would be, Key Opinion Leaders responded with the following. Note: This is a stack ranking.
Feed efficiency Immunity/Adaptability Beef quality Cut-out prediction value Respiratory conditions (related to immunity)
Key Opinion Leaders noted that the accuracy of predictive performance must be at least equal to the accuracy of EPDs. Every Key Opinion Leader noted accuracy levels of 75-80% would be required.
Two (2) Key Opinion Leaders were skeptical of predictive performance because they questioned how quickly a Feed Yard would see value in this type of solution.
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Predictive Performance - Effect
Smaller cow-calf producers stand to gain the most from a predictive performance program. This is due to a “smaller reputation” with the feed yards.
Smaller cow-calf producers noted that it would assist in receiving a higher premium for quality cattle.
All Key Opinion Leaders mentioned that predictive performance software would improve the cost of production internally within their organizations.
From a customer perspective, if cow-calf producers could accurately predict beef quality and growth rates, these would be the most valuable predictive elements.
Competitive Overview
Competitors
Nearly all of the Key Opinion Leaders were knowledgeable of Pfizer’s use of genetics and their software.
A majority knew that Pfizer was utilizing genetic markers of 57 different traits.
Adams Ranch has a “good relationship with Pfizer” and has worked extensively with their gene performance technology; Variability in testing is very frustrating.
Adams Ranch is paying $30 per Bull for genetic mapping.
Padlock Ranches is utilizing software from CowSense that has each cow individually identified so that it can be tracked throughout the growing phase, food intake, and weight of gain.
Elanco has a tracking technology program, but the Key Opinion Leaders familiar with this technology said it was mediocre at best and would not recommend using it.
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Competitive Information
The interviewed Key Opinion Leaders were all very high on customer service and believed it to be a key attribute to any successful company.
Phone calls, emails, and follow-up in general is extremely lacking from most all companies and this was frustrating to the Key Opinion Leaders interviewed.
Key Opinion Leaders stated that technology and analytic software is often an “after-thought by many companies”.
One (1) Key Opinion Leader went as far as to state that a company’s success in this area will be “tied to the success or failure of the technology.”
Unmet Needs
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Unmet Needs
All of the Key Opinion Leaders were in agreement that the most useful data points and information should come downstream. For example, cow-calf producers would find immense benefit in receiving data from feed yards, packers/slaughterhouses.
Ranches would like to know how they compare in the market.
Prediction of Immunity would be one of the most beneficial data points; this data point would be invaluable as a marketing initiative. Data on immunity would add value and mitigate risk.
Fertility and days to estrus would be valuable within the cow-calf arena (internal production).
Predictive Analytics would be helpful in the sale of replacement heifers.
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Unmet NeedsCon’t.
Key Opinion Leaders stated that the Feed Yards did a good job in tracking “groups of cows,” but that there would be additional benefit in tracking individual cows.
“A company needs to figure out a way to track and manage individual cows rather than a group of cows throughout the entire process in order to ease production.”
-Hugh Peltz; True Ranches
Larger ranches have difficulty tracking the calf to its mother. To date, there does not appear to be an economically viable option for this process. This would be valuable in identifying predictive quality traits.
All of the ranches are inundated with data; They need a way to better assimilate this data and be instructed how to best use it.
It appears to be extremely important for Company X to be able to show the overall value of this type of solution in a short period of time.
Feed YardBusiness Case and Findings
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Project Objectives for the Feed Yards
Analysis of overall trends within Feed Yards.
Identification of how Feed Yard executives are measuring cattle quality and improvement.
Assessment of animal prediction technology.
Identification and assessment of value points within the overall supply chain.
Identification and assessment of critical success factors.
Identification and assessment of unmet needs as it relates to Feed Yards.
Overview of the technologies Feed Yards are currently utilizing.
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Feed Yard Key Opinion Leaders
As per the Company X project team’s guidance, the interviewed Feed Yard Key Opinion Leaders needed to meet the following guidelines:
Must be the Key Decision Maker regarding finances
The sum of the feed yard’s retained ownership cattle percentage and direct purchase cattle percentage must be greater than 30%.
