ECONOMIES OF SCALE IN MICHIGAN LIVESTOCK AUCTIONS By Richard Dean Gibb 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 Agricultural Economics 1959 ProQ uest Num ber: 10008559 All rights reserved INFO RM ATIO N TO ALL USERS The quality o f this reproduction is dependent upon the quality o f the copy subm itted. In the unlikely event that the author did not send a com plete m anuscript and there are m issing pages, these will be noted. Also, if m aterial had to be removed, a note will indicate the deletion. uest. ProQ uest 10008559 Published by ProQ uest LLC (2016). C opyright of the Dissertation is held by the Author. All rights reserved. This w ork is protected against unauthorized copying under Title 17, United States Code M icroform Edition © ProQ uest LLC. ProQ uest LLC. 789 East E isenhow er Parkway P.O. Box 1346 A nn Arbor, Ml 4 8 1 0 6 - 1346 ACKNOWLEDGMENTS The author would like to express his sincere gratitude to all those who made the completion of this thesis possible. Thanks are due to Dr. L. L. Boger for supplying financial assistance which helped make graduate work possible in this department. The assistance and cooperation of Mrs. Arlene King and the clerical staff was an important contribution toward the com­ pletion of this study. Dr. B. C. French helped provide insights Into the nature of the problems and their possible solutions, and his advice was greatly appreciated. It is difficult to give adequate expression for the value of the guidance of Dr. Harold Riley, the student*s major professor. This association with Dr. Riley, both academically and personally, has been one of the most rewarding experiences of my graduate work. Finally, my wife, Betty, who provided inspiration and encouragement throughout my graduate work. Although she often had reason to register complaints, these were never forth­ coming. A very special expression of thanks is due her. ECONOMIES OF SCALE IN MICHIGAN LIVESTOCK AUCTIONS By Richard Dean Gibb AN ABSTRACT Submitted to the School lor 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 Agricultural Economics Year Approved .^ .. £ 1959 •" ■ . / ■'/v ' , y t . (_ r '/ ABSTRACT This investigation was conducted in an attempt to determine the relationship between costs and volume of operation at Michigan livestock auctions. Previous livestock auction studies conducted in other areas of the country* have been largely descriptive of auction operations or based upon cost accounting studies which sometimes included time studies. The cost accounting type of study has certain limitations and it was considered desirable to employ the synthetic approach in this study. The basic information for this study was obtained from data collected at eight Michigan livestock auctions. These data were in the form of time study results and cost accounting information. Cost records of the eight auctions studied indicated that there were large differences in average total costs of operation incurred by the auctions. Labor constituted nearly 6 p percent of all costs. ■ > The time studies indicated that there were large differences be­ tween auctions in the man-minutes required to handle different species of livestock. These differences may be primarily attributed to lot-size, number of workers* and method of handling. Cattle required more labor* per head* than, any other species of livestock* followed by calves* then sheep and hogs, On the basis of the time studies and direct observation it was recommended that livestock auctions designed, so as to make possible a relatively efficient handling of livestock would incorporate the following features: (1 ) calf and hog pens located adjacent to the unloading area, (2 ) a '’feed'1 chute for bringing-up cattle, (3 ) double tagging chutes with an elevated platform between for the tag man, (U) scales opening directly into the sales ring, (5 ) separate buyer pens for hogs, cattle, and sheep, and (6 ) write-up operations performed in a structure separate from the main building. On the basis of the time studies,, cost records, and other infor­ mation, costs of operations were estimated for 2b auctions, which were similar except for size. These auctions represented six different size groups, and four livestock mixes within each. The size groups ranged from 10,000 animals handled per year up to 110,000. The mixes varied according to the relative importance of each species of livestock. A H auctions for which costs were estimated were designed so as to incorporate the most efficient methods of handling livestock, as determined by the time studies and direct observations. Eleven different cost components were estimated. These included labor, transportation, repair and maintenance, utilities, supplies, advertising, insurance, taxes, depreciation, interest and "other." The results of the cost synthesis indicated that "economies of scale" are possible in Michigan livestock auctions. Average costs per head of livestock handled ranged from approximately $ .60 at the largest auction to about $1.50 at the smallest. decline through the largest auction. Average costs continued to However, most of the economies of scale were realized when a volume of 3 5 * 0 0 0 animals yearly had been attained. 1 0 ,0 0 0 Average costs declined approximately $ .50 in moving from to 2 0 ,0 0 0 animals yearly, $ . 2 0 from 2.0 , 0 0 0 to 3 5 ,0 0 0 , but only v about $ .OB from 80,000 to 110,000- Average total costs also tended to decline as the proportion of hogs increased. Although average total costs continued to decline up through the largest auction synthesized, it does not necessarily follow that this tendency will continue with increases in livestock numbers over 1 1 0 ,0 0 0 . One item of expense not directly a part of the auction operations but which may exert considerable influence on the average costs incurred in marketing livestock is that of transportation costs other than those incurred by the auction owner. These costs include (1) those incurred in shipping livestock from the producer to the auction, (2 ) those incurred by livestock buyers in (a) driving from auction to auction when buying livestock and (b) transporting the livestock from the place of purchase to the slaughtering plant, and (3 ) those incurred in moving'the meat and meat products from the slaughtering plant to the ultimate consumer. Although no attempt was made to arrive at an aggregate transporta­ tion cost function it was illustrated that if average transportation costs increase as auction size increases, the lowest point on the longrun average total cost curve which includes both auction costs and '•transportation costs will a.lways be achieved at a lower volume of operation than is true when /the long-run average total cost curve in­ cludes only those costs incurred by the auction. If average transporta­ tion costs decline as auction size increases, then the reverse would be true and the lowest point on the long-run average cost curve would be achieved at a larger volume than when only auction costs are considered. vi As additional Information concerning transportation costs is obtained one may appropriately consider this problem of "optimum" size and location of Michigan livestock auctions. vii TABLE OF CONTENTS CHAPTER I II Fage INTRODUCTION............................................. 1 Michigan Livestock Auctions....................... Objectives of the Study,...... Need for the Study ............... Usefulness of the Results............................. 1 1 2 b PREVIOUS INVESTIGATIONS OF LIVESTOCK AUCTION OPERATIONS Investigations Largely Descriptive in Nature........ Investigations Based Upon Cost Accounting Records...... Investigations Which Included Time Studies...,......... Summary of Previous Investigations............. III METHODOLOGY AND PROCEDURE................................ Cost Accounting Records Method....................... Synthetic Method........... Procedure Employed in this Study......... IV OPERATING COSTS INCURRED BY EIGHT MICHIGAN LIVESTOCK AUCTIONS...... Introduction. ......... Classification of Costs...... ..... Cost Relationships Among Auctions Total Cost and Average Cost. .... Individual Cost Components......................... Lab or ...... Transportation ................. Maintenance and Repair........... Utilities............ Supplies............. Advertising. ..... Losses..... Insurance, Bond and Taxes ................. Other...... Summary of the Costs ............... V STAGES OF A LIVESTOCK AUCTION OPERATION................... Introdu cti on...... Stage I— Unloading.................................... viii 6 6 8 11 16 20 20 23 26 30 30 30 31431436 36 39 I4.O hi I4I Lj.2 J4.2 H3 Lit. I4H L7 L7 50 TABLE OF CONTENTS - Continued CHAPTER Page General Description...... Hogs and Sheep....... Cattle and Calves.................................. Stage TT— Bringing Up................................. General Description .... Hogs and Sheep. ......... Cattle and Calves........ Stage III— Weighing................... Stage IV— -Selling........ General Description .................. ........................... Hogs and Sheep Cattle and Calves ................................. Stage V— Bringing Back........ General Description............ *.... ........... Hogs and Sheep. Cattle and Calves ........ ,..... Stage VI— Loading Out..... Functions Not Associated with a Given Stage, .. Office...... Clean-up Operations.................... Dependency Between Stages ....... VI 50 51 53 53 53 51455 56 58 58 59 60 60 60 60 61 62 63 63 66 66 ................................ 68 Introduction...... Hogs................... Total Labor Requirements ............... Unloading. ............. Bringing U p ..................................... Weighing........................................... Selling............... Bringing Back...................................... Calves.......... ..................................... Total Labor Requirements........................... Unloading....... Bringing U p ........................................ Wei ghing ........................ Selling..... Bringing Back .... Cattle ......... Total Labor Requirements ........................ Unloading.......................................... Bringing U p .................. Weighing........................................... Selling............. Bringing Back...................................... 68 RESULTS OF TIME STUDIES ix 72 72 72 7U 7U 76 77 77 77 79 79 81 81 82 83 83 85 86 88 89 89 TABLE OF CONTENTS - Continued CHAPTER ¥11 Page 91 Sheep .... Summary of Time Requirements...................... ,... 92 SYNTHESIS OF TWENTY-FOUR LIVESTOCK AUCTIONS.............. 98 98 Introduction........ ,...... ...................... .... Numbers of Livestock Handled Yearly by Twenty-Four Auctions ............... ................... .. ,.. 101 Labor Costs............................. ,..............103 Selling Rates ....................................... 103 107 Yard Labor .......... ........ Auctioneers, Ring Clerk, and Weighmaster *...... Ill Office Labor....................... ...... .......... 112 Wage Rates................................... 115 Total Labor Costs ...»........ .................... ... 115 .... ....... ............ 119 Depreciation Repair and Maintenance........................... ... 121; Insurance and Bond *..... .......... .......... 12U Taxes............. . . 125 126 Interest......... ........ Other Variable Costs .. *................... ..........126 Summary of C osts....................... 129 VIII IX "OPTIMUM1’ NUMBER OF LIVESTOCK AUCTIONS..................... 1 3 6 SUMMARY AND CONCLUSIONS.................................. BIBLIOGRAPHY...................................... ....... APPENDICES............................... x ll;2 152 :.155 LIST OF TABLES TABLE Page 2.1 Number of Animals Sold Per Hour, Maryland, 195U............ 12 2.2 Time in Seconds per Head Required to Auction Livestock in Different Size Lots ............................ U; Total Dollar Sales, Area of Building, and Number of Live­ stock Sold at Eight Michigan Auctions in 195 7 .............. 2? Costs of Operation of Eight Livestock Auctions in Michigan, 1957.................................... 35 Number of Workers, by Type, Employed at Each of Eight Michigan Livestock Auctions ............ 39 3.1 U-l U*2 6.1 6.2 6.3 6.1; 6.5 6.6 7*1 7*2 Lot Size, by Species, for Eight Michigan Livestock Auctions. 71 Time Requirements in Minutes to Handle Hogs at Eight Michigan Auctions........... 73 Time Requirements in Minutes to Handle Calves at Eight Michigan Auctions....... 78 Time Requirements in Minutes to Handle Cattle at Eight Michigan Auctions..... 81; Labor Requirements in Minutes to Handle Sheep at Two Michigan Auctions ..... 92 Time Requirements to Handle Livestock, by Species, at Eight Auctions.................................................. 93 Livestock Handled Yearly by Twenty-Four Different Synthetic Livestock Auctions in Michigan....... 102 Percent of Total Each Species of Livestock Constitutes in Four Different Mixes ........... 103 7*3 Selling Speed, by Species of Livestock, for Each of TwentyFour Livestock Auctions ..........-.................... 105 7*U Average Total Time per Sale Required to Sell each Species of Livestock at Twenty-Four Synthetic Livestock Auctions....... 106 LIST OF TABLES - Continued TABLE 7*5 7.6 Page Number of Yard Workers Required, Classified According to Species of Livestock, Auction Size, Auction Mix:, and Stage of Operations at Twenty—Four Synthetic Auctions............ 109 Hours Worked Before Sale, per Sale, According to Mix, Auction Size, and Worker....................... 11 7*7 Hours Worked after Sale Ends, Loading Out, per Sale, Accord­ Ill ing to Mix, Auction Size, and Workers................ 7.8 Number of Auctioneers, Ring Clerks, and Weighmaster Personnel at Twenty-Four Synthetic Auctions ...... 112 Number of Office Workers Employed at Twenty-Four Synthetic Auctions ........ 113 7.10 Number of Minutes per Sale Worked by Office Workers Before Sale and After Sale............................ llU 7*11 Wage Rate of Auction Personnel.......................... 116 7.9 7-12 Labor Cost per Year for Twenty—Four Different Livestock Auctions................................................... 117 7.13 Average Labor Cost per Year per Head of Livestock at Twenty— FoUr Different Livestock Auctions....... .................. IT 8 7 ,1k Characteristics of Twenty-Four Synthetic Livestock Auction Buildings ........... 121 7.15 Original Cost, Expected Life, and Depreciation of Component Parts of Twenty-Four Synthetic Livestock Auctions........... 123 7.16 Percent of Total Expenses Various Cost Components Constitute at Twenty—Four Auctions. .............. 127 7.17 Yearly Costs of Operating Twenty-Four Synthetic Livestock Auctions ....................... 130 7.18 Average Total Cost per Head of Livestock Handled at Each of Twenty-Four Livestock Auctions ...................... 131 xii LIST OF FIGURES FIGURE Page 3 .1 Erroneous and ActualLong-Run Average TotalCost Curves 21 5*1 Flow ofLivestock Through aLivestock 1;9 8.1 8.2 Auction*......... Effect of Transportation Costs Incurred by Producer Upon Average Total Costs. ............................... 138 Hypothetical Cost Curve of Livestock Buyers..... ■ .......... 139 xiii CHAPTER I INTRODUCTION Michigan Livestock Auctions 1 The first livestock auction sale in Michigan was held in May, 1933 * Since that time auctions have increased considerably in importance as a market outlet for producers1 livestock, and in 1956 they received over 2 one-half of the total dollar volume of livestock sold in Michigan. Livestock auction owners act as selling agents between buyers and sellers. They provide facilities to the producer for receiving, sell­ ing, and loading the livestock after it is sold. The cost of handling the livestock may be high or low at one auction in comparison with another, depending upon the facilities, methods employed, and number of livestock handled. The auction owner ■charges a fee to the producer for providing facilities at which his livestock may be sold, and in the long-run, the revenue from these fees must be at least equal to the costs incurred if the auction owner is to remain in business. This thesis presents the results of an analysis of the costs associated with livestock auction operations. Stanton Parry,. "An Analysis of Michigan* s Livestock Auction Industry," M. S. Thesis, Michigan State University, East Lansing, Michigan, 1953• 2Ricbard Gibb and Harold Riley, Changing Market Patterns for Slaughter Livestock in Southern Michigan. Quarterly Bulletin, Michigan Agricultural Experiment Station, Michigan. State University, East Lansing, Michigan, Vol. Uo, No. 3, Feb. 1958* PP* Iili6-U59 • 1 2 Objectives of the Study The first objective of this study was to determine if differences exist between auctions as to methods of handling livestock and, if so, which methods permit handling the livestock at lowest average cost. The second and primary objective was to determine the relationship between costs of operation and volume of livestock handled by the auctions The final objective was to show how transportation costs, other than those incurred by the auction owner, may have considerable effect upon the average costs incurred in marketing livestock and thus may influence the conclusions one arrives at concerning economies of scale in livestock auctions. Need for the Study Several "economies of scale” studies have been conducted by various researchers in an effort to determine the relationship between cost and volume of operation. French, Bressler and Sammett conducted an investi­ gation of pear packing plants in California and observed that average 3 cost per unit packed declined as volume of output increased. This de­ cline continued from the smallest up through the largest plant for which costs were estimated. Bressler, in a synthesis of costs of operation of country milk plants in New England, indicated that economies of scale 3B* €• French, L. L. Sammett, and R. G. Bressler, "Economic Efficiency in Plant Operations with Special Reference to the Marketing of California Pears," Hilgardia, Vol. 2U, No. 19, July, 1956. 3 ■4 existed In those plants. Several studies have been conducted at livestock auctions in vari­ ous areas of the country in an effort to determine the nature of the long-run average total cost curves. Most of the investigations have indicated that average total costs tend to decline with increasing volume. Almost all of these investigations, however, involved the cost 5 accounting records procedure of analysis, which has definite limi­ tations when used to estimate the nature of the long-run average total cost curve. Assuming the conclusions arrived at in other studies were valid, Michigan auctions may be sufficiently different from those in other states that the results of studies in other areas may not be applicable. 6 Only a careful study of Michigan auctions can determine this. It has been implied in several previous studies that auction owners should increase their volume of operations and thereby achieve lower average total costs . This implication may be challenged on the basis that although it may be desirable from the auction owners view to expand his volume of operations, it may not be desirable from other viewpoints. For example, transportation costs incurred in transporting the livestock from the producer to the auction were not considered in these studies. 4R. C . Bressler, Economies of Scale in the Operation of Country Milk Plants with Special Reference to New England. New England Research Council on Marketing and Food Supply, Boston, Massachusetts, June, 19U2. 5A discussion of this procedure is given in Chapter III. sTwo Michigan auctions were included in one of the cost studies. However, these auctions operated six days per week and therefore were not directly comparable with other Michigan auctions. h If it- is necessary to expand the territory from which an auction re­ ceives its livestock in order to achieve a higher volume of operations, the higher average transportation cost per head may more than offset any reduction in costs achieved through an increased volume of operation. This problem has been considered in this dissertation. Usefulness of the Results The livestock auction owner can use the results to assist him in determining if his auction facilities can be changed so as to lower his cost of operation. If it is apparent to him that a different method of handling the livestock at a given stage can result in lower average costs he will then be in a position to decide if the change should be effected. Although the owner is the one who mast decide as to whether a change in technology employed at his auction is desirable, information obtained in this study will provide him with additional information in making the decision. The results of this study will also provide the owner with an indication of the changes in .cost he can expect as he receives different volumes of livestock. The livestock producers, ever desirous of having more efficient methods’of marketing established, could benefit in the long-run through a reduction in marketing charges or through improved services for the same charge. Those people empowered with making legislative decisions may find the results useful in deciding the nature of restrictions, if any, which should be placed on livestock auction operations in the state. One state,. Montana, considers livestock auctions similar to public 5 111:1111:163 and requires that an individual who contemplates the con­ struction of an auction show cause as to why an additional action is needed. The chapter in this thesis concerning transportation costs should be of some value to those who-must make a decision of this nature. The section which discusses the amount of losses incurred by auction owners through "bad checks" of buyers should be of interest to legis­ lative groups which may be considering the question of requiring live­ stock buyers to be bonded. Finally, the consumer of livestock products may benefit if average 7 marketing costs are reduced. In the final analysis it is the consumer who often pays the marketing costs. If these can be reduced, the con­ sumer will benefit, the amount depending upon how much of the cost reduction is passed on to him. 7The cost reduction may be in the form of lower costs for a given marketing service or additional marketing services at a given cost. CHAPTER II PREVIOUS INVESTIGATIONS OF LIVESTOCK AUCTION OPERATIONS Investigations Largely Descriptive in Nature Several investigations ol* a descriptive nature have been conducted with reference to livestock auctions, Although this type study does not in itself contribute greatly to a future reduction in auction operating costs, it does provide insights into the nature of auction operations and thus can serve as a basis for additional research di­ rected toward reducing marketing costs. One of the most comprehensive studies of this nature was conducted 1 by the United States. Department of Agriculture during 1956. This was a mail survey in which questionnaires were mailed to all auction opera­ tors in the United States who were listed as operating in 1955* The questionnaire was designed so as to provide general information concern­ ing such things as number and type of buyers and sellers at the auctions, numbers of livestock received, selling charges, and distances from which the livestock were received. It was observed that auctions were commonly a relatively small operation with over one-^half of the total number responding to the questionnaire indicating they handled less than 10,000 ^-Gerald Engleman and B, S. Pence, Livestock Auction Markets in the United States. Marketing Research, Report No. 223, Agricultural Marketing” S ervic e, USDA, Washington, D. C . 