COSTS AND EFFICIENCY OF DESIGNATED POULTRY PROCESSING PLANTS IN MICHIGAN Thesls for Ike Degree 0T pI’I. D. MICHIGAN STATE UNIVERSITY Kyu Yawp Lee 1960 0-169 \IITNWW 3 129 This is to certify that the thesis entitled COSTS AND EFFICIENCY OF DESIGNATED POULTRY PROCESSING PLANTS IN MICHIGAN presented by Kyu YaWp Lee has been accepted towards fulfillment of the requirements for Ph.D. Poultry Science degree in Maj professor Date August 18, 1960 LIBRARY Michigan State University MSU LIBRARIES .-_,_. RETURNING MATERIALS: Place in book drop to remove this checkout from your record. FINES wilI be charged if book is returned after the date stamped below. New! NPR-30875 119 A 1255‘. 55921.; £132. a COSTS AND EFFICIENCY OF DESIGNATED POULTRY PROCESSING PLANTS IN MICHIGAN By KYU YAWP LEE AN ABSTRACT Submitted to the School for Advanced Graduate Studies of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Poultry Science 1960 2 Kyu Yawp Lee ABSTRACT Five poultry processing plants in Michigan were selected and studied to determine in-plant processing costs and efficiency of operation. There are six major cost items in poultry processing. They are: labor, power, raw material, equipment, building, and management. Of these six factors of production, the first three are variable inputs and the last three are fixed. The cost of raw material (live poultry) is not included as an in-plant processing cost in this study. In Michigan where a continuous supply of live poultry in large quantities is limited, investment in fixed input must be based on the live poultry supply in the area. In a manual processing operation, the highest output per man-hour gives the minimum average unit cost. However, in mechanized plants, where labor and equipment are nearly perfectly complementary to each other, the speed of any one worker becomes insignificant. Furthermore, the lowest average unit cost per day becomes less important unless such a minimum unit cost continues everyday of the year. For a given scale of plant and speed of conveyor line, the day-to-day maximum efficiency exists when waiting time between work segments is zero. In poultry processing operations where Abstract Kyu Yawp Lee there are many work segments on the line, zero waiting time between work segments is attained with great difficulty. When labor and equipment are arranged on the basis of the ”most-time common denominator" on the line, there would be only one efficient hourly rate of operation in the plant. The hours of operation beyond regular working hours can be extended through over- time or multiple shift operations. When output is a function of hours of operation the output is linear. Cost function is linear throughout regular working hours and becomes an upward step function after regular hours of operation due to overtime pay. Most plants in Michigan operate at only one-half of the potential plant capacity for a given day, and some of these plants operate only a few months out of the year. These practices can not be justified from an economic standpoint. When output and total cost functions are linear the economies of large scale operation result from spreading the fixed costs over a larger volume of output. For this reason, if a continuous supply of live poultry is not available in the area, investments in fixed inputs should be kept as low as possible. One-half utilization of plant capacity in any given day and/ or processing only a few months out of a year results in higher unit processing costs. This seems to be the case in Michigan poultry processing plants. COSTS AND EFFICIENCY OF DESIGNATED POULTRY PROCESSING PLANTS IN MICHIGAN By KYU YAW P LEE A THESIS Submitted to the School for Advanced Graduate Studies of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Poultry Science 1960 ii ACKNOWLEDGEMENT The author wishes to express his appreciation to Professor James A. Davidson of the Poultry Science Department for his guidance, generous contribution of his valuable time, and con- tinuous encouragement during this study. He is also grateful to Dr. Lawrence E. Dawson of the Poultry Science Department, Dr. Henry Larzelere of the Agricultural Economics Department, and Dr. Edward A. Brand, Director of Graduate Admissions, College of Business and Public Service. He is indebted to Dr. Howard C. Zindel, Head, Poultry Science Department, for his assistance and for granting the use of the department facilities. The author expresses his sincere thanks to the processing plant managers and other agencies who furnished valuable information for this study. Finally, the author is indebted to his wife and family for their patience and the encouragement extended to him during this study. iii TABLE OF CONTENTS Page LIST OF TABLES ........................................... v LIST OF ILLUSTRATIONS ................................... ix Chapter I. INTRODUCTION .................................... 1 II. REVIEW OF LITERATURE .......................... 3 III. CLASSIFICATION OF PROCESSING PLANTS ON THE BASIS OF ORGANIZATION ................. . ...... 8 IV. THEORETICAL FRAMEWORK ....................... 10 The Nature of Poultry Processing Operation 10 Production Function 12 Optimum Input Combination 15 Scale of Plant and Variation in Output 17 Labor-Equipment Relationship 21 Cost Functions 23 Cost Functions with Regard to Procurement of Live Poultry 27 Cost Functions with Regard to Six Major Processing Costs in In-Plant Operation 28 Efficiency and Role of Management 28 V. STUDY PROCEDURE .............................. 32 Selection of Plants 32 Sources of Data 32 Procurement Cost and Fixed Cost Computations 32 Other Cost Items 34 VI. ANALYSES OF PLANT OPERATIONS ...... . . ......... 35 The Problem Areas in In-Plant Operations 35 Bases for Modification of Plant Operations 37 Description, Operation, Analysis, and Modifications of the Five Selected Plants 42 Chapte r VII. OTHER PROCESSING PLANT PROBLEMS Percentage Yield from Live to Processed Poultry Processing By-products Distribution of Processed Poultry VIII. DISCUSSION AND RECOMMENDATIONS ............. Procurement Costs (PC) In-Plant Processing Costs (PRC) Distribution Costs (DC) Output per Worker Weekly and Daily Total Variable Costs Recommendations Plant No. Plant No. Plant No. Plant N0. Plant No. l UlthIJN Ix. CONCLUSIONS. . .‘ ................................. iv Page 84 84 88 90 92 92 94 98 99 100 100 101 102 103 104 104 106 108 115 Table LIS T OF TABLES Page Actual working time of each work segment and sequence on processing line for Plant No. l ..... . ........... 45 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 365-day operation--fryers ...................... . . . . . ..... 49 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 90-day operation--fryers ....................... . ........ 49 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 60-day operation--fryers . .................. . . . .......... 50 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 30-day operation--fryers . 50 Actual working time of each work segment and sequence on processing line for PlantNo. 2 55 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. On the basis of 365-day operation-~fryers . ....... r ........... . . . . . . . . ..... 57 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. On the basis of 90-day operation--fryers .................... . ........... 57 Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. On the basis of 60-day operation--fryers .............. i ................. 58 vi Table Page 10. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. - On the basis of 30-day operation--fryers ................................ 58 11. Actual working time of each work segment and sequence on processing line for Plant No. 3 ................. 63 12. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 365-day operation--caponettes ............................ 66 13. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 90-day operation-~caponettes ........... . ......... . . . . . . . . 66 14. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant ~ utilization for Plant No. 3. On the basis of 60-day , oper'ation--caponettes ............................. 67 15. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 30-day operation--caponettes ............... . ....... . . . . . 67 16. Actual working time of each work segment from hanging through packaging for Plant No. 4 ......... . ....... 70 17. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 365-day operation--hens ................................. 71 18. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 90-day operation--hens ........................... . . . . . . . 71 Table 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 60-day operation--hens .................................. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 30-day operation--hens . .~ ...... _. ......................... Actual working time of each work segment and sequence on processing line for Plant No. 5 ................. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in_plant utilization for Plant No. 5. On the basis of 365-day operation--turkeys ............... . . . . ............ Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 90-day operation- -turkeys ............................... Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 60-day operation--turkeys . .............................. Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 30-day ope ration- -turkeys ............................... Conversion table--live poultry price to eviscerated poultry price ..................................... 'Conversion table--cost of transportation from farm to processing plant ................................. Poultry density, maximum and normal daily processing capacity, and daily procurement zone for the five selected plants ................................... vii Page 72 72 81 82 82 83 83 85 87 93 Table 29. 30. 31. 32. Total investment in land, building and equipment plus administration costs for the five selected plants . . . . . Fixed, variable, and total processing costs per bird based on maximum and normal operations for the fiveSeleCtedpla’ntSOOOOOOIOIOOOOOOOOO0.00.00.00.00 Hourly output per worker, investment in equipment per worker, and labor costs as percent of total costs for thefiveselectedplantSOOOOCIOOOOOOOOOOO0.000000... Weekly labor cost, electricity cost, fuel cost, packaging cost, miscellaneous costs, and daily variable costs for the five SeleCted plants 0 ..... O I O O O O O O O O O O I O O O O 0 viii Page 94 98 99, 100 Figure 10. LIST OF ILLUSTRATIONS Output as function of hours of operation ............... Average and marginal physical product curves derived from linear production function .................. . . Economies of scale curves ........................... The relationship between production function and cost function ......................................... Cost functions with different levels of fixed inputs ..... Six major cost curves as a function of hours of operation Production and cost functions beyond eight-hour working day ............................... . ............. Output resulting from the two shifts .................. Average fixed cost per bird with changes in plant utilization for the five selected plants . ......... . . . . Average total cost per bird with changes in plant utilization for the five selected plants . . . ............ ix Page l4 14 24 24 29 29 40 40 96 97 CHAPTER I INTRODUCTION In 1958, 4, 700, 000 commercial broilers, 8, 552, 000 chickens, and 998, 000 turkeys were produced in the State of Michigan. The producing units were scattered throughout the state and they were relatively small. Poultry production is a supplementary enterprise on many farms. The inputs such as labor and feed used for poultry may be more productive if used in other enterprises but small scale poultry units exist throughout the state, though the number is declining. Small scale poultry units create many problems in the processing enterprise. The major problem is the procurement of live poultry in sufficient quantities to facilitate continuous operations. This problem makes the selection of a plant location close to an adequate live poultry supply difficult. The small scale poultry producing unit also creates the problem of uniformity of the product in respect to size and quality. The poultry processing operation involves transformation of live poultry into edible poultry. The entire processing operation can be performed by one person with simple tools, or the processing operation can be divided into many segments using specialized equipment. Basically, the poultry processor performs three distinct functions: (1) procuring of live poultry, (2) processing poultry, and (3) distributing processed products. A study of processing plants revealed a wide variation in the scale as well as methods of operation. Some plants had a large hourly processing capacity, but operated seasonally. Some plants had a small hourly capacity, but operated the entire year. Some were highly mechanized and some were partially mechanized. In view of such variations in scale and duration of operation, there was need for a study to determine costs and efficiency associated with the degree of mechanization, scale of plant, and duration of operation. This thesis is divided into three sections: (1) theoretical framework based on a static analysis, (2) investigation and analyses of selected plants, and (3) application of the theoretical framework to the proces sing operations. CHAPTER II REVIEW OF LITERATURE Unfortunately, a comprehensive study of lviichigan poultry processing plants is unavailable. Most of the available literature is from other states where the poultry processing industry is more commercialized and intense. Baum §_t_a_1_.(1952) synthesized five different model fryer processing plants in the State of Washington and attempted to determine economies of scale under static economic conditions. These workers pointed out the economic implications associated with the scale of the plant and the extent of plant utilization. The economies associated with plant capacity utilization were demon- strated by the higher per fryer processing cost, and the economies associated with scale of the plant were demonstrated by the higher unit cost in small plants. However, they found that per fryer processing cost increased most for smaller plants operating at less than capacity. The average per fryer processing cost for the model plants under assumed conditions was as follows: DailyProcessing Processing Cost Capacity per Fryer Bird Dollar 500 $0. 1663 1600 0. 1479 3100 0. 1351 4500 0. 1283 9000 0. 1178 Abbott (1954), in his study of the economic implications of recent technical developments, indicated that commercial plants handling 300 turkeys per hour failed to utilize full advantage of the specialization of labor associated with the conveyor line system. He concluded that the turkey processing industry should concentrate on 600 turkeys per hour capacity plants under the existing techniques and costs. Eastwood and Scanlan (1954) made a study of fifteen coop- erative poultry processing plants in eight eastern states. These workers reported that the total cost of New York dressed chickens (blood and feathers removed) ranged from 5. 8 to 11. 8 cents per pound. The average cost of New York dressed was 7. 62 cents per pound. The cost of dressing shrinkage averaged 2. 74 cents per pound or 31. 0 percent of the total dressing costs. The average shrinkage in hauling live broilers and mixed types of chickens to processing plants was 2. 8 percent for broilers and 3. 2 percent for mixed chickens. Labor cost was 2. 4 cents per pound or 26. 9 percent of the cost of New York dressed. Fulliove (1955) made a study of 28 Georgia commercial poultry pro- cessing plants and stated that most Georgia processing plants had efficient operations. Their large scale operation together with a highly integrated business in feed and poultry production enabled efficient processing operation. He indicated that there was opportunity for reductions in costs by increasing the rate of output per hour and by operating additional hours. He also indicated that there was room for improving the efficiency in the area of rearranging workers in relation to the speed of the conveyor line, plant layout, and improve- ment in equipment. French _e_t_a_l. (1956) studied the economic efficiency in California pear packing plants. Even though this study concerns the pear packing industry, the theoretical as well as modified approach was applicable to poultry processing plants. The authors recognized the inapplicability of conventional production function in line type operations for the following reasons: 1. The line type operation is different from the ordinary production function in that the line operation is composed of many stages. This would mean that efficiency in any one stage of operation does not necessarily mean efficiency in overall operations. Each stage must be integrated with all others so that simultaneous efficient operation will be possible. 2. In the short-run, equipment is not substitutable for labor after equipment is installed. Also, certain equipment requires a fixed number of workers. This would mean that the combination of inputs must be solved on the basis of fixed technical coefficients rather than prices of inputs. 3. Output is a function of rate as well as hours of operation. As a result, the maximum profit does not necessarily occur at marginal cost is equal to marginal revenue. 