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Feed Yard Key Opinion Leaders Con’t.
Harrison Hayes conducted a total of eleven (11) interviews with financial Key Decision Makers of Feed Yards in the United States.
Examples of Feed Yard Key Opinion Leaders:
Dan Dorn: Supply Development Director for Decatur Feed Yard
John Josserand: President of AxTx Feed Yard
Brock Hough: Cattle Procurement at AgriBeef
Scott McNeley: General Manager of Cattle Feeding at Simplot
Feed Yard Procurement Process
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Procurement Overview
In order to understand how Feed Yards procure/source cattle, we asked each Key Opinion Leader how this process occurred. We received numerous responses.
Responses received:
Direct Purchase (11 Responses)
Video Auctions
Sale Barns
Public Events
Word of Mouth
Educational Events (1 Response)
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Preferred Procurement Method
Each Key Opinion Leader was further asked to identify the preferred procurement method for their organization.
It was unanimous that the preferred procurement method was Direct Purchase.
Reasons given for the preference of Direct Purchase include:
Builds relationship with supplier/producer (Unanimous)
Consistency in product over time
Fair pricing
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Procurement “Tools”
Harrison Hayes asked each Key Opinion Leader to describe the “tools” they use in determining which cattle to procure. “Tools” was loosely defined in order to gain unaided response. We received a wide variety of responses, but with great consistency.
“Tools” Used (as a stack ranking):
Prior relationship with supplier (Unanimous)
Past feed yard performance Note: Feed conversion
Profit to Feed Yard
History as an indicator for success. Note: This is focusing on carcass quality
Price of Cattle
Animal Health
MS Access and Actuarial Tables (1 Response)
EPDs (1 Response)
Cattle Quality
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Defining Cattle Quality
In defining/determining “cattle quality” in feed yards, there was a great deal of consensus.
Feed conversion was clearly the most important element used by the Feed Yard interviewees as the number one indicator of cattle quality. No other response was close in its ranking or in number of responses.
Additional responses related to cattle quality in feed yards include:
Feed efficiency
Daily gain
Carcass information
Animal Health/Vaccine History
Note: These responses are not in a stack ranking. After “Conversion” there was an even distribution of responses. All of the above were mentioned by each of the Key Opinion Leaders.
One Key Opinion Leader mentioned “Grid Merit” as an indicator of quality.
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Cattle Quality Con’t.
All of the Feed Yard Key Opinion Leaders interviewed stated that they track cattle by Lot and Source.
The primary reason for this is: “I track cattle by lot and by source so that I will know where the good ones are next year.” –Dan Dorn
While knowing the location of “good cattle” is the most important item for the Feed Yards, it is not the most important aspect for Company X… so what is?
Improving the Future
44
Tracking Performance by Source
A majority of the Key Opinion Leaders noted that a secondary reason for tracking performance by source is to assist the production space as a whole.
These same Key Opinion Leaders noted that they provide this tracked and documented performance data back to their suppliers.
“Providing this performance data and information is the only way cow-calf producers will get better…I want to reward my suppliers for good behavior.” - Stephen Bagley
Dan Dorn added that providing information and data back to cow-calf producers specifically assists in bettering the bottom 20% of cattle. Dorn believes the information he has provided producers improves the price by $30 to $40 per head.
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Tracking Technologies
As the previous slides represent, tracking performance data and information is important. To do so, Key Opinion Leaders noted a handful of technologies that are currently in use:
In house software
MS Excel and Access
CowSense
MicroBeef Technologies
TurnKey
Software from Elanco (Did not know name)
Note: Elanco’s software was noted to be most important in comparing feed yard performance within the industry.
Feed Yard to Packer Relationship
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Packer Requested Data
The eleven Feed Yard Key Opinion Leaders interviewed all noted that packers NEVER request performance data and information.
All of the Feed Yard Key Opinion Leaders clearly stated that the Packers want the cattle when its ready/finished.