1 9 5 8 . 6 marketing units per year. In addition to this it was estimated that over 60 percent of the livestock originated from within a 25 mile radius of the auction. McNealy and others conducted a study similar in nature to the United States Department of Agriculture study previously mentioned, but 3 this study encompassed auctions located only in the state of Texas. Results of this study indicated that average size of consignments was rather small, averaging less than three head, except for sheep. As was true in the United States Department of Agriculture study, most of the livestock came from an area close to the auction with almost one-half of the cattle and more than one—half the other classes of livestock originating from less than 25 miles away. A descriptive study of livestock auctions conducted in the North­ eastern States in 195U indicated that livestock auctions received over 4 50 percent of the livestock sold in that area. Most of the livestock was received from within a radius of 50 miles of the auction but some came from distances of 100 miles or more. It was indicated that some auction operators had a tendency to over—build in terms of seating capacity for buyers, sellers, and spectators. In addition it was pointed out that some auction owners had suffered heavily through ”bad check” losses. One operator was facing a write-off in losses of ^Dne marketing unit was equivalent to one head of cattle, three calves, four hogs, or ten sheep and lambs. 3J. G, McNeely, C. B. Brotherton, and T. M, McKenzie, Livestock Auctions in Texas. Bulletin 732, Texas Agricultural Experiment Station, College Station. Texas, 1951» . G. Randell, Livestock Auctions in the Northeastern States. PCS Bulletin 8, Farmer Cooperative Service, USDA, Washington, D. C., 1956. 8 approximately" $£>0^000 which would probably result in liquidation of the agency „ Results of a Western Regional study of livestock auctions indicated that the number of workers used to operate an auction ranged from seven 5 to 59 with an average of 21, Although large auctions required more workers than small ones, the number of workers required did not increase proportionally with the size of the auction. In addition it was observed that livestock, except sheep, was sold in rather small groups (average size of lot sold for cattle 2.2, sheep 21.3, and hogs 3.0) and that most of the livestock was received from a radius of 25 miles or less. Investigations Based Upon Cost Accounting Records Several investigations of livestock auctions have been conducted in which an effort was made to determine the relationship between cost and volume. These studies have been largely based upon information obtained from the cost records maintained by the auctions. Cox and Blum of Purdue University studied the costs of operating selected Indiana livestock markets for the year July, 19U9 to June, 6 1950. They divided costs into five categories; (l) all wages and salaries; (2) advertising and public relations; (3) office expenses; (U) yard or b a m expense; and (5) other expenses. They then showed cost 5Harold Abel and D, A. Broadbent, Trade in Western Livestock at Auctions— Ueve3.oment. Relative Importance. Operations. Bulletin 352, Utah Agricultural. Experiment Station, Logan, Utah, 1952. 6C, B, Cox and M. A. Blum, Cost of Operating Selected Indiana Livestock Markets. Station Bulletin 618, Purdue University Agricultural Experiment Station, Lafayette, Indiana, 1955- 9 per marketing unit for different types of livestock markets (dealers, auctions, and packers) of various sizes. sidered as one hog. A marketing unit was con­ One cow was considered 3*375 marketing units, one calf equaled 1 ,8 7 5 marketing units and one sheep represented 0 . 7 5 0 marketing units. The measure of an animal unit was arrived at by con­ sulting market operators as to what they thought would be a close approximation of the relative costs of marketing the different types of livestock. The average total costs of the auctions varied from U8.1 cents to 73*1 cents per marketing unit. The auction with the highest average costs was also the. one with the lowest volume; conversely the auction with lowest average costs was the largest auction in terms of marketing units. Except for the high and low volume auction markets differences in operating expenses between auctions were relatively small. It should be noted, however, that only five auctions were included in this study. According to the authors the important cost determinants were volume handled, physical layout of the market, work routine followed by labor, wage rates, and equipment used. The largest expense category for auctions was wages and salaries, which constituted about two-thirds of all expenses. Cox and Blum concluded that considerable opportunity existed for reducing costs of operating livestock markets by increasing volume. They indicated that one of the markets studied had reached or passed the optimum size from a cost standpoint, and that unit costs could be re­ duced from 10 to 50 percent if volume could be increased by about 1,000 marketing units per month. 10 The Indiana study, which emphasized the relative importance of labor as a cost component, tended to confirm results of an Ohio study published at an earlier date in which it was indicated that labor costs constituted approximately two-thirds of all costs ranging from 5>9 * 2 percent at small auctions up to 7 1 -0 percent at the large auctions. This study also indicated that expenses incurred per dollar value of livestock sold were lower at large auctions than small ones. One of the most recent cost accounting studies was made by Lindberg 8 ahd Judge of Oklahoma. State University. Auctions of different sizes were studied, and' in order to place these auctions on a comparable basis for the purpose of cost analysis, the amount of livestock received at each auction was converted to an animal unit base. One horse, one head of cattle over l|O0 pounds, two calves, I4.OO pounds or less, two hogs, and five sheep were each considered as one animal unit. Justification for this was not given . As was true in the Indiana and Ohio studies labor was the most important item of expense, accounting for approximately $0 percent of all expenses in this study. For the lowest volume auctions it repre­ sented 5 6 .li percent of the expenses and for the highest volume auctions it accounted for U9 .U percent. This was in contrast to the Ohio .study in which labor constituted a larger percentage of the total costs at 7George Henning and Merrill Evans, Livestock Auction Markets in Ohio, Research Bulletin 7U3. Ohio Agricultural Experiment Station, Wooster, Ohio, 195^* eR. 0, Lindberg and G, G, Judge, Estimated Cost Functions for Oklahoma Livestock Auctions, Bulletin B-502, Agricultural Experiment Station, Oklahoma State University, Stillwater, Oklahoma, 1958- 11 large auctions than at small ones. Results o.f the Oklahoma study indicated that average hired labor costs per animal unit declined sharply up to about 35,000 animal units and then started leveling off. before this volume was attained. Economies of scale were largely realized It was concluded that average costs per animal unit would decrease 25 cents in going from an annual volume of 10,000 to 35,000 but that an increase in volume from 35.000 to 7 0 ,0 0 0 animal units would make possible only a five cent saving per unit. Investigations Which Included Time Studies Several studies have been conducted at auctions in which time studies were included as part of the investigation. The purpose of the time studies was to compare auctions as to the time required to handle livestock when different methods were employed. A study of this nature was conducted at four auctions in Maryland 9 during an eight-week period in the summer of 195U- Time studies were conducted at the unloading stage and during the selling operation. The average amount of time required to unload pickup trucks at the four markets was 5*2 minutes and large trucks, 6.3 minutes. Most of the trucks carried relatively few animals with an average load size of' cattle of 2.0, calves 2.0, hogs 5 *7, sheep 8.1. Table 2.1 indicates that there was considerable variation in the selling speed of livestock at the four auctions. 9H. H. Harp and H. D, Smith, Efficiency of Livestock Auction Markets in Maryland, Bulletin 14-57* University of Maryland Agricultural Experiment Station, College Park, Maryland, 1956. 12 Table 2*1* Glass Number of Animals Sold Per Hour* Maryland9 19 5U. Market Designation A B C D Average Weighted by Number of Animals (Number sold per hourv Market hogs Lambs Dairy calves A H livestock H62 353 300 169 133 353 188 1U7 118 163 125 112 158 2h 162 68 333 300 200 132 Harp and Smith Indicated that the principal cause of variation in selling rate was the extent to which animals were sold In groups. In market A where considerable grouping was done, calves sold In'lots moved at the rate of 300 per hour whereas when sold singly as in markets B and G, they averaged 188 and 12^ f respectively. A similar relationship was found with other classes of livestock. Although the time studies conducted in the Maryland study represent an effort to obtain some basis of comparing different methods of handling livestock, the opinion is held by this author that the results of this part of the study are open to rather serious criticism. At the unload­ ing stage of operations the number of workers involved and the number of livestock per load was not disclosed. Inasmuch as these influence average costs it is difficult if not impossible to make reliable com­ parisons of different methods of handling livestock without this information. Time studies were conducted in connection with a rather detailed 10 investigation of 20 livestock auctions in the Southeastern States . 10G, E. Turner and G. F* Brasington, Livestock Auction Markets in the Southeast1 — Methods and Facilities, Marketing Researoh Report No. llil, USIA,'Washington, D. C,, 1956. 13 An effort was made to obtain information so as to enable the investi­ gator to design, improved livestock auction facilities and to develop more efficient methods for receiving, selling and loading livestock at auctions. -Costs of construction, amount of land needed for the market site, and yard labor requirements were estimated for three methods of handling livestock. It was estimated that three or four fewer yard workers would be required at each of the auctions under the recommended plan than were normally required. Assuming a savings of I4.O hours per week, 50 sales per year, and $1.00 per hour wage rate, an annual saving of $2,000 in labor cost would result. Time study results were presented for only the unloading stage of operations. The results were given in number of truckloads unloaded per man-hour as opposed to the number of trucks unloaded per hour in the Maryland study. Although the including of number of workers involved contributed much to this study no mention was made as to the number, of livestock handled per man-hour. A United States Department of Agriculture study of nine cooperative auctions in Ohio, Indiana, and Michigan was conducted in 1955 and early 11 1956. Most of the material presented as a result of this study was obtained through a cost accounting analysis of each of the nine auctions, and some time studies were conducted. A rather detailed breakdown of costs was made and the markets were then compared with each other. The largest item of expense was labor i:LI. M. Stevens and R. L. Fox, Improving Livestock Marketing Efficiency; A Study of Nine Cooperative Livestock Markets in Ohio. Indiana, and Michigan. General Report 39> Farmer Cooperative Service, US0A, Washington, D. C,. 1958. 12+ which averaged 83 cents per animal unit for the nine markets. In this study one animal unit was either one head of cattle, two calves, four hogs, or five sheep. No justification was presented in the study relative to the measuring of an animal unit. The range on labor expense was from 1+7 cents to $1,05 per animal unit. In general the largest markets showed lowest costs and greatest efficiency, but this was not always the case. The market with the highest labor cost per animal unit was also the one with the greatest volume. Total expense per animal unit varied from $ 1 . 6 1 to $3 *0 7 , but revenue showed less variation, ranging from $1 , 9 8 to $2,52 per animal unit. The three markets with smallest volume incurred losses during the year. The only time study results presented were those conducted during the selling operation. The time, in seconds, was recorded for three phases of the selling process. lot time, and total time. These phases were work-out time, between- Wide differences were noted both in work-out time and between-lot time among auctions, A comparison of time in seconds per head for cattle, hogs, and sheep wben sold individually and in groups is presented in Table 2,2. Table 2.2. Time in Seconds Per Head Required^to Auction Livestock in Different Size Lots/' Siae of Lot Cattle Hogs 1 head 2 to 5 head 6 to 10 head 11 or more 32 21 13 9 35 17 7 2 Sheep 2+6 18 8 2 “I, M, Stevens, and R. L, Fox. Improving Livestock Marketing Efficiency- A Study of Nine Cooperative Livestock Markets in Ohio, Indiana., and Michigan. General Report 39, Farmer Cooperative Service, USIA, Washington, D. C., 1958? p- 32. 15 It is apparent from Table 2.2 that selling time per head declined as lot size increased. A study by Turner, McNeely, and others tended to confirm the find.ings of Stevens and Fox relative to the selling time requirements per head 12 as lot. size Increased. Although actual selling time requirements increased as lot size increased, the minutes per head decreased. Time requirements were also given irl this study for unloading, bringing up, weighing, bringing back, ahd loading out. In some instances the number of man-minute s required per head was given but, in general, information as to the number of workers employed or the number of livestock handled was not given, A somewhat later report on the Texas study was concerned primarily 13 with operating costs and returns, McNeely and Turner estimated the costs for each of twelve different expense components for auctions of four different sizes. These synthetic costs were in the authors* words "based on optimum conditions at auctions of different sizes." Labor expense was the most important cost item for auctions regard-* less of size. Although actual labor expense increased with auction size, the expense per animal unit declined. However, McNeely and Turner believed that the labor expense per unit at the auction falling in the 12George H, Turner, J. G, McNeely, C. V. Wooton, and S. W. Burt, Texas Livestock Auction Market-Methods and Facilities, Miscellaneous Publication 93, Texas Agricultural Experiment Station. College Station, Texas, 195313J. G, McNeely and G, E. Turner, Texas Livestock Auction Markets— Operating Costs and Returns. Miscellaneous Publication 118, Texas Agricultural Experiment Station, College Station, Texas, 195U- 16 largest volume bracket would be greater than that of the auction falling in the second largest volume bracket. They arrived at this conclusion because they felt that it would be necessary to pay a higher wage rate at the largest auction because they were located in larger cities where labor was commonly paid a higher wage rate. It was not indicated as to whether or not the actual labor expense incurred by the auctions studied corroborated their beliefs concerning estimated labor expenses at auctions falling in the highest volume group. Summary of Previous Investigations In this chapter livestock auction studies were classified into three main categories. These were (l) those largely descriptive in nature, (2) those based upon cost accounting records, and (3) those which included time studies. Those falling into the first category may be of considerable value in that they enable one to gain insight into the nature of the problem and consequently serve as a basis for additional research which may be directed toward increased efficiency in livestock handling. The second type study can show rather clearly the magnitude of the various cost components and thereby indicate which cost areas should be investigated further iri order to result in the largest potential cost reductions. When combined with observations of the auction operations, they may also, with careful interpretation, serve as a basis for making inter-auction comparisons as to methods of handling livestock. 17 The time studies can add materially to the value of* other studies in that they can indicate which methods of* handling livestock result in lowest labor requirements per head, The previous studies showed that most livestock came from a relatively short distance away and was received in relatively small loads. In addition to this it was observed that labor was the most important cost component in auction operations, with most of the studies indicating that it constituted from one-half to over two-thirds of the total costs of operation. Rather large differences were observed between auctions in average labor cost per head of livestock handled. This im­ plies that research directed -toward this area may result in rather sub­ stantial reduction in average handling costs per head of livestock. Most of the research indicated that average total costs tended to decline as volume increased but exceptions to this were noted. The conclusions arrived at in some o f 'the studies were based on a very limited number of observations. In-order to ascertain the nature of the relationship existing between costs and volume the researchers found it necessary to arrive at some measure of size of auctions, and it was generally realized that numbers of animals handled, in Itself, was not a reliable indicator of size. In attempting to overcome this problem most of the investigators arrived at an '‘animal unit” for measuring size. With one exception no justification was given for deciding what consti­ tuted an animal unit. Inasmuch as size was measured in animal units, this measure is of paramount importance in determining the relationship between costs and volume of operation (or size). Since justifications were not given in determining an animal unit, one can seriously question 18 conclusions concerning the relationship between cost and volume which were arrived at in studies using animal units as a measure of size. Some of the time studies presented are also open to questioning. In most of the investigations time studies were conducted at only one or two stages of the auction operations. These cannot serve as a basis for making comparisons as to methods used at other stages of the operations. In addition to this, it is this author* s opinion that those time studies which present only the number of minutes per head or the number of man-minutes per lot are incomplete. These figures are rather meaningless unless one knows the time required to 'perform the operation, the number of workers involved, and the number of head of livestock. As an example, let us consider the Texas study in which the minutes required, -per truck, to Unload cattle using three different methods of operation was shown as was the number of workers. The result­ ing figures disclosed the man-minutes required to unload a truck, but did not show the labor requirements per head of livestock. If the trucks which were being unloaded contained about the same numbers of livestock, then the comparisons of methods of unloading could be accepted as reliable indicators of the relative efficiency of each method. However the numbers of livestock, per truck, were not given and it is conceivable that the technology which required the highest number of man-minutes to unload a truck might be the one with the lowest man-minutes per head of cattle and., assuming the same wage rate, lowest average costs. For this reason it is felt that the results of many of the time studies conducted in previous livestock auction studies are inconclusive. Although many of the studies reviewed do provide 19 considerable insight into the nature of livestock auction operations the conclusions concerning methods of handling and relationship between cost and volume are open to questioning beoause of the reasons indicated. CHAPTER III METHODOLOGY AND PROCEDURE Most of the previous studies designed to determine the relationship between cost and volume may be separated into two groups. One. group consists of the cost accounting records studies and the other consists of the ” synthetic” studies* The primary distinction between the two methods is that in the former the investigator studies plant records, observes the plant operations and compares plants that actually exist. Using the synthetic approach the researcher estimates costs of operat­ ing plants that do not actually exist and then compares these ”synthetic” plants* Cost Accounting Records Method This method uses as basic information the cost records of existing plants. Consequently, if the study which is to be conducted achieves the intended results the plant records must be accurate and complete. The usual procedure in conducting a study of this nature is to study a sample of firms representing different volumes of output. Costs of operation for each of these firms are computed j the total cost incurred by each firm is considered as a single observation, and a regression equation is fitted to the data. One of the major limitations to this method is that the total cost arrived at for each plant does not indicate at what point on the short-run 20 21 average total cost curve a plant was operating. The result may not be the correct estimate of the long-run average total cost curve. As i Lindberg and Judge Indicated the long-run, average cost curve will be correctly estimated only when the short-run average cost functions are tangent to the long-run average total cost curve. Figure 3 • Erroneous and Actual Long-Run Average Total Cost Curves. Average Total Cost SRATC SRATC SRATC Volume Figure 3.1 depicts a hypothetical case in which four plants are observed and the total operating costs incurred by each for a given period are obtained. These costs are indicated by numbers 1 through U* If one accepted these points as defining the long-run average cost curve, this curve would follow the path indicated by the broken line (LRATC1). 