4. When work is performed using labor and equipment they must be used in whole units. Service of labor and equipment are divisible in time such as certain hours per day, but they must be bought as a whole unit. This means that some stages of line operations are inefficient yet they may be economically justified from the overall operational standpoint. King and Zwick (1950) studied the shrinkage of live poultry between farm and market and reported that the loss from shrinkage is an important cost of marketing. This study also reported that as time increases shrinkage cost increases at a decreasing rate. Zwick and King (1952) studied the economic advantages of location in marketing live poultry and showed that there was marked economic advantage for producers located near the live poultry market in spite of the fact that the shrinkage cost increases at a decreasing rate. They found the following linear equation for truck operation per pound of live poultry: $0.1060(D2+ 30) T = 0. 0014 + $ 13,200 Where T is the truck costs per pound; $0. 0014 is fixed cost per pound; $0. 1060 is variable cost per mile; (D2+ 30) is the distance for a round trip to market in miles plus average trip involved in procuring poultry; and 13, 200 is the weighted average capacity:l of a truck in pounds. Farrish and Seaver (1959) studied the cost and efficiency of different sizes of processing plants in southern New England and concluded that there were economies of scale in labor up to 7, 200 birds per hour processing capacity. Building costs showed returns to scale throughout the range of outputs tested (the range was from 2, 400 to 7, 200 birds per hour). Economies exist in using larger type equipment but were very small. Total processing costs per bird ranged from $0. 0872 for the smallest plant to $0. 0755 for the largest plant. Hamann and Pond (1955) reported the importance of shrinkage cost in processing poultry. They emphasized that the price processors receive for the processed poultry should cover not only all the processing live poultry and packaging costs, but also the cost of shrinkage in transit and from processing by-products. The per- centage of inedible portions from live to eviscerated broiler was reported as much as 35 percent of the live weight. Shrinkage in transit for hauling live poultry was reported between one-half of one percent to five percent. In developing an average cost of operating the trucks used for hauling live poultry, costs were weighted by the percentage of poultry being handled by two truck types. CHAPTER III CLASSIFICATION OF POULTRY PROCESSING PLANTS ON THE BASIS OF ORGANIZATION Processing plants can be classified in many ways) such as on the basis of: kind of poultry processed, scale of operation, processing procedures, duration of operation, organizational structure, and others. When classified on the basis of organizational structure, the selected Michigan poultry processing plants fall into the following categories: Category A. Single enterprise processing plant operating year around. Category B. Processing enterprise combined with other poultry enterprises, during different months of the year but each dependent upon the other. Category C. Processing enterprise as a part of an overall organization handling other commodities. Plants in Category A operate the year around on a small- scale basis. They are small because live poultry can not be procured in sufficient quantities within economical distance. Their unit processing cost is high in comparison to such costs in large-scale plants. The majority of capital is invested in plant facilities and they tend to stay in business as long as the price of processed poultry covers average variable costs and facilities remain usable. Category B is tye type of organization, used by turkey growers, where three different kinds of poultry enterprises exist in a year: such as a hatching enterprise in the spring, a turkey raising enterprise in the summer, and a processing enterprise in the fall. Each distinct enterprise has fixed inputs. For example, incubators for the hatching, brooder houses and poultry houses for the growing, and a processing plant for dressing enterprise. Each of these enter- prises may be seasonal. Plants in Category C are a combination of Category A and Category B in operation but differ in organization. A processing plant owned by a cooperative is an example. A cooperative may sell feed, fertilizer, seed, and/ or many other farm supplies to its members. In turn, farm products such as eggs and poultry are bought from members. In some cases, processing is a service function supplementing the main enterprise. Plants in this category require year around operation. It may be necessary to build a large plant in order to meet the fluctuating live poultry supply from individual farms. 10 CHAPTER IV THEORETICAL FRAMEWORK The Nature of a Poultr_y Processing Operation In order to accomplish a smooth operation, the processor coordinates the three basic functions: (1) procuring live poultry, (2) processing, and (3) distributing processed poultry. Under competitive conditions where there are no special agreements or any form of discriminative actions between rivals, the price of live poultry at the plant would be the price at the producing center plus the cost of transfer1 to the plant. Likewise, the price at the consuming center would be the price of the processed poultry at plant plus transfer cost to consuming center, and the prices would vary directly with distance and in-transit services. Under these conditions the selection of the plant location is of fundamental impor- tance because it involves many functions affecting profit. The in-plant operation involves the following six basic steps: (1) hanging live poultry on the line, (2) killing and bleeding, (3) scalding, (4) removingfeathers, (5) removing viscera, and (6) packaging. Additional workers may be employed for specific assignments. l . . . . . Transfer cost as used in 121118 thesis Includes cost With respect to distance and cost of in-transit services such as watering, meals for driver, etc. , that are not directly proportional to distance. 11 With the conveyor line running at a constant speed with given equipment, some segments of work must allow a definite time to meet certain standards of quality. For example, with a given scalding temperature and a given class or weight of poultry the time required to scald is fixed. Also, some processing sequences can not be rearranged or reversed. For example, viscera can not be removed before the birds are killed, scalded, and feathers removed. The poultry moves continuously in one direction. While poultry moves continuously on the conveyor line, the nature of each work segment and speed of each worker or piece of equipment varies. Unless the rates of output of all the segments on the line can be varied simultaneously the impact of changes in any segment will lessen the efficiency of the overall operation. These limiting factors create two basic problems: (1) how fast should the maximum conveyor speed1 be set? and (2) how should work segments be arranged with proper ratio of labor to equipment? These problems can be solved through time and motion studies. The first problem can be solved by setting the maximum conveyor speed on the basis of the slowest work segment on the line (this will be referred to as the most-time common denominator). For example, if the scalding period requires the most time, the maximum conveyor speed should not exceed the minimum scalding time required. Conveyor speed is measured in terms of distance traveled per unit of time. 12 The second problem can be solved through time and motion studies by arranging work segments according to the required working and flow time. Such a time study is effective only after the maximum conveyor speed and the arrangement of working sequences are fixed. The proper arrangement of work segments on the basis of time and motion studies should make simultaneous operation of all work segments most efficient. In the poultry processing operation in the long-Elm basis I labor is substitutable for equipment in all segments of the operation. However, once the plant is designed and set up for conveyor line I operation all the equipment becomes technically fixed; it is un- economical to substitute labor for equipment; and, the addition or subtraction of equipment is not practical. This does not mean to imply that on a long-run basis one should not use equipment in place of labor when the productivity and price of labor is unfavorable to that of equipment. Production Function If one person performs all segments of the processing operation, the production function can be expressed as a continuous straight line With the number of available working hours as the limiting factor. Even in plants with some degree of mechanization, all inputs, such as equipment and labor could be considered as single fixed inputs since once the line type operation is set up, all the equipment becomes complementary to labor in fixed time proportions. 13 Operation of the conveyor line at a faster or slower rate than the optimum speed found by a time study would be undesirable. The only logical production adjustment then becomes the hours of operation rather than any other adjustment.1 The production function can be expressed by the formula Y = f(H L, R, P, E, B, M) where Y is output, H is hours of operation, L is labor, R is live poultry, P is power, E is equipment, B is building, and M is management. The above production function with H=K, where K is the maximum available working hours, is given in Figure l. The above concept is based on the fact that every segment of operation including labor is an absolutely necessary component on the line. The absence of any one of the segments will result in zero2 production or a proportional decrease in production with regard to time if any worker performs another job due to another worker's absence- If rates of plant output are held constant, and output is a function of hours of operation per time period, the relationship between factor input and product output becomes linear up to the plant capacity or the available working hours K(K=24 hours). Since there is constant returns to variable factor the marginal and average product curves are identical, and they are horizontal line as shown in Figure 2.. l . . . . This does not negate operation of multiple shifts or adjust- ment in shackle space as production adjustments. Zero production as used here implies that the product is not marketable in normal channels of trade. 14 Output 6 w m Hours Fiqure 1. Output as a Function of Hours of Operation. Output Hours Figure 2. Averaqe and Marginal Physical Product Curves Derived from Linear Production Function. 15 Optimum Input Combination The ordinary production function states that inputs are optimally combined if the ratio between the marginal physical product (MPP) and the price of input bears the same relationship in all the inputs used for production. However. in the poultry processing operation where labor and equipment are used on the line, these services are technically fixed and they should be coordinated to other work segments on the line. This indicates that the main emphasis should be placed upon technical considerations rather than price of inputs, and must be given serious consideration by existing processors as well as future processors. Before the processor makes the purchase of any equip- ment he must consider the fixity of the equipment. Most poultry processing equipment is highly specialized and is designed for a specific scale of poultry processing operations. This means that there is a limited opportunity to transfer the equipment between processors, or very little chance to sell to another industry. As a consequence, the purchase price is much higher than the salvage price, in comparison to equipment in some other industries. The equipment should not only be technically proportional with other equipment on the line, but the plant must be capable of utilizing the labor equivalent of the equipment to its fullest extent.- Employment of labor less than the capacity of equipment would result in overinvestment in equipment. The services of a single piece of l6 equipment on the line operation is partial and inseparable from the overall operational point of view. As a result of the above two complications some of the labor becomes fixed. The impact of any one segment of the line affects all segments on the line. In the poultry processing operation, therefore, there is an optimum input combination in each work segment considered independently but not necessarily the optimum when considered from the overall processing point of view. For this reason, some sacrifice in productive efficiency in some segments on the line would be justified from the overall operating point of view. There are six major factors or inputs used in processing poultry: 1. labor 2. raw material--live poultry and packaging material 3. power 4. equipment 5. building 6. management Of these six inputs the first three are variable and the last three are fixed. The inputs of live poultry and packaging material are nearly proportional to the output. Power also is nearly proportional but there is some variation due to changes in power rates and power used for other purposes than operating the conveyor line. 17 The relationships between input—input as well as those between input-output are important. For example, an increase in the speed of the conveyor line necessitates an increase in labor. The limiting factor with regard to the amount and proportion of inputs to use is the capacity of equipment. In some work segments of the line, an increase in one input must be in fixed ratio to another input. For example, the addition of one more packaging machine requires an additional operator. Furthermore, substitutions among these inputs are limited. There is no substitute for raw material. For a given plant substitutability between labor and power is very small. There is a possibility of substitution between labor and equipment in the long-run but it too becomes undesirable in the short-run. Scale of Plant and Variation in Output Variation in output can be adjusted in one or a combination of the following ways: (1) variation in scale of plant in the long-run, (2) variation in the rate of output, and (3) variation in hours of operation. If the supply of live poultry as well as the market for processed poultry is large, assuming prices of live as well as processed poultry are constant, construction of a large scale plant and intensified output in rate as well as in hours of operation would be desirable. Rate can be varied by changing conveyor line speed or by changing shackle Space. 2‘This includes multiple-shift operations. 18 In the long-run, increase in the output of a plant is accomplished by increasing scale of the plant. If an increase in scale of plant decreases average cost up to a certain scale, economies of scale exist and the larger plants are more efficient than the smaller plants. The long-run average cost curve is made up of all the minimum points of short-run average cost curves. The concept of economies of scale is used somewhat loosely by some writers in the sense that they fail to distinguish between economies associated with changes in scale and changes in propor- tionality of variable and fixed inputs of a producing unit. Heady (1957) clearly distinguishes between scale relation- ships and proportionality. He defines scale relationship as a long-run situation in which all factors vary by the same proportions; whereas, proportionality is defined as a short—run situation in which a variable factor is applied to some fixed factor. Boulding (1955) also makes a clear distinction between scale changes and proportionality changes. He calls the former ”the law of changes of scale“ and the latter ”the law of changes of marginal or average product. ” He states that, "the problem of constant, increasing. or decreasing returns to scale has nothing to do with the changes in the proportions of the input quantities. " The changes in scale problems return are whether (1) constant, (2) increasing, or (3) decreasing, as the scale increases. l9 Boulding (1955) confirms the existence of returns to scale on the ground that some inputs such as management capability and efficiencies are associated with scale as inputs increase. In the case of proportional changes in scale the problems are whether the changes in inputs are (1) constant, (2)increa51ng, or (3) decreasing returns to the variable inputs to some fixed inputs. The law of diminishing returns applies very clearly in this case. The law states that as equal increment of one input is increased to the fixed inputs, the total output will first increase at an increasing rate, secondly increase at a decreasing rate, and then decline. Stigler (1957) specifies three conditions to validate the law of diminishing returns. They are: (l) the state of technology is given, (2) the variable input is applied to some fixed input, and (3) the law premises the possibility of varying the proportions in which the various productive services are combined. With these theoretical concepts in mind the following conditions are assumed: (I) Long-run scale relationship is one in which all inputs are changed in the same proportion in the long-run. Long-run is defined as a period long enough to change all variables. It is assumed that there are returns to scale due to physical impossi- bilities of increasing inputs in equal proportions, efficiencies of some inputs as a result of large scale, and inefficiencies of some inputs as a result of large scale. For these reasons, the long-run 20 average cost curve is assumed to be U-shaped, however slight the curvature may be. (2) Short-run scale relationship is between variable input and fixed input. Short-run is defined as a period which is not long enough to vary all inputs. The shape and magnitude of total physical product (TPP) curve depends on the ratio between variable and fixed inputs. These scale relationships are given in Figure 3. In Figure 3, only five short-run scales of plants (SAC1--SAC5) are shown. Theoretically, there are infinite number of scales of plants represented by the long-run average cost curve (LAC). The long-run average cost curve is a series of the lowest possible average cost curves for each level of output. To obtain maximum profit in Michigan, where the poultry population