One (1) Feed Yard Key Opinion Leader noted that he provides his Packers with the following information:
Cattle in-weight Days on feed
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Packer to Feed Yard Data
According to the eleven Feed Yard Key Opinion Leaders, the Packers do a reasonable job in providing information and data points.
Specific data points that Packers provide the Feed Yards include:
Carcass data
Yield
Grade
Dress percentages
Information and data provided by the Packers is on a Lot basis and not individually. Ex: “If I see 100 head of cattle, I receive 100 different data points, but I don’t know which animal is which.”
Unmet Needs in the Feed Yard
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Noted Unmet Needs in Cattle Production
When the Feed Yard Key Opinion Leaders were asked about the unmet needs in the industry and what needs to improve, the overwhelming answer was Communication. Below is a stack ranking of these “Unmet Needs”:
Communication (Unanimous)
Individual carcass data from Packers
Education on how to use technology currently available
More accurately predict Harvest Dates (1 Response)
“The major problem with the cattle industry as a whole today is the fact that it is too fragmented. There is not appropriate communication between the different segments.” – Dan Dorn; Echoed by John Josserand
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Unmet Needs - Education
Most of the Key Opinion Leaders mentioned Education as an unmet need, but could not elaborate on what was needed.
Two of the interviewed Key Opinion Leaders specifically noted that the information they receive is “good to know,” but need to be educated on “how can it help me?” How can I take information about Gene A and Gene B to be more profitable? How can I use this information to make the ideal animal?”
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Unmet Needs Con’t.
In addition to the primary unmet needs listed on slide 48, there was one notable “outlier unmet” needs that were mentioned in unaided response.
As previously mentioned, the Key Opinion Leaders are content with the data received from Packers. One data point that would be useful is information related to Tenderness. Tenderness is the trait that end consumers want most in beef, so if Packers could provide Tenderness data, it would be beneficial.
Feed Yards and Predictive Analytics
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Predictability
In examining predictability and its role in Feed Yard operations, Harrison Hayes took a two-pronged approach.
First, we explored what predictability elements Feed Yards would like to receive from Cow-Calf Producers.
Second, we examined what predictability elements would add value to the Feed Yards from a marketing standpoint to its customers (Packers).
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Predictability – Producer to Feed Yard
The Feed Yard Key Opinion Leaders we interviewed all showed a high level of interest in predictive analytics information that could be provided from Producers, although they quickly understood that this may increase the cost of cattle.
The only “Predictive Indicators” that Feed Yards currently receive is general breeding information, vaccine history, and animal health programs.
“If we could have more predictive information from our suppliers, it would be extremely beneficial. Any information would be better than what we’re currently receiving.”
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Predictability – Producer to Feed Yard Con’t.
Desired Predictive Analytic information Feed Yard executives would like to receive from their suppliers include (Stack ranking):
Prediction of Feed Conversion
Prediction of Animal Health
Prediction of Feed Efficiency
Prediction of Carcass Quality
It was the consensus that if a producers could predict performance, it would need to have an accuracy level of 70 to 80%.
Predictive accuracy in feed conversion would ideally be within a tenth of a pound.
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Predictability – Feed Yard to Packer
Although the Feed Yard Key Opinion Leaders noted that the Packers do not request information, they did perceive value in the ability to predict performance to the Packers.
Specific Predictive points Feed Yards would like access to include:
Grade/Yield (Percent Choice)
Harvest Date
Predictive analytics, specific to Yield/Grade, would need to be accurate within 5%.
The interviewed Key Opinion Leaders further noted that if they knew, or could accurately predict how cattle would grade, it would change the way they market their cattle.
“It would create a lever for higher premiums and be beneficial for discount beef.”
“If I knew how cattle would grade, I would be more likely to sell those lots on a grid.”
PackerBusiness Case and Findings
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Project Objectives for the Packers
Analysis of overall trends within the Packer space.
Identification of how Packer procurement individuals are measuring cattle quality and improvement.