1R, C. Lindberg and G. G. Judge. Estimated Cost Functions for Oklahoma Livestock Auctions, Bulletin B 5>02, Agricultural Experiment Station, Oklahoma State University, Stillwater, Oklahoma, 1958* 22 This would indicate that, small plants in this Industry achieve lower average costs than large ones. There would be a dis-economy to scale. The true nature of the relationship between cost and volume, however, might be represented by the short-run average total cost curves and the solid long-run average total cost curve, (LRA.TC2). The reason that it appeared that a dis—econony to scale existed is that the smaller plants were operating on a relatively lew point on their short-run average total cost curve and the larger ones were operating at a relatively high point. One may eliminate, or reduce the magnitude of the possible error of failing to determine the correct long-run average total cost curve by obtaining the costs of operation from each plant while they are operating at different points on their average total cost curve. This may be very time consuming, if not impossible, however, because a given plant may operate at a fairly uniform volume of output for several months or years, A second rather basic disadvantage in using the cost accounting records approa.ch is that they do not provide a basis for comparing the relative efficiency of alternative methods of operation. Relatively small plants may achieve lower average total costs than large ones not because of a dis—econoiTy of scale but because the small firms are using more efficient methods of operation. The cost records, by themselves, do not disclose this. Other disadvantages of using the cost accounting records approach are: (1) information taken from plant records contain many arbitrary 2Ibid,. p. 21. 23 valuations and allocations, and (2) reported fixed costs reflect vari­ ation in such items as purchase date of plant and equipment and rates and methods of depreciation* The main advantage attributed to the cost accounting records approach is that this method enables one to obtain considerable infor­ mation concerning costs in a relatively small amount of time and at a relatively low cost* This is especially true with certain relatively Unimportant cost components such as utilities and supplies. Estimat­ ing the cost of these components without cost records would require a very large amount of time. The cost records also may be of consider­ able value in determining the wage rates to use. In addition, they may be the only source of data for some items of cost such as administrative and miscellaneous expenses. Synthetic Method The synthetic method is Used to determine cost relationships among ” synthetic” plants when all variables are held constant except volume of output. It is difficult, if not impossible, to compare actual exist­ ing plants that differ from each other only in size. According to 3 Black this technique of cost determination has been derived largely from the workshop of the industrial engineer. It employs a combination of tools of economics, statistics, accounting, engineering, and other technical subjects. 3Guy Black, ,TSynthetic Method of Cost Analysis in Agriculturel Marketing Firms,” Journal of Farm Economics, "Vol. 37, 1955, P* 270. , 22+ In attempting to make cost comparisons of synthetic plants all costs of plant operation must be estimated. The sources of data for these estimates may be plant records, direct observations, equipment manufacturers, engineering estimates of building costs and technical 4 data from the physical and biological sciences, Direct observation may consist of work sampling, job description, motion study, time study and several other activities. Each is primarily directed towards obtaining information concerning the amount of labor necessary to perform a given function. The equipment manufacturers provide the primary source of data on price of the equipment which is to be utilized in the synthetic plants. Engineering estimates of the building construction cos,ts require specifications of the physical quantities of materials and labor used in constructing the building. Estimates of building life may be obtained from engineering experience, contractors and from plant records. It may be necessary to obtain some information from workers in the physical and biological sciences. "The content of the information obtained will depend upon the type and function of the plant being synthesized and may involve consideration of factors such as the import of production techniques upon quality, physiological, aspects of storage, and the nature of chemical or other technical processes and their relation to costs and output," 4J, F. Herrick, et a l ., "Assembling and Packing Operations at Country Plants," Marketing Efficiency In a Changing Economy. USHA. Agricultural Marketing Service, 1955, p* 19U5Ibid.. p. 197, 25 in general, when the synthetic approach is used operations within a given plant are divided into separate phases or n stages1* for .purposes of cost measurement. In this manner, the cost measurements yield inputoutput functions that provide a fundamental basis for comparing the costs of alternative technologies and for developing total plant cost 6 curves. Once the Input—output relationships of individual operations have been developed, the costs of hypothetical plants may be determined as readily as those of existing plants. One of the major advantages of the synthetic approach over the cost accounting records approach is that it can be applied in an industry where da.ta are not adequate for statistical analysis, where price changes or new technologies have destroyed the usefulness of historical, records, or where it is not possible to find a sample of plants operating under comparable conditions at a given time. This approach does have some disadvantages, however. One diffi­ culty is that the input-output relationship may depend on other factors in addition to plant size. Plants which appear similar in design m y exhibit rather marked differences in efficiency because of differences in management. A second disadvantage is that the researcher in adding the costs of each stage of operations may fail to realize that there m y be a dependency between stages which necessitates that if the lowest cost technology is used at one stage one of the higher cost technologies must be employed at the next stage, 6Guy Black, .op. cjt., p, 19li, 26 A third disadvantage often attributed to the synthetic approach is that it may be expensive. Although it may be correct that the cost accounting approach often requires less time and money it may be that the type of information desired is obtainable only through the synthetic approach. If so* it may be a question, then, of obtaining the infor­ mation through the relatively expensive approach or not obtaining it at all. Procedure Employed in' This Study Inasmuch as the primary objective was to determine the relationship between cost and volume of livestock auctions, and realizing that the cost accounting approach can provide this information only under certain conditions, it was decided that primary emphasis should be given the synthetic approach in this study. The results of this study are based Upon ■inf ormation received from eight livestock auctions in Michigan plus visits to several others. The auctions were selected on the basis of numbers of livestock, sold, gross dollar volume of livestock sales, geographic location, and method of handling the livestock. Initial contact was made with the owners or managers of the auctions included in this study by telephone, and a follow-up personal visit was made at which time an explanation was given as to the nature and purpose of the study. Most of the owners were very cooperative, and arrange­ ments were made at this time to visit the auction and conduct the study. 27 Table 3 *1 shows that the auctions exhibited marked differences with respect to numbers of livestock handled, total dollar sales and .square footage of building area. Table 3.1. Auction Total Dollar Sales, Area of Building, and Number of Livestock Sold at Eight Michigan Auctions in 1957 * Dollar Sales Cattle Livestock Sold Calves Hogs Area of Building (Sq. Ft.) Sheep (No, of Head) A B C D a F Cr H $5,07U,57l**78 3,1*21,975.31 3,000,000.00 2,927,262.21 2 ,1 2 2 ,3 5 2 .0 0 1,1*06,1*65.00 767,929 .1*7 7l*6,081*.89 17,311 19,162 18,700 10,167 8,600 5,600 1*,002 3,926 1 1 ,081* 1 2 ,0 0 3 9 ,9 0 0 1 1 ,1 7 5 1 1 ,9 8 1 3,011* 3,1*31 2,1*28 39,1*61* 2 3 ,231* 15,£00 31,970 25,355 .lit,£25 3,713 6,959 26,1*65 1,792 7,220 3,613 1*,81*8 31,860 26,856 26,128 2 7 ,21*2 11*,058 20,61*8 803 60 1 0 .8 0 0 638 11*,1*00 An effort was made to visit the auction prior to the sale in order to obtain cost records, discuss auction operations with the owner or manager, and observe the general lay-out of the facilities. By observ­ ing the facilities prior to sale day one could learn how the livestock was handled and then determine how the time studies should be conducted during the sale. Detailed cost records were obtained at all auctions, and these were considered to be especially useful in serving as a basis for esti­ mating variable costs such as utilities, supplies and advertising. These cost components normally constitute a relatively small percent of the total amount of cost, and the cost records reveal approximately what percent one could ordinarily expect this to be. Although this infor­ mation could also be estimated in other ways, to do so would require 28 extreme amounts of ‘time and money. Cost- records were also valuable in providing an indication of wage rates and salaries paid to all employees. Diagrams of floor plans of each auction were made, and these were used to help determine the reasons for differences between auctions in time requirements to handle livestock, 7 Livestock auction operations were separated into six stages, and time studies were conducted at each of these at all auctions in order to compare different methods of handling the livestock. Appendix A shows the form used In conducting the time studies. Most of the study was conducted during the three-month period— June, July, and August, 1958* Although this is a period of relatively light receipts of livestock, the nature of the auction operations never­ theless remain essentially the same throughout the year. All auction operators indicated that they do not voluntarily alter the number of workers employed as livestock receipts rise or decline although the length of time the personnel work will be somewhat less during days of relatively light runs. The procedure used in handling the livestock, both in the office and in the yard is essentially the same regardless of the season. The information obtained from the cost records, through discussions with auction owners, and through the time studies was utilized in esti­ mating costs of operation for 2U synthetic auctions. Chapter IV provides the results of the cost studies conducted at each auction j Chapter V 7A description of each stage is given in Chapter V. 29 provides a description of the livestock auction stagesj Chapter VI gives the results of the time studies, and Chapter VII presents the results of the actual synthesis of the auctions. CHAPTER IV OPERATING COSTS INCURRED BY EIGHT MICHIGAN LIVESTOCK AUCTIONS Introduc tion Detailed cost records were obtained at each auction included in this study Tor several reasons. First, the records were considered a good source of information concerning wage rates and salaries of auction employees. These were needed in synthesizing auction costs. Secondly they may be used to estimte certain cost components, such as utilities, advertising, and supplies, which constitute a relatively small proportion of the total but which would be difficult to estimate otherwise. Finally the author considered it desirable to include the actual costs incurred by the auction so that a comparison of these with the synthetic auctions might be made. Classification of Costs The costs were separated into ten component parts which corres­ ponded closely to those listed by the auctions although some variations in classifying costs were found at all auctions studied. components were: 1. Labor 2. Transportation 3 ♦ Maintenance and Repair 1±, Utilities 5. Supplies 30 The cost 31 6, Advertising 7 * Losses 8* Insurance and Bond 9. Taxes 10, Other One of the largest problems encountered while obtaining these figures was that in a few auctions the owner was also a livestock dealer* In most cases, separate records were kept for each enterprise, but this was not always true hor was it true for all. cost components* For example, at one auction, all expenses incurred due to truck opera­ tion were listed as auction expense even though this truck was used for other purposes as well. In this case an estimate was made as to the percent of the total transportation expense which could be attributed to the auction* This problem arose primarily in connection with the transportation cost component but not exclusively* lesser degree with labor costs. It was true to a In all cases where a problem of this kind arose, an estimate was made from the best informati.on available as to the proportion which should be allocated to the livestock auction. Labor cost was separated into four categories— yard, office, auctioneer, and management* This classification made it possible to make more accurate labor cost comparisons between auctions. Transportation costs included any trucking expense incurred by the auction in addition to automobile expense which arose as part of the auction operations. Maintenance and repair expenses consisted of costs resulting from such things as replacing gates, fixing pens, and re-roofing. Utilities included cost items such as electricity, heat, and telephone. No problem arose in obtaining these figures. Telephone 32 expenses -were sometimes quite high as a result of non-auction personnel making long distance calls* imbursed for these. Often, however, the management was re­ In such cases the telephone expense which was included in the utilities was the net amount. Supplies included items used both in the office and in the yard. This cost component included Items such as hip and ear-tags, glue, stationery, pencils, buyer sheets, consignment sheets, and scale tickets. No breakdown was made between office supplies and yard supplies because some auctions listed a given item as yard supply whereas others considered It as an office supply. Advertising expense included costs incurred in advertising through newspapers, on the radio, handbills, or any other method. Losses included such items as bad checks, animal injury or death, and trading losses which were incurred as the result of an auction owner buying livestock at his auction and reselling in the same manner. The latter may be considered as a price supporting activity. Insurance costs covered all types of insurance which the auction owner carried in connection with the auction operations . Among these were fire and comprehensive insurance on the building and its contents, livestock insurance, workman* s liability insurance and unemployment insurance compensation. law to be bonded. All Michigan auction operators are required by The amount of the bond is based upon the average weekly dollar volume of sales for the previous year. Taxes included social security taxes, property taxes, and any other taxes which the organization paid. 33 The T*other” category accounted for all other expense items. It was not listed as a cost component in some auctions but was necessary in this study because there were many cost items which were rather important', at some auctions but negligible or non-existent at others. It included such things as donations, snow removal, legal fees, Christmas gifts, and director*s fees. Depreciation was not included as an expense item in this phase of the studyr Methods used in depreciating facilities varied so greatly between auctions that comparison between them were virtually impossible. One possible solution to this is to estimate the replacement cost of each building and then use a standard measure for depreciating the facilities. This introduces a bias, however, in favor of the auction with a relatively new building which may have efficient pen arrangement for handling the livestock. It may be possible that some auction owners are aware that with the design of-their old buildings, labor costs will., be relatively high. However, the owners may be willing to, in effect, trade low labor costs for low fixed building costs. If these older buildings were depreciated on the basis of their replacement cost the auction owners would be penalized, on their combined depreciation and labor costs. If the owner were to replace his building he would, if facilities are such that labor costs are high, construct it so that labor costs would be reduced, assuming that It would cost no more to build this building than a new one which is not arranged to utilize labor efficiently. For these reasons depreciation costs are not given for the eight auctions. It should be pointed out, however, that if one were estimating 3U ■the costs of livestock auction operations, depreciation costs would have to be considered. Cost Relationships Among Auctions Total Gost and Average Cost Table I4..I shows that total costs of operation ranged from about # 114,000 up to about $68,000. Average total cost per animal ranged from 66 cents at auction E up to $1.37 at auction G. Auction G was the smallest auction in terms of number of livestock handled in 195 >7 , but auction E, with lowest average cost, ranked only fifth in total number of livestock handled in that same year. There are certain limitations to making these cost comparisons. First, auctions A, C, D, and.E were owned by people who did some of the auctioneering and who did not pay themselves for this service, If the owners paid someone else to do this, this item of expense would be approximately doubled at auctions C, D, and E, and increased about one—third at auction A . This would result in somewhat higher average costs incurred at those auctions than a,re shown. Similar comments are applicable for the management cost com­ ponent at auctions E, G, and H, In addition one must keep in mind that the proportion of each species of livestock handled varied between auctions. Auction E, for example, received relatively few cattle and many hogs which would tend i to reduce average costs. In effect the auctions were handling somewhat xThe differences in labor requirements to handle different species of livestock are shown in Chapter VI. 35 -p -p 4 W I CD o p CO On CM . . . . 1 CM CM NO 4- o o u O • On O 4 0 4 n0 0 4 -in 4 P m‘ m P o O CM 400N- m p o-in m o in n- CM 1- o P o co 1 CM CM OnCO m O 0 On P ^ ° CO O n m m 1—1 0 'HI P O CO P 4 P » N *s »\ m m on o m On P CM O p C MO m I * * *I f^ H O \ I 1—I I CM CM O 4COO IP J IA O m °0 4" m -4 N O CM i n o Os o o o O » * % Q lx \ O 1 o VO o I CM O-IA 1 * * 1 --1 r^—rH CO F-, erf P P r O P P; IP CM O 0\ CM • * • I A co 1 r— rH cr\ o o o 0 - 4 0 CO P p n erf H p O p E O IfS t o CM © o m co o p On On m m •. \ r. r\ .— 1 CM roco _4 I * * • I _ 4 co in P m PI p m m P On O * 4m on cm go o - on m .4 -4 ONOmoHcoHom 4- m in m m NO C M O- O O 4 N O H N O N O o in c o m CM p m o NO 4 On P 4 NO m C M in O ONmNO o \ Q *>«***■> P rH P CM o i n 04 no m p in C MC Min cm P on CN O » 3_f\ o m m 4 in in o c M in n - 4 ‘ i n i n 4 mco cm cm m a- m i n on P P CM On #m P co M3 l J i ♦v 3 C MCO O nO A- On C MCO m * I p i n 4 4 1957M ic h ig a n , In L iv e s to c k A u c tio n s A 1 — 1 o p NO p m ONCMCMOOCMm© m a - o cm d m o 4 -4 ♦ 1 I cm cm o \in c o O CM 4- n n i mo-mocomcMON — t ono. o w P i n ® P NO m cMooNoininoNO_4-cM 00 cm o \ m J 4 '' cM m o 1—l m N 0 4 m in O m 4 md h H in cm On P m O m o o On On cm.4 1 — 1in cmco in no in in c— 1 —1on P m in cm i— 1 C C MC M4 In C MCO P 4 I —I CO -4 ♦\ On m m, i— I[ —1t— I o O N in c M in c M in c M ^ jN O o o o o o o o O Q o • » * • cm .4 m o i m cM 40 r 4- o co m O O » i— 1 o 1 — i O p e r a tio n C MP C M .! 1 m m o o p m o no H NO NO O I JM DO O O t NO N - H O . » ■NO co . 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CO u ON CO CM O o * m 4" CO •V. CO m m I I I 00 ON CM I IN— On 00 On o in ^ fN O v o H p 4 m on no m md on h P i m m m p "S' CO m co o no O - O l n o O O O n O On < r\ •% « ^ COCMOmOOCOHCM 1 —I 1 —I 1 —I i—I CM 1 —I CM P O n' 1 —1 n O OOCO P * o | » ! * * *C I COIAO I in ( —I O o o o o 0 o •rH 4 ?