is sparse and scattered, the processor should build a plant in which the optimum output will coincide with live poultry supply in the area. After the plant has been built the concern of the processor is the least cost of a given output rather than the least processing cost of a given plant, If the scale of the plant is so large that it reqUires coverage of a wide live poultry supply area, profit will be squeezed because of higher procurement costs. On the other hand, if the scale of the plant is small and output is intensified by means of a higher rate of production or longer hours of operation, some operating costs such as overtime labor and extra workers would be higher. Further- more, unless output is no more than equal to consumption in each 21 operating period, there would be the problem of storing and marketing over a period of time. Labor - Equipment Relationship Assuming that management has precise knowledge about the supply of live poultry within the economic distance, the next problem would be: how to combine labor and equipment to achieve the desired level of output. Labor and equipment as used here, imply not only labor and equipment as such, but all the necessary inputs required to use one unit of labor or equipment. Assuming a particular plant has an available supply of live poultry at the rate of l, 000 birds per hour, the management has two alternatives to process this amount. They are (1) use of labor alone, or (2) use of a combination of labor and equipment. If manage- ment chose to use labor alone the production function would be the same as the one person production function described on page 12.. The other alternative would. be to combine labor and equipment in the least-cost combination. It must be emphasized that labor and equipment are complementary to each other, and at the same time, they are limiting factors since both inputs have to be used in somewhat fixed proportions. In line type poultry processing plants two identical machines are usually not installed because each working segment has a specific assignment that has to be performed during a given period of time - 22 without stopping or reversing the line. Management's choice as to which input to use is not between equipment A and B of a similar type, but between labor and equipment. In order to reach full utilization of efficiency of labor and equipment on the line the labor and equipment must have equal capacity. For example, if a scalding tank has a capacity of 800 birds per hour and a picker has a capacity of 1, 000 birds per hour the picker would be underutilized relative to the scalder. This is an important point of which every manager must be aware prior to making an investment in equipment. The following are several possible reasons why underutilization in one or more pieces of equipment exists; 1. Equipment manufacturers do not have equipment to fit every scale of operation. In most cases, this results in installation of larger capacity equipment than required for scale of operation. 2. Some plants use equipment made by more than one manu- facturer, This may result in differences in capacity as well as in processing procedures recommended by each manufacturer. 3. Some plants are located in structures converted from other business uses, and expanded by adding equipment piece by piece as business increases. In most cases this would lead to an initially inefficient plant layout and poor coordination of equipment. 23 Cost Functions The concept of costs must be clarified before proceeding with an analysis of cost functions. Costs as used in economics are based on opportunity cost concept. Also costs include implicit costs such as owner’s salary and normal returns on investment. In this study seven cost concepts are involved: total fixed cost (TFC), total variable cost (TVC), total cost (TC), marginal cost (MC), average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC). The nature of cost functions has a direct relationship with the nature of production function. The relationship between the production function and cost functions of one variable production function is given in Figure 4. In Figure 4, it can be seen that when marginal physical product (MPP) is maximum, marginal cost (MC) is at a minimum and when average physical product (APP) is maximum, average cost (AC) is minimum. These are indicated by XlA and X'lA'; and XZB and X'ZB'. Also it should be noted that when the average cost (AC) curve is decreasing, the MC curve is below the AC curve. When the AC curve is minimum, the MC curve is equal to the AC curve. These are fundamental relationships. From a physical production efficiency point of view the most efficient level of output is the operation of a given plant at the level at which short-run AC curve is at a 24 J '.J fiJ N J ll”".’3 f‘ I Gala ." D I‘ C‘ '.‘. fl .3 8 IA" Ctitgitit 41+ In "-'-"-lv\ no .a «a p‘ ‘7 H“ 'J . I ~.. ‘ l U”, n03: A . ‘ - "10*..10‘1 I 3"(1 A 1””..- I ,1 ‘ ‘1’." L 25 minimum because at this level of output the unit cost of the product . . . 1 is minimum. With these short-run cost concepts in mind, plant managers must face several decision making situations. In short-run cost analysis, fixed cost has no importance in decision making because once the investment is made the fixed charge must be paid regardless of the level of output. Decision to produce or not to produce must be based on variable cost and the price of the product. Therefore, even though the price of the product is below ATC but above AVC, it would be economical to keep producing. If, however, the price of the product declines below AVC, loss can be minimized by not producing. For these reasons any method with which the management can reduce AVC is desirable. The reduction in AVC could come about from internal economies such as improved production techniques or cost saving methods, or it could come about from external economies such as the decreased price of variable inputs. Internal diseconomies as well as external diseconomies are equally applicable. At this point, one may hypothesize as to why all plants are not built and operated at an output which will give minimum average cost. First, management. may not have sufficient knowledge about plant efficiency nor prices of input and output. Secondly, management This does not necessarily mean that this point will insure maximum profit. 26 may have perfect knowledge about future prices so that they build the plant beyond current needs on the basis of the predicted future prices and try to average out the average cost over the years. Thirdly, management may have perfect knowledge about the future but its financial position does not permit it to expand. Results from the above three situations have different effects on production and cost functions. The first case could result in any one of the following situations--all only by chance. In the first place, the management could have built a plant larger than optimum, which is similar to the second case. Secondly, the management could have built a plant smaller than optimum, which is similar to the third case. Finally, the management could have built a plant the optimum size by chance. In the second case, initial investment in fixed input is higher; therefore, output is higher than current requirements but it will, in management's estimation, meet future requirements. Its ATC would be higher initially because its AFC is higher, but manage- ment hopes decreases in AVC will offset higher AFC as volume increases. Case three is the reverse of case two in that initial ATC is low because AFC is low but AVC has very little force to pull AFC down. However. case three gives more flexibility when prices of inputs or product reverse. These cases are shown in Figure 5. 27 Suppose plant was built with cost structure such as AC1 in Figure 5. The optimum level of output is at Y. However, the current need for product is only Y2, but the management anticipates an increase in demand to Y3 in the near future. The average of unit costs between Y2 and Y3 (Case Il)is still lower than the average of unit costs between Y1 and Y4 (Case III). Cost Functions with Regard to Procurement of Live Poultfl Cost functions for procurement of live poultry with plant equipment and personnel involve complicated accounting problems. In Michigan where the scale of the processing operation is small, procurement is done by workers who perform several other assign- ments in the plant. For example, two or three workers start out early in the morning and haul in the number of birds required for the day. These same workers join the rest of the crew and work on the processing line. How to allocate time and pay (including fringe benefits) is a difficult task. Plant managers identify workers as general plant workers rather than by specific jobs. Management does not keep a record of each worker for each job performed. Nevertheless, if the management is to compute reasonably accurate figures of labor and cost of live poultry, it has to give due consideration for these jobs. If labor used for procurement is not separated from processing, it would result in over priced labor for processing cost. 28 The portion of labor used for procurement should be deducted from processing costs and added to the live poultry price at the plant. The same reasoning and logic should be applied to the use of trucks and equipment. Failure to recognize these facts would result in lower live poultry cost at the plant. If such record keeping is not practiced, it would be appropriate to use a standard charge such as a commercial rate for trucking live poultry to the plant. Cost Functions with Regard to Six Major Processing Costs in In-Plant Operations Cost curves of six major inputs used in in-plant operations are shown in Figure 6. When output is a function of hours of operation the costs of live poultry and packaging material are constant.1 Labor cost is constant up to eight hours of operation, then has an upward step function indicating overtime pay. Cost of power has a downward step function because of reduced rates as consumption increases. Building and equipment costs as well as management costs decline sharply at first, then level off. Efficiency and Role of Management Efficiency as used in overall plant operations is the ratio between useful inputs to useful output; therefore, this ratio measures This assumes there is no quantity discounts in purchasing. Z9 . ! I . i 0 Y1 Y2 Y Y3 Y4 Output Figure S. Cost Functions with Different Levels of Fixed Inputs. Cost Live poultry Labor Power gUlldlUTI pnuipment.& vanagement - h Hours Figure o. six Major Cost Curves as a Function of Hours of Operation. 30 efficiency. This is a precise statement of efficiency yet it has many implications. In engineering, efficiency is the ratio of physical inputs to physical output. In human behavior, of which management is a part, efficiency could be measured in terms of “right actions” taken between "good” and "bad. ” In processing plant operations, for example, if Plant A produces more output with the same amount of inputs or produces the same output with less inputs than Plant B, Plant A is more efficient than Plant B. To an engineer, a plant is most efficient when average physical product is equal to marginal physical product. In an enter- prise such as a poultry processing operation where profit maximization is the goal, neither engineering efficiency nor management's action alone is sufficient to attain maximum profits since prices of inputs as well as output change. For these reasons, the author has used ”useful inputs" to include management's action as an input in measuring efficiency. Some elements of efficient management include quality, quantity, delivery costs, delivery scheduling, and terms of trade in procurement of live poultry; working schedule of workers, pre-processing and post-processing details, mechanical adjustments, human relations, in in-plant operations; and in marketing; the management should have knowledge about the processed poultry market and coordination between output and demand for the processed poultry. In perfect competition, management‘s role would be confined to in-plant efficiency only because it has no control over the prices of the factor market or the product market. 31 32 CHAPTER V STUDY PROCEDURE Selection of Plants For the purposes of collecting data the author visited nine commercial processing plants in Michigan. From these nine plants, four commercial processing plants and one manually operated plant were selected. The latter was composed of three graduate students majoring in poultry science at Michigan State University Poultry Science Department. Each of these four plants were visited four times during the processing season to observe plant operations and two times to interview plant managers. Sources of Data Time study data were collected by actual observations in each plant. The time recorded for a particular work segment was the mean of ten observations for the given speed for that day; the speed according to managers, was the ”normal" speed at which the plants usually operated. Most of the plant cost data were collected from processors” accounting records. The degree of accuracy of figures furnished by plant managers, of course, will affect the final cost analysis. Procurement Cost and Fixed Cost Computations Procurement costs with plant truck and equipment depends on processing capacity, capacity of truck, and distance to travel. 33 The following formula is used for computation of procurement costs per bird: Daily requirement 1 Volume of truck x Distance x O. 35 Daily requirement If live poultry is delivered to the plant by a producer or some other agency, the procurement cost is simply K-l-k where K is the price of poultry at the farm and k is the payment per unit for the transportation cost. For computation of fixed costs the following formulas are . . . . 2 . used. Similar studies made in other states confirm the rates used in this study. Land: Txo.01+1nXo-06 (1) Building: D x 0. 025 + R x 0° 02 + In x O. 06 + I x0.006+Tx0.0l (2) ns Equipment: D x 0. 20 + R x O. 03 + In x O. 06 + I x0.006+Tx0.01 (3) ns Administration: From accounting record (4) Total fixed cost: (1) + (2) + (3) + (4) (5) , (5) Averaged fixed cost: —Y— (6) This is per mile charge, according to Dr. Larzelere, is a reasonable figure for short haul, including driver‘s time. 2See Abbott and Farrish. 34 Where T is the tax rate based on current value; I is the n interest rate; D is the depreciation rate based on the purchase price; R is the cost of repairs based on replacement value; I is the insurance ns rate; and Y is the total output. Other Cost Items In this study, cost of live poultry, shrinkage cost, cost of holding live poultry at the plant, and charges for special fees such as inspection and auditing are not included in the in-plant processing cost computations. 35 CHAPTER VI ANALYSES OF PLANT OPERATIONS The Problem Areas in In-Plant Operation The basic problems of in-plant operation involve two sets of three factors each. They are: (1) speed of dressing line, (2) speed of work segments on the line, and (3) distance between work segments. There is a similar set for the eviscerating line. The relationship among these three factors, given shackle space, can be simplified as follows: Set I1 1. Speed of dressing line depends on the slowest work segment. 2. Speed of worker varies, within limits, with the speed of the line, but the speed of the worker determines the speed of the conveyor line. 3. Distance between work segments is determined by the required working time between work segments. If the speed of the line is increased beyond the speed of the work segment, the distance must be increased, or additional worker(s) must be added. On the other hand, if the speed of the line is decreased, the distance between the workers could be reduced or, in some cases, worker(s) could be l O I O I Set I refers to dressmg line and Set II refers to eViscerating line. 36 eliminated from the line. However, the distance between work segments could be adjusted by shackle space. A similar relationship holds true in the eviscerating line as shown in Set II. Set II Speed of the eviscerating line depends on the speed of the dressing line, or the speed of the slowest work segment of the eviscerating line, which ever is slowest. Speed of the worker varies, within limits, with the speed of dressing line and eviscerating line, but the speed of the worker determines the speed of the conveyor line. Distance between work segments is determined by the required working time between work segments. If the speed of the line is increased beyond the speed of the work segment, the distance must be increased, or additional worker(s) must be added. Again, rate of output can be varied by the shackle space adjustment. It is clear that the ”most-time common denominator" in Set I, must be based on the slowest work segment of dressing line, and the ”most-time common denominator'I in Set II, must be based on the slowest work segment of dressing line or eviscerating line, whichever is slowest. Since Set 11 depends on Set I, any changes in Set I must 37 affect Set II. These relationships will become clear as analysis of actual plant operations progresses. Bases for Modification of Plant Operations The importance of variations in the size of plants, methods of operation, and the extent of the use of labor and equipment associated with costs have been pointed out. The point must be emphasized that plant size, the degree of mechanization or speed of each worker, taken alone as such, are not too relevant. This will be discussed in a later analysis. The in-plant operation is primarily physical and is a fairly simple task that any engineer could do better perhaps than a plant manager who is not trained in engineering. If the scale of plant, labor, equipment, and prices are given, any permissible technique that increases output will lower the cost of the product and therefore increase revenue. Some of the techniques might be: (1) exploitation of labor up to the point just before physical exhaustion or the point just before labor strikes (Technique 1A and Technique 1B), (2) longer hours of operation by way of overtime or multiple shifts (Technique 2A and Technique 2B), (3) rearrangement of labor and equipment to find the least time combination (Technique 3), or (4) combination of work segments by a single worker for full utilization of time (Technique 4). These techniques may be explained with the following model. 