Assessment of animal prediction technology.
Identification and assessment of value points within the overall supply chain.
Identification and assessment of critical success factors.
Identification and assessment of unmet needs as it relates to Packers and the industry as a whole.
Overview of the technologies Packers are currently utilizing.
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Packer Key Opinion Leaders
As per the Company X project team’s guidance, Harrison Hayes did not interview a large number of Corporate Packers. Harrison Hayes interviewed two (2) corporate Packer Key Opinion Leaders, while the remainder were individuals from small to mid-size organizations.
All of the interviewed Key Opinion Leaders were involved with the procurement process.
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Packer Key Opinion Leaders Con’t.
Harrison Hayes conducted a total of twelve (12) interviews with financial Key Decision Makers of Packers in the United States.
Examples of Feed Yard Key Opinion Leaders:
Brad Brandenburg: Director of Cattle Procurement at Tyson’s
Art Wagoner: Vice President of Cattle Procurement at National Beef
Mike Bellingar: President of Bellingar Meats
Nelson Curry: Director of Procurement at Laura’s Lean Beef
PackerProcurement Process
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Procurement Overview
In order to understand how Packers procure/source cattle, we asked each Key Opinion Leader how this process occurred. We received numerous responses.
Responses received:
Corporate feed yards
Independent feed yards
Feed yards with prior relationships
Purchased on a Value Based Grid
Procure cattle on a weekly, monthly, and 12 month basis
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Preferred Procurement Method
Each Key Opinion Leader was further asked to identify the preferred procurement method for their organization.
The responses from Packers varied based on the size of the organization. National Beef and Tyson’s prefer to procure cattle on a Value Based Grid.
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Preferred Procurement Method Con’t.
The Key Opinion Leaders from smaller organizations that were interviewed stated that their prior relationships with feed yards were much more important. They preferred to procure cattle based upon past performance and success with these suppliers.
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Procurement “Tools”
Harrison Hayes asked each Key Opinion Leader to describe the “tools” they use in determining which cattle to procure. Similar to the Feed Yard interviews, “tools” was loosely defined in order to gain unaided response. Depending on the size of the Packer, responses varied. Responses are outlined below.
Cattle buyer knowledge
Past relationship with Feed Yard
Grid based initiatives
History as an indicator
Price of Cattle
Visual assessment (Walking the pens)
Feed program
Genetic make-up
Supplier and Cattle Quality
68
Defining Supplier Quality
In defining/determining “supplier quality” to Packers, responses were consistent regardless of the organization’s size.
The two (2) primary responses were Past Supplier Relationship and Carcass Quality.
Additional responses related to supplier quality in the Packer space included:
Cattle Availability
Consistency
Angus genetics
Kill results
Yield/Grade data
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Defining Cattle Quality
In defining/determining “cattle quality” to Packers, there was a great deal of discrepancy. For example, quality varies depending on the type of program or if beef will be shipped internationally.
The primary response was Carcass Quality/Kill Data.
Additional responses related to supplier quality in the Packer space included:
Profit
Dressing percentage
Visual assessment
Monitoring Performance and Data Supply
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Tracking Performance by Source and Data Management
All twelve (12) of the Packer Key Opinion Leaders noted that they track quality and performance by source. This is “doubly the case” when cattle is procured on a grid.
The interviewed Key Opinion Leaders noted that they provide all carcass data back to their suppliers. Larger organizations noted that they provide carcass data through the use of ID Tags.
Packers believe that providing this carcass data to suppliers is helpful in creating consistency and high quality cattle in the future.
Specific data points that Packers provide the Feed Yards include:
Carcass data
Yield
Grade
Dress percentages
Two (2) Packers noted that a small number of feed yards are requesting specific data on marbling and back-fat.
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Packer Requested Data
The interviewed Packer Key Opinion Leaders admitted that they rarely requested information and data points from their suppliers.
The two exceptions would be if it was for a “special program” such as a Natural program. In this instance, feed information and animal heath information is requested. The second exception is if there is “a problem with the cattle.”