-l 0 0 4 4 o 0 P buD p erf P U o 4 P erf 4 erf Q PH <3 S 4 o P erf P P erf P o P 54 a o 0 •H P4 X5 o o CO O G •H C O 0 •H * P P CO o o fcu D 54 •H co 0 *H m -HP p S 0 erf +j tI H £-1 0 ^ 54 o CO h P P 2 rrf P E~ S G P ® O. f> CO P 0 4 0 0 co co X 4 4 TO o CO-=*3 P s .4. _cd ^ ^ 0 erf p o p ■^1 » O 54 i— 1 erf P O p P o p 0 bD erf u- 0 > <4 36 different products Insofar as the proportion of each species of live­ stock received by the auctions was not the same. One is not justified in concluding that auction E handled livestock more efficiently than auction B even though the average cost per head was lower at E, Auction B handled relatively more cattle and relatively fewer hogs than E, and cattle required more labor, per head, than did hogs. One could, however, reasonably conclude, on the basis of the costs presented in Table U.l, that auction B was handling livestock somewhat more efficiently, than auction F. Average cost per head at auction B was 78 cents as compared with a cost of $1,09 at F, This is true despite the fact that cattle constituted a higher percent of the total number of livestock received at B than at F. Individual Cost Components Labor. When considering all auctions together, labor constituted 59 percent of the total costs. There was, however, a considerable variation with these costs ranging from I4.8 percent at auction C to 76 percent at auction B. It should be noted, however, that it does not necessarily follow that auction B, in which labor accounted for 76 per­ cent of all costs, will also exhibit the highest average labor cost per head of livestock handled. Actually the average labor cost per head at auction B (60 cents) was lower than that at three other auctions. The average labor cost per head ranged from 39 cents up to 93 cents with a tendency for the smaller auctions to have higher average labor costs. The relatively high proportion of total expenses which labor constituted at auction B may be explained in two ways. First, this 37 percentage may have been high because other costs were quite low and they constituted a small percentage of the total. However, one might also be led to believe that the labor costs were high simply because an inefficient use was being made of labor. In attempting to determine the reason for this high labor cost comparisons of actual labor costs for the different auctions may be made, keeping in mind the number of livestock handled and the relative proportion of each. Keeping -these things in mind it appears that office labor expense was definitely high for auction B in comparison with other auctions except F and H. This auction (B) handled almost exactly the same number of calves but far fewer cattle, hogs, and sheep in 1957 than auction A, but its office labor expense was somewhat greater than that of A*s. In sharp contrast with auction B was auction D which handled approximately the same number of livestock, although D did handle relatively fewer cattle and more hogs which would tend to decrease its labor costs. Office expense at I) was only about 35 percent as great as that of B. In visiting these auctions it was immediately apparent that office labor expense would be relatively high at auction B because ten people worked in that office as compared with six at auction D and only four in auction C. However, the number of workers employed, in itself, does not indicate that labor costs will be high or low. sider the wage rate and the number of hours worked. One must also con­ Office employee wage rates at B and E were almost identical but employees at B worked a greater number of hours which would make the discrepancy in office labor expense even greater. Auction G employed what was perhaps the most efficient method of utilizing its office help. Four workers ran 38 the ofrice, and each worker had a definite task assigned to him. The employees in this office worked about the same length of time as those in auction D and there were two fewer employees, but the office labor expense was nevertheless greater because of the wages paid. Auction C utilized office personnel who also had full-time duties during the week with that auction or with another auction owned by the same corporation. These employees were trained and highly specialized and their wage rate was much higher than that usually paid office personnel at other auctions* It should be pointed out, however, that it would not be necessary in order to operate the auction office with only four employees to pay wages as high as those paid at C* Since the office workers at C were employed full-time, using them to work in the office on sale day was a method of eliminating additional expenses. The type of work done in the office is such that most people would be quite capable of doing it. Yard labor expense showed somewhat more uniformity than did office labor expense, tending to be fairly close to 30 percent of the total expenses with the exception of auction G. This auction showed relatively high yard labor costs in relation to total costs both because the actual labor costs were somewhat high and some of the other cost components were relatively low and thus constituted a small percentage of the total cost. Auctioneer expenses were not directly comparable inasmuch as the expenses shown were only those actually incurred by the auction. Auctions A* B > C, and E were owned by people who did some of the auctioneering and who did not pay themselves for this service. If those people did none of the auctioneering and if they paid someone else to 39 do this, this expense would be approximately doubled at auctions C, D, and E and would be increased about one-third at auction A. Even so, however, it appears that auctioneer expense did not rise as rapidly, percentagewise, as did the volume of livestock handled. The same comment holds true for the management cost component where three of the owners did not hire a manager and did not pay themselves for this task. The other five auctions were either corporations which hired a full-time manager or private enterprises in which the owner hired a manager and devoted part of his own time to other activ5.ties. Table shows the number of workers at each of the eight auctions. Table iu.2. Auction A B G D E F G H Number of Workers, By Type, Employed at Each of Eight Michigan Livestock Auctions, Office 6 10 h 6 7 6 h 3 Type of Worker Manager lard 21 19 15 16 16 15 9 8 1 1 1 1 0 1 0 0 Auctioneer 3 2 2 2 2 1 1 2 Total 31 32 22 25 25 23 hU 13 The number of office workers ranged from three at one of the small­ est auctions to ten at one of the larger ones, whereas the number of yard workers ranged from eight to twenty-one with a tendency for the number of workers used to increase with numbers of livestock handled. Transportation. Transportation costs varied from zero up to about ^UjOOO and constituted from zero percent to nine percent of the total bo costs. This latter figure was quite high because this auction was one of several owned by the corporation and several of the employees at this auction, including the business manager, lived at a location consider­ ably distant from the auction itself. This resulted in a high trans­ portation charge assessed to this auction. Auctions B and F were corporations and did no trucking for consignors nor did they use auto­ mobiles to drive around in an effort to persuade additional livestock producers to sell at their auction. in this activity. Auction G, likewise, did not engage H had relatively high transportation expenses which could be largely explained through the fact that this was a small auction which had not been operating long, and the owner was making a concen­ trated effort to increase the number of livestock received at his auction. In order to do this, he did considerable traveling around the countryside calling on livestock producers, and he also provided truck­ ing services sometimes at little or no cost to the producer. Maintenance and Repair. Maintenance and repair costs constituted from 1*5 percent to 11.2 percent of the total costs. The amount of maintenance and repair cost may be expected to vary for at least three reasons. First, other things being equal, large buildings will require more maintenance and repair than small buildings. Secondly, new build­ ings will require less maintenance and repair than old buildings, and, f inally, the owner may postpone doing certain kinds of repairs. When he does make these repairs they will be costly but as long as some of them are postponed this cost component may be abnormally low during a given year. Auctions F and E showed heavy maintenance and repair expenses because considerable repairing was done at these two auctions Ui iu 1957 • Normally one would not expect these two auctions to have this heavy repair expense. Actual iepair and maintenance expense at auctions G and H was quite low (although on a percentage basis no lower than several others) because these two were small auctions, and the facili­ ties at H were almost new. Utilities. With two exceptions the actual cost of utilities was quite similar between auctions. One would have expected auction A to have had somewhat higher actual utility expenses because the facilities were relatively large, and this required additional electricity for lighting. The sales arena, however, was no larger than many others and heating should have been higher only insofar as the sale lasted longer. Telephone expenses at this auction were quite heavy, however, and this accounted for much of the added expense. Auction G had very low utility expense, both in terms of actual cost and- percent. This was a very small building and one would have expected heat, water and electricity costs to have been low. Auction H had somewhat higher utility expenses than one would' have expected. This building was larger than that of auction G and one would have expected heating, light and other utilities to have been somewhat higher but not as much as shown in Table U.l. The most likely explanation is that the owner permitted some buyers and sellers to make long distance calls on his telephone at little or. no cost to them. Supplies, Supplies constituted from 3*7 to 1 0 .7 percent of the total costs. This variation was not completely unexpected. Some auctions used hip tags on the animals; some used ear tagsj some marked the hogs and some did not. Another reason for the variation was that i|2 different types of buyer sheets and consignor sheets were used, and these varied considerably in cost. Some auctions used write-up sheets which needed no carbon paper but which were relatively expensive. Others used buyer sheets and consignor sheets which had no carbon paper but which required that the employees had to insert carbon paper into. This required more labor but would help decrease supply costs. With one exception, however, a rather distinct pattern could be detected in which the larger auctions had greater absolute supply expenses than the small ones. There was not a great deal of variation percentagewise at these auctions other than the exception mentioned earlier. This exception was auction H and one of the main reasons for the high amount here was that this auction used two hip tags on each animal and this almost doubled this item of expense, Advertising. Advertising costs accounted for a fairly uniform percent of the total except for one unusually low and one unusually high figure. Auction B did practically no advertising through any media whereas auction H had heavy advertising expenses. As mentioned previously, auction H was a recently formed, small auction whose owner was attempting to increase his volume of business. One method used in this attempt was through advertising and the owner in this case apparently was con­ vinced that it was well worth the cost. One can only assume that the owners of auction B felt that it would not pay them to advertise heavily. Tills was somewhat surprising in view of the fact that there were two other livestock auctions approximately 10 miles away. Losses, One rather important item of expense for two auctions was that of losses. These may occur in the form of buyer adjustments, h3 seller adjustments, or bad debts. The latter was the one which most operators were chiefly concerned with. It was difficult to make reliable comparison of losses suffered by auctions on the basis of one i year® s observations. Most of the operators indicated that they might go two or three years without suffering a major bad debt loss. This being the case, it was quite possible that some of the auctions showing little loss through bad debts during 1957 might have suffered them in 1956 or 1958* it should be emphasized that if the relatively large losses suffered by auctions A and D had not occurred, the relative importance of the remaining cost components, would have been Increased considerably. In the case of auction D, one bad check of about $7*500 resulted in a very high loss cost component. If this auction had not suffered this loss labor would have constituted about 63 percent of the total cost instead of $2 percent and the total cost per. animal handled would have been about 15 cents per head less and lower than that of any other auction. Auction A also suffered rather heavily through losses. Both this auction and auction D were fairly large auctions but one cannot justifiably conclude that large auctions suffer far greater losses through bad debts because auction B, which was also a rather large auction suffered almost no losses during the year. did not appear to be one of size. The problem It is true, however, that large auctions have buyers who buy in larger quantities than those at small auctions, and if one of these buyers does.write a "bad*® check, it is more likely to be a large one. Insurance. Bond and -Taxes. Insurance showed no definite pattern, ranging in percent from 1.5 to 5*9 percent of all costs. Auction F had hh higher insurance costs than any other auction except one although this was not one of the larger auctions-. Ruction A had actual insurance costs only slightly higher than auctions G and H which were imich smaller in size. The insurance costs were determined in large part by the auction owners and the extent which they wanted to transfer the risks to someone else. Some owpaers may want to insure the building for its estimated replacement cost while others insure for only its depreciated value or some fraction of it. livestock and others may not insure at all. of insurance. Some may insure heavily on Similarly with other types The bonding fee, being based upon the previous yearns average weekly gross dollar sales, was somewhat higher for large auctions than small ones, Taxes, including social security, varied for several reasons. Social Security varied, of course, with the number of employees and their wages. Property tax varied considerably from school district to school district, and the business activities tax, which auction owners pay was based upon the revenue received by the auction, auctions with large revenues paying higher taxes. The tax rate, however, was not progressive, Other. The "other" category varied considerably between auctions for several reasons. All expenses which were not generally a part of each auction were put into this category. Included here were directors5 fees, legal expenses, bank charges, donations, snow removal, and Christmas gifts. In some instances, notably auction A, these expenses were relatively high. Auction A had a very high legal fee included in this cost component, and this would not normally be expected. Auction C U5 also had high costs in this category, primarily because, as mentioned previously, this was only one of several auctions owned by this corporation, and the nature of the expenses incurred were somewhat different than those of the other auctions. The smaller auctions with­ out exception had a very low amount shown in this category. Summary of the Costs The operating costs incurred by eight Michigan auctions have been presented in this chapter. Costs were separated into ten component parts and the relative importance of each was shown. Average cost per head of livestock varied from 66 cents at auction E to $1.37 at auction G. There was a tendency for average total costs to decline as the number of livestock handled increased, but exceptions were noted. The two smallest auctions showed highest average costs and the largest auction showed second-lowest average costs. Labor was the most important cost component and constituted about £9 percent of the total costs. Considerable variation was observed, however, in the relative importance of this expense item which ranged from 14.8 percent of the total at auction C to 76 percent at auction B. Most of the remaining cost components'”constituted no more than five percent of the total costs at any auction. An important exception to this was that of losses which constituted over 20 percent of the total costs at auction D. It should be re-emphasized that the costs presented herein show no depreciation, no interest, and in some cases no wages paid for management or auctioneering services. If these were shown the average costs would, U6 of course, be higher, and other cost components would constitute a relatively smaller proportion of the total. Although there was a tendency for the auctions handling relatively large numbers of livestock to achieve lower average total costs than those handling relatively small numbers, extreme caution must be observed in arriving at conclusions of this nature for at least two reasons, First, the proportion that each livestock species constituted of the total number of livestock handled varied between auctions, and this may influence costs considerably. Secondly, exceptions were noted to the tendency toward lower average costs with increasing volume and \ this indicates that factors other than volume of livestock handled may be very important in determining costs of operation. possible factors was the method of handling livestock. One of the The time study results which are presented in Chapter VI provide insight as to the relative efficiency of different methods of handling livestock. CHAPTER V STAGES OF A LIVESTOCK AUCTION OPERATION Intr odu ction Operations conducted within an auction consists of several types of activities which are sufficiently different from each other that they lend themselves to being separated into distinct phases or "stages." 1 According to French a stage consists of all productive services— durable or nondurable— that cooperate in performing a single operation or a group of minor but closely related operations. For purposes of this study it was deemed desirable to separate livestock auction activities into stages in order to obtain a more detailed comparison of the auction operations. If one does not classify the operations into stages he may observe that one auction is handling a given amount of livestock with less labor than another, but it may be difficult for him to determine why this is so. By classifying according to stage, one can compare auctions as to the amount of labor necessaiy to handle a given number of livestock at each stage of opera­ tion, and if there is a ”bottleneck" in the auction operations this classification of stages facilitates locating it. In this study, auction operations were divided into six stages. These were: 1B. C. French, ojd. cit., p. 5>U5> • U7 U8 1. Unloading 2 , Bringing—up to be weighed 3. Weighing 1|.. Selling 5>t Bringing-back to buyers1 pens 6 . Loading out Figure 5*1 illustrates the flow of livestock through the auction. The livestock is-unloaded at "A” or "B" and put into holding pens where they are held until the sale begins. They are then taken from the pens and driven to the scales at point nCn where they are weighed. After they are wieghed they are driven into the sales ring "Dn and sold. They are then driven into the buyers pens where they are held until they are loaded out, A H auctions included in this study had many common features. All had an area for unloading large trucks and all had a trailer dock where cars, trailers, and pickup trucks were unloaded. In addition, pens for holding the livestock, alleys for driving the livestock to and from the sales ring, scales, sales arena, office, and restaurant were a part of all auctions studied, Although similarities were noted among auctions, differences in methods of handling livestock at each stage were also observed. A des­ cription of the operations carried on at each stage and differences in methods of handling livestock at each provides insights into auction operations and some of the problems which may arise in estimating their costs. Figure 5.1. Flow of Livestock Through a Livestock /uction LOAD 19 OUT buye:r pe :n s oo z UJ — HOLDIN _1 , Although it was deemed desirable to have lot size adjusted so as to be comparable between auctions, it was not always, possible to do this. In some instances during the period of observations when the time studies were conducted, the observed lot sizes were so small as to make impossible the raising of them up to approximately the same as for other auctions. Such was the case at auction G for hogs. If all observations except those which showed lot sizes of four or five were eliminated, there would be so few observations remaining at this auction that the results would not be conclusive, Although for purposes of comparing, technologies it was considered desirable to have fairly even lot sizes between auctions, It should be noted that lot sizes at different auctions did vary somewhat, A good indication as to average lot size received at the various auctions was obtained by going through a sample of the consignor sheets for the calendar year 1 9^ 7 and recording the number and species of livestock for several hundred consignments.. On the basis of this a regression analysis was run to determine the relationship between numbers of livestock ^Students ,lT,T test. 71 handled by an auction and the average lot size. It was observed that lot size tended to increase as the number of livestock received by an auction increased, and the slope of this regression line was signifi­ cantly different from zero with a « and sheep. calves* ,o£ in the case of cattle, hogs The slope was not significantly different from zero for Table 6.1 shows lot size, by species, for each auction. Table 6.1. Lot Size, by Species, for Eight Michigan Livestock Auctions. Species Auction Hogs Calves Cattle Sheep (Number of Head) A B C B E F G H 6.63 U.77 £.06 U.8U £.62 6.11 3 *£6 £ .0 3 1*1+7 1.39 l.U£ 1.62 1.1+7 i.£l+ 1-17 1.1+0 2.££ 2.39 2.09 1.81+ 1.96 1.83 1.81 1.65 13.1+2 1+.96 10.57 9-H+ 8-5 1+.1+ 7-5 1+.17 It is quite likely that one of the economies of scale for large auctions may be in handling livestock in larger lot sizes than small auctions. This is true primarily in the case of hogs and sheep which are handled in groups at all stages whereas calves and cattle, except for loading and ynloading, are handled individually regardless of the sizes of consignment except for auction A where some cattle of the higher grades were sold in groups. The results of the time studies are given for each species of live­ stock . 72 Hogs Total Labor Requirements A comparison of time requirements for handling hogs at the eightauctions included in this study is shown In Table 6.2. Total man-minutes required per hog ranged from 3 *k at auction F to / 7.0 at auction G, Although some auctions required relatively low total man—minute requirements none showed lowest labor requirements at all stages. Auction A which showed relatively low total man-minute require­ ments for handling hogs ranked no better than fifth among auctions in bringing hogs up to be weighed. One of the reasons for this was that an auction- may handle the animals in .a manner that resulted in low labor requirements at one stage but required a relatively high amount of labor at the next. Unloading, All times were considered productive at the unloading stage eVen though this was not correct because of a delay time between unloadings. This delay time may be several hours in the early morning or only a few second's a short time prior to the actual selling. Since the delay times may be so large they were not computed at this stage, Man-minute requirements per head in unloading hogs ranged from 1,2U up to 3.99* The low figure, achieved by auction C was due to two main reasons. First, relatively few people were used in unloading the hogs and secondly, the hog pens were located immediately adjacent to the trailer dock where most of the hogs were unloaded, This pen arrangement was also observed at auction A whiGh also showed relatively low time requirements at this stage. Auction H had the hog pens located a 73 Table 6.2, Auc­ tion A B C B E F G H Time Requirements in Minutes to Handle Hogs at Eight Michigan Auctions. Item Unload- Weigh­ Sell­ Bring­ _ inR ing ing ing Up Bringing Back Total U-UU .16 -05 .11 1 .0 0 .1 6 U-35 -19 .09 .10 U .10 -79 6 .7 5 .21 .07 .lU U .00 .83 6 .0 .19 .10 .09 2 .8 0 .60 3-89 Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head 5 -2 1 -59 .59 — 2,5 7 i.5 i U-92 -52 .52 — 3-92 2 .0 3 U -60 .19 -05 .lU 2 .0 0 -39 U-95 .16 .08 .08 U .00 . 