38 Suppose Plant X is organized to process a maximum hourly output of l, 000 birds but it is operating at only one—half of its maximum capacity 1 (which seems to be the case in Michigan by actual observation), and labor (L) and equipment (M) are arranged in the following manner: Labor or equipment L M L M L L L Time in seconds 20 20 10 10 20 10 10 Work segments (1) (2) (3) (4) (5) (6) (7) By using the labor exploitation technique (Technique 1A), the output could be nearly doubled2 by increasing the speed up to the maximum capacity, hence, lowering costs to nearly one-half. On the other hand, management could operate the plant at maximum capacity and reduce the hours of operation by one-half, in which case savings in variable costs but not in fixed costs would result (Technique 1B). Under com- petitive economic conditions the best alternative would be doubling the speed to reach the maximum output. The results from the above two techniques would be as follows: Technique 1A Output is nearly doubled, AFC is decreased nearly one-half, and AVC is decreased nearly one-half. Technique 1B Output is the same, Maximum capacity found by the time and motion studies. 2 Due to technical reasons output is not exactly doubled. 39 AFC is the same, and AVC is decreased nearly one-half. If management decided to use the longer hours of operation technique, output could be increased and would be further increased by combining Technique 1A and longer hours (Technique 2A). The cost structure will differ. If management decided to operate on the overtime technique (Technique 2A), the output would become a function of hours of operation up to 24 hours a day and reach a maximum. Variable costs would be increased by the amount paid out in overtime pay after regular working hours. Average fixed cost Would decline by spreading the cost over a larger output. These relationships are shown in Figures 7A and 7B. If the management decided to use the two shifts operation technique (Technique 2B), output as well as variable costs would nearly double, but average fixed cost will be reduced to nearly one-half, assuming there is no pay difference between shifts. These relationships are shown in Figure 8. Results from the above two techniques are as follows: Technique 2A Output is increased by the amount of hourly output times the hours of overtime, Variable costs are increased by the amount paid out in overtime, and Fixed costs are declined by spreading over the increased output. 40 Fic.7A PiR.7R Cutnut Cost TC Y 1 L L l O 8 24 O 8 24 Hours Hours Figure 7A & 79. Production and Cost Functions Eeyond 8-Hour Working Day. Output Cutput Output + : O O O 15 Hours Hours Hours Figure 8. Output Resulting from Two Shifts. 41 Technique 2B Output is nearly doubled, Variable costs are nearly doubled, and Fixed costs are decreased by nearly one-half. If, rearrangement of labor and equipment is possible (Technique 3) it will result in reduced hours of operation or increased output with the same input. This rearrangement will reduce waiting time between work segments to nearly zero. Finally, there may be a possibility of combining two or more work segments by one worker (Technique 4). If a particular work segment takes twice as long as the work segment next to it, management has a choice between adding another worker to the segment which takes only one-half the time. The above modifications are available to management. However, management might not apply the available modification. The reason may be among the following; 1. The management is unable to recognize profitable modification possibilities. 2. The fact that profit maximization is not the only goal of management, particularly in the case of the self-owned plants. Maximization of family satisfaction is also important. For these reasons Techniques 1A and 1B are 1 not practiced in plants in which family labor is used. 1Family labor may include not only members of the immediate family, but also relatives. 42 3. The uncertainty of the live poultry market as well as the processed market restricts the operation of the plant out- put at the level of least cost combination. Furthermore, if labor and live poultry are not readily available in the area, or predicted price of the product is not favorable the management would not use Techniques 2A or 2B. 4. The unavailability of cash reserve and credit plus un- certainty of the future prevents the management from doing what it would like to do. The greatest possibility in plant reorganization without major changes in physical structure lies in the area of Technique 3 and Technique 4. Description, Operation, Analysis, and Modification of the Five Selected Plants Plant No. l A. Description of plant. Personnel of this plant was composed of three graduate students from the Poultry Science Department of Michigan State University. These students were asked to dress ten fryers manually at their normal speed. Their performance was timed and then averaged. This performance should represent the speed of an average poultry processing worker dressing poultry, all by himself, with simple tools and equipment. The equipment would consist of aknife, water pail, table, crate, and a container for dressed poultry. 43 Even though the operation was conducted at the Poultry Science laboratory, an operation of this size could be established and operated in almost any rural area. The main objective of this operation, was to establish the manual processing time to compare with line type operations. B. Procurement of live poultry. Plant No. 1 was a simulated plant, therefore, there were no actual procurement figures. The broilers dressed were from the university poultry farm. C. Operation of plant. Segment 1. Segment 2. Segment 3. Segment 4. Hanging--Worker removed a bird from the crate and hung it on a hook by the feet at a rate of 10. 8 seconds per bird. Extra time would be required for moving the empty crate and replacing it with a full crate. Killing--Birds were killed at a rate of 4. 5 seconds per bird. The worker killed a group of three birds in order to provide time for bleeding. Scalding--Birds were submerged in a hot water tank for 41 seconds. Water temperature was 128° F. Picking-~Picking birds by hand took 189. 0 seconds per bird to complete. Segment 5. Segment 6. Segment 7. Segment 8. Segment 9. Se gment 10. Segment 11. Segment 12. Segment 13. 44 Pinning--This job took 155. 2 seconds per bird to complete. Pinning time depends on the condition of the bird with respect to pins. Cropping--Crops were pulled at a rate of 53. 0 seconds per bird. Drawing viscera-—Viscera were pulled out of the body cavity at a rate of 102. 5 seconds per bird. Separating giblets--Separating giblets took 48. 5 seconds per bird. Removing feet and head--Worker cut off the feet and head at a rate of 19.1 seconds per bird. Cleaning giblets--Cleaning giblets was primarily a gizzard cleaning operation which took 46. 0 seconds per bird. Washing--Birds were washed inside and out at a rate of 5. 0 seconds per bird. Wrapping giblets--Gib1ets were wapped in wax paper at a rate of 15.0 seconds per bird. Stuffing giblets-~The wrapped giblets were placed in the body cavity at a rate of 3. 0 seconds per bird. 45 Summary of the manual operation time is given in Table 1. The work performance presented in the table is the actual working time for each work segment; therefore, an allowance for time spent between work segments is necessary. Time spent shifting from one job to another and walking was about 5 seconds between each job, a total of 60 seconds per bird. TABLE 1. --Actual working time of each work segment and sequence on processing line for Plant No. l Work , , Time in Job description segment seconds 1 Hanging 10. 8 2 Killing 4. 5 3 Scalding 41. O 4 Picking 189. 2 5 Pinning 155. 2 6 Cropping 53. 0 7 Drawing viscera 102. 5 8 Separating giblets 48. 5 9 Removing feet and head 19. 1 10 Cleaning giblets 46. 0 ll Washing 5. O 12 Wrapping giblets 15. 0 l3 Stuffing giblets 3. 0 Total working time . 692. 8 Allow 5 seconds between jobs 60. 0 Total time 752. 81 This is equivalent to five birds per hour per worker. 46 A comparison of this single worker manual operation with a line type operation indicates that many work segments, particularly pinning, picking, drawing viscera, and separating giblets require more time than in a line type operation. There are several reasons for this difference in time as follows: (1) line type operations are designed and constructed to function in horizontal as well as vertical product handling conveniently and comfortably. This minimizes product handling, and therefore, wasted time, (2) line type operations allow a specified working time to each worker and the product moves in one direction, (3) line type operations make it easier to combine work segments, and (4) workers on line type operations are under constant pressure. D. Costs. Plant No. l was a simulated plant of a very small scale. The total investment in equipment was estimated at $60. and $50 was allowed for rent of a place in a rural area including power, fuel, and water. Under these cost assumptions, the daily fixed cost was $1. 64, the variable1 cost was $10, and the total cost was $11. 64.. On the basis of time and cost structure of this manual operation, the cost of dressing a fryer was $0. 3333. As output increases, either through additional hours or additional workers, the unit fixed cost would diminish rapidly. 1The cost of power, fuel, and water are included in the fixed costs; rent. 47 E. Modification. Modification involves two kinds; one is to use more variable inputs which would be mainly labor (this will be referred to as Modification I), and the other is to invest more in fixed inputs which would be equipment (this will be referred to as Modification II). In case of Modification I, it is possible for each worker to combine several work segments of a similar type and to specialize. This type of modification would result in a very low level of average fixed cost and also a lower average variable cost due to the increased output per worker as a result of specialization and savings in walking time. Modification II involves investments in equipment. Observation of the work performance in Table 1 indicates that work segments scalding, picking, pinning, drawing viscera, separating giblets, and cleaning giblets are too much out of proportion to others. Of these time consuming work segments, the combined time of picking and pinning operations is equivalent to all the rest of the operations combined. At the present time, there is no equipment that will perform a perfect pinning operation. As a test model, this plant will acquire a scalding tank with a capacity of 100 birds per hour and a picker with a capacity of 60 birds per hour. The purchase price of the former is assumed to be at $75 and that of the latter $150.1 When the owner and operator invests in the above mentioned equipment he necessarily has to hire additional workers in order to These prices are estimated from equipment manufacturer‘s list prices. 48 complement the lowest productive equipment, in this case, the picker. At an hourly wage rate of $1. 25, each second costs $0. 00035. On this basis the manual scalding operation which takes about 45 seconds costs $0. 01635 per bird. If this operation is done with a scalder which costs $75 and has a lOO-bird capacity, the value of the scalder is worth $1. 6271 per hour in terms of wage rate $1. 25 per hour. Likewise the value of picker is worth $3. 9742 per hour in terms of wage rate $1. 25 per hour. In order to complement a picker with 60 birds an hour capacity, it would be necessary to employ 8 workers. The unit pro- cessing cost after this modification becomes $0. 21743 per bird. The difference between a completely manual operation and a partially mechanized operation is $0. 1159 per bird. Processing costs at different plant utilization levels (Modification II) for fryers are given in Tables 2, 3, and 4 for 365, 90, 60, and 30 days, respectively. Plant No. 2 A. Description of plant. This plant is located in a county 4 where the ”land area“ is 564 square miles and ”land in farms"5 is 1$1. 6350-$0. 00078 computed from formula No. 6, p. 33. 2$3. 990-$0. 0157 computed from formula No. 6, p. 33. 3TFC per day was $2. 738, TVC per day was $88. 60, AFC was $0. 0523, and AVC was $0. 2111. 4As defined in the U. S. census. As defined in the U. S. census. 49 TABLE 2. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 365-day1 operation--fryers. Percent of Daily Per utilization output AFC AVC ATC pound‘Z 100% 420 0. 0065 0. 2109 0. 2174 0. 0725 90 378 0. 0072 0. 2343 0. 2415 0. 0805 80 336 0. 0082 0. 2636 0. 2718 0. 0906 70 294 0. 0093 0. 3013 0. 3106 0.1035 60 252 0. 0109 0. 3515 0. 3624 0.1208 50 210 0. 0126 0. 4219 0. 4345 0. 1448 40 168 0. 0163 0. 5273 0. 5336 0.1779 30 126 0. 0217 0. 7031 0. 7248 0. 2416 Only fixed costs are computed on the basis of 365-day operation. 2Based on three pounds per bird. TABLE 3. --Daily output, average. fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 90-day1 operation--fryers Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 420 0. 0079 0. 2109 0. 2188 0. 0729 90 378 0. 0088 0. 2343 0. 2431 0. 0810 80 336 0. 0098 0. 2636 0. 2734 0. 0911 70 294 0. 0113 0. 3013 0. 3126 0.1042 60 252 0. 0132 0. 3515 0. 3647 0.1216 50 210 0. 0158 0. 4219 0. 4377 0.1459 40 168 0. 0197 0. 5273 0. 5470 0.1823 30 126 0. 0263 0. 7031 0. 7294 0.. 2431 1 Only fixed costs are computed on the basis of 90-day operation. Based on three pounds per bird. 50 TABLE 4. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1.. On the basis of 60-day1-operation--fryers :— I Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 420 $0. 0088 $0. 2109 $0. 2197 $0. 0732 90 578 0. 0098 0. 2343 0. 2441 0. 0814 80 336 0. 0110 0. 2636 0. 2746 0. 0915 70 294 O. 0126 0. 3013 0. 3139 0.1046 60 252 0. 0147 0. 3515 0. 3515 0.1221 50 210 0. 0176 0. 4219 0. 4393 0.1464 40 168 0. 0220 0. 5273 0. 5493 0.1831 30 126 0. 0293 0. 7031 0. 7324 0. 2441 Only fixed costs are computed on the basis of 60-day operation- Based on three pounds per bird. 3 TABLE 5. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 1. On the basis of 30-day1 operation--fryers Percent of Daily AFC AVC ATC - Per 2 utilization output pound 100% ' 420 $0. 0115 $0. 2109 $0. 2224 $0. 0741 90 378 0. 0128 0. 2343 0. 2471 0. 0824 80 336 0. 0144 0. 2636 0. 2780 0. 0927 70 294 0. 0165 0. 3013 0. 3178 0.1059 60 252 0. 0192 0. 3515 0. 3707 0.1236 50 210 0. 0231 0. 4219 0. 4450 0.1483 40 168 0. 0288 0. 5273 0. 5561 0.1854 30 126 0. 0385 0. 7031 0. 7416 0. 2472 1Only fixed costs are computed on the basis of 30-day operation. 2Based on three pounds per bird. 51 414 square miles. Poultry density is 1, 099 per "land area" square mile and 1. 497 per "land in farm” square mile. The market for processed poultry is local, mainly Grand Rapids and vicinity. This plant is a frame structure with concrete floors. It has a 16' x 23' receiving area and two rooms for processing. One room is 20' x 20' and the other is 19' x 26'. This plant is partially mechanized and would come under the Category A plant classification. B. Procurement of live poultry. If this plant is operated seven hours a day with a maximum capacity of 570 birds per hour, it would need 3, 990 birds per day. Assuming a load of 250 birds per truck at a cost of $0. 35 per mile, procurement cost would be $0. 0102 per bird.1 It can be seen that extension of the procurement zone increases procurement cost, hence resulting in a higher live poultry cost at the plant. This plant has its own truck and picks up poultry as needed for the day. The management has close contact with producers through feed dealers and has precise information about the live poultry market in the area. According to the manager, the procurement market is within a 25 mile radius. C. Operation of plant. Segment 1. Unloading, hanging, and moving crates-~Worker A, B, 8: C unloaded crates from truck at a rate of 9. 6 seconds per crate. This work required con- siderable strength and time because, when the 1The procurement cost will vary with changes in distance and volume of truck. Segment 2. A 8: B Segment 3. A, B, 8: C 52 truck was parked by the receiving room, the truck plus crates was 12 feet high. It took 6.5 seconds for walking between crates and moving them. The same worker hung birds on a manually operated conveyor line at a rate of 3. 5 seconds per bird. Two factors enabled this worker to perform all three jobs. One factor was that he had about 50 feet of conveyor length and the other was the fact that one crate contained several birds. Killing and moving conveyor line--Worker stood by the manually operated conveyor line and killed birds at a rate of 2. 5 seconds per bird. He had sufficient space to kill up to six birds when the conveyor line was stationary. Scalding and transferring 1ine--Worker unhooked birds from killing line, put them in scalding tank which had a capacity of 24 birds, then trans- ferred them to picker. This worker did the first two jobs in a single action, therefore, it was difficult to measure actual time for each job. It was estimated that about 4. 0 seconds per bird were required for the entire operation. Segment 4. A, B, 8: C Segment 5. Segment 6. A, B, &C Segment 7. Segment 8. Segment 9. A 8: B 53 Unloading from picker, removing feet, and cleaning floor--Worker unloaded birds from picker at a rate of 3. 7 seconds, removed feet, then cleaned floor from time to time. It took a total of 12. 