Data and information is typically not requested because “we know our suppliers’ cattle better than they do.”
Finished Cattle Availability is the primary item that may be requested.
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Packer – Feed Yard Relationship
Tyson’s and National noted that Feed Yards view the Packer as the “Big Bad Guy” in the industry. Tyson’s/National believe this is strange since they are the customer.
Tyson’s has begun holding quarterly meetings with their suppliers in order to improve existing issues in the supply chain.
Issues in Cattle Production and Unmet Needs
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Noted Unmet Needs in Cattle Production
When the Packer Key Opinion Leaders were asked about the unmet needs in the industry and what needs to improve, a variety of answers were given. Below is a stack ranking of these “Unmet Needs”:
Consistency
Given data points not making the way down the value chain.
Lack of information provided to Cow-Calf producers
Lack of industry adaptability
76
Consistency Defined
As the previous slide indicates, consistency is a primary issue in the cattle production space. Consistency was defined in several different ways:
Carcass weight
Carcass grade
Animal health
What the end consumer receives
77
Improving the Value Chain
A minority of the Packer Key Opinion Leaders noted that the industry is too fragmented and that a better job must be done in having information provided to the Cow-Calf producer.
“The Cow-Calf Producer is the one person that really makes this industry tick. If we could create a tool or program that would provide good, reliable information to the calf producer that would cause consistent cattle to be available year round, that would be one hell of a tool.” - Brad Brandenburg
More than half of the Packers interviewed noted that it would be ideal if the cattle industry could be more like the swine and poultry industry.
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Improving the Value Chain Con’t.
Nelson Curry, from Laura’s Lean Beef, noted that his organization must track and provide information all the way back to the producer.
Curry noted that this process costs $4 per head.
FinisherPacker Producer
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Unmet Needs
As with the Feed Yard Key Opinion Leaders, the Packer interviewees noted that it would be beneficial to have information and data relating to Tenderness. This data point is currently not available, but they saw value in being able to provide Tenderness data throughout the value chain.
A second unmet need dealt with the supply chain. “Eighty percent of the cattle supply in North America is capped out in a sixty day period. We need a sixty day cattle supply to market in twelve different months. How do we do this?”
Packers and Predictive Analytics
81
Predictability to Packers
A majority of the Packers noted that, in reality, feed yards do not have any idea how their cattle will grade. Therefore, Packers are forced to rely on prior performance and history.
To a smaller extent, EPDs are helpful in determining cattle quality.
The only predictive data point that the Packers had a level of interest was related to Cattle Quality. This was noted in 10 of the 12 interviews. Accuracy must be roughly 75%.
The Wal-Mart Effect
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Observations and Findings on Wal-Mart
In November of 2011, Wal-Mart announced that it would begin purchasing Choice Beef. Prior to November 2011, Wal-Mart only provided Select Beef.
Based on information collected throughout this project, the “Wal-Mart Effect” began to affect the industry almost immediately.
84
Wal-Mart Effect
Since November 2011, the price of Choice Beef has risen by roughly 19 cents nationwide.
Packers consistently stated that there was already a shortage of cattle in the industry as a whole. “There are more hangers than animals available today.”
In order to meet the demand for Choice Beef, Feed Lots have added an additional two weeks of feed time to their animals.
Cattle experts in Academia do not believe the industry is ready for such a dynamic shift in the supply chain. The burden will clearly shift to the Cow-Calf Producers.
85
Immediate Future
Of all the Key Opinion Leaders interviewed, only one believed that the Wal-Mart effect will have a positive short-term and long-term effect on the industry (Art Wagoner from National Beef).
“The increase in demand for Choice Beef can only help the industry as a whole.”
Packers in northern latitudes will most likely see higher profits in the near term since the climate tends to provide a higher quantity of quality cattle.
The Integrated Approach
87
Breaks in the Chain
Upon completion of primary and secondary research, it seems clear that there are two primary “breaks” in the value chain.