6 I4 U.2? .18 •lU .OU 3 .8 0 .63 6 .6 7 .1 6 .10 .06 2 .0 0 .20 U .16 Average number of head Minutes per head Prcd* time Belay time Number of men used Mian-minutes per head U-58 .69 .69 — 1 -3 1.2U 2 .9 0 -2U .08 .16 1 .0 0 -2U 2.57 .30 -19 U-85 .30 .11 .1 1 U .00 1 .1 8 .19 5 .0 0 1 .5 0 5 .0 0 .22 .11 .11 3 .0 0 -65 U.82 Average number of head Minutes per head Prod. time Belay time Number of men used Man-minutes per head U.27 .75 .75 — U .82 3 -5 5 U-37 .20 .oU .1 6 2 ,0 0 .Uo 5 .0 0 • 2U -09 -15 5 .0 0 1 .1 8 .03 3 .0 0 .67 6 .36 • lU .lU — 2,0 0 .28 6 .0 8 Average number of head Minutes per head Prod. time Belay time Number of men used Man-minutes per head 5 -2 5 -52 -52 — U .00 2 ,0 8 U .50 .20 .08 .12 2 ,0 0 .Uo U-50 • 2U .08 .16 5-00 1 .1 9 5 .0 0 -2U ,10 .lU U .00 .95 5 .8 6 .2U .15 .09 2.U3 .58- 5.2 0 Average number of head Minutes per head Prod, time Belay time Number of men used Man-minutes per head U .89 •b$ .h$ 3-7 7 1 .7 0 5 .1 0 .2 1 .0 6 -15 2 .0 0 .113 U-76 .16 .07 .08 U .00 .62 U . 76 .16 .10 . 06 3 .00 •hi 6 ,6 7 .16 .10 . 06 2 .0 0 .20 3-U2 Average number of head Minutes per head Prod. time Belay time Number of men used Man-minutes per head 3 .7 5 -58 -58 — 3 .5 0 2 .1 8 2 .80 •hi .2 1 2 .8 3 . 60 -2U .36 3 .8 3 2 .3 1 3 .0 0 -52 .20 .32 2 .00 1 .0 3 2-57 .51 .17 .3U 2.0 0 1 .0 3 7.03 Average number of head Minutes per head Prod, time Belay time Number of men used Man-minutes per head U.UO 1.1 3 1.1 3 — 3-U0 3- 99 U .67 .3U .11 .23 U .83 1 .6 2 5- 70 .33 .17 — 1 .5 0 .27 5 -8 1 -33 .08 Average number of head Minutes per head Prod. time Belay time Number of men used Man-minutes per head .2 7 1 .0 0 • U? U .6 7 .33 .18 .15 2 .5 0 .7 6 5.UU .22 .1 9 —— 1 .5 0 .11 6 .7 5 7k considerable distance from the unloading area, and this was the main reason for its relatively high labor requirements at this stage. The time requirements in man-minutes per head were relatively high at auction D because the holding pens were not located adjacent to the un­ loading area and the number of men employed at this stage was relatively high. Bringing U p , Man-minute requirements per head to bring hogs up varied from 0,27 at auction H up to 1,50 at auction C. The low figure was achieved primarily at the expense of a high figure for unloading at this auction. It was mentioned earlier that unloading time for hogs was slow at auction H because the hogs were moved back a considerable distance from the unloading area. By so doing, however, the hogs were placed rather close to the sales arena and few workers were needed to perform the bringing-up operation. Actually only three workers were used to bring up and bring back at this auction with an average of 1 . 5 workers at each stage, auction H. There was no delay time in bringing up hogs at The relatively high time requirements at auction C resulted primarily from five workers being used even though selling speed was rather slow. One can see from the table that considerable delay time occurred at that auction at that stage. were being used than need be. This indicates that more workers There was also some hog sorting done at that auction, and this tended to increase the time requirements. Weighing. In weighing hogs, only one weighmaster was used but most auctions showed two people involved in the hog weighing operations. This was because those auctions handled hogs by having a worker get them out of a pen and drive them to the scales, through the ring, and IS back "to the original pens • While the weighmaster was weighing the hogs* the driver was waiting outside the scales* and his tine was allocated to the weighing operation. Auctions A, C* and G handled their hogs differently and as soon as a driver drove the hogs on the scales* he returned to the holding pens to get more hogs* thus only one nan was involved in the weighing operations for hogs at these three auctions. This being the- case* tine requirements for weighing should have been lower at these three auctions than the others. This was true for auctions A and C which had nan—ninute requirenents of 0.16 and O. 2I4 * respectively* but less so for G primarily because lot size was snail at G. Except for the already mentioned difference* weighing tines were largely- a function of the weighmaster and/or the auctioneer and his rate of selling. If the weighmaster was slow the auctioneer would have to wait on him and vice versa. Certainly the weighmaster could not weigh animals faster than they were being sold. A good indication as to the speed of the weighmaster may be obtained by comparing his productive time with the delay tine. If delay time was high* it meant the weigher was waiting on the auctioneer or workers bringing up the livestock. If the delay time was relatively a low proportion of the total* it meant that the weighman was not waiting long for the yardmen or auctioneer. Normally it was observed that the weigher could keep up with the auctioneer* although this was not true at auction K which showed manminute requirements of O . 7 6 which was higher than at any other auction. The weighmaster at that auction took considerable time to compute the average weight of hogs. 76 Selling. Selling time depended largely on the auctioneer, delay in weighing, delays Ixl bringing up the livestock, and lot size. Man- minutes per head was determined by selling time plus number of people involved in the selling operation. These labor requirements ranged from 0,62 man-minutes per lead at auction F to 2.31 at G. The relatively low figure achieved at F was due primarily to the fact that the actual selling speed was relatively fast. The number of people involved at this stage at F was about the same as at other auctions. Auction G had relatively high labor requirements because of a relatively slow selling speed. Actual selling times in minutes per head were fastest at auctions A, B, and F but, as in the case of weighing, to get a truer picture of this operation one should also look at the productive and delay times. A rather good example to consider here is a comparison between auctions B and E. Man-minute requirements at E were considerably higher than B because the selling time in minutes was slower and because one additional man was used at this stage. was the same at each auction. The actual productive selling time, however, Productive time was considered to be that time elapsed from the initial weight announcement on the animals until the auctioneer cried usold,u This means in this case that the auctioneer was waiting on the weigher or the yard workers. In this case one can see that the actual productive weighing time was almost exactly the same as the productive selling time which means the auctioneer had to wait while the scale gates were opened and closed and the animals were driven from the scales. There appears to be no real reason why five workers should be used in the selling operation Instead of four. The usual explanation as to 77 why five were used was that normally two ringmen plus a clerk and auctioneer were used and when hogs were sold the worker getting a pen of hogs moved through the ring with them bringing up the total number of workers at this stage to five. This could be avoided, however, by assigning one of the ringmen to another task, such as unloading late arrivals, during the hog selling operation. Bringing Back. Bringing back times ranged from 0,11 man-minutes per head at auction H up to 1,03 at auction G. Auction H used only an average of 1 , 5 workers for this operation and penned the hogs back in an area close to the sales arena. Although this reduced the man-minute requirements at the bringing-back stage, it would increase them during the loading out operations- because the hogs had to be driven further to the truck -dock than they would if they were penned back farther from the sales ring. Auction G labor requirements were relatively large at this stage even though only two men were used in the operation because the selling rate was relatively slow and these men were idle much of the time-. In addition, the average lot size at this auction was rela­ tively small during the time studies. Calves Total-Labor Requirements Time requirements for handling calves are shown in Table 6.3Total man-minute requirements per calf ranged from 6 . 0 2 at auction A to 12.82 at auction H, These differences, from a percentage stand­ point, were about the same as were observed for hogs. As was also the 78 Table 6*3- Auc­ tion A B G D E F G H Time Requirements in Minutes to Handle Calves at Eight Michigan Auctions. Item Unload­ Weigh­ Sell­ ing ing: ing Bring­ ing Up Bringing Back Total Average number of head Minutes per head Frod\* time Delay time Number of men used Man-minutes per head 1 .8 3 1 .2 8 1 .2 8 — 1 .5 8 1 .8 9 1 .0 0 .27 •19 .08 1.8 0 .39 1 .0 0 -33 .25 .0? U .0 0 1 .3 1 1 .0 0 .62 .30 .32 2-3 1.U2 1 .0 0 -50 .32 .18 2 .0 0 1 .0 1 6 .0 2 Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head 2 .0 0 1 .3 1 1 .3 1 — U -U i 5 .6 8 . 1 .0 0 .39 .18 .21 1 .0 0 .39 1 .0 0 .37 .28 .09 U .0 0 1 .U8 1 .0 0 • 57 .26 .31 1-2 .71 1 .0 0 .U5 .3 1 .U i 2 -3 .95 9 .2 1 Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head 2 .0 0 1 .6 0 1 .6 0 1 ,0 0 .2 1 .23 1 .0 0 . -UU 1 .0 0 •5U .36 .10 U .0 0 1 .8 2 1 .0 0 -53 .22 .31 1 .0 0 .53 1 .0 0 .52 .35 .17 1 -2 .97 7 .0 8 Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head 2 .1 0 .89 .89 1 .0 0 .UU .15 .29 1 .0 0 .UU 1 .0 0 .35 .3 1 .oU U .00 1 .U0 1 .0 0 .52 .2U .28 2-3 i.U U 1 .0 0 -U1 -2U .17 2 .0 0 .82 8.1U 1 .0 0 .50 .3 0 .2 0 1 .0 0 .50 1 ,0 0 .UU .30 -lU U .0 0 1 .7 7 1 .0 0 .58 ,U i .16 1 .0 0 .58 1 .0 0 .37 ,11 .26 3 .00 1 .1 1 6.9 9 1 .0 0 •U6 .2)4 .2 1 1 .0 0 •U6 1 .0 0 -U7 .23 .2U U.00 1 .9 0 1 .0 0 .67 1 ,0 0 .55 .12 .U3 U .00 2,22 8 .5 0 1 .0 0 .98 .50 -U9 1 .0 0 .98 1 .0 0 .80 .U2 .38 U-6U 3 .7 1 1 .0 0 .79 .31 -U7 5.U0 U.2U 1 .0 0 .59 .09 -U9 1-2 1.0 9 1 ,0 0 1 .0 1 -U3 .59 2-U 2 .UU Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head Average number of head Minutes per head Prod. time Delay time Number of men-used ' Man—minutes per head — U*36 3 -3 6 — U .5o U .oU 2 .0 0 -7U •7k — U .o8 3.oU 1 .0 7 .79 -79 — 3 .2 5 2 .5 8 Average number of head 1 .7 2 Minutes per head 1 .1 9 -1 .1 9 Prod. time — Delay time Number of men used 3 .1 1 Man-minutes per head 3 .6 9 Average number of head 1 .8 6 Minutes per head 1 .5 7 1 .5 7 Prod. time — Delay time 3 .5 7 Number of men used U.70 Man-minutes per head .UU 1 .0 0 • 71 .50 .21 1 .0 0 .71 -37 .29 2.00 1.3U Combined with selling 9.U7 1 ,0 0 .73 .21 -53 1 .0 0 .73 12 ,82 79 case with hogs, no auction had lowest or highest labor requirements at all stages of handling calves, Unloading,. The most important differences observed in methods of unloading calves were in the holding pen arrangement and number of workers used, Man—minute requirements ranged from 1,89 auction A to 5.68 at auction B. At auction A most of the calves were unloaded at the trailer dock where only one or two employees were working. Despite the fact that only one to two employees were working at this location, they were nevertheless able to handle the calves quickly and without undue delay. Auction B used four to five men to unload calves, and this resulted in a rather high labor requirement. If the use of addi­ tional employees resulted in handling the calves quicker, the resulting man-minute requirements might be no greater than where fewer workers work for a longer period of time. It appears, though, that using additional workers at auction B to unload calves did not result in appreciably lower actual minutes required to accomplish the task. In fact only .two other auctions required more minutes per head than did auction B. The actual number of minutes required to unload the calves was relatively high at auction H because the holding pen was not located directly adjacent to the unloading area, The man-minutes per head were also relatively high at that auction. Bringing U p . The time required per head to bring up calves ranged from 0,^3 man-minutes at auction C to 2.UU man-minutes at auction H. The minutes required per head to bring up were somewhat greater than the minutes required- in selling because part of the bringing up stage was done before the calves were sold, This part of the stage involved bringing up 80 the calves from the holding area which was usually immediately adjacent to the unloading area to a pen directly outside the entrance to the scales. The times reported in Table 6 . 3 include both the time required to bring Galves from the holding pens to the scales and the time required to put the calves on the scales. Auction G eliminated the first part of the stage by bringing the calves directly to a pen adjacent to the scales as they were unloaded. Although this tended to result in higher labor costs for the unloading stage, it did reduce the labor cost at the bringing-up stage. Although the actual number of minutes required per head in bringing Up was approximately 0.60 at seven of the auctions, the number of manminutes required varied considerably because of differences in the number of personnel employed to perform this activity. Some of the auctions used only one man at this stage for calves but others used as many as three. It did not appear that any method of bringing up calves should require more than two workers except possibly trhen driving from the holding area near the unloading area to 'the pens adjacent to the scales, Auction H showed rather high labor requirements in bringing up calves primarily because a relatively large number of workers was utilized at this stage despite a relatively slow selling speed. Auctions D and A showed somewhat higher man-minutes used at the bringing-up stage than one would expect. This was due to the fact that one additional worker was used at this stage because the scales did not open directly into the sales ring. Because of this a worker was needed to remove the calves from the scales and then drive them a few feet into the sales ring. 81 At- the other auctions the need for this man was eliminated because with the scales opening directly into the sales ring, one of the ringmen could perform this duty, Weighing, Weighing times for calves did not vary greatly except for the two smaller auctions. The weighing times at auctions G and H were relatively high because calves can be weighed at a speed no faster than the selling speed, which was relatively slow at these auctions. Upon closer inspection, however, one can see the actual productive weigh­ ing time was also greater at these two auctions, This may, have been because the weighmasters were slower at these two auctions, or it may be that inasmuch as they had plenty of time because of the slow selling speed they could take their time about the actual weighing operation. Only one auction, A, used more than one person during the calfweighing operation. The second person, who was not always present at this stage, sat in one corner of the weighmaster® s booth and shouted the hip tag number of the calf as it entered the scales. then recorded this number. The weighmaster The scales at the auction were of such design that it was somewhat difficult for the weighmaster to see the tag number from his seating position behind the scale beam. SelH-ing. Selling time for calves ranged from 1.31 man-minutes at auction A to I1 .2 I4 man-minutes at auction H. Except for the two small auctions, these times averaged between about 1 . 3 man-minutes per head and 1*9 man-minutes per head. The owners of auctions G and H indicated that because of their relatively small size and relatively few buyers they liked to give the calves considerable time in the ring while they were being sold. It was their opinion that the consignors preferred it 82 that way. It should be noted however that there was considerable delay time in selling the calves at auctions G and H. One of the reasons for this was that the workers taking calves from the scales and removing them from the ring after they were sold worked in a rather leisurely manner. At all auctions except G and H four workers were involved in the selling operation whereas at G and H usually five and sometimes six people were, involved. It is rather easy to see why, then, that man- minute requirements were greater at those two auctions. The greater number of workers combined with a slower selling speed must result in greater man-minutes per head. Bringing Back. Bringing-back times', in terms of man-minutes, show little variation except for auction G which showed no time expended for this stage and auction F which showed relatively large time requirements . Auction G was a rather small auction, and the calves were put into pens located immediately at the rear of the sales arena. The two ringmen at this auction performed the pen-back operation as part of the selling operation, and all of their time was allocated to the selling stage. Only two or three major calf buyers were present at this auction and only two or three pens were needed for the calves as they were sold. The doors to these pens were located inside the sales ring near the auctioneer* s booth and the calves were handled quickly in this manner. At auction F, the calves were moved one of two different directions to pens. Regardless of which way they went, two men were needed at each location thereby requiring four men at this stage. crease the man-minute requirements, This tended to in­ 83 The actual minutes required to pen the calves back was somewhat higher than the selling speed at some auctions* This was because the operation was sometimes divided into two parts. The calves were-first penned back in pens near the sales ring exit and then after the calfselling operation was over, the calves were moved back to holding pens near the loading-out area where they awaited being loaded out. At auctions E and H, however, the pen-back stage was not divided into two parts, and the bringing-back times should correspond rather closely to the selling times. Auction H showed relatively low man-minute require­ ments in penning back calves largely because only one man was used for this task, This man stood in the alley and put the calves as they were sold into separate buyer pens which were located immediately adjacent to the sales arena. Were-it not for the fact that the selling speed on calves was relatively slow at auction H, one man would not have been able to perform this duty. Cattle Total Labor Recruirements The results of the time studies for cattle are shown on Table 6 .HThe total man-minutes per head required to handle cattle ranged from 10,92 at auction C up to 17*07 at auction G, In the eight auctions studied, cattle required more man-minutes per head to handle than the other species of livestock. This was to be expected inasmuch as they were handled individually except for loading and unloading. Although calves were also handled individually, it usually took somewhat less time to handle one calf than one head of cattle. An exception to this Table 6.2+. Auc­ tion A B C D E F G H Time Requirements in Minutes to Handle Cattle at Eight Michigan Auctions. Unlpad- Weigh­ Sell­ Bring­ Bringing ing inging: ing U d Back Total Average number of head 2 .3 7 1 .0 0 1 .0 0 1 .8 7 Minutes per head 2 .0 9 . 1+6 . 1+6 .36 . 1+1 Prod. time .20 2.0 9 .28 .22 -33 — Delay time .2 1 . 11+ .lit .19 Number of men used 2 .6 2 1 .0 0 1+.00 2+.oo 2 -6 Man-minutes per head . 2+1 1 .8 8 5,2+3 1 .8 8 1 .6 6 1 1 .2 7 Average number of head 2 .23 1 .0 0 1 .0 0 1 .0 0 Minutes per head 1 -9 6 .6 6 .62 .62 .62 Prod* time 1 .9 6 .20 .29 .27 •1*7 — Delay time .36 . 2+2 .15 .35 Number of men used 1 .0 0 1+.0 6 i+.oo 3 .0 0 1 -2 Man-minutes per head 1 .8 6 11+.70 .92 8.79 • 65 2.1+7 — Average number of head 2 .6 8 1 .0 0 1 .0 0 1 .0 0 Minutes per head .56 -57 r.9 5 .85 .57 Prod. time . 21+ .2+1 .23 -5U *— Delay time .16 .31+ .33 .3 1 Number of men used 1 .0 0 2+.00 2+.0 6 2.00 3 .2 6 Man-minutes per head 2 .5 0 .56 1.12+ 1 0 .9 2 2 .2 7 1+.U5 — Average number of head 2 .6 0 1 .0 0 1 .0 0 1 .0 0 Minutes per head .7 8 .6 1 . 78 1.71+ .7 1 Prod. time .28 .22 1 . 71+ .5U . 2+1 — Delay time . 22+ .2+3 .51 .19 1 .0 0 l+.oo Number of men used l+.oo 2+.00 l+.l+o 2 .1+2+ Man-minutes per head 3.12+ 2 .9 1 7 .7 5 .7 1 1 6 .9 5 — 1 .0 0 1 .0 0 1 .0 0 Average number of head 2 .0 0 1 .8 8 .68 .80 .80 .6 1 Minutes per head 1 .8 8 .61 Prod. time .29 .11+ .19 — .1+6 .61 Delay time .39 .19 1 .0 0 l+.oo 2+.00 2+.00 3 .7 0 Number of men used 3 .2 0 .68 3 .2 0 2.2+1+ Man-minutes per head 1 6 .2 7 6 .7 5 — 1 .0 0 1 .0 0 1 .0 0 Average number of head 2 .0 0 Minutes per head -71 .59 •75 -57 1 .5 5 .28 .30 . 2+3 Prod. time .29 1 .5 5 — .28 .3 1 •1+3 Delay time .29 l+.oo i+.oo . 