9 seconds per bird for these jobs. Removing pinfeathers--Pinfeathers were removed at a rate of 11. 3 seconds per bird. Slitting neck, pulling neck skin and hanging-- Worker slit neck, pulled neck skin, then hung birds on eviscerating line at a rate of 4. 9 seconds per bird. Opening body cavity--Worker opened body cavity at a rate of 4. 7 seconds per bird. Drawing viscera--Worker removed viscera from body cavity at a rate of 7. 4 seconds per bird. He did not separate the viscera. Separating viscera and slitting gizzard-- Worker separated inedible organs, and cut open gizzard. Liver, heart, and gizzard were still attached to the bird at this stage. This operation took 5. 2 seconds per bird. 54 Segment 10. Emptying gizzard--Feed and other material in the gizzard were removed at a rate of 6. 3 seconds per gizzard. Segment 11. Peeling gizzard and separating all inedible A 8: B viscera-~Worker peeled the gizzard lining, separated viscera, and put it into proper containers at a rate of 6. 6 seconds per bird. Segment 12. Washing and inspecting--Worker washed and A 8: B inspected each bird before putting into chilling tank at a rate of 5. 1 seconds per bird. A senior worker walked back and forth to relieve congested stages. Summery of the processing time per bird is given in Table 6. In this plant, the dressing line was manually operated and it was about 70 feet long. The eviscerating line was mechanically operated and it was 94 feet long. The speed of the eviscerating line was one foot per 6.9 seconds. D. Costs. Processing costs in this plant varying in percent utilization and number of days of operation are reported in Tables 7 through 10. It can be seen that the average total cost is the lowest when the plant operates the days with the highest percentage utilization. The reason is obvious. When the plant operates at 100 percent of capacity the averaged fixed cost and the average variable cost are least because such costs are spread over a larger output. 55 TABLE 6. --Actual working time of each work segment and sequence on the processing line for Plant No. 2 Work , , Time in Job description segment seconds 1 Unloading, hanging, and moving crate 8. 6 2 Killing and moving chain 4. 1 3 Scalding 4. 0 4 Unloading and moving feet 12. 9 5 Pinning ll. 3 6 Slitting neck and hanging 4. 9 7 Opening cavity 4. 7 8 Drawing viscera 7. 4 9 Separating viscera and slitting gizzard 5. 2 10 Emptying gizzard 6. 3 11 Peeling gizzard and separating giblets 6. 6 12 Washing and inspecting 5. 1 Total time 81. l On the other hand, when the plant operates at less than 100 percent of capacity, the total fixed as well as variable costs are spread over a smaller output, hence resulting in a higher unit cost. When plants operate less than the total number of days in the year, the AVC is the same as the most number of days of operation but the AFC becomes larger.1 These extreme cases are shown in Table 7 and Table 10. E. Modification--Observation of data obtained from Line I 2 and Line 11 shows a considerable difference between the slowest work segment and the fastest. The "most-time common denominator" in This assumes depreciation as a function of "use" as well as "time. " Line I refers to dressing line and Line II refers to evis- cerating line. 56 Line I is 12. 9 seconds whereas the "least-time common denominator" is 4. 0 seconds. In Line II the "most-time common denominator” is 7. 4 seconds while the "least-time common denominator” is 4. 7 seconds. It is obvious that wasted time between and among these work segments amounts to many hours even in one day's operation. Waiting time becomes more noticeable when work performance in Line I and Line II are compared. The slowness in Line I affects the whole operation in Line II. When this study was conducted the speed of Line II was one foot per 6. 8 seconds which was meant that even the slowest work segment needed only one foot of conveyor line space, where in reality, each worker had an average of 13. 4 feet of conveyor space. Two major modifications are necessary in order to increase output; one is to bring the speeds of Line I and Line II to the same rate and the other is to increase the speeds of both lines. In order to accomplish the above mentioned modification, it would be necessary to make some structural changes in the plant. Installation of the receiving platform at the same level as the receiving room becomes necessary. Secondly, mechanization of Line I is desirable. These modifications will reduce waiting time between unloading and picking. The time saved from these work segments can be added to the pinning operation. As a result, these changes will bring in a nearly equal time ratio between work segments in Line I, which in turn, will provide nearly equal time ratio between Line I and Line 11. After recommended modifications are made, the speed could be doubled, from one foot per 6.8 seconds to one foot per 3.4 seconds. 57 TABLE 7. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. On the basis of 365-day1 operation--fryers On the basis of 90-day1 operation--fryers Percent of Daily Percent of Daily AFC , AVC. ATC Per 2 utilization output pound 100% 3990 0. 0092 0.0463 $0. 0555 $0. 0185 903 3591 0.0102 0.0514 0.0616 0.0205 80 3192 0. 0115 0. 0578 0. 0693 0. 0231 70 2793 0. 0132 0. 0661 0. 0793 0. 0264 60 2394 0. 0154 0. 0771 0. 0925 0. 0308 50 1995 0. 0184 0. 0926 0.1110 0. 0370 40 1596 0. 0230 0. 1157 0. 1387 0. 0462 30 1197 0. 0307 0.1543 0.1850 0. 0617 Only fixed costs are computed on the basis of 365-day operation. 2Based on three pounds per bird. 3This plant normally operates at this capacity. TABLE 8. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. Per utilization output AFC AVC ATC pound‘Z 100% 3990 0. 0248 0. 0463 $0. 0711 $0. 0237 90 3591 0. 0275 0. 0514 0. 0789 0. 0263 80 3192 0. 0310 0. 0578 0. 0888 0. 0296 70 2793 0. 0354 0. 0661 0. 1015 0. 0338 60 2394 0. 0413 0. 0771 0. 1184 0. 0395 50 1995 0. 0496 0. 0926 0. 1422 0. 0474 40 1596 0. 0620 0.1157 0.1777 0. 0592 30 1197 0. 0827 0.1543 0. 2370 0. 0790 Only fixed costs are computed on the basis of 90—day operation. 2On the basis of three pounds per bird. TABLE 9. --Daily output, average total cost per bird with changes in plant utilizatibn for Plant No. 2. On the basis of 60-day1 operation--fryers Percent of Daily average fixed cost, average variable cost, 58 and Per utilization output AFC AVC ATC pound2 100% 3990 0. 0326 0. 0463 0. 0789 $0. 0263 90 3591 0. 0362 0. 0514 0. 0876 0. 0292 80 3192 0. 0407 0. 0578 0. 0985 0. 0328 70 2793 0. 0466 0. 0661 0.1127 0. 0376 60 2394 0. 0543 0. 0771 0.1314 0. 0438 50 1995 0. 0652 0. 0926 0. 1578 0. 0526 40 1596 0. 0815 0.1157 0.1972 0. 0657 30 1197 0.1087 0.1543 0. 2630 0. 0877 1Only fixed costs are computed on the basis of 60-day operation. 2On the basis of three pounds per bird. TABLE 10. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 2. On the basis of 30-da operation- - fryers Percent of Daily AFC AVC ATC Per utilization output pound 100% 3990 0. 0560 0. 0463 0 1023 0. 0341 90 3591 0. 0622 0. 0514 0.1136 0. 0379 80 3192 0. 0700 0. 0578 0.1278 0. 0426 70 2793 0. 0800 0. 0661 0. 1461 0. 0487 60 2394 0. 0933 0. 0771 0.1704 0. 0568 50 1995 0. 1120 0. 0926 0. 2046 0. 0682 40 1596 0.1400 0.1157 0. 2557 0. 0852 30 1197 0.1867 0.1543 0. 3410 0.1137 Only fixed costs are computed on the basis of 30-day operation. 2 On the basis of three pounds per bird. 59 Plant No. 3 A. Description of plant. This plant is located in a county where the "land area"1 of 829 square miles and the "land in farms" is 590 square miles. Poultry density is l. 170 per "land area" square mile and 1. 644 per "land in farms" square mile. The market for processed poultry is both local as well as the Detroit terminal market. This plant is a frame structure with concrete floors. It has a 60' x 45' receiving room and two processing rooms connected by a conveyor line. One room is 145' x 58' and the other is 24' x 27'. This plant is highly mechanized and would come under the Category C plant classification. B. Procurement of live poultry. If this plant operated seven hours a day with a maximum capacity of 720 birds per hour, it would require 5, 040 birds per day. Using a truck load of 2.50 birds at a cost of $0. 35 per mile, procurement costs will be $0. 01257 per bird. This plant assembles live poultry with its own truck as well as by direct delivery by producers. When delivered by producers, the live poultry price at the plant is K+k where K is the live poultry price at the farm and k is the fixed transportation charge per unit. C. Operation of plant. As defined in the U. S. census. 2As defined in the U. S. census. Segment 1. A 8: B Segment 2. A 8: B Segment 3. Segment 4. 60 Receiving and weighing--Poultry was received at the platform which was about the same height as a truck so that birds were unloaded efficiently. The birds were then weighed and transported to the hanging area, or moved to the receiving room for later use. The average receiving time was 2. 0 seconds per bird. Hanging and moving crates--Worker hung birds on the line from crates at a rate of 10. 2 seconds per bird. He had about 10 feet of hanging space which enabled him to pick up full crates or remove empty crates without interrupting line operation. The rate of pick up or removing a crate was 8. 0 seconds per crate. The time for hanging and moving crates took 11. 5 seconds per bird. Killing--The worker stood at a somewhat stationary position and killed at a rate of 5.2 seconds per bird. Killing was done in a fixed position in order to prevent spreading of blood to the receiving area. Scalding--Scalding was accomplished in an automatic spray type scalder 20 feet in length. Segment 5. Segment 6. A 8: B Segment 7. Segment 8. Segment 9. Segment 10. 61 The rate depends on the speed of the conveyor line. Picking--Birds were picked by an automatic picker. The length of the picker was 12 feet and the rate of picking depends on the speed of the conveyor line up to the capacity of the picker. Removing quills and hanging by the neck-- Worker removed quills by using machine and hung each bird by the neck at a rate of 7. 0 seconds per bird. Buffing--Buffing was done by automatic equipment and its rate depends on the speed of the conveyor line up to equipment capacity. Pinning--Pinfeathers were removed by hand at a rate of 19. 0 seconds per bird. The pinning room was U-shaped so that the pinner had flexibility in space by following the bird if necessary. Singeing-—Singeing was done by an automatic gas singer timed by an electronic eye. Finishing--Finishing was done by automatic equipment 7 1/2 feet in length. Rate of finishing depends on the speed of conveyor line. Segment ll. A8:B Segment 12. A 8: B Segment 13. Segment 14. A 8: B Segment 15. A, B, 8: C 1 Segment 22. 62 Transferring and slitting neck--Birds were transferred to eviscerating line and the same worker slit neck at a rate of 15. 3 seconds per bird. Removing oil glands and opening cavity-- Worker removed oil glands and opened cavity at a rate of 15. 4 seconds per bird. Drawing viscera-—Worker removed viscera at a rate of 12. 7 seconds per bird. Washing and inspecting--Worker washed and inspected each bird at a rate of 16. 3 seconds per bird. Removing feet, weighing, and transferring to chilling tank--This operation took 4. 9 seconds per bird. Cleaning and bagging giblets--Between stages 13 and 14 two workers cleaned and bagged giblets at a rate of 16. 2 seconds per bag for each worker. This operation need not be on the line. Summary of actual processing time and sequence is given in Table 11. 1ZZ refers to work segment off the conveyor line. 63 TABLE 11. --Actual working time of each work segment and sequence on processing line for Plant No. 3 Work Job description Time In segment seconds 1 Receiving 2. 0 2 Hanging and moving crate 11. 5 3 Killing 5. 2 4 Scalding 10. 0 5 Picking 10. 0 6 Removing quills 7. 0 7 Buffing 7. 5 8 Pinning 19. 0 9 Singeing 1. 5 10 Finishing 5. 6 ll Transferring line and slitting neck 15. 3 12 Removing oil gland and opening cavity 15. 4 13 Drawing viscera 12. 7 14 Washing and inspecting 16. 5 15 Removing feet and weighing 4. 6 221 Cleaning and bagging giblets 16. 2 Total time 160. 1 1Letters ZZ indicate work performed off the conveyor line. D. Costs. Processing costs in this plant varying in percent plant utilization and number of days of operation are given in Tables 12 through 15. E. are segments from hanging the poultry to the chilling the birds. Modification. Line I is 154 feet long and Line 11 is 66 feet long, and they are mechanically operated. was one foot per 13. 4 seconds, which were "normal" operating speeds according to the manager. The in-plant operations included in this study The speed of Line I was one foot per 7. 5 seconds and Line II 64 Work performance of all segments in this plant was slower than Plant No. 2 not because of the speed and skill of workers but due to the slow speed and longer shackle space for processing hens and caponettes. Workers can perform their assignments only when birds arrive at their working positions. This is also true of the work done by equipment. Whenever the work performance standard is left to the judgment of the workers in jobs such as pinning, final cleaning, or inspecting, it is better to provide a flexible conveyor line space than limited space because the amount of work to be done on each bird may differ. Flexible line space allows the worker time to follow birds to complete the job or skip it whichever the case may be. Their work performance is the average of all birds passing through their assigned areas rather than performance on each bird. Their working time ranges from zero to some maximum. The worker in pinning, for example, can skip birds that do not need pinning but may spend as much as 70 seconds on one bird. In this case, his working time ranges from zero to 70 seconds. The speed of Line II was one foot per 13. 4 seconds. It had an average of 5 feet per worker while even the slowest worker needs only about a foot at that speed. Wider shackle spacing and a slow conveyor line was responsible for these inefficiencies. Worker (Segment 10) who transfers poultry from Line I to Line II and slits the neck, should be restricted to transfer of poultry 65 only, because he has to perform two jobs one of which requires the use of a knife while the other does not. Worker (Segment 11) should perform the job of opening the cavity and slitting the neck all in one continuous motion, and worker (Segment 14) should remove the oil gland and cut off the feet, all in one continuous motion. Plant No. 4 A. Description of plant. This plant is located in a county with a "land area"1 of 566 square miles and the "land in farms"2 is 505 square miles. Poultry density is 300 per "land area" square mile and 366 per "land in farms" square mile. The market for processed poultry is both local as well as distant such as Chicago and New York. This plant is partially mechanized and has a 38' x 18' receiving room, and a 38' x 38' eviscerating and dressing room. This plant would come under the Category A plant classification. B. Procurement of live poultry. If this plant is operated seven hours a day with a maximum capacity of 500 birds per hour, it would need 3, 500 birds per day. Assuming a truck load of 250 birds at a cost of $0. 35 per mile, procurement cost will be $0. 03267 per bird... C. Operation of plant. This plant went out of business soon after this study was undertaken. Time studies from hanging up to picking stages are not available. As defined in the U. S. census. As defined in the U. S. census. 66 TABLE 12. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3.. On the basis of 365-day1 operation--caponettes Pixie en? Of Dally AFC AVC ATC Per 2 utilization output pound 100%: 5040 0.0074 0.0336 0.0410 0.0082 90 4536 0.0083 0.0374 0.0457 0.0457 80 4032 0.0093 0.0420 0.0513 0.0103 70 3528 0.0106 0.0480 0.0586 0.0117 60 3240 0.0116 0.0523 0.0639 0.0128 50 2520 0.0149 0.0672 0.0821 0.0164 403 2016 0.0186 0.0841 0.1027 0.0205 30 1512 0.0248 0.1121 0.1369 0.0274 Only fixed costs are computed on the basis of 365-day operation. 2 Based on five pounds per bird. 3 This plant normally operates at this capacity. TABLE 13. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 90-day1 operation--caponettes Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 5040 $0. 0330 $0. 0336 0. 0666 $0. 0133 90 4536 0. 0367 0. 0374 0. 0741 0. 0148 80 4032 0. 0413 0. 0420 0. 0833 0. 0167 70 3528 0. 0472 0. 0480 0. 0952 0. 0190 60 3240 0. 0514 0. 0523 0. 1037 0. 0207 50 2520 0. 0661 0. 0672 0.1333 0. 0267 40 2016 0. 0826 0. 0841 0.1667 0. 0333 30 1512 0.1102 0.1121 0. 2223 O. 0445 1 Only fixed costs are computed on the basis of 90-day operation. 2Based on five pounds per bird. , 67 TABLE 14. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 60-day1 operation--caponettes Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 5040 0. 0458 0. 0336 $0. 0794 0. 0159 90 4536 0. 0509 0. 0374 0. 0883 0. 0177 80 4032 0. 0573 0. 0420 0. 0993 0. 0199 70 3528 0. 0655 0. 0480 0.1135 0. 0227 60 3240 0. 0713 0. 0523 0. 1236 0. 0247 1 50 2520 0. 0917 0. 0672 0.1589 0. 0518 40 2016 0. 1146 0. 0841 0. 1987 0. 0397 30 1512 0.1528 0.1121 0. 2649 / 0. 0530 Only fixed costs are computed on the basis of 60-day operation. 2Based on five pounds per bird. TABLE 15. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 3. On the basis of 30-day1 operation--caponettes Perc ent of Daily AFC AVC ATC -. Per 2 utilization output pound 100 5040 $0.0842 $0.0336 $0.1178 $0.0236 90 4536 0.0935 0.0374 0.1309 0.0262 80 4032 0.1052 0.0420 0.1472 0.0294 70 3528 0.1203 0 0480 0.1683 030337 60 3240 0.1310 0.0523 0.1833 0.0367 50 2520 0.1684 0.0672 0.2356 0.0471 40 2016 0.2105 0.0841 0.2946 0.0589 30 1512 0.2807 0.1121 0.3928 0.0786 Only fixed costs are computed on the basis of 30-day operation. Based on five pounds per bird. Segment 1. Segment 2. Segment 3. Segment 4. Segment 5. Segment 6. Segment 7. Segment 8. Segment 9. Segment 10. Segment 11. Segment 12. A8:B Segment 13. Segment 14. Hanging. Killing. Scalding. Picking. Pinning. Slitting neck. Opening cavity. Cleaning cavity. Washing. Hanging by the wing--Birds were hung by the wing to remove excess water at a rate of 4.1 seconds per bird. Unloading from the line--Birds were removed from the line and placed on tables at a rate of 2. 