The first is that the Feed Yards do not always provide Packer information all the way back to the Cow-Calf Producer.
The second is the fact that Cow-Calf Producers are not educated on how to best utilize the information and data that they do have.
88
Change Must Occur
It is clear that change must occur in the industry. Cattle supply is becoming smaller, while the demand is increasing. This begs the question “How can the industry provide consistent, quality product?”
89
The Proposed Approach
The Integrated Solutions approach that is currently proposed by Company X is a logical proposal for addressing the existing needs of the cattle industry as a whole.
Approach to Integration To improve the industry, the Cow-Calf Producers must improve how they
operate.
Unfortunately, Cow-Calf Producers need assistance because they do not have the appropriate amount of information and “know how” to improve.
To address this issue and improve, information must be gathered from Packers and provided all the way down the supply chain to the Producers.
90
Primary Information for Cow-Calf Producers
Based on primary and secondary research conducted throughout this project, Company X’s “Integrated Solutions” approach must assist Cow-Calf Producers in obtaining the following information/data points:
Necessary Data Points Quality data and information by individual carcass. Quality data by Lot
would also be welcomed.
Dressing percentage
Feed Efficiency and Feed Yard Performance
Animal health
91
Assisting Cow-Calf Producers
Providing the information on slide 89 to Cow-Calf producers will not be enough. The burden will fall on organizations such as Company X to educate Cow-Calf Producers on how to use the information.
Company X’s software and solution must clearly portray and educate Cow-Calf Producers how genetics and technology can create a “high quality” animal and generate more revenue.
Cow-Calf Producers are the primary driver of the industry; they stand to gain the most from this Integrated Solution Approach
92
Integrated Solution and the Feed Yard
Feed Yard/Lot Operations represent a high risk, low return business model. A ten (10) year analysis of the Feeding Operation conducted by Iowa State University showed that the average return from 1999 to 2008 showed a return of -$7.21. Returns per animal ranged from -$110 to $154.
As a result, Feed Yard operators are extremely price sensitive and cost conscious. This was portrayed in several of our interviews.
Ex: “I would spend $10 to make $15, but I would not spend $100 to make $150.”
93
Feed Yards and the Missing Link
Among the Feed Yard Operators, there was a feeling that if information is provided back to the Cow-Calf Producer, that the Producer would request a higher price for cattle in the next Lot.
Ex. “Some times, if the cattle was good quality, and I provide that information back to my supplier, it can come back to hurt me.”
94
Important Data Points for Feed Yards
Therefore, since it is difficult for Feed Yards to operate at a profit, what data points need to be provided?
Important/Necessary Data Points: Animal Health
Feed conversion
Quality (Grade)
Comparison Data
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Important Data Points for Feed Yards
Animal Health Animal health is a necessary value point to receive from cow-calf producers
because it has the potential to be a direct cost to the Feed Yard.
Feed Conversion Information received from Cow-Calf Producers on feed conversion would be
important so that it could it provide more accurate information on how long an animal needs to be in the feed yard and for Harvest Date prediction.
Quality Data and information on potential cattle quality would be beneficial for Feed
Yards because it would provide a lever in marketing its cattle to Packers. It would allow Feed Yards to negotiate higher premiums.
Comparison Data An integrated systems approach would also need to show how Feed Yards
compare to their competitors on a National Scale. Elanco’s technology system was noted as successfully providing this comparison data.
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Packers and Integrated Solutions
The Packers represent an interesting challenge from an Integrated Solutions approach.
It was made abundantly clear that Packers do not need or request information from their suppliers, unless there is a food safety issue or cattle is enrolled in a special program.
The primary issue/concern for Packers is the availability of consistent cattle.
If packers could provide information and data related to Tenderness, that would be an incredibly valuable data point to provide the value chain.
About Harrison Hayes
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About Harrison Hayes
Harrison Hayes is a strategic consulting firm to the life, chemical, and material science industries. Specific areas of expertise reside in our unique and proprietary research methodologies that support strategic and tactical decision making processes for our clients.