1 .0 0 1 -2 Number of men used 2 .8 3 1 .0 8 1 1 .3 2 2 .27 Man-minutes' per head .59 2 .9 9 1+.39 — 1 .0 0 1 .0 0 1 .0 0 Average number of head 2 .0 0 1.1 2 1.12+ 1 .1 5 Minutes per head 2 .0 7 .9 9 .28 .7 1 2 .0 7 -29 Prod. time .2+9 — .7 0 .66 .83 .1+3 Delay time 2 .0 0 l+.oo 2.0 0 1 .0 0 Number of men used 3 .UU 2.21+ 1.12+ 7 .1 6 17 .07 1.91+ 2+-59 Man—minutes per head Item Average number of head Minutes per head Prod. time Delay time Number of men used Man-minutes per head 2 .2 1 .5 7 1 .5 7 — 3 .9 6 .0 9 1 .0 0 .92+ .2+2 -52 1 .0 0 .92+ 1 .0 0 .93 .70 .23 2l.00 3 .73 — .93 .25 .68 1-2 1.3 9 1 2 .3 3 .12+ .12+ None 1-2 .22 1 2 .2 8 85 statement worth mentioning was that of auction H. This auction handled cattle with slightly fewer man—minutes than it used on calves. Although auction H showed-up relatively poorly in its labor requirements for calves, the same thing was not true for cattle. This auction used an entirely different method of bringing up and taking back cattle than any other auction. Unloading. Unloading time in man-minutes ranged from k.39 a-t auction F to 8.79 at auction B. The relatively low times of F were achieved through having the cattle holding pens located very close to the unloading area. This permitted the use of fewer employees at this stage anqj despite the lower number of employees utilized, the actual minutes used to unload the cattle was fairly low in comparison with other auctions. ‘Closely behind auction F in this respect was auction C with k.k5 man-minutes required per head to unload. This last figure was all the more important in view of the fact that auction C used ear tags to mark cattle instead of hip tags.. the animal than do hip tags. Ear tags require more time to attach to In addition to this, auction C had holding pens for cattle located not directly adjacent to the unloading area. Despite these handicaps G showed up well at this stage, and the .primary reason appears to be that the auction had the write-up station located in a small structure separate from the main building. The write-ups were performed quickly and efficiently under this arrangement and this tended to eliminate workers standing around doing nothing while the write-up man was performing his duties , At this auction the yard men 86 were engaged In -unloading activities while the write-up man was doing the write-ups, Auction B. had relatively high—man—minutes requirements in unloading cattle. There were two main reasons for this. First this auction was using from four to six workers for this task which was more than most of the others (and, it appeared, more than were needed) and secondly, it was ear tagging cattle. The tagging chute design was not very good at this auction, and the workers sometimes found it difficult to perform their tasks because of cattle trying to jump out the chutes, Auction D showed rather high labor requirements at this stage despite the fact it hip-tagged the cattle. It was observed that several workers, although associated with this stage, were idle much of the time the cattle were being unloaded. Nonetheless, they were considered as part of this stage and the result was that* the average number of workers at this stage was relatively high even though the number of minutes actually used per head was not as low as it was in the case of some other auctions. Bringing U p . The average number of cattle per lot during the bringing—up stage is not given because this stage consisted of getting several animals from the holding pen, driving them to a pen near the scales, and then putting them onto the scales one at a time. The number of animals during the first phase may be five or ten but only one at the last phase. Labor requirements in bringing cattle up ranged from 1.08 to 2.91 man-minutes per head. The low figure at auction F was achieved because only one to two men were used for this operation even though the selling 87 speed was reasonably fast. The pen arrangement which permitted the use of only one to two men at this selling speed appeared to be somewhat more desirable than the arrangement for handling cattle at all other auctions with the exception of auctions H and G. Closely connected with this was the fact that auction F was not as large in area as some of the others and the cattle were required to move a somewhat shorter distance. The pen layout at auction G appeared to be favorable to an efficient bringing-up process, but this desirable arrangement is useful only if its advantages are utilized, and when the selling speed is relatively slow, this arrangement loses most of its merit. In order to attempt to ascertain whether or not a given auction could bring up the cattle at the same speed but with fewer people, it is desirable to observe the columns showing productive minutes and delay minutes. In so doing it becomes apparent that auctions D, E, G, and H all had a relatively high amount of delay time in relation to productive time, Auctions D and E could probably have brought up cattle at the speed shown in Table 6.U with fewer people. It takes two men to bring up cattle regardless of the arrangement. When only two men are employed to perform the task, and where delay time is still excessive, the only solution is to increase the selling rate or have the workers assist with some other task during their delay time. Auction H employed a method of bringing up cattle distinctly dif­ ferent from any other studied. In this instance a chute about long and 30 inches wide leading into the scales was used. feet Cattle were removed from the holding pens and were driven into this chute, whereupon the gate to the chute was closed. The animals were then driven single 88 file onto the scales, and only one employee was needed to do this. In order to keep animals from backing up as the chute became empty, notches were cut into the chute so as to provide a place in which the worker could insert a 2'1 x If' piece of lumber behind each animal. Under this arrangement one man got cattle from the holding pen and drove them into the chute while the other man was feeding the animals onto the scales individually. The bringing-up times at auction H were very good in comparison with other auctions despite the fact that the selling speed was relatively slow. The delay time in minutes per head in bringing up cattle was relatively high in proportion to the productive time which indicates that two workers could bring up cattle using this method at a much faster selling rate. Auction C. also used only two men for this operation despite the relatively fast selling speed. In fact the actual productive time in minutes per head was slightly lower for auction C than for auction H. It is this author* s opinion, however, that the workers in auction H could have done the same task in considerably fewer productive minutes had they so desired, but Inasmuch as the selling rate was relatively slow there was little need for the workers to extend themselves. W e i g h i n g Cattle were weighed individually except on certain occasions at auction A. Man-minute requirements ranged from O.lfL at auction A to l.lU at auction G. As with other livestock, the weighing operations could not proceed at a pace faster or slower then the selling speed. As was true for calves and hogs auctions H and G had slower weighing times than the other auctions, and, as before, the main reason was that the selling speed at these auctions was relatively slow. 89 It is obvious from Table 6 .I4. that the weighmaster at auctions C and H were capable of wen.ghing cattle faster than the auctioneers were sell­ ing* This is reflected in the columns showing the productive minutes and delay minutes per head for weighing and selling. One could safely conclude from this table that at all auctions the weigher was not slow­ ing down the selling speed of cattle. Selling. Man-minutes used in selling ranged from 1 , 8 8 at auction A to U*59 at G, Four men were used for this stage at all auctions and one must look elsewhere for reasons as to the wide variation in manminute requirements. The main reason for this variation was that the number of minutes used in selling was much greater at auctions G and H than it was for the other a.uctions. This was the result of decisions by these auction owners to give the cattle a lengthy workout in the ring before they were sold. The high minute requirements resulted both from relatively high productive time in selling and high de3.ay time. The latter is the result of the ringmen moving the cattle from the scales and out of the ring rather slowly. Bringing Back. Bringing-back tines ranged from 0.22 man-minutes per head at auction H up to 2 0 at auction C . The low figure for auction H was arrived at at the expense of rapid loading out. As the cattle were sold at H, they were driven into an alley by one of the ringmen, The cattle stayed in this alley until 20 or 2^ were there at which time a worker (the one who is driving cattle into the feed chute prior to selling) drove them all to a large holding pen where they were kept until loaded out. No separate buyers * pens were used. This method was quick but when the animals were loaded, a worker had to go into the 90 pen and sort out each anxmal individually according to tag number. This was a very lime—consuming process. The owner indicated he would build some separate'buyer pens in the future. The bringing-back times were reasonably close between the other auctions except for auction B which showed relatively low labor require­ ments , The explanation of relatively low man-minute requirements at this auction was that the buyers1 pens were located quite close to the sales ring and only one to two men were used to perform the penning back task. Actually the arrangement for penning back cattle at auction B was not greatly different from auctions A, C, E, and F. This indicates that fewer people might have been used for this operation at those auctions. Despite the fact that the average lot size in bringing back cattle was 1,87 for auction A as opposed to 1.0 for other auctions, the labor requirements in terms of man-minutes per head were not especially low. This is due primarily to the fact that this was a large auction in terms of area, and the cattle were driven a considerable distance to the buyer pens where they were held until loaded out, Load-out time should not vary much between auctions except in the case of auction H. Inasmuch as the cattle were not put into separate buyers* pens at that auction, the time requirements per head to load out would be considerably greater than at the other auctions. Variations in time requirements between the other auctions would be due to dif­ ferences in the number of personnel used and in the distance the animals were penned from the loading area. 91 Sheep Observations on sheep were, made at only two auctions. This species of livestock was relatively unimportant at all auctions except A, and. very few sheep were sold at any other auction during the period the time studies were conducted. the same manner. All auctions handled sheep in approximately As they were unloaded they were driven to holding pens which were below the bleachers in the sales arena. The animals were driven out one side of the arena, onto the scales, sold, and driven back to the penjs from which they came. Differences in time requirements at various auctions would not be due to different methods of handling but instead to different lot sizes. Large auctions tend to handle sheep in relatively large lot sizes, and this would result in somewhat lower time requirements for the larger auctions. The labor requirements per head should be approximately the same for sheep as for hogs. Sheep are somewhat more difficult to drive than hogs but they are handled in somewhat larger lot sizes which tends to offset their slower driving habits. Table 6.5 shows the labor require­ ments for sheep at all stages at one auction and three stages at another. 92 Table 6*5. Auction A D Labor Requirements in Minutes to Handle Sheep at Two Michigan Auctions. Item Unload­ Wei gh- Sell­ ing . ing ing Average number of head 1 6 .5 7 ■ 5.U3 • Minutes per head .3U .17 Prod, Time .07 •3U — Delay Time .10 1 .0 0 Number of men used 2 ,2 9 Man-minutes per head .70 1 .6 9 Average number of head Minutes per head Prod. Time Delay Time Number of men used Man-minutes per head 9 .0 0 .23 .09 .1U 6 .0 0 Bring­ ing Up — .23 .0 6 .17 3 .0 0 Bringing Back Total 2 2 .6 7 .23 .oU .19 2.33 -5U' 3 .5 0 1 .3 9 .70 6 .5 8 .28 .08 .19 U.oo 6 ,5 8 6 .5 8 5 .0 0 3 .0 0 1 .1 2 1.3 3 .8 0 Summary of Time Requirements Table' 6 , 6 provides a summary of the time studies conducted at eight Michigan livestock auctions. It can be seen that man-minutes per head were highest for cattle, followed by calves and then hogs and sheep. Rather wide variations may be observed both between species of livestock and between auctions. Differences between auctions in man-minutes used to handle the live­ stock at the various stages were primarily the result of (l) differences in yard layout and methods of handling the livestock, (2 ) differences in the selling speed of the auctioneers, (3 ) differences in the number of employees used at each stage, and (Ja) differences in lot size. It was 93 Table 6 .6 . Labor Requirements to Handle Livestock, by Species, At Sight Auctions. A B C Auction D E F G H (Man-Minutes per Head) Hogs Unloading Weighing Selling Bringing Up Bringing Back Total Calves Unloading Weighing Selling Bringing Up Bringing Back Total Cattle Unloading Weighing Selling Bringing Up Bringing Back Total Sheep Unloading Weighing Selling Bringing Up Bringing Back Total 3 .5 5 .J40 1 .1 8 .67 .28 2 .0 8 .Uo 1 .1 9 -95 -58 1 .7 0 -Ii3 .62 -U7 .20 2.1 8 -U7 2 .3 1 1 .03 1 .0 3 3 .9 9 .7 6 1 .6 2 .27 .1 1 3 -8 8 2.03 1 .2 l| • 2i| .39 . 6 I1 1 .1 8 -63 1 .5 0 .ii8 -65 U-17 U-82 6 .0 8 5 .2 0 3 -1|2 7-03 6 .7 5 1 .8 9 -39 1 .3 1 1-1|3 1 .0 1 5 -6 8 .39 1 .U8 -71 -95 3 -3 6 -UU 1 .B 2 .53 -9U U . 0J4 -uu l.UO l.lili .82 3.0U -50 1 .7 7 .58 1 .1 1 2 .5 8 3 -69 .1-J.6 .98 1 .9 0 3 -7 1 1.3li 1 .0 9 2.2 2 U .70 .71 1|.29 2.UU .73 6 .0 3 9 -2 1 7 .O8 8.1U 7 .0 0 8 .5 0 9-U7 1 2 .8 2 5-U3 -Ul 1 .8 8 1.881 .6 6 8.79 .66 2 .U8 1 .8 6 .92 k.h5 .57 2 .2 7 1 . 1 I1 2 .5 0 7-75 -71 3 .H i 2 .91 2.U1| 6 .7 5 .68 3 -20 3 -20 2 -UU U -39 -59 2-99 1 .0 8 2 .27 7 .1 6 1 .1U 1|-59 2.2H 1 .9U 1 .5 0 .16 -79 -83 .60 6 .0 9 *9h 3 .7 3 1 .3 9 .22 1 1 .2 7 111.70 1 0 .9 3 1 6 .9 5 1 6 .2 7 11 .32 1 7 .0 7 12 .28 -70 -17 1 .3 9 .70 -51i 3-5 0 "Combined with selling stage. pointed out that low labor requirements at one stage may result in high labor requirements at another stage. Inasmuch as this was often the case, when one attempts to determine the optimum method of handling the livestock he must consider this inter-dependency of stages. The differences in labor requirements between species merit some additional comment* Several studies have been conducted, as indicated in Chapter II, in which an "animal unit" was used as a measure of size of an auction. The number of livestock of each species required to constitute an animal unit differed between studies. With one exception no justifications were given as to the criteria for determining what constituted an animal unit. The time study results presented in this chapter provide one with some basis for determining an animal unit. They must be interpreted carefully, however, and it must be realized that the time studies show only labor requirements and thus cannot serve as an indicator of other cost components such as depreciation and supplies, The differences between species of livestock in time requirements varied considerably between auctions. At auction H cattle required about the same amount of labor per head as calves and about twice as much labor as hogs. One might conclude from this, insofar as labor cost are concerned, that a measure of an animal unit should be one head of cattle, one calf or two hogs. At auction A it would more likely be one head of cattle, two calves, or three hogs. Auction H's relative efficiency in handling cattle, in comparison with auction A, was much greater than it was for hogs. In attempting to reduce average labor costs per head at auction H one would likely obtain more tangible result 95 by observing "the handling of hogs at that auction than he would byobserving the method employed to handle cattle. If the intent of the auction operators is to base their selling charges* to the livestock producer, upon costs incurred by them in handling the livestock they' should be able to use these time study re­ sults to assist them in deciding upon the selling rates to charge. No claim is made that the figures presented in Table 6,6 represent a perfect picture of the labor requirements for a given auction during a given year. The lot sizes may have been larger or smaller when the time study was conducted than they are-during most of the year. Information gained from 195? consignor sheets indicates, however, that the lot sizes shown in Table 6.1 are not greatly different from the average for the year. In some instances it would appear that more laborers were being utilized at a given stage than were needed. In defense of this, however, it should be noted that there is a minimum number of personnel required to operate an auction during the peak of its activities. when selling hogs, cattle or sheep. This may be Since a certain number must be available to handle the "peak18 load, these men at other times may be used to assist at a given stage even though their services at this stage could be dispensed with. with three alternatives. In these instances the owner is faced He may elect to hire the men to come in only during the peak of activities, permit the nextra’1 men to loaf during the times when they are not needed, or use these men at stages to assist others even though It is not imperative that they assist during these stages. The first alternative must be rejected on the grounds that the 96 peak load lasts only for a relatively short time, perhaps two hours, and it would be virtually impossible to hire personnel to be available for this short time period. Few, if any, people would be willing to commit themselves to a job lasting only two hours per week. In addition to this the peak labor requirements may occur at different hours from week to week which would make It quite difficult for the workers to know the exact time they should report for work. The second alternative would be rejected by most auction owners in preference for the third. Most of them would not be in favor of having several men around loafing for extended time periods while others were working. The third alternative appears best. On the other hand, it appeared to this observer that even during the peak labor requirement periods that several auctions had "excess” workers. This is the situation which might need additional attention from the auction owners. On the basis of actual observation and the time studies presented herein, it was concluded that a livestock auction facility, designed so as to make possible a relatively efficient handling of livestock would incorporate the following features• (1) Calves and hogs placed in pens immediately adjacent to the unloading area after they are unloaded, (2) A. “feed” chute with which one could introduce cattle onto the scales for weighing would be utilized at all auctions except very small ones handling few cattle. (3) Tagging chutes for cattle constructed so that a worker could work on a platform between two tagging chutes without fear of injury to himself. This platform would be elevated sufficiently to permit the worker to reach the animals quickly and easily. (U) Scales opening directly into the sales ring and having gates that either slide open or roll up so as to eliminate animals getting, behind the gates when they are opened. (5>) Buyer pens available for hogs, calves and cattle. Hogs would be put into separate buyers1 pens instead of being returned to the pens from which they came. (6) Write-up operations performed in a small structure located separate from but close to the main auction building. These rec.ommendations are made with the realization that labor is not the only cost component which should be considered in designing the sales b a m . However, none of the recommendations, except number five, would involve a much greater expense of costs other than labor, and the labor savings would be rather substantial. Recommendation number five would require substantially more outlay in the form of fixed costs, but this recommendation is based upon the indicated preferences of livestock buyers and auction owners. Loading-out operations, for which time- studies were not presented, would be accomplished much quicker when separate buyer pens are present. Under a different cost structure, in which labor is relatively inexpensive and other costs are relatively large, these recommendations might not be appropriate. CHAPTER VII SYNTHESIS OF TWENTY-FOUR LIVESTOCK AUCTIONS Introduction In Ghapter I It was pointed out that the first objective of this study was to determine if differences exist in method's of handling live­ stock at livestock auctions, and if so which methods were most efficient. To achieve this objective time studies were conducted at each auction, included in this study, and the results were presented in Chapter VI. The second and primary objective was to determine the relationship between costs of operation and volume of livestock handled at livestock auctions. In Ghapter III two methods of conducting this type study were discussed, and some of the advantages and disadvantages of each were presented. It was. concluded that the synthetic approach to cost measure­ ment was more appropriate for this investigation. Detailed cost records were obtaine'd from each of the eight auctions included in this study and the results of this were presented in Chapter IV. In this chapter material presented in Chapter IV on costs, and that given in Chapter VI on time studies are combined with additional information in order to estimate, or synthesize, the total costs of operation for 2k livestock auctions in Michigan. These auctions repre­ sent a wide range in size and each is designed to incorporate the most efficient methods of handling livestock that were observed at the eight auctions studied. 98 99 The numbers of livestock handled per year by each auction is pre­ sented and then the component cost items for each is given. The first item of cost estimated was labor and this was divided into four cate­ gories-—yard, office, auctioneer, and management. considered, in order, are: Other cost components depreciation, repair and maintenance, insurance and bond, taxes, interest, transportation, utilities, supplies, advertising and 11other.” Before synthesizing the costs, however, it is considered desirable to comment on the so-called rate-time dimension which has been incor­ porated in certain- synthetic cost studies, French and others pointed out rather clearly in their study of 1 pear packing plants that one of the basic weaknesses of much previous research in marketing was that the researchers had not considered the rate-time dimension problem. For example, at many plants, including pear packing plants, the owner of the plant could increase his plantfs rate of operation and reduce the number of hours worked or he could reduce the rate and increase the amount of time, or he could employ any one- of many combination of rates and times. Depending upon the nature of the plant itself there should be some unique combination of rate and time which would result in lowest costs to handle a given out­ put.. Barring certain institutional factors, such as labor unions, the manager is free to make the decision concerning rate of output and hours 1B. G. French, L. L. Sammett, and R. G. Bressler, '‘Economic Efficiency in Plant Operations with Special Reference to the Marketing of California Pears,” Hilgardia, Vol. 2k, No. 19, duly, 1956. 