2 seconds per bird. Pinning and cleaning--Fina1 pinning and cleaning was done at a rate of 38. 1 seconds per bird. Wrapping giblets--Giblets were wrapped at a rate of 12. 5 seconds per bag. Stuffing giblets--Giblets were stuffed in body cavity and placed on running belt at a rate of 7. 9 seconds per bird. 68 69 Segment 15. Packaging—-Worker picked up bird from belt and vacuumed at a rate of 12. 2 seconds per bird. Segment 16. Shrinking--Birds are submerged in hot water for 10 seconds per bird. Segment 17. Weighing and marking--Birds are weighed and marked at a rate of 6. 5 seconds per bird. Segment 18. Packing and transferring to freezer--Two workers packed six birds in a box and transferred to freezer at a rate of six seconds per bird per worker. Summary of actual working time from Segments 11 through 18 is reported in Table 16. D. Costs. Processing costs in this plant varying in percent plant utilization and number of days of operation are given in Tables 17 through 20. E. Modification. This plant is partially mechanized and uses many part-time workers. As the birds come off the dressing line they are put in chilling tanks without complete removal of pinfeathers and pieces of viscera in the body cavities. When the dressing line is stopped, all the workers from that line are transferred to the eviscerating operation. 70 TABLE l6.--Actua1 working time of work segments from hanging through packaging for Plant No. 4 Work Job description Time In segment seconds 1 Hanging ---- 2 Killing -___ 3 Scalding ---- 4 Picking -—-- 5 Pinning ---— 6 Slitting neck ---- 7 Opening cavity ---- 8 Cleaning cavity --—- 9 Washing ---- 10 Removing feet and head ---- 11 Hanging by the wing 4. 1 12 Unloading from line 2. 2 l3 Pinning and cleaning 38. l 14 Wrapping giblets 12. 5 15 Stuffing giblets 7. 9 l6 Vacuuming 12. 2 17 Weighing and marking 6. 5 18 Packing and transferring to freezer 6. 0 Total time work segments 10 through 18 89. 5 In the eviscerating operation, the birds were picked up from the chilling tank and hung by the wings to remove excess water. Birds remained on the line for about ten minutes, then were unloaded by each worker and put on the eviscerating tables. The eviscerated birds were placed on trays for stuffing. The stuffed birds were placed on a moving belt for vacuuming and packing. The workers on eviscerating line were free to move from one position to another as they saw a need in the working area; therefore, work performance 71 TABLE 17. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 365-day1 operation-~hens Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 3500 0. 0255 0. 0838 0.1093 0. 0219 90 3150 0. 0284 0. 0931 0.1215 0. 0243 80 2800 0. 0319 0.1047 0.1366 0. 0273 70 2450 0. 0365 0.1197 0.1562 0. 0312 60 2100 0. 0426 0.1306 0.1822 0. 0364 503 1750 0.0511 0.1675 0.2186 0.0437 40 1400 0. 0638 0. 2094 0. 2732 0. 0546 30 1050 0. 0851 0. 2792 0. 3643 0. 0729 Only fixed costs are computed on the basis of 365-day operation. Based on five pounds per bird. 3This plant normally operates at this capacity. TABLE 18. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 90-day1 operation-~hens Peroc ent of Daily AFC AVC ATC Per 2 utilization output pound 100%. 3500 0.0905 $0.0838 80.1743 80.0349 90 3150 0.1006 0.0931 0.1937 0.0387 80 2800 0.1132 0.1047 0.2179 0.0436 70 2450 0.1293 0.1197 0.2490 0.0498 60 2100 0.1509 0.1396 0.2905 0.0581 50 1750 0.1811 0.1675 0.3486 0.0697 40 1400 0.2264 0.2094 0.4358 0.0872 30 1050 0.3018 0.2792 0.5810 0.1162 Only fixed costs are computed on the basis of 90-day operation. 2 Based on five pounds per bird. 72 TABLE 19. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 60-day1 operation--hens Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 3500 0.1315 0. 0838 0. 2153 0. 0431 90 3150 0.1461 0. 0931 0. 2392 0. 0478 80 2800 0. 1644 0. 1047 0. 2691 0. 0538 70 2450 0.1879 0.1197 0. 3076 0. 0615 60 2100 0. 2192 0.1396 0. 3588 0. 0718 50 1750 0. 2631 0.1675 0. 4306 0. 0861 40 1400 0. 3289 0. 2094 0. 5383 0.1077 30 1050 0. 4385 0. 2792 0. 7177 0.1435 Only fixed costs are computed on the basis of 60-day operation. 2Based on five pounds per bird. TABLE 20. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 4. On the basis of 30-day1 operation--hens Percent of . . . Dally AFC AVC ATC Per 2 utilization output pound 100% 3500 0. 2372 0. 0838 0. 3210 0. 0642 90 3150 0.2646 0.9031 0. 3577 0. 7515 80 2800 0. 2965 0. 1047 0. 4012 0. 0802 70 2450 0. 3389 0.1197 0. 4586 0. 0917 60 2100 0. 3954 0.1396 0. 5350 0.1070 50 1750 0. 4745 0.1675 0. 6420 0.1284 40 1490 0. 5931 0. 2094 0. 8025 0.1605 30 1050 0. 7908 0. 2792 1. 0700 0. 2140 Only fixed costs are computed on the basis of 30-day operation. 2Based on five pounds per bird. 73 time for each worker has very little meaning. The only work segment which could be used to measure hourly output was the vacuuming work. If the vacuuming operated continuously, the hourly output is estimated at 300 birds. Even though the plant manager is free to make an invest- ment in equipment in the plant, he is restricted from making structural changes under the lease contract. This building was not designed for a processing operation. Plant No. 5 A. Description of plant. This plant is located in a county With a ”land area"1 of 564 square miles and the "land in farms"2 is 414 square miles. Poultry density is 1, 099 per "land area" square mile and 1, 498 per "land in farms" square mile. The market for processed poultry is both local as well as distant markets such as Detroit and Chicago. This plant is a newly constructed one. The plant is 140' x 60' and does not have a receiving room. It is highly mechanized and would come under the Category B plant classification. As defined in the U. S. census. 2As defined in the U. S. census. 74 B. Procurement of live poultry. If this plant is operated seven hours a day with a maximum capacity of 315 turkeys per hour, it would require 2, 200 turkeys per day. Assuming a truck load of 160 turkeys at a cost of $0. 35 per mile, procurement cost will be $0. 0974 per turkey. The actual cost, of course, depends upon the weight of turkeys and volume of the truck. C. Operation of plant. Segment 1. Segment 2. Hanging--Turkeys were unloaded directly from truck to hanging line at a rate of 10. 5 seconds per bird. The receiving platform was constructed in such a way that the level of the truck platform was about the same as the rec eiving platform. Killing-~Birds were killed at a rate of 5. 9 seconds per bird. Worker at this stage had a fixed position and killed only when birds arrived at the killing position. He had to wait about 7. 0 seconds between birds. Segment 3. Segment 4. A 8: B Segment 5. A, B, 8: C Segment 6. A 8: B 75 Scalding--Sca1ding was done in a 50 foot long trough installed along the conveyor line. The speed of scalding depends on the speed of the line, but it can be adjusted by extending or shortening the length of the 'trough. Transferring and picking--Picking was done by an automatic picker, but the worker at this stage had to transfer from the line to the picker. The time required to transfer, pick, and remove wing feathers was 21. 0 seconds per bird. The actual machine picking time was 5. 4 seconds per bird. Unloading, removing feet, and hanging--The worker unloaded birds from the picker at a rate of 2. 0 seconds per bird, removed feet at a rate of 6. 8 seconds, and hung birds by the hook at a rate of 3. 2 seconds per bird. The time required at this stage was 12. 0 seconds per bird. Removing quills and c1eaning--The worker completed removal of quills at a rate of 8.4 seconds per bird. Since he had a very flexible Segment 7. Segment 8. A, B, 8:C Segment 9. A 8: B S e gment 10. Segment 11. 76 working position due to a long conveyor line, he emptied wastes accumulated in this area to another room which was located about 30 feet away. Pinning--Two workers removed pins at a rate of 17. 5 seconds per bird per worker. Slitting neck, removing oil gland, and opening cavity-~The above three jobs were performed by one worker at a rate of 14. 8 seconds per bird. Drawing viscera and hanging by the neck-- Viscera was pulled out of body cavity and the bird is hung by the neck at a rate of 17.3 seconds per bird. Cropping--The crop was removed at a rate of 14. 8 seconds per bird. Inspecting--A federal inspector inspected birds at a rate of 9. 9 seconds per bird. The inspector stopped the line whenever closer inspection was necessary. According to the plant manager, average stoppage is four times a day. ,Whenever the inspector stops the line, the whole operation has to stop until he completes his inspection. Segment 12. Segment 13. A 8: B Segment 14. 77 Cleaning cavity--The body cavity was com- pletely cleaned at this stage at a rate of 10. 5 seconds per bird. Removing neck and head--Neck and head were removed at a rate of 9.1 seconds per bird. Washing--Worker washes each bird with spray nozel at a rate of 15. 0 seconds per bird. Any work segments hereafter need not be considered as part of the line operation in the sense that these will not have direct affect on the speed of the line. However, it is necessary to keep pace with the conveyor line in order to eliminate an excess accumulation of eviscerated birds. Each work segment is designated by the letter Z to differentiate it from the previous line operations. Segment 15. Z Segment 16. Z Separating liver and heart--Worker stood behind the end of Segment 13 and separated liver and heart at a rate of 13. 2 seconds per bird. Opening gizzard--Two workers opened gizzards and emptied feed material at a rate of 22. 0 seconds per gizzard per worker. 78 Segment l7. Peeling gizzard--Gizzards were peeled at a Z rate of 7. 7 seconds each by using a peeling machine, but the worker doing this job had to wait an average of 8. 0 seconds for the next gizzard. Segment 18. Bagging giblets--Giblets were wrapped at a rate of 16. 0 seconds per package. Segment 19. Stuffing giblets and folding legs--Giblets were placed into the body cavity and legs were folded at a rate of 11. 0 seconds per bird. Segment 20. Packaging--This worker, by using a vacuuming machine, vacuumed at a rate of 14. 0 seconds per bird. Segment 21. Shrinking--Birds were submerged in hot water, then put into a brine tank at a rate of 10. 0 seconds per bird. Segment 22. Taking out of brine tank--A worker took semi-frozen birds from the brine tank and placed them on scales at a rate of 14. 0 seconds per bird. Segment 23. Weighing and marking-—Birds were weighed and marked at a rate of 7. 3 seconds per bird. 79 Segment 24. Packing--Birds were packed individually in Z cardboard boxes at a rate of 10. 0 seconds per bird. Segment 25. Closing box and labeling--Worker closed Z boxes and labeled at a rate of 14. 0 seconds per box. Summary of actual working time is given in Table 21, D. Costs. Processing costs in this plant varying in percent plant utilization and number of days of operation are given in Tables 22 through 25. E. Modification. In 1959, this plant was engaged solely in turkey processing operation. Processing turkeys is different than processing chickens in that they are heavier, more difficult to handle, and require a longer bleeding time. For these reasons, the shackles must be spaced farther apart than for chickens, and also the speed of the conveyor line must be set at a slower rate. Hanging live turkeys is a difficult job due to the wildness of these birds. Even though the mean of 10 observations was 10. 5 seconds per bird for hanging, the range was from 6. 0 seconds to 15.0 seconds. This means that skipping a shackle when the worker has to struggle with a turkey from time to time is inevitable. It must be emphasized that skipping a shackle at hanging necessarily wastes labor and other costs. It is estimated that at a 80 line speed at one foot per 6. 9 seconds, any hanging time between 15 seconds to..l8 seconds for one try, or a hanging time of 15 seconds for two consecutive turkeys forces the skipping of a shackle. If this plant is operated at a maximum hourly output through increased speed, one additional worker will be needed for each of the following segments: hanging, pinning, and drawing viscera. The work performance in off-the—line operations which include segments 14 through 25 inclusive, is usually slow because these workers are not under the same pressure as the workers on the line. In general, the following relationships exist in off-the-line operations. Worker No. 15 transfers birds only when worker No. 16 is ready for bird, and worker No. 16 in turn transfers to worker No. 17 when worker No. 18 is ready. For example, the worker puts bird in bag when the vacuuming operator is ready for a bird. 81 TABLE 21.--Actua1 working time of each work segment and sequence on processing line for Plant No. 5 Work . . Time in Job description segment seconds 1 Hanging 10. 5 2 Killing 5. 9 3 Scalding 14. 6 4 Transferring and picking 21. 0 5 Removing feet and hanging 12. 0 6 Removing quills 8. 4 7 Pinning 17. 5 8 Slitting neck, removing oil gland, and opening cavity 14. 8 9 Drawing viscera 17. 3 10 Cropping 14. 8 ll Inspecting 9. 9 12 Cleaning cavity 10.. 5 13 Removing head and neck 9. l 14 Washing 15. 0 Total time--conveyor line operation ............ 181. 3 (Off the Line) 15 Separating liver and heart 13. 2 16 Opening gizzard 22. 0 17 Peeling gizzard 7. 7 18 Bagging giblets 16. 0 19 Stuffing giblets 11. 0 20 Vacuuming 14. 0 21 Plumping 10. 0 22 Taking out from brine tank 14. 0 23 Weighing and marking 7. 3 24 Packing 10. 0 25 Closing box and labeling l4. 0 Total time--off the line ......................... 151. 7 Grand total time .............................. 333. 0 82 TABLE 22. --Daily output, average fixed cost, average variable cost, and ' average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 365-day1 operation-~turkeys Percent of Daily AFC AVC ATC Per 2 utilization output pound 100%. 2200 0.0449 0.5045 0.5494 '0.0275 90 1980 0.0499 0.5607 0 6106 0.0305 80 1760 0.0561 0.6307 0.6868 0.0343 70 1540 0.0641 0.7208 0.7849 0.0392 60 1320 0.0748 0.8410 0.9158 0.0458 503 1100 0.0897 1.0092 1.0989 0.0549 40 880 0.1122 1.2615 1.3737 0.0687 30 660 0.1496 1.6820 1.8316 0.0916 Only fixed costs are computed on the basis of 365-day operation. Based 'on twenty pounds per bird. 3This plant normally operates at this capacity. TABLE 23. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 90-day1 operation--turkeys .— J Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 2200 0. 1714 0. 5043 0. 6759 $0. 0338 90 1980 0.1905 0. 5607 0. 7512 0.0376 80 1760 0. 2143 0. 6307 0. 8450 0. 0423 70 1540 0. 2449 0. 7208 0. 9657 0. 0483 60 1320 0. 2858 0. 8410 1.1268 0. 0563 50 1100 0. 3429 1. 0092 1. 3521 0. 0676 40 880 0. 4286 1. 2615 1. 6901 0. 0845 30 660 0. 5715 1. 6820 2. 2535 0.1127 Only fixed costs are Based on twenty pounds per bird. computed on the basis of 90-day operation. 83 TABLE 24. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 60-day1 operation--turkeys L - Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 2200 0. 2347 0. 5045 0. 7392 0. 0370 90 1980 0. 2608 0. 5607 0. 8215 0. 0411 80 1760 0. 2934 0. 6307 0. 9241 0. 0462 70 1540 0. 3353 0. 7208 1. 0561 0. 0528 60 1320 0. 3912 0. 8410 1. 2322 0. 0616 50 1100 0. 4695 l. 0092 1. 4787 0. 0739 40 880 0. 5863 1. 2615 1. 8483 0. 0924 30 660 0. 7825 l. 6820 2. 4645 0.1232 Only fixed costs are computed on the basis of 60-day operation. Based on twenty pounds per bird. TABLE 25. --Daily output, average fixed cost, average variable cost, and average total cost per bird with changes in plant utilization for Plant No. 5. On the basis of 30-day1 operation-—turkeys Percent of Daily AFC AVC ATC Per 2 utilization output pound 100% 2200 0. 4330 0. 5054 0. 9375 0. 0469 90 1980 0. 4811 0. 5607 1. 0418 0. 0521 80 1760 0. 5413 0. 6307 1.1720 0. 0586 70 1540 0. 6186 0. 7208 1. 3394 0. 0670 60 1320 0. 7217 0. 8410 1. 5627 0. 0781 50 1100 0. 8661 1. 0092 1. 8753 0. 0938 40 880 1. 0826 1. 2615 2. 3441 0. 1172 30 660 l. 4435 1. 6820 3.1255 0.1565 Only fixed costs are computed on the basis of 30-day operation. Based on twenty pounds per bird. 84 CHAPTER VII OTHER PROCESSING PLANT PROBLEMS Percentage Yield from Live to Processed Poultry Loss in weight from live to processed poultry or percentage yield is an important cost item in processing operation. The price processor pays for live weight at farm becomes higher after birds are processed because of the following reasons: 1. The price processor pays for live poultry, includes inedible portions of poultry. The price paid for the inedible portion is much higher than recovery from processing by-products. 2. The freight cost processor pays for hauling live poultry is actually higher because of inedible portions. 3. The in-transit shrinkage cost. The percentage yield depends on many factors such as type of feed, age of the bird, and techniques in processing. In any case, processor should try to obtain the highest percentage yield. Conversion equivalents from live poultry prices at the farm to eviscerated poultry prices at the plant have been prepared and are shown in Table 26. In Table 26, the first column is price of live poultry at farm ranging from 10 cents to 28 cents. The first line is percentage yield from live poultry to eviscerated weight ranging from 85 Table 26. Conversion Table--Live Poultry Price to Eviscerated Poultry Price. Percent_yield from live to eviscerated 69 70 71 72 73 74 75 76 77 Live price per‘pound Evisceratedgprice per pound cents cents 10.00 14.49 14.29 14.08 13.89 13.70 13.51 13.33 13.16 12.99 10.25 14.86 14.64 14.44 14.24 14.04 13.85 13.67 13.49 13.31 10.50 15.22 15.00 14.79 14.58 14.38 14.19 14.00 13.82 13.64 10.75 15.58 15.36 15.14 14.93 14.73 14.53 14.33 14.14 13.96 11.00 15.94 15.71 15.49 15.28 15.07 14.86 14.67 14.47 14.29 11.25 16.30 16.07 15.85 15.63 15.41 15.20 15.00 14.80 14.61 11.50 16.67 16.43 16.20 15.97 15.75 15.54 15.33 15.13 14.94 11.75 17.03 16.79 10.55 16.32 16.10 15.88 15.67 15.46 15.26 12.00 17.39 17.14 16.90 16.67 16.44 16.22 16.00 15.79 15.58 12.25 17.75 17.50 17.25 17.01 16.78 16.55 16.33 16.12 15.91 12.50 18.12 17.86 17.61 17.36 17.12 16.89 16.67 16.45 16.23 12.75 18.48 18.21 17.96 17.71 17.47 17.23 17.30 16.78 16.56 13.00 18.84 18.57 18.31 18.06 17.81 17.57 17.33 17.11 16.83 13.25 19.20 18.93 18.66 18.40 18.15 17.91 17.67 17.43 17.21 13.50 19.57 19.29 19.01 18.75 18.49 18.24 18.00 17.77 17.53 13.75 19.93 19.64 19.37 19.10 18.84 18.58 18.33 18.09 17.86 14.00 20.29 20.00 19.72 19.44 19.18 18.92 18.67 18.42 18.18 14.25 20.65 20.36 20.07 19.79 19.52 19.26 19.00 18.75 18.51 14.50 21.01 20.71 20.42 20.14 19.86 19.59 19.33 19.08 18.83 14.75 21.38 21.07 20.77 20.49 20.21 19.93 19.67 19.41 19.16 15.00 21.74 21.43 21.13 20.83 20.55 20.27 20.00 19.74 19.48 15.25 22.10 21.79 21.48 21.18 20.89 20.61 20.33 20.07 19.81 15.50 22.46 22.14 21.83 21.53 21.23 20.95 20.67 20.39 20.13 15.75 22.83 22.50 22.18 21.88 21.58 21.28 21.00 20.72 20.45 16.00 23.19 22.86 22.54 22.22 21.92 21.62 21.33 21.05 20.78 16.25 23.55 23.21 22.89 22.57 22.26 21.96 21.57 21.38 21.10 10.50 23.91 23.57 23.24 22.92 22.60 22.30 22.00 21.71 21.43 16.75 24.28 23.93 23.59 23.26 22.95 22.64 22.33 22.04 21.75 17.00 24.64 24.29 23.94 23.61 23.29 22.97 22.67 22.37 22.08 17.25 25.00 24.62 24.30 23.96 23.63 23.31 23.00 22.70 22.40 17.50 25.36 25.00 24.65 24.31 23.97 23.65 23.33 23.03 22.73 17.75 25.72 25.30 25.00 24.65 24.32 23.99 23.67 23.36 23.05 18.00 26.09 25.71 25.35 25.00 24.66 24.32 24.00 23.68 23.38 18.25 26.45 26.07 25.70 25.35 25.00 24.66 24.33 24.01 23.70 18.50 26.81 26.43 26.06 25.69 25.34 25.00 24.67 24.34 24.03 18.75 27.17 26.79 26.41 26.04 25.68 25.34 25.00 24.67 24.35 (Table 26 continued) 86 Percent yielawfrom live to eviscerated 69 70 71 72 73 74 75 76 77 Live price ger_gound Eviscerated price per pound cents cents 19.00 27.54 27.14 26.76 26.39 26.03 25.68 25.33 25.00 24.68 19.25 27.90 27.50 27.11 26.74 26.37 26.01 25.67 25.33 25.00 19.50 28.26 27.86 27.46 27.08 26.71 26.35 26.00 25.66 25.32 19.75 28.62 28.21 27.82 27.43 27.05 26.69 26.33 25.99 25.65 20.00 28.99 28.57 28.17 27-78 27.40 27.03 26.67 26.32 25.97 20.25 29.35 28.93 28.52 28.13 27.74 27.36 27.00 26.64 26.30 20.50 29.71 29.29 28.87 28.47 28.08 27.70 27.33 26.97 26.62 20.75 30.07 29.64 29.23 28.82 28.42 28.04 27.67 27.30 26.95 21.00 30.43 30.00 29.58 29.17 28.77 28.38 28.00 27.63 27.27 21.25 30.80 30.36 29.93 29.51 29.11 28.72 28.33 27.96 27.60 .21.50 31.16 30.71 30.28 29.86 29.45 29.05 28.67 28.29 27.92 21.75 31.52 31.07 30.63 30.21 29.79 29.39 29.00 28.62 28.25 22.00 31.88 31.43 30.99 30.56 30.14 29.73 29.33 28.95 28.57 22.25 32.25 31.79 31.34 30.90 30.48 30.07 29.67 29.28 28.90 22.50 32.61 32.14 31.69 31.25 30.82 30.41 30.00 29.61 29.22 22.75 32.97 32.50 32.04 31.60 31.16 30.74 30.33 29.93 29.55 23.00 33.33 32.86 32.39 31.94 31.51 31.08 30.67 30.26 29.87 23.25 33.70 33.21 32.75 32.29 31.85 31.42 31.00 30.59 30.19 23.50 34.06 33.57 33.10 32.64 32.19 31.76 31.33 30.92 30.52 23.75 34.42 33.93 33.46 32.99 32.53 32.10 31.67 31.25 30.84 24.00 34.78 34.29 33.80 33.33 32.88 32.43 32.00 31.58 31.17 24.25 35.15 34.64 34.16 33.68 33.22 32.77 32.33 31.91 31.49 24.50 35.51 35.00 34.51 34.03 33.56 33.11 32.67 32.24 31.82 24.75 35.87 35.36 34.86 34.38 33.90 33.45 31.00 32.57 32.14 25.00 30.23 35.71 35.2; 34.72 34.25 33.78 33.33 32.90 32.47 25.25 36.59 36.07 35.50 35.07 34.59 34.12 33.67 33.22 32.79 25.50 36.40 36.43 35.92 35.42 34.93 34.46 34.00 33.55 33.12 25.75 37.32 36.79 36.27 35.76 35.27 34.80 34.33 33.88 33.44 26.00 37.68 37.14 36.62 36.11 35.62 35.14 34.67 34.21 33.77 26.25 38.04 37.50 36.97 36.46 35.96 35.47 35.00 34.54 34.09 26.50 38.41 37.86 37.32 36.81 36.30 35.51 35.33 34.87 34.42 26.75 38.77 38.21 37.68 37.15 36.64 36.15 35.67 35.20 34.74 27.00 39.13 38.57 38.03 37.50 36.99 36.49 36.00 35.53 35.07 27.25 39.49 38.93 38.38 37.85 37.33 36.82 36.33 35.86 35.39 27.50 39.86 39.29 38.73 38.19 37.67 37.16 36.67 36.18 35.71 27.75 40.22 39.64 39.08 38.54 38.01 37.50 37.00 36.51 36.04 28.00 40.58 40.00 39.44 38.89 38.36 37.84 37.33 36.84 36.36 87 69 to 77 cents a pound for live poultry at farm and yield is 75 percent. 17 cents a pound live weight becomes equivalent to 22. 67 cents a pound after the poultry is eviscerated. Table 27 has been prepared to apply changes in freight cost between live and eviscerated weight. In Table 27. first column is freight rate per pound ranging from one to two cents. First line is percentage yield from live to eviscerated weight ranging from 69 to 77 percent. If. for example, processor pays 1. 5 cents a pound to haul live poultry and percent yield is 75 percent, 1. 5 cents becomes equivalent to 2. 07 cents per pound after poultry is eviscerated. 1 TABLE 27. --Conversion table--cost of transportation from farm to the processing plant. live poultry to eviscerated Percent yield from live to eviscerated 69 70 71 72 73 74 75 76 77 Freight cost/1b ---------- Freight cost after eviscerated in cents ----------- in cents 1.00 1.45 1.43 1.41 1.39 1.37 1.35 1.33 1.32 1.30 1.25 1.81 1.79 1.76 1.74 1.71 1.69 1.67 1.64 1 62 1.50 2.17 2.14 2.11 2.08 2.06 2.03 2.00 1.97 1.95 1. 75 2. 54 2. 50 2. 46 2. 43 Z. 40 2. 36 2. 33 2. 30 2. 27 2. 00 2.90 2.86 2.82 2.78 2.74 2. 70 2.67 2.. 63 2. 60 1 When processor pays freight for live poultry the freight cost includes payment for inedible portions of the poultry. This table shows the difference in freight cost between live and eviscerated poultry. 88 Processing By-products At the present time the volume of by-products from the five plants do not warrant the purchasing of equipment for processing inedible by-products as an integral part of the poultry processing operation. Kahle (1957) made a detailed study of the possibility of integrating a by-productprocessing operation in poultry processing plants. He concluded that plants having a volume under 100, 000 pounds of live weight per week incur a loss from such an operation, but it would be profitable if the weekly live weight volume is above 300, 000 pounds. He further stated that the final solution depends on a number of local factors such as demand for such products. If, in the future. processing costs continue to increase and at the same time, prices for thighs and breasts increase. it might be profitable to eliminate all expensive processing operations except killing and cutting thighs and breasts from the carcass, and operate a by-product processing plant. For example, marketable chicken parts from a 2 1/2 pound bird (drawn weight) are: Parts Drawn wt. Cost per Relative 21/2 lbs. lb. "41¢ cost Breast 29. 0% 59. O¢ l7. l¢ Legs and thighs 32. 0 59. 0 18., 5 Wings 11.0 16.0 1.8 Back and neck 19. 0 5. O O. 5 Gizzard and heart 4. 0 15. 0 0. 6 Liver 3. 0 57. 0 1. 7 89 The first two parts listed, produce 61 percent of the total marketable weight. and return from these two items amounts to over 88 percent of the whole chicken. It is significant to note that the most expensive and equipment and labor time are spent for the cheapest priced parts of chicken in the processing operation. Kahle (1957) reported the following market prices for poultry processing by-products: Item Market price/ton Poultry by-products meal $60. 50 (55 units of protein) Tankage ' 53.90 (unpressed 49 units of protein) Tankage 57.86 (unpressed plus dried blood 52. 6 units of protein) Dried blood 88. 00 (80 units of protein) Feather meal 93. 50 (85 units of protein) Mixed meal - 74. 14 (67. 4 units of protein) 90 Distribution of Proces sed Poultry Ideally. processed poultry should be sold from the end of the processing line to avoid added costs in handling and storage. If current production is equal to current sales there is no need for storage facilities. assuming. of course, price is constant. If, however. current output exceeds current sales, it becomes necessary to tem- porarily store the excess output. This incurs fixed as well as variable costs for the storage operation. If demand for the product in the next time period is greater than current output, the temporarily stored product plus the current output can be sold. This storage operation must be distinguished from storage operation for speculative purposes. A survey of poultry processing operations indicated that most plants have a large capacity for temporary storage. There are two main reasons for having such costly facilities. One is due to procedures in processing operations and the other is due to market conditions. If the processing procedure is such that the whole working crew processes three-quarters of the day and the same crew packages the processed poultry the rest of the working hours, or if the operator finds unexpected sources of live poultry for a particular day and spends the whole day for processing, there would be no time to deliver the product to outlets. This type of operating procedure requires storage capacity large enough to hold one day's output. 91 On the other hand, if the temporary market condition is such that the price of processed poultry is unfavorable to the processor he is forced to hold the processed poultry temporarily. This could happen if there is a special promotion of other meat products in the area, or if there is a large shipment of processed poultry from other areas. When the second type of storage situation occurs frequently at short intervals. it would become a serious problem to the processor, because the processor must absorb the total storage costs, and some cases, he may be forced to cease processing operations temporarily when the storage capacity is full. 92 CHAPTER VIII DISCUSSION AND RECOMMENDATIONS Five poultry processing plants were selected and studied with emphasis on in—plant processing costs and efficiency. These five plants differed in the degree of mechanization, processing pro- cedures, and organizational patterns. Assuming that prices of live poultry as well as processed poultry are constant, normal profit can be expressed by the following equation: R=P -(K+P+PR +D +SL+SCiU) PP C c c where R. is profit, Ppp is price of processed poultry, K is live poultry price at farm, Pc is procurement cost, PRC is processing costs, DC is distribution cost of processed poultry, SL is shrinkage and loss, SC is storage cost, and U is processing by-products. The prices of live poultry and processed poultry (Ppp and K) are beyond processor's control in competitive market. Procurement Costs (PC) In Michigan where a continuous supply of live poultry for large scale operation is difficult to find, scale of plant must be based on the availability of daily live poultry supplies in the area. Either extension of procurement zone or operation of the plant short of the 93 optimum capacity is very costly. In the former case, price of live poultry at the plant becomes higher because of longer distance, and in the latter case, processing costs become higher because the plant has to operate at less than optimum capacity. Table 28 shows poultry density, daily requirement, and procurement zone for first day of processing for each of the five plants selected in this study. Assuming poultry density is constant, the plants operate five days a week, and broilers are grown and sold in ten weeks, Plant No. 2 has to cover a zone extending as far as 170 miles away before the 3. 63 mile zone had a second day supply of broilers, or it has to maintain about 50 broiler producing units of size 3, 990 each in order to have a continuous operation at maximum capacity. TABLE 28. --Poultry density.1 maximum and normal daily processing capacity, 2 and daily procurement zone3 for the five selected plants _ _ Plant number Item 1 2 3 4 5 Poultry density 4 . per square mile V l, 099 l, 170 .300 282 Maximum daily processing capacity 35 3, 990 5,040 3. 500 2, 200 Normal daily processing capacity 35 3, 300 2, 100 1. 750 l, 000 Procurement zone 4 first day V 3. 63 4. 31 ll. 67 7. 80 Based on land area as defined in the U. S. census. 2 . Based on seven hour processmg day. Based on maximum processing capacity. 4Varies depending upon location. 94 In-Plant Processing Costs (P&) Processing costs are composed of fixed costs and variable costs. Fixed costs are those costs that must be paid regardless of output. Total investment, administration costs, and daily fixed costs for the five selected plants are given in Table 29. Plant No. 2, for example, has to pay $36. 76 every day regardless of the level of output. TABLE 29. --Total investment in land, building, and equipment plus the administration costs for five selected plants Ite Plant number m 1 2 3 4 5 Land R1 $250.00 $1,500.00 R1 $200.00 3 Building $600. 00‘2 17,000.00 20,000.00 $5,400.00 60, 000. 00 Equipment 60.00 11,600.00 30. 000.00 55, 000.00 60, 000.00 Administration ------ 4 7,800.00 2,000.00 10,400.00 10.400. 00 Total 660.00 36,650.00 53,500.00 70,800.00 130,600.00 Daily fixed , ' (205124811. ' $1. 6949 $36.76 $37. 54 $89. 38 $98. 72 Included in rent. 2 Rent for $50 a month. 3 Rent for $450 a month. 4 Computed from formula No. 5 p. 33. 95 Slopes of AFC and ATC curves are shown in Figures 9 and 10. It can be seen that if a plant has a high fixed cost, a decrease in AFC as the utilization of the plant increases is very distinct. On the other hand, if the plant has a low fixed cost, a decrease in AFC as the utilization of the plant increases is not very distinct. The plants that have a low fixed cost have a greater range of flexibility with respect to plant utilization. In Figure 9, Plant No. 5 has a high fixed cost per bird and has a very steep slope, whereas, Plants No. l and No. 4 have a low fixed cost and have mild slopes. The slopes level off from 80 percent plant utilization to the maximum capacity giving the plants with low fixed cost flexible production adjustments. In a poultry processing operation, output is a function of rate and hours of operation. However, it is highly undesirable to change output through changes in rate, because there is only one efficient rate for a given plant; the rate is found through time and motion studies based on the "most-time common denominator. " The cost structures per bird from maximum and normal plant operations for the five selected plants are reported in Table 20. Since fixed costs do not enter into short-run costs it is economical to operate as long as the price of the processed poultry is equal to or greater than the variable costs. 30.15 Cost 96 0.14 0.13 0.12 0.11 0.10 0.09 0.08 0.07 0.06 0.05 Plant ”0.5 0.04 0.03 Plant Xo.4 0.02 0.01 Plant “0.2 - Plant “0.3 lant No.1 0 l 1 L 1 1 5. l 30 40 50 60 70 80 9) 100 Percent of utilization :igure 9. Average Fixed Jost per Qird with Changes in Plant Utilization for the 5 jelected Plants. 97 40.90 Cost 0080'- 0.70 0.60. a... \ Plant Xo.1 Plant flo.4 0.10? 1, Plant 56.2 8 5 5 r‘Plant Vo.3 w l J l 1 1 L 3 4O 50 00’ *70 8O 90* 100 Percent of utilization Figure 10. Average Total Cost per Bird with Changes in Plant Itilization far the 5 Selected Plants. 98 TABLE 30. --Fixed, variable, and total processing costs per bird based on maximum and normal operations for the five selected plants Plant number Item 1 2 3 4 5 Fixed costs: Maximum _ $0. 0065 , $0. .0092, . $0. 0074 . ,.$0. 0255 $0. 0349 Normal ------ 0. 0102 0. 0179 0. 0511 0. 0987 Variable: Maximum 0 2109 0. 0463 0. 0336 0. 0838 0. 5045 Normal ------ 0. 0514 0. 0807 O. 1675 1. 0092 Total costs: 0. 1093 ' 0. 5494 0. 2186 1. 0989 0.2174 0. 0555 0. 0410 ------ 0. 0616 0. 0986 Maximum Normal Distribution. Costs (DC) The selected plants in this study do not have facilities for transporting processed poultry to distant markets. Consequently, when poultry products are shipped to distant markets, such as Chicago and New York, the plant managers hire commercial carriers. The usual transportation charge is $0. 006 - $0. 0075 a pound to the Chicago market and $0. 01 a pound to the New York market. A survey showed that the four selected plants sell their processed poultry mainly in local wholesale outlets. Plant No. 1 is a simulated plant, therefore, data are not available, but it is reasonable to assume the operator would sell to local outlets. Plant No. 2 sells 99 all of its output within a 25 mile radius of the plant. Plant No. 3 sells about 50 percent in the immediate area and the remainder of the output to intermediate markets including Detroit. Plants No. 4 and 5 sell on local as well as on distant markets such as Chicago and New York. The rate for transportation charges differed from plant to plant. PlantNo. 4 paid $0. 006 per pound transportation charges to the Chicago market and $0. 01 to the New York market. Plant No. 5 paid $0. 005 per pound up to 170 miles, $0. 0075 between 200 and 500 miles, and $0. 01 for distances over 500 miles. Output per worker Hourly output per worker varies with changes in conveyor line speed. Hourly output per worker alone does not represent the overall efficiency of the plant. Investment in equipment must be taken into consideration. Table 31 shows hourly output per worker, invest- ment in equipment per worker, and labor cost as percent of total costs. TABLE 31. --Hourly output per worker, investment in equipment per worker, and labor cost as percent of total cost for the five selected plants Plant number Item 1 2 3 4 5 Output per Maximum 60 43. 8 65. 5 18. 5 10, 2 worker: Normal -- 38. 5 27. 3 9. 3 4. 6 Investment per worker $60 $892 $2727 $2037 $2222 Labor as percent of 1 total cost 79. 5 66. 0 76. 3 67. 7 32. 0 1 62. 8 percent without packaging cost. 100 Weekly and Daily Total Variable Costs Variable costs vary directly with changes in output. The average variable costs can be reduced only through increased output per time period. The weekly and daily total variable costs are given in Table 32. TABLE 32. —-Weekly labor cost, electricity cost, fuel cost, packaging cost, miscellaneous cost, and daily total variable costs for the five selected plants Plant number Item 1 2 3 4 5 Labor1 $50. 