100 of operation. It is believed by this author that French and others have made a genuine contribution to our economic analysis used in attempting to reduce costs of operation. Livestock auctions, however, are a different type of plant than, say, a pear packing plant or a milk processing plant. There is no doubt that with no institutional restrictions placed upon him, an auction owner could vary the rate-time dimension to where he could operate at lowest cost. However there are some very genuine restric­ tions placed upon the auction owner that are not placed on operators of many other types of plants. These restrictions are twofold. First,, the livestock buyers insist upon a relatively rapid rate of selling. They want to purchase the livestock which they need and then move on. If the auction owner does not consider their preferences he stands a serious chance of losing some of his buyers which he does not often want to do. Secondly, the livestock producers who consign the live­ stock have a strong interest in the rate of selling. In many cases they are in agreement with the buyers in desiring a rapid selling rate— especially at the larger auctions. They feel that a rapid selling rate at relatively large auctions where relatively large numbers of buyers are present tends to keep the buyers* interest and “keep them on their toes." It is the sellers impression that a relatively rapid rate of sale re­ sults in relatively strong buyer interest and a higher price than would be realized if a slower selling rate were used. At the smaller auctions, however, the livestock consignors prefer a relatively slow rate of sell­ ing because relatively few buyers are available and the consignors feel that when buyer competition is somewhat limited a somewhat higher 101 selling price will be realized if the animals are given a longer "workout” in the sales ring. The views held by the consignors may or may not be correct. However, as long as the consignors do hold these views, their preferences cannot be ignored by the auction owner if he wants to retain their business, The auction owner must consider rather carefully both the preferences ■of the buyers and sellers in electing a selling rate. Even though a different selling rate might theoretically result in lower operating costs, if this changed rate resulted in the auction owner losing either or both buyers and sellers his operating costs in the long run might go up sharply because of a reduced volume of business. For this reason, the author assumes that the selling rates shown ,in Chapter VI reflect both the desires of buyers and sellers and that the auction owner would be reluctant to change this rate appreciably. With this in mind the selling rates for each species of livestock at all twenty-four auctions were determined. Numbers of Livestock Handled Yearly By Twenty-Four Auctions Costs of operating auctions of six different basic sizes were computed. In addition to this costs were computed for four variations within each size group. Table 7.1 shows the number of livestock handled by each of the twenty-four auctions. Auction size in terms of numbers of livestock ranges from 10,000 animals per year to 110,000 animals per year. Costs were synthesized for four different "mixes11 of livestock inasmuch as Michigan livestock 102 Table 7*1* Mix Species Livestock Handled Yearly by 25 Different Synthetic Livestock Auctions in Michigan. 1 Auction Size 3 5 2 6 5 (Number of Head) 1 2 ,5 0 0 3 ,0 0 0 5 ,0 0 0 500 5 .0 0 0 6 .0 0 0 8 ,0 0 0 1 ,0 0 0 8.750 1 0 ,5 0 0 1 5 ,0 0 0 1 .7 5 0 i3 ,7 5 o 1 6 ,5 0 0 2 2 ,0 0 0 2,750 2 0 .0 0 0 2 5 .0 0 0 3 2 .0 0 0 U,ooo 27,500 33 ,0 0 0 55,oo o 5 ,5 0 0 1 0 ,0 0 0 20,000 3 5 ,0 0 0 5 5 ,0 0 0 8 0 ,0 0 0 110,000 3 .5 0 0 2 .5 0 0 3 ,0 0 0 1 ,0 0 0 7,000 5 .0 0 0 '6,000 2.000 1 2 ,2 5 0 8 ,7 5 0 1 0 ,5 0 0 3 ,5 0 0 1 9 ,2 5 0 13,750 1 6 ,5 0 0 5 ,5 o o 2 8 .0 0 0 2 0 .0 0 0 2 5 .0 0 0 8 ,0 0 0 3 8 .5 0 0 2 7 .5 0 0 3 3 .0 0 0 1 1 .0 0 0 1 0 ,0 0 0 20,000 3 5 ,0 0 0 5 5 ,0 0 0 8 0 ,0 0 0 110,000 5 .5 0 0 1 . 5 00 2 ,0 0 0 2 ,0 0 0 9,0 00 3,0 0 0 11.000 5.0 00 i5 ,7 5 o 5 ,2 5 0 7 .0 0 0 7 .0 0 0 25,750 8 ,2 5 0 1 1 ,0 0 0 1 1 ,0 0 0 3 6 .0 0 0 1 2 .0 0 0 1 6 .0 0 0 1 6 .0 0 0 5 9 .5 0 0 1 6 .5 0 0 22,000 22,000 Total 1 0 ,0 0 0 20,000 3 5 ,ooo 55,000 8 0 ,0 0 0 1 1 0 ,0 0 0 Hogs Calves Cattle Sheep .6,000 1 ,0 0 0 1 ,5 0 0 1 5 ,0 0 0 12,000 2,000 3 ,0 0 0 3 ,0 0 0 2 1 ,0 0 0 3,5 o o 5 .2 5 0 5 .2 5 0 3 3 ,0 0 0 5 ,5 o o 8 .2 5 0 8 .2 5 0 5 8 ,0 0 0 8,0 00 1 2 ,0 0 0 1 2 ,0 0 0 66,00 0 1 1 ,0 0 0 1 6 .5 0 0 1 6 .5 0 0 Total 1 0 ,0 0 0 20,000 3 5 ,0 0 0 5 5 ,0 0 0 80,000 110,000 Hogs Calves Cattle Sheep Total 2 Hogs Calves ■Cattle Sheep Total 3 5 Hogs Calves Cattle sheep auctions vary considerably in the percent of the total each class of livestock accounts for at a given auction. Table 7*2 shows the per­ cent of the total for each species of livestock for each mix. As can be seen from Table 7*2 in moving from mix 1 through mix 5, hogs consti­ tute an increasing percent of the total and cattle and calves become relatively less important. Hereafter all auctions synthesized will be assigned a code number such as 1-1, 2-5, or 3“6.. These mean, in their 103 Table 7*2. Percent of Total Each Species of Livestock Constitutes in Four Different- Mixes. Mix Hogs 1 '25 35 U5 60. 2 3 h Percent of Total Calves Cattle Sheep Total 5 10 20 15 100 100 100 100 Uo 30 20 15 30 25 15 10 respective order. auctions in mix 1 , size 1 ; mix 2, size size 6 . and mix 3 f The first number indicates the mix, and the second number indicates the size group. Labor Costs Selling Bates The chief basis of estimating labor costs was the time study pre­ sented in Chapter VI. It is assumed that all auctions will operate one day per week, $0 weeks per year. This permits weekly operation except for two weeks per year at which time the sale day may fall on a legal holiday. Most auctions in Michigan hold about £0 sales per year. The first step involved was to determine the speed at which each species of livestock would be sold in each auction. In estimating the selling rates careful consideration was given to the numbers -of livestock involved. For example, in the case of auction 1-1, 2,£00 hogs per year are sold. This is somewhat fewer hogs than were sold in 1957 at any of the auctions studied. terms of number of hogs handled was auction G. auction G was 0.60 minutes per hog. Closest to this, in The selling speed at However, the actual minutes 105 productive "time per head was 0.25 with O .3 6 minutes delay time. Although auction G handled more hogs in 1957 than are intended for synthetic auction 1-1, and, as a rule, the auctions handling larger numbers of a given species sell at a faster speed, it was believed that 0.35 minutes per head was an appropriate figure to use as selling speed for hogs at this auction. This was arrived at by using a selling speed in productive minutes of 0 . 2 5 and a delay time of 0.10 minutes per head. The productive time of 0.25 minutes per head is close to the 0.25 of auction G, and there is no reason that the delay should be greater than 0.10 minutes per head. All other rates of selling were arrived at in the same manner. The total minutes per head, productive minutes per head, delay minutes per head, and size of the auction were all utilized in establishing the selling■speeds. The selling rates arrived at are shown in Table 7*3* After arriving at the selling rate the amount of time required to sell all the livestock at a given sale was then determined * The average total time per sale required to sell each species, the delay time, and the total time required to complete the sale are shown for all twentyfour auctions in Table 7*5* The number of livestock per sale was arrived at by dividing the number per year by the number of sales. Actually, some sales will be larger than others, but one does not know exactly how large each sale will be and can only arrive at an average amount. 105 Table 7 »3 • Selling Speed, by Species of Livestock, for Each of Twenty-Four Livestock Auctions. Auction Code Hogs Species of Livestock Calves Cattle Sheep (Minutes per Head) .80 -50 .60 •ko •30 .5k .k o .27 .32 .25 .2 k •25 1 .0 0 .60 .ko .30 .25 • 2k 1 -1 1 -2 1-3 i-k 1 -5 1 -6 -35 .29 .23 .17 .16 .15 2 -1 2 -2 2-3 2-U 2 -5 2 -6 .32 .25 .19 .16 .15 .ik .55 -k3 Ok .28 .26 .25 .85 .70 .58 •50 .38 .32 .6 0 .37 .25 • 2k .23 .22 3 -1 3 -2 3 -3 3 -k 3” 5 3 -6 .30 .23 .17 .15 .lk .13 .60 •50 .k3 .35 .90 .80 .65 k-l U-2 k -3 k -k U-5 k -6 .2? .19 .18 .lk .13 .12 .29 .57 .5 1 .27 .ko .37 .25 .23 .22 .21 .20 .65 .5? .ko •k3 05 .30 1 .0 0 .85 .7 6 .60 .56 .5 0 .k5 .29 .2 k .23 .22 .21 106 Table 7 *H. Auction Code Average Total Time Per Sale Required to Sell Each Species of Livestock at Twenty-Four Synthetic Livestock Auctions. Hogs Calves Cattle Sheep Delay Time Total (Minutes) 1 -1 1 -2 1-3 1-U 1 -5 1 -6 1 7 .5 29 .0 U0 .2 5 U 6.75 6U .0 8 2 .5 3 0 .0 U8.0 6 3 .0 8 9 .1 1 2 0 .0 1 5 8 .U 6U.0 9 6 .0 1 5 1 .2 1 7 6 .0 20U.8 220.0 1 0 .0 1 2 .0 m .o 1 6 .5 2 0 .0 26.U 2 1 .0 2 5 .0 2 6 .0 2 7 .0 2 8 .0 3 0 .0 1U2.5 2 1 0 .0 29U-U5 3 5 5 .3 5 I4.3 6 .80 517.30 2-1. 2 -2 2-3 2-U 2-5 2 -6 22 ,U 3 5 .0 U 6.55 6 1 .6 8 I4..0 1 0 7 .8 2 7 .5 U3.0 5 9 .5 7 7 .0 10b -0 1 3 7 .5 5 1 .0 8 J4 .O 1 2 1 .8 1 6 5 .0 182 .u 21 1.2 1 2 .0 1U.8 1 7 -5 26. h 3 6 .8 I48 .1+ 21.0 2b .0 2 5 .0 2 6 .0 2 7 .0 28 .0 1 3 3.9 200.8 270.35 3 5 6 .0 0 U3U.20 532.9 0 3 -1 3 -2 3 -3 3-U 3 -5 3 -6 2 7 .0 U i.U 5 3 -5 5 714.25 1 0 0 .8 1 2 8 .7 3 6 .0 6U.0 9 1 .0 125.u 16 3.2 1 7 6 .0 1U.8 2 0 .0 3 2 .2 U8.U 67 .2 8 8 .0 21 .0 23-0 2U.0 2 5 .0 2 6 .0 2 7 .0 116.80 1 7 8 . uo 2)4.5 .9 0 330.80 U26.80 508.80 U -i U-2 U-3 k-k U -5. U-6 32. b U 5.6 6 7 .2 9 2 .U 1 2 U .8 158. b 3 0 .0 5 1 .0 7 9 .8 9 9 .0 13U-U 1 6 5 .0 1 3 .5 17. h 2 5 .2 37*95 5 2 .8 0 69.3 2 1 .0 22 .0 2 3 .0 2b .0 2 5 -0 2 6 .0 10 9.9 15 8.8 228.8 3 0 0.6 5 393.00 U8U.70 1 8 .0 3 0 .0 U5-15 5 7 .7 5 69 .6 8 9 .1 1 3 .0 2 2 .8 3 3 .6 * U7.3 5 6 .0 6 6 .0 107 Yard Labor In determining the number of1 workers required at each stage of operations at all synthetic auctions careful consideration was given the man-minute labor requirements, number of workers, selling spewed, and productive and delay time shown in Chapter VI. However, the time study results presented in Chapter VI, Yaluable as they are, do not in them­ selves tell the exact number of workers that must be employed at each stage. For example, if U*2G man-minutes per head are required to per­ form a given task this does not mean one can employ one man for U.20 minutes, two men for 2.10 minutes, three men for l.l+O minutes or four men for 1.05> minutes. The nature of some tasks are such that it may take a minimum of two men to perform it almost without regard to rate of sale. Two men can perform some tasks in considerably less than one-half the tijne required for one man to do it. Except for this restriction little variance in. man-minutes required was permitted from those shown in Ghapter VI ^unless the table also showed considerable delay time or Unless a different method of handling the livestock was being used. As an example consider auction B in which hogs were brought up at the rate of 0.18 minutes per head. Three to four men were used result­ ing in labor requirements of 0.63 man-minutes per head. only 0.01+ minutes per head. Delay time was In the synthetic auction in which a selling rate, and consequently a bringing-up rate, of 0.17 minutes per head was used it would be unrealistic to assume only two workers would be needed, unless an entirely different, and more efficient method was used. To help further illustrate the procedure used in estimating the number of workers required at a given stage let us consider some examples. 108 Auction H used 1.39 man-minutes pen head lo bring up caitle. to two men were used. Much of the time was delay time. productive time was 0.2^ minutes per head. One The actual Adding 0.20 minutes per head for delay time and assuming that two men were working gives a minute per head time of O.U£ and a man-minute per head time of 0.90. This last figure is considered to be the man—minute requirements. By looking at the rate of sale arrived at in Table 7 .3 of this chapter, the number of workers required for bringing up cattle can quickly be ascertained. At a selling rate of 0.80 minutes per head, 1.12 workers are required, or, since workers are indivisible, two workers. Two workers are also required for selling all rates slower than O.LjJ? minutes per head. If the selling will be required. If the rate is OJ 4.I4. minutes per head, three workers selling speed is faster than 0.30 minutes per head, four workers will be required. It should be noted, however, that the man-minute requirement per head of 0 .9 0 can be used only as a guide. Actually this requirement as the distance which the will animals must increase or decreasesomewhat be driven from theirpen to the feed-chute increases or decreases, i.e., if the pens are relatively far from the feed-chute, the time requirements will be somewhat greater. Using this procedure the number of yard workers was estimated, and the results are shown in Table 7*5>» In addition to the yard labor requirements during the actual sell­ ing operation one must also consider the labor needed to unload live­ stock prior to the sale and the labor requirements of loading livestock after the sale. These requirements are shown in Tables 7 . 6 and 7.7. 109 Table 7 Auction Size » Number’ of Yard Workers Required Classified Accord­ ing to Species of Livestock, Auction Size, Auction Mix, and Stage of Operations, at Twenty-four Synthetic Auctions - Species Rin e—W ork ers Bringing-U p Workers Mix 2 3 2 2 1 1 2 2 2 2 B rim gin gBack Workers Other Workers k. 2 1 2 2 1 2 0 2 2 Mix 2 3 2 2 0 0 2 2 2 2 2 1 2 3 3 1 2 3 2 2 2 2 2 2 2 2 2 0 2 3 3 0 2 3 1 for all mixes and species. 3 1 2 3 3 1 2 3 3 1 2 3 3 3 2 2 3 3 2 3 3 2 2 3 3 2 2 3 None 3 1 3 3 3 1 2 3 3 1 2 3 h l 2 3 3 3 3 3 3 3 2 3 3 3 2 3 3 2 2 3 2 for all mixes. Same as size 1. 3 2 3 3 3 2 3 3 U l 2 k h 1 2 3 3 3 k 3 3 3 3 3 3 3 2 3 k 3 2 3 2 for all mixes. Same as size 1. 3 2 h 3 U 2 3 3 k 2 3 k h 1 2 h 3 3 k 3 3 3 k 3 h 3 3 h h 3 2 3 2 for all mixes. 1 1 2 1 2 2 Hogs Calves Cattle Sheep 2 ring workers for all mixes and all species, 2 Hogs Calves Cattle Sheep Same as size 1 2 .2 1 1 2 2 2 2 3 Hogs Calves Cattle Sheep Same as size 1 3 1 2 2 k Hogs Calves Cattle Sheep Same as size 1 5 Hogs Calves Cattle Sheep 6 Hogs Calves Cattle Sheep 1+ 2 0 2 2 1 for all species and mixes, "Needed to help unload late arrivals when all other workers are busy and to help load out while sale is in'progress. 110 Table 7*6. Worker 1 2 3 U 5 6 7 8 9 10 11 12 13 1 5.01 3.0 2.0 2.0 2.0 2.0 2.0 Hours Worked Before Sale, Per Sale, According to Mix* Auction Size, and Worker. Mix 1 Auction Size 2 3 u 5 5-o3.0 2.0 2.0 2.0 2.0 2.0 6.02 U.o 3.0 3.0 3.0 2.0 2.0 2.0 6.03 5.o U.o U-o 3.0 3-0 3.0 2.0 2.0 2.0 6.03 5-0 U.o U.o 3-0 3.0 3.0 2.0 2.0 2.0 2.0 6 6.03 6.0 U.o U.o 3.0 3.0 3-0 3.0 2.0 2.0 2.0 2.0 2.0 1 5.01 3.0 2.0 2.0 2.0 2.0 2.0 Mix 2 Auction Size 2 3 u 5 5.01 3.0 2.0 2.0 2.0 2.0 2.0 5-01 pj .01 3.0 3.0 2.0 2.0 2.0 2.0 2.0 .2.0 2.0 2.0 2.0 2.0 2.0 6.02 U.o 3-0 3.0 3.0 2.0 2.0 2.0 2.0 6.03 5.0 U.o U.o 3.0 3-0 3-0 2.0 2.0 2.0 6.03 5.o U.o U.o 3.0 3.0 3.0 2.0 2.0 2.0 6.03 5.o U.o U.o 3.0 3.0 3.0 2.0 2.0 2.0 6.03 6.0 U.o U.o 3.0 3.0 3-0 3.0 2.0 2.0 2.0 2.0 6.03 5-0 U.o U.o 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2,0 6.03 6.0 U.o U.o 3.0 3.0 3-0 3-0 2.0 2.0 2.0 2.0 2.0 Mix u Mix 3 1 2 3 U 5 6 7 8 9 10 11 12 13 6.02 U.o 3.0 3 .0 3.0 2.0 2.0 2.0 2.0 6 6.03 5.0 U.o U.o. 3.0 3.0 3.0 2.0 2.0 2.0 2.0 6.03 6.0 U.o U.o 3-0 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 5.01 3.0 2.0 2.0 2.0 2.0 2.0 5.01 3.0 2.0 2.0 2.0 2.0 2.0 2,0 2.0 6.02 U.o 3.0 3.0 3.0 2.0 2.0 2 .0 2.0 6.03 5.o U.o U.o 3.0 3.0 3.0 2,0 2.0 2.0 ^orks eight hours, day after sale, cleaning up and repairing. ^Works two days after sale cleaning up and repairing. ^or k s by week. Ill Table 7*7* Worker l Hours Worked after Sale Ends, Loading Out, Per Sale, According to Mix, Auction Size, and Workers. Mix 1 Auction Size 2 3 h 3• 6 Mix 2 Auction Size 2 3 U 3 1 (Hours) 1 2 2.3 1.3 2.3 2.3 (Hours) (All night 2.3 2.3 3.0 2 .3 3 h 3 2 .3 3 .0 2.3 3.0 ) 3.0 3.0 3.0 3.0 2.23 2.23 (All night 1.23 2.23 2.23 2.23 3.0 2.23 2.23 3.0 2.23 3.0 2.^3 - (Hours) 3 .0 1.0 2.0 2.0 (All night) 2.0 2.0 2.0 2.0 2.0 2.3 2.0 2.3 ) Mix h Mix 3 l 2 3 ■h 3- 6 ) 2.3 2 .3 2 .3 (Hours) 1.83 1.67 (All night .83 1.67 1-83 1.83 2.0 1.83 1-83 2.0 1.83 2.0 2.3 ) ■2.23 2.23 2,23 2.23 Auctioneers. Ring Clerk, and Weighmaster Time studies cannot serve as a basis for determining the number of auctioneers, ring clerks, and weighmasters needed. The number of workers needed for these functions was estimated on the basis of observations of other auctions and these estimates are shown in Table 7-8 on the following page. One ring clerk is sufficient at all auctions. This clerk will need relief for rest periods and to eat at all auctions of size three or larger. This relief is furnished by one of the auctioneers who is idle at that time. One weighmaster is adequate for all auctions except the largest. Auctions falling in the size six group will employ two weighers. 112 Table 7 .8 . Number of Auctioneers, Ring Clerks, and Weighmaster Personnel at Twenty-Four Synthetic Auctions Worker 1 Auctioneer Ring Clerk Weighjjnaster 1 1 1 Mix 1 Auction Size 2 3 h 5 2 2 2 1 1 1 1 1 1 3 1 1 6 1 3 1 1 1 1 1 Mix 2 Auction Size 2 3 5 k 2 2 2 1 1 1 1 1 1 1 1 1 2 1 1 2 1 1 2 1 1 3 1 1 3 1 2 1 1 3 2 Mix k Mix 3 Auctioneer Ring Clerk Weighmaster 6 3 3 1 1 1 2 1 1 1 1 1 1 2 1 1 2 1 1 1 2 Actually only one weigher was observed at each of the eight auctions in­ cluded in the study, but relief was provided the weighinaster at fhe larger ones* The weighmasters in auctions size three, four, and five, will need a rest period and will be relieved by the manager or one of the yard workers * The number of auctioneers required is the same for all mixes except mix four. Since it does not require as long to sell the animals in this mix only one auctioneer is required at auction I4—2 and only two are required at auction Although this is one less auctioneer in each case, the total auctioneer* s wages will not decrease as much because the wage of each of those remaining will have to be increased some. Office Labor The number of office employees varies from three at the smallest auction up to five at the larger ones. of office workers used at each auction. Table 7.9 summarizes the number 113 Table 7 »9» Number of Office Workers Employed at Twenty-Four Synthetic Auctions. Mix 1 2 1 2 3 u 3 3 3 3 k k h h Auction Size 3 k h h k k h h h k 5 6 S £ £ 5 $ $ At auctions of size 1, one office worker will take the scale tickets and compete the gross amount of the sale. One copy of the tickets, which is in duplicate, will be given to worker number two who posts these tickets to the consignor sheets, and the other ticket will be given to worker number three who posts the tickets to the buyer sheets. Worker number two also prepares the checks for the consignors and hands them cut as the consignors ask for them. Worker number three also waits on buyers as they pay for the livestock which they purchased. Procedure in auctions of sizes 2, 3, and U is similar to that of size 1. In this case, however, worker four writes checks to the con­ signors and dispenses them, relieving worker two of this duty. When five workers are used nn the office the procedure is the same as when four are used except that the fifth worker waits on buyers as they pay their bills, thereby relieving worker number three of this task. The office workers must arrive some time before the sale begins in order to prepare for the sale itself. Thin work consists primarily of taking the write-up sheets and classifying them by tag or pen number and species of livestock. It also involves getting supplies such as 11u blank checks ready for processing and arranging the office machines. Table 7 *10 shows "the number of minutes each office worker works before and after the sale. Table 7*10- Auction Size Number of Minutes Per Sale Worked by Office Workers Before Sale and After Sale. 1 Mix 1 Worker 2 3 Minutes . u i 1 Mix 2 Worker 2 3 Minutes u £ 1 Before Sale After Sale 1 2 0 .0 37*£ 6 0 .0 3 7 -£ 6 0 .0 37 *£ 1 2 0 .0 3£*0 6 0 .0 3£*0 6 0 ,0 3£*o 2 Before Sale After Sale 12 0 .0 UO.O 6 0 .0 U o.o 60 .0 6 0 .0 Uo.o U o.o 1 2 0 .0 3 7 .0 6 0 .0 37*0 6 0 .0 6 0 .0 37*0 3 7 .0 3 Before Sale After Sale 1 2 0 .0 U£*o 6 0 .0 U£*o 6 0 .0 6 0 ,0 U£*o U£*o U Before Sale After Sale 1 2 0 .0 1 2 0 .0 5 2 .5 £ 2 -£ 6 0 .0 6 0 .0 £2 .£ £2 .£ 1 2 0 .0 6 0 .0 U1*£ U i*£ 1 2 0 .0 1 2 0 .0 U8.£ U8.£ 6 0 .0 U i* £ 6 0 .0 U 8.£ £ Before Sale After Sale 1 2 0 .0 1 2 0 .0 6 0 .0 6 0 .0 6 0 .0 6 0 .0 6 0 .0 6 0 .0 6 0 .0 6 0 .0 1 2 0 .0 12 0.0 ££ •£ ££-£ 6 0 .0 6 0 .0 6 0 .0 £ £ -£ ££*£ £ £ -£ 6 Before Sale After Sale 1 2 0 .0 1 2 0 .0 1 2 0 .0 6 0 .0 6 0 .0 70 .0 7 0 .0 7 0 .0 7 0 .0 7 0 .0 1 Before Sale After Sale 12 0,0 3 2 .5 Mix 3 6 0 .0 6 0 .0 3 2 .5 3 2 ,£ 2 Before Sale After Sale 1 2 0 .0 3U-0 6 0 .0 3 U .0 3 Before Sale After Sale 1 2 0 .0 3 8 .0 6 0 .0 U i*£ 6 0 .0 U8.£ 1 2 0 .0 1 2 0 .0 1 2 0 .0 6 0 .0 6 0 .0 6£ .0 6£.0 6£ .0 6£ .0 6£ .0 Mix U 12 0.0 3 0 .0 6 0 .0 3 0 .0 6 0 .0 3 0 ,0 6 0 .0 6 0 .0 3U*0 3U-0 120.0 3 1 -0 6 0 .0 3 1 .0 60 .0 6 0 .0 3 1 *0 31 *0 6 0 .0 3 8 .0 6 0 .0 60 .0 3 8 .0 3 8 .0 U Before Sale After Sale 1 2 0 .0 1 2 0 .0 UU-£ UU*£ 6 0 .0 6 0 .0 UU-£ UU-£ 1 2 0 .0 6 0 .0 3U-£ 3U-£ 1 2 0 ,0 1 2 0 .0 Uo.£ Uo.£ 6 0 .0 3U*£ 6 0 ,0 U o.£ £ Before Sale After Sale 1 2 0 .0 1 2 0 .0 £ 1 .0 £ 1 .0 6 0 .0 60 .0 £ 1 . 0 £ 1 .0 £ 1 .0 1 2 0 .0 1 2 0 .0 U 6.£ U 6.£ 6 0 .0 6 0 .0 6 0 .0 U 6.£ U 6.£ U 6.£ 6 Before Sale After Sale 1 2 0 .0 1 2 0 .0 1 2 0 .0 6 0 .0 6 0 .0 6 0 .0 60 .0 60 .0 6 0 .0 6 0 .0 6 0 .0 3U*£ 6 0 .0 U o.£ 1 2 0 .0 1 2 0 .0 1 2 0 ,0 6 0 .0 60 .0 ££-0 £ £ *0 £ £ *0 ££*o £ £ .0 115 Wage Rates Having determined the number of workers and the length of time each works* it is necessary to establish a wage rate in order to obtain total labor costs for each auction# Table 7*11* on the following page, shows the wage rates used in this synthesis# Auctioneer wages ranged from $25-00 each up to $UQ.OO each at the eight auctions included in this study# This was used as a criteria in determining this item of expense. Weighmasters averaged about $2 #00 per hour, ring clerks averaged $ 1 * 5 0 per hour, and the wage rate for yard workers and office workers ranged from $1.00 per hour up to $1.50 per hour. Six of the auctions studied paid $1 . 2 5 per hour, and this figure was used. The method used in estimating management wages is, admittedly sub­ jective for the smaller auctions* The rates arrived at were estimated on the basis of the time, and responsibility involved in performing managerial duties at each of the smaller auctions. Management was a direct cost at five of the eight auctions studied and these costs were used in estimating management costs at the auctions. Total Labor Gosts After making all these considerations, the number of workers, time worked, and wage rate or salary were used to arrive at a total labor cost. Labor cost per year is shown for each auction in Table 7*12 on page 1 1 7 - 116 I1 P -P cd CD P O CD •H P p co CD P o cd P T-T\*H cvj p *o p O r—I O JS co CD •H P Cd cd to i —I cd % PP P P P P © I o o P CO P 0 0 P o •H P o p o o •H "LO P * O 1-- 1 P cd cd © © CD P h PJ "— 5 3 CD P Wage Rates of Auction Personnel cd p p © X3 Pi p p cd o M M « B ~LT\ *H P © O ^ a) 'S -P- © h c CM P - O H P d •S e •p * jij b£J P •H ctj P © H O 1 P XI © p © Qh p p bD P p • H CO © 0 ctf Ph P I P © CD O o £d © x o . P » t —1 o i— 1 i — 1»H ^ P P CD -j.