00 $779. 10 $707. 30 $1,350. 00 $2. 000. 00 1 Electricity R2 34. 60 25. 00 25. 25 367. 50 2 Fuel1 - R 18. 50 43. 25 2. 00 81. 50 1 Packaging . 63 75. 00 57. 50 62. 50 3, 061. 50 Miscellaneous3 1. 00 16. 00 14. 00 26. 00 40. 00 Weekly total 51. 63 923. 20 847. 05 1,465. 75 5, 550. 50 Daily total 10. 33 184. 64 169. 45 293.15 1,110.10 From processors' accounting records. ZIncluded in rent (Table 29). 3Calculated 2 percent of total wage. Recommendations Recommendations for each plant are based on the following figures: 1 Prices reported in Dairy and Poultry Market News, July, 1958. 101 Class or Average Live price Hauling cost Price of , , , . Percent kind of weight at farm farm to plant ield processed poultry in lbs. in cents in cents y in cents Broiler 3 17 l. 5 72 30 Roaster 5 25 l. 5 70 42 Hens 5 15 1. 5 70 38 Turkeys 20 22 1. 5 76 39 In order to realize a normal profit, price of processed poultry must cover all the costs listed in the normal profit equation on page 92; namely, live poultry price, procurement costs, processing costs, distribution costs, costs of shrinkage between live and eviscerated, and costs or receipts from processing by-products. If some of the above costs just cover the variable costs, the processor must take a loss equal to the fixed costs. If price of the processed poultry is less than the average variable costs, the loss will be the fixed cost plus some portion of the variable costs; therefore, it would be economical to cease . processing. From the data in Tables 26 and 27, the cost of broiler, roaster, hen, and turkey are calculated to be 25. 69 cents, 23. 57 cents, and 30. 92 cents, respectively after these poultry are eviscerated. Plant NO. 1 The minimum in-plant processing costs of this plant were 21. 74 cents per bird or 7. 25 cents per pound for processing a three 102 pound broiler. Referring to normal profit equation (p. 92) profit or loss from this plant would be: R = 30 - (17+2. 08+PRC+1. oo+6. 61": 0) = 30-(26.69 + PRC) Therefore the in—plant processing costs (PRC) must be equal to or less than 3. 31 cents per pound in order to realize normal profit. However, Table 2 shows that the minimum in-plant processing cost is 7. 25 cents per pound. As a result this plant must take a loss of 3. 94 cents for each pound of broiler processed. The 3. 94 cent loss could be minimized if this plant processed poultry from its own farm and does some retailing at the plant, otherwise, it is recommended that plant of this size should not be operated. Plant No. 2 The minimum in-plant processing costs of this plant was 5. 55 cents per bird or 1. 85 cents per pound for processing a three pound broiler. Referring to normal profit equation (p. 92), profit or loss from this plant is: R = 30-(17+2. 08PRC+1. 00+6.6li‘0) = 30-(26.69+PRC) Therefore the in-plant processing costs (PRC) must be equal to or less than 3. 31 cents per pound in order to realize normal profit. However, Table 7 shows that the minimum in-plant processing cost is l. 85 cents per pound. As a result, this plant could make 1. 46 cents profit per 103 pound if operated at the maximum plant capacity. This plant would be still profitable up to 60 percentplant utilization. However, the plant should not be operated below 40 percent plant capacity, because below this level, the average variable cost exceeds price of the pro- ces sed poultry. Plant No. 3 The minimum in-plant processing costs of this plant was 4. 10 cents per caponette or 0. 82 cents per pound for processing a five pound hen. Referring to normal profit equation (p. 92), profit or loss from this plant is: R = 42-(25+2.14+1=>RC+1.00+10.71i0) = 42-(38. 85+PRC) Therefore the in-plant processing costs (PRC) must be equal to or less than 3. 15 cents per pound in order to realize normal profit. However, Table 12 shows that the minimum in-plant processing cost is 0. 82 cents per pound. As a result, this plant could make 2. 33 cents profit per pound if operated at the maximum capacity. This plant would be still profitable up to 40 percent plant utilization. However, this plant should not be operated below 40 percent plant capacity, because below this level, the average variable cost exceeds the price of the processed hen. Since this plant serves as a service function to the main business of the organization, the loss from the processing operation can be justified as long as the gain from the primary business is equal to or greater than the loss from the processing operation. 104 Plant No. 4 The minimum in-plant processing costs of this plant was 10. 93 per hen or 2. 19 per pound for processing a five pound poultry. Referring to normal profit equation (p. 92), profit or loss from this plant is: R = 28-(15+2.14+PRC+1.00+6.43i0) = 28-(24. 58+PRC) Therefore the in-plant processing costs (PRC) must be equal to or less than 3. 42 cents per pound in order to realize normal profit. However, Table 17 shows that the minimum in-plant processing cost is 2. 19 cents per pound. As a result, this plant could make 1. 23 cents profit per pound if operated at maximum capacity. This plant would (still be profitable at 70 percent plant utilization or above. However, the plant should not be operated below 50 percent plant capacity, because below this level, the average variable cost exceeds the price of the processed poultry. Plant No. 5 The minimum in-plant processing costs of this plant was 54. 94 cents per turkey or 2. 75 cents per pound for processing a twenty pound turkey. Referring to normal profit equation (p. 92), profit or loss from this plant is: R: 39-(22+1.97+PRC+1.00+6.95:tO) = 39-(31.92+PRC) 105 Therefore the in-plant processing costs (PRC) must be equal to or less than 7. 08 cents per pound in order to realize normal profit. However, Table 22 shows that the minimum in-plant processing cost is 2. 75 cents per pound for processing a twenty pound turkey. As a result, this plant could make 4. 33 cents profit per pound if operated at the maximum plant capacity. This plant would still be profitable at 70 percent plant utilization or above. However, the plant should not be operated below 60 percent plant utilization, because below this level of utilization, the average cost exceeds the price of the processed poultry. 106 CHAPTER IX CONCLUSIONS There are six major inputs in poultry processing: (1) labor, (2) raw material (live poultry and packaging), (3) power, (4) equipment, (5) building, and (6) management. Of these six inputs, the first three are variable and the last three are fixed. Whenever possible, as in the plants studied that operated at one-half of the maximum plant capacity, output should be increased through an increased hourly rate in order'to reduce both fixed and variable costs. Changes in hourly rate involve fixed costs as well as variable costs, but changes in output through hours of operation involve changes in variable costs. Double shift operation results in nearly double the output but incurs less than one-half the average costs. lncreasmg output through overtime operation result? in higher wage costs. Michigan processors are in a difficult position since their investment in building and equipment is high, and their per unit cost is high because they are not able to utilize the fixed input to the fullest extent due to an inadequate supply of live poultry For this reason the fixed assets should be kept as low as pos51ble and output should be flexible through the use of more variable inputs . 1’. l ‘ . .71 uld‘r' ‘ u" 107 Normal profit equation; R = Ppp- (K + PC+ PRC+ Dc + SL + SC 1': U) where R is profit, Ppp is price of processed poultry, K is llve poultry price at farm, PC is procurement cost, PRC is processmg costs, Dc is distribution cost of processed poultry, SL is shrinkage and loss, SC is storage cost, and U is processing by«- products; the processor should try to minimize PRC, SL, and SC cost. The inv-plant processing costs (PRC) can be minimized through full utilization of the processing plant. This study shows that the average fixed cost declines rapidly up to 60 percent plant utilization then levels off (Figure 9). The decline in average fixed cost is more distinctive for the plants with high fixed costs. Percentage yield from live poultry to processed poultry is an important cost item. Tables 26 and 27 show the effect of percentage yields on prices of eviscerated poultry and hauling costs. Form No. 1 CONFIDENTIAL 108 Research Project Poultry Processing & Distribution General Information Plant No. Firm Name Location 1. Sources of live poultry: 1)Loca1 farm. 2)Broker 3)Co-0p 4)Feed dealer 5)0ut of state 6)Other 2. Kinds of poultry: 1)Fryer 2)Roaster 3) Turkey 4) Duck 5)Geese 6) Other 3. Method of procuring live poultry: 1)Own truck 2)Hired truck 3)Producer 4)Feed dealer 5) Other 4. Period of stay at plant and holding capacity . 5. Bases for pricing live poultry: 1)Farm wt. 2)P1ant wt. 3) price base (market) 6. Terms of payment: l)Cash 2)Extent of credit 7. Loss of poultry on arrival: 1)Shrinkage 2)Death 3)Oondemnation 4)Other 8. Loss after arriva1.up to processing : 1)Shrinkage 2)Death 3)Condemnation 4)Other ____ 9. Extent of processing: 1)New York dressed 2) Eviscerated 3)Gutaup 4) Other 10. Method of holding dressed poultry: 1)Frozen 2) Iced 3)0ther 11. Period of holding after dressed , portion of holding , and capacity of holding . 12. Method of transportation for dressed poultry: 1)0wn truck 2)Hired truck 3)0thers (specify equipment) 13. Distance to market: 1)Loca1 2)City 3)0ther 14. Fraportion of sale to: l)Wholesale at plant out , 2)Retail at plant , out 3)Other 15. Bases for pricing dressed poultry: 1)Plant wt. 2)Price base (market) 3)0ther 16. Terms of payment for dressed poultry: 1)Cash. 2)Extent of credit _____ 17. Dressing capacity (eight hour): 1)Turkey 2)Fow1 3)Fryers 18. Employment: 1)Fulltime men women 2) Part time men women __ 19. Days of operation: J__ F_ M__ A__ M__ J_ J___ A___ S_ 0___ N____ D___ 20. Sales organization: Note: _ cur 1.4%. L'ni: .l‘u’, ~~.¢.l—.,_ ' D Plant No. Research Project Poultry Processing 8: Distribution Processing Sequence Seasonal 922252122 1 7?!$?1?¥............, 0998393.............1 Killing 000000000000000000000 §caldin¢ 0000000000000000000‘ Picking Buffin Pinnin 000000 I €.............. $.............. Sin ein ... ...?............1 Finishing 00000000000000.0000001 Inspecting 000000000000000000000 Checking for pins 00000000000000000000000 Hanging heads 000000000000000000000 0pening Drawin ......8.............. Splitting neck 000000000000000000000‘ Pulling crop Removing vent 000000000000000000000 Removing head 000000000000000000000 395.??°k .. . Removing feet Remov .......1 Separating giblets 000000000000000000000 Cleaning giblets 0.000.000.000000000001 Hanging by wings Hanging by legs Placing giblets Grading Weighing Packing §P?9?;}00 00000000001 Hauling 1 000000000000000000000‘ gguigment 00000000000000000 1 1 1 ................4 00......0000000..1 0........0......01 000000000000000001 ......000000000001 00.000.00.00000001 0.0.0....000000001 0.00.00.00.0000001 0.0000000000000001 0000.00.00.0000004 0.0000000000000001 0.0000000000000001 00000000000000000 Storing Total Location 109 Form No. 2 Date Year Number of florkggg 0000000000000000 1 1 1 1 1................ 1................ 1................ 000.00.000.00... ......o......... 0.0.0.0....00000 ......0......... 000.000.00.00... 1 1 1 1 1 1 1................ 1................ 1................ ,................ ................ )0.......0....... 1.......0........ )0....000....0.00 )0..............0 1......0......... 1.000.000.0000... [0000000000000000 P0000000000000000 ‘Wbrkihg 29.21.2192 P0000000000000 +0000000000000 00000900....0. b.....0..00..0 00000000000000 1............. .............. 1............. .............. .............. L............. (............. ,............. .............. 1............. .... ..... ..... “00......00000 .............. b.o........... .............. p............. 1.00.00.00.0000 b.000000000000 h0......00.... [00000000000000 )00000000000000 00000000000000 Qommegt )00000000000000 1.............. )0000000.0000000 10000000000000. 10.00.000.00... 1......0....... 1.000....0..0.. 10000000000000. )0...0........0 1.0.0.00000000. 10.00.00.000... 1"""""’°'° [00000000000000 10......0000... r........0..... ‘ . f0.....00.0.... )00000000000000 1.00.00.00.000. 1‘°'°""‘°°'°° )0...00..0....0 ,.............. 1......0000000. p.0000000000000 b.......0.000.. 1.............. P00000000000000 1.............. v" ....i unili um “ufibljhuifihfiu. ‘ a . 0 m . . . I 0 0 0 u . . . i 0 0 0 0 0 . . . . . I . . . 0 0 . . . g; E 0.! _ Form No. 3 110 Research Project Poultry Processing 8: Distribution Project I. Time 8: Motion Study Plant No. Date Kind of Poultry Location Year Seasonal Job No. - Description Age of Worker Sex HM Digtancg ft, ling gee, Observations Waiting Time“ 1......— Workin Time Distance from Prev, Job Secéfidgz 9 10 Total Average L31 9 (b) (a) (d) L91...— Previous Job no. Description Next job no. Description Time: l)Total conveyor time (e) = 2)Waste timeC C(e)-(b+c)(=) = 3)Working time (b)+(c) Ratio: 1 Conveyer speed ft (0) (d) = 2 Waste (a) 3» (e 3 Working ((b-bc) :. “(9); a: grime note engaged in either primary or secondary work. 0 e: Fins. . .L. ,4! 111 Form No. 3-A Research Project Poultry Processing &.Dietribution Project II. Cost StudyaPlant Plant No. Seasonal Date Location Year I. Fixed costs: Item. Depreciation Repair Current Value Interest Insurance Taxes on borrowed ~ .:~ Capital land Building Equipment Adm. Staff M18061. Grand Total1 Note: ”Juan .luflbu. ....— 1.141.: d! i ' -..-- .0. r00- an, .. WH‘IEE _ 112 Form No. 3-B Year Date Cost Study-Plant Research Project Poultry’Processing¢& Distribution Project II. Seasonal variable Costs Plant No. Location II. E Total 1000000000000 00000 00000000000010.000000.000.000 Other r........ Insurance 0000.0000.00000000.0000000..00000000000000000.0000... Interest 000000000000000000000000.00000000000000000000.0000... Unit 0000000000000000000....000000000000000000000000000000 0 0 0 0 L Rate 000-00000000000-0000000000.00.0000...0000000000000000000. Expense a .1 m . m .w. m m m T. i. m. 0 O .... n m T r a a n n w... m 1.. a n m m . om 00k0000m00000h0du00k00y0L0OnOL001000om0000m00000030300 Note: . u 0... n. .1. . . . f0. . . . I 0 . . . . . 0‘ . . n. 0 . . . . ..i 00'000700 113 Form No. 343 Research Project mm 1m .t.1 .w r .m.n in muva n MWQu a.“ ».W m r . “mu“ muaa om PP Date Seasonal Plant No. Year Location Distribution Costs: III. °Unit ° Re 0 A Item Other; Repair Interest :Depreciation:Insurance ta 1 L ...... .0000; .0000; Labor (driver) Truck 00.0.0 Gas & Oil 00.00; Lodging Meals r0000. Telephone & Teleg . 00.000 Advertising j0000. 000000 00.00.10.000 r0000. r0000. ......r..... 0000.. #0.... 000000 00.... 00.000 1000.. To... v0.0.0 r0000. v.0... 1....0 v......... f......... #000000... v0.0.00000 1000000000 Commissions Salesman's Salary Sales Office Exp. Mdecellaneous Grand Total Total . ' . . . . o . a .. M . .l I. . b . . n . ,u 0‘ , .. 1 _ ._ . in ,. . i , . 0 . n .. . . i . ~ ; i. . r. 0. . u . . . . 51.. . \ . 9 . m, . . . i . m . . ......0. _. . m . . 0. .0000.0o0.0sm. .. a . u . , 0...?00fio¢&0 .a... . n . . _. .. . ......” ......... . .... . . . . .. 0 . . . .. . . ... .\ I0 .I.. .. ... . . . t i . z ‘ . .. . .. .. u q 0 . - 00l.-.-1-.40 00...... . .0 I .. . a . ... .. .. .. . .. . . . . i . _ . . — v lull-BIN. rd. .. a... .3 1...... ...... ...? . 0 ... 0. ~._- . ....-. Research Project 114 Poultry Processing & Distribution Project II. Cost StudyaPlant Plant NO. Location Seasonal Date Year Labor: Job Title 1 Time Allocation 1 Pay Allocation Total Time Pay President 000.000.000.000000‘. Vice president 0.000.000.00000000q General manager 00.000000000000000q Assistant manager 00000000000000.0001 Treasurer 00.00000000000000001 Accountant 00000000000000.0000] Secretary 00.000000000000.0..1 Office secretary 000.000.00.00000..01 Foreman I 0.00000000000..0001 Foreman II 0.0.0....0000.0..0.1 Workers in plant $:{::G1::S\O(”~4Cfi\h¥~bthF‘ Distributing l 2 Others 1 2 3 Totals 00000000000000.000 00000000000000.0000 0.0000000000000000. 1 00000000000000.0000 00000000000000.0000 00.000000000000000. 0.0000000000000000. 1 00.000000000000000. 00.000000000000000. P0000 000000000000 .0 1 1 1 000......000..00001 0.0000000000000000 0.00.000......0... 00.000.00.0000...01 10000.0...000000000 00.0.0.0..00000000 0.0.0.0....0000... 1.000....0..0...00. 100.000.00.00000000 1 0 0 0 0 0 0 . 0 00000000000000.0001? 00.000000000000000 0.000.000.000000.0 0000.00.000.000000 ...00.000..00.0... 00.00.00.0000p0000 0.00.00.00.000.00. 0.000.000.00....00 .0000000.000400..0 1 1000.......00000.00 1 1 ----000--..-.. 0 1 2 n. u ...-3.,in in BIBLIOGRAPHY Abbott, J. C. The Economic Implications of Recent Technical Develop- ments in the Processing of Turkeys. Mimeographed Report No. 172. Davis, California: California Agricultural Experiment Station, October, 1954. Ashe, A. J. Operation of Poultry Slaughterhouses in New York City. Bulletin 883. Ithaca, New York: Cornell University Agricultural Experiment Station, June, 1952. Baum, E. L. , J. E Farris and H. G. Walkup. Economies of Scale in the Operation of Fryer Processing Plants with Special Reference to Washington. 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Transportation of Poultry and Poultry Products: From the North Central States. Bulletin 472. Brookings, North Dakota: North Dakota Agricultural Experiment Station, October, 1958. Winter, E. P. Marketing Margins and Costs for Poultry and Eggs. Technical Bulletin 969. Washington, D. C. : United States Department of Agriculture, November, 1948. Waugh, F. V. Editor. Readings on Agricultural Marketing. Ames, Iowa: Iowa State College Press, 1954. Zwick, C. J. and R. A. King. Competitive Position of the Connecticut Poultry Industry. ”The Economic Advantages of Location in Marketing Live Poultry. " Stors, Connecticut: Stors Agricultural Experiment Station, September, 1952. .33? USE 052m OCT ‘: a 136.2. iii-w- HICHIan STRTE uyiv. LIBRARIES "HI”WIMWIWWIWIIHIIVWIH111111111 31293106032208