^ 1 p O P P 8 * i— 1 C M i— 1 =€£= P X CO CD ■3 e i —i i—i cd co P o •H P -P cd CD to Table 7*11* CD i —I P co CD I 88 * •8» I lAOlA D— CO CO P CD o* hP P CD P cd CO © I —I P to g p>:< <4 P © p & p © P CD I O p •H ooo oo 8 ooooo moooiAQ CM CM r O - P c o - c t CD © P o O o o o 88 o 'uvmo o o o £ CO © P X? i • c— d d d c o t o CO NO OO ON CM CO rH t o O O O n CO ^ ** ^ H » > . •, cm co c o d * CO O n t o rH rH rH t o c o O d d NO rH "LOCO CO d co O On H P C— CM t O O CM NO t o rH CO CO O t o r o d r! O Jd CM I P On C— 1 "— i—I CO r o On rHCO O •>< «\ »■» •> ^ * S ^ ^ ^ ^ CO On CM t o c o o o d CO NO rH On CO CO t o c o d CM CO t o P On CM CO t o C O c o co d " t o p O d rH rH I 1 \--1 On cm no o On co O O NO rH d C O d rH rH co CM rH •v *S •» CO On CM IN— CO CM rH CM CO t o C— O N CM CM inOn ■s 50 0 P ( 5 cd 0 Pi & 50 0 •H no 3 p cd 0 ■rl p rH CM CO — H t O NO 0 Od pi o < tj O * 1 1 L rH *, J j rH ( r f rH rH H III nO XJ 0 tit CM CM CM CM CM CM rH CM c o d t O N O I I I t t I co co c o co co co rH CM CO d t o NO I I I t I I d d d d d d 0 0 0 •H 0 < H *rH •H rH r— i 0 rH CM c o d t o cd O o :— 1 i— 1 d PS 0 -g 0 H I —i u o cd '0 !>> d 0 P d 0 O p o 0 0 Ct OJ ct 0 12H Repair and Maintenance Repair and maintenance costs were computed on the basis of* one per­ cent of the cost of the building. This figure is one used by agricultural engineers in estimating this expense for buildings of this type. Insurance and Bond Insurance costs may amount to a fairly sizeable amount for a live­ stock auction. These costs were estimated for each auction through dis­ cussions with insurance agencies. carried by the auctions were: The four chief types of insurance (l) Fire and comprehensive insurance on the building and its contents; (2) insurance on the livestock; (2) lia­ bility and compensation insurance on employees in case of accident, and, (U) unemployment insurance compensation. The insurance costs arrived at are somewhat higher than those actually incurred by the eight auctions studied primarily because it was assumed in this study that the owner would insure the building and contents for their full estimated value. These estimated values are considerably higher for the newly constricted synthetic auctions than for most of the auctions actually observed. With insurance on the building and contents costing approximately $3-25 per $100 of building valuation an increase in coverage of $10,000 would increase the insur­ ance costs by about $ 3 2 5 *0 0 . The insurance costs will vary, of course, depending upon the location of the structure, area in which the auction is located, and other such things. In this estimation of costs, all auctions were assumed to be of similar construction and located where rates would be the same. 125 All livestock auction owners in Michigan must be bonded. The bond is computed on the basis of the average weekly sales per auction. The owner must be bonded dollar for dollar up to $ 2 5 *0 0 0 average weekly sale. Over that amount the owner must be bonded at the rate of $1.00 for each $5.00. Taxes These costs were arrived at by discussing tax costs with state tax officials and others who have a rather comprehensive knowledge of the state tax structure. One of the taxes, the business activities tax, is based upon gross revenue received. In order to compute this cost it was necessary to establish commission rates and service charges for all 3 auctions and then determine the revenue received by each auction. This tax is computed by taking 50 percent of the total revenue, sub­ tracting $10,000 from the balance and multiplying $ 6 .5 0 times each $1,000 of the remainder. Thus an auction obtaining $50,000 in revenue would pay tax on $15*000 or $97*50, Social security was considered as a tax in this study and these costs were arrived at on the basis of the labor payroll. Rates of two and one-half percent of the payroll, effective on 1 January 1959 were used. Social security must be paid up to amounts of $11*600 per year salary effective on 1 January 1959* and this figure was also used. 3The revenue received from commission and service charges, per head, was estimated to be: $0.60 for hogs, $1,10 for calves, $3*00 for ■cattle, and $0.60 for sheep. 126 i — f&irly important item, of tax expense was that of property "tax* Since assessment methods and property tax rates vary so widely in different areas an average tax rate was arrived at and used in the estimates * The tax levy rate was 0 * 2 0 mill and the assessment rate used was I4O percent. The same rate of assessment and the same tax rate was used for each auction* Interest Whether a person invests his own money in the plant or borrows it, interest is a real cost* In this study it was assumed that the money would be borrowed and that the average interest rate to use would be three percent* Borrowing money at 5*75 percent interest on the unpaid balance averages out to about three percent per year on the total amount* Although the actual interest rate may vary considerably from this the same relationship between auctions would still hold* Other Variable Costs The estimated cost of five variable cost components were arrived at by assigning a given percent of the total cost to them. These per­ centages were arrived at by considering the type of auction and the cost of the component parts at the auctions actually studied* In addition, consideration was given to other livestock auction studies and the percent of the total which each cost component constituted. 4It should again be pointed out that had certain cost items been included in the total costs presented in Chapter IV (depreciation, wages to management, etc.) certain cost components would have consti­ tuted a lower proportion of the total* For example, utilities might Table 7 *16 shows the percentage of the total five different cost components accounted for at the twenty^four auctions. Table 7*16* Auction Code Percent of Total Expenses Various Cost Components Constitute at Twenty-Four Auctions, Transportation Cost Comoonents Utilities Supplies Advertising Other (percent) 1 -1 1 -2 1 -3 l- U 1 -6 3 *0 3 *0 3 .0 3 *0 3 *0 3 *0 3 *2 3 *2 3*2 3*2 3*2 3 -2 U-2 ■U-2 U*2 U *2 U*2 U-2 U .o 3*9 3 *8 3*7 3 -6 3*5 5 -0 5 *0 5 -0 5*0 5 *0 5*0 2 -1 2 -2 2 -3 2—U 2 -5 2 -6 3 *0 3 *0 3 *0 3 *0 3*0 3 *0 3 *0 3*0 3 *0 3 -0 3 -0 3 -0 U .o U-o U.o U-o U-o U .o U-O 5 .0 5 -o 5 *o 5 *o 5 -0 5 *0 3 -1 3 -2 3 -3 3-U 3 -5 3 -6 3 -0 3 *0 3 *0 3 *0 3*0 3 *0 2 .8 2 ,8 2 ,8 2 .8 2 ,8 2 .8 3 -8 3 -8 3 -8 3 *8 3 -8 3 *8 U -i U-2 U-3 3 *0 3 *0 3 *0 3 *0 3 *0 3 *0 2 .6 2 ,6 2*6 2 ,6 2 .6 2 ,6 3 -6 3 -6 3 -6 3 -6 3 -6 3 *6 1-5 u-u U-5 h-6 3 -9 3 .8 3 *7 3 .6 3 *5 U-O 3*9 3 -8 3 -7 3 -6 3 -5 U-o 3 -9 3 -8 3 -7 3 -6 3 *5 5 -0 5 .0 5 *o 5 *o 5 -o 5 *o 5 -o 5*o 5 -o 5 -o 5 -0 5 *o have constituted only 3-0 percent of the total instead of 3*6 percent. On the other hand certain cost components, such as labor and repair and maintenance constitute a much lower proportion of the total costs for the synthetic auction than for those actually observed. The overall effect is that several cost components will constitute about the same proportion of the total for the synthetic auctions as they did for those actually observed, 128 There is little reason to believe that, transportation costs will vary, percentagewi.se, with type or size of auction. Transportation costs constituted three percent of the total cost of operations for the eight auctions studied, and this figure corresponds rather closely with those found in other studies. Utilities averaged 3*6 percent of the total cost for those auctions studied* This amount was reduced somewhat for the synthetic auctions primarily because auction H showed abnormally high utilities cost due to a peculiarity existing at that auction. pect this high figure. is approximately 3 *1. Normally one would not ex­ If this figure is discarded the average percent The utilities cost should decline somewhat as the proportion of hogs handled increases because the sale is finished somewhat quicker, thereby requiring heat and lights a somewhat shorter duration of time. ■Cost of supplies averaged k*7 percent at the eight auctions studied, but this figure was reduced for the synthetic auctions. Three of the eight auctions observed used ear tags for marking cattle instead of hip tags and this increases the cost slightly. It is assumed that only hip tags will be used at the synthetic auctions and only one of these per animal. This should result in the cost of supplies in terms of percent being somewhat lower for the synthetic auctions than the average of those actually observed. Supply costs will decline somewhat in terms of per­ cent as the proportion of hogs handled by an auction increases. This is true because no tags are needed to mark the hogs and, since hogs’are received in somewhat larger lot sizes than cattle, the number of con­ signor sheets required will be reduced somewhat. 129 Advertising costs lor the eight auctions studied accounted for 3 -5 percent of the total and this amount is largely unchanged for the syn­ thetic auctions, Smaller auctions will advertise more, percentagewise, than large ones in an effort to increase their volume of business. Remaining variable costs were classified as 11other" and a flat amount of five percent was allocated to each auction for this category. This is somewhat less than the average for the eight auctions actually observed, but in those auctions, two auctions showed rather heavy costs that one would not normally expect to be there. One item of possible expense not shown is that of losses, This is a cost that is difficult, if not impossible to estimate. There is no reason to believe that it would constitute a greater or less percent for large auctions than small ones. Including it as a cost component would probably not alter the shape of the average cost curve but would change its position to a certain extent. Summary of Costs Table 7.17 presents a summary of all costs associated with each auction for a period of one year. Using these costs a regression analysis was run and the following linear equation was arrived at: Y = $10,51*7.60 + .1*1*5 X,!+ .526 X- +■ -597 X3 * .1*86 X4 A Where Y = = Xz ~ X3 ~ estimated number of number of number of number of With R 2 *= 0.995 total cost hogs calves cattle sheep .130 r a cm cm A O O CM GO CM A A -d CO H CM CO O O D l A n On I A O n * 5 o EH * • » • ft OO C MC MO o A A H A A CO H A A d A MO o • • * ft ft ft A o o Is—C MA A AO H A A A O -d A" Ay A C M A O A On A A "A O r—O A A C M i— I i— IC MCO C M •y «t *y •ft •* m-, A O A- O H A A CN A on On C M H H C M a AMD H H C M a AMD OA o OlAO O A O; O O O A O O O A O a A A rH C M CO O O A A 1 CO C MOO M3 CO C M d d o ® O OA C M"A A A A A -d o H o c o o A A A A 0, 00 a o c m r a o i— I Ay A O A A A i— i o r— o o A m o •ft •» •ft •* *ft » ft *N *•> A CD O nH A C — 1A O CO O CM Ay — IC MC MJ IA V O i— I C MA d l A M D A A CD A O A A A O O A C O 0 A-CO ca A A A O H CO A A Q A r—C —A A A C —CAAy CO CA0O A CD A d A d C M o CO o O'MO. H O d O ^ O CA H O d O ^ O C M tM- O A O A rH •, *\ »ft #«l •y m, ^ i— I rl C \J C MA H H’C MC MA cm ca A A A A -A A AyA\ A On H A a A On -d H H i —!i —I P CO 0 (A C MVO \0 1A d A ^ A -d O O A A A A CDA a -MD M D VO C MA A Q d 0 A’ A ONA CO A CO O A C MO A O CA M A A d •\ « H •. i— I A MA A OO A H A At A A ao O H A A I 0 H d -P a d 0H Q o to 0 X cti d d 0 d H I S3 > CO T 3 H «d - P co 0 *rH « % « CO 0 •H P •H i —1 •H C Ma A A A A H A O A o o A a A A A A A H A A A rH H A A C MA Ay i— I i— I o O_d A CO - d Ay A H A c—_d - d A A •\ *\ *\ *\ ftN *\ *\ *\ *ft »\ *V H H C Ma A A H H A a A A r— c o H a * • A A • A A • cm • Q O A A H O A C MACO A A A O C MA A H oo *= , « *■ . H H C MA A O C MO A A C MC MA A O A A H l A H d C MA C MA A o AA H A H C MA A * • * • « * C MA A A C MA a A c o co A c o A C MA A H CO A ^ A lA A ' A A A A A -d -A A A A - d H H H C MA A On C MC M O H ft ft * ft ft ft H A A C MC M 8 A A OnCO r— A A A -d A A «ft *\ « N H H-CM a A A A A A A -d-d o A A o A A A no O A H nO Ay cm O r- A A H H C Ma A A =£§= A A A A co O A O UD 9S « S » S •ft i— I i— I i— 1A I— I I— t i— 1C M i— I i— I i— I C M H H rH C M A OnA O A H H On Ay H A A a q Onc o O A OnMD H A A A H A A A A A A C MH A A C M A O O A a A Q O A A O C M A A A H A O A A C MA A A A A C MA C MA M DOO i— IM D i— 1NO A A O A OnA A A co A A H H c o A H OnA A M D OnA A a A A OnA A co (A i— 1i— I rc\ M DA £d d O O A A C MA A A A A A A H H C MC M H H C MC M A A A A A A O A A A A A C MA A A A H I— I I— IA H H H cm A A A A H O cm A H A A H A A o o A A AO O o A A A A A M DA M D a oo "A O A A i— IA A O A C MA A A A A C MA A •S A A A O A A A A A A O A HA A H A A •ft *ft H M DM DH M DCO A ONO A On H A A A O A M D rH A A A Ay A A H A O O A A A O A\ A C M C M A A A A CO A O OnA a A O A A A A O A CO A A P i —IiIi —I i— ! i— I C M i —Ii —Ii —I h ' H H' d> A 0 d O d d CO 0 d •H P a n c0d gd g O Ay A \ A A A A H i— I C MA -d P d d p NOA A A A A A A A A A NO A A A A on H A H CO O M Da H A CDA CO A H O M D A A On A O H A A A A A A A A on A A H C M A O A A A A A C MA C MA O A C M A 1T\ H A A A A A A O d s H A C A O A A A H A A A o * *ft » ft ** ^ O O A H A A A O A H A A H H C M A A H H A C M CO H A A A A A r r i i r 1 A A A A A A i —1i —IiI H H rH H cm a . A A nO » ry C 1 1 1 A yA DC OC D CD S O O A A A A A A O A A OnA A A A A A A H A A OnA O A C M i— IC MA A H A a A a a 1 ' ’ '-JrJt 131 The above equalion indicates that cat-tie require more expense to handle than the other classes of livestock, followed by calves, sheep and hogs in that order- On the basis of the time studies alone, however, one would have thought the differences in costs between species would have been somewhat larger than is indicated by the regression equation. One possible explanation for this is that the relatively wide differences observed in labor requirements between species may not exist for other cost components, i.e., transportation expense per head may be about the same for all species of livestock. A second explanation may be that relatively large labor cost reductions have been brought about in this synthesis for cattle (due primarily to the method of bringing cattle up) and labor savings, as large as this, were not achieved with the other species of livestock. Table 7.18 shows the average total cost per head for each of the 2U auctions# .Table-7*18# Average Total Cost per Head of Livestock Handled at Each of Twenty-Four Livestock Auctions. Mix 1 0 ,0 0 0 1 2 3 k 1-56 1 .5 2 1.H5 1-U3 Auction Size (Head Per Year) 5 5 ,0 0 0 3 5 ,00 0 2 0 ,0 0 0 80,000 i.o U 1 .0 0 1 .0 0 .96 .83 .82 .79 • 78 5.76 •7k .73 .71 110,0 00 #67 .66 •6k .62 .62 .60 .58 .57 Table 7 #18 indicates that- there are real economies of scale to be realized with respect to livestock auctions. Average costs decline as volume of livestock handled increases even up through the largest size 132 auction which is larger than any auction in Michigan. The decline is quite large when moving from size 1 to size 2, amounting to approxi^* mately $0,50. The average cost reduction in moving from size 2 to size 3 amounts to roughly $0,20.and has diminished to about $0 . 0 5 when moving from size 5 to size 6. The average total cost per head declines as the proportion of hogs increases as was the case for average labor costs per head. Reasons for this are that labor requirements are somewhat lower and building costs are usually somewhat lower which results in lower depreciation, taxes, insurance, and interest costs. In addition the cost of utilities will be lower because of shorter operating hours and usually, a somewhat smaller building,. Although increasing average costs do not exhibit themselves at any time, even for auctions handling 110,000 head of livestock, it is readily apparent that most of the economies of scale are largely realized somewhere between 35*000 animals and 55*000 animals. Nonetheless even a savings of five cents per head in handling costs is well worth the auction owner* s consideration. It is -possible that even this relatively small amount might represent the difference between profit and loss. The economies arise with almost all cost components. Labor costs decline per head of livestock as volume increases for several reasons. One is that on some activities it takes a given number of people to do the job whether they handle 50 or 100 animals. Another is that at least one worker must be present early on sale day to receive early arrivals. If these arrivals are slow coming in it means that the worker(s) have much idle time on their hands. Auctioneers do not require twice as much salary to sell 100 animals as 50. One of the reasons for this is that the auctioneer's expenses in traveling to the sale and return are the same regardless of the volume sold. Office workers do not receive twice as much pay for working while 200 animals are being sold as when 100 are being sold because they get paid by the hour and it doesn* t take twice as,many minutes to sell twice as many animals. Depreciation costs per head decline as volume goes up because the building and equipment costs do not increase proportionately, with the volume of livestock handled. One of the reasons for this is that the cost of certain equipment, such as the public address system, scales, and heating units are almost constant regardless of volume handled. The cost of the building itself does not increase as rapidly percentage­ wise as the volume of livestock handled. The size of the sales arena needed will not increase much with increase in volume although it will need to be somewhat larger. The office space needed will not be much larger for the 110,000 animal auction than for the 10,000 animal auction Inasmuch as the costs of insurance, taxes, utilities, repairs, and interest are based to a considerable extent upon the building costs, these items will also show declining average costs per head of livestock Although the cost of certain Items of supply such as hip tags for. cattle and calves will vary almost directly with volume, other Items such as consignor sheets, buyer sheets, and checks will not increase in direct ratio with volume because the livestock will be consigned in larger lots Transportation costs will not increase as rapidly as volume in terms of percent. It may cost little more for the large auction owner to visit three producers than it does for the small one to visit with one because 131* the three may all be located close together. In addition there are certain fixed charges associated with transportation costs such as automobile insurance and depreciation. These will remain almost con­ stant whether the owner travels 1,000 miles in connection with his business or 5*000, Patrons who advertise heavily usually get reduced advertising rates. In addition, the smaller auctions may want to advertise heavily in order to increase their volume of business. Not everything, however, associated with the larger auctions re­ sults in economies of scale. The larger auctions have pens for the animals more distant from the sales arena than small auctions, and there may be times when an auction only 25 percent larger in terms of animal numbers would require perhaps 50 percent more workers. Although average labor costs at certain stages may actually increase it would be highly unlikely that average labor costs per head would rise for the entire ope rati on. A diseconomy arises in connection with the construction costs of the 2i\.auctions included in this chapter. This is due to the fact that the buildings are of pole type structure and the cost per square foot actually increases after a certain size is reached. This diseconomy is more than offset, however, because the square foot requirements do not increase proportionately with volume of livestock handled. A diseconomy may arise because of the extended duration sale as volume of livestock is increased. of the This may manifest itself in reduced worker efficiency as time "drags" on. In addition to this, buyer interest may decline and the relative prices might decline. This could result in consignor dissatisfaction and a reduced volume of operation which in turn would increase the average total costs. Although the evidence indicates that economies of scale are possible up through the largest auction synthesized one cannot conclude that the average costs would continue to decline regardless of the size of auc­ tion, It cculd very well be possible that an auction handling 125,000 animals yearly might have higher average costs than one handling 110,000 animals, Despite the fact that evidence presented in this chapter indicates that economies of scale are possible in Michigan livestock auctions, it does not necessarily follow that auctions in this state should be fewer in number and larger in size. This is so because there are still other costs in addition to those actually incurred at the auction, which must be considered. These are discussed in the next chapter. CHAPTER y i n "OPTIMUM" NUMBER OF LIVESTOCK AUCTIONS Evidence was presented in the previous chapter indicating that average costs of handling livestock decline as the volume increases. On the basis of this alone one might conclude that inasmuch as lowest average costs were incurred by the largest auction, which is larger than any currently operating in Michigan, then marketing efficiency would be increased if there were fewer livestock auctions. This does not necessarily hold true, however, because one important cost component which is not directly a part of auction costs was not considered. That cost is the transportation costs other than those incurred by the auction owner. This cost includes (l) expenses incurred in shipping livestock from the, producer to the auction, (2) expanses incurred by livestock buyers in (a) driving from auction to auction when buying livestock, and (b) transporting the livestock from the place of purchase to the slaughtering plant, and (3) expenses incurred in moving the meat and meat products from the slaughtering plant to the ultimate consumer. From the auction owner* s standpoint the optimum size of auction might be as large as the largest one synthesized in Chapter VII. From the producers* viewpoint, it may be desirable to have more auctions (perhaps smaller in size) so that the costs of transporting the animals to the producer., wbuld be;reduced. 136 137 The livestock buyers, such as order buyers and packers, might prefer to have auctions of a larger size so that they could obtain the desired number of livestock at one place thereby eliminating the need to travel from one auction to another to make their purchases. When these additional transportation costs are considered and added to the average costs incurred by the auctions, the lowest average costs may be achieved at a different volume of operation than when only the auction costs are considered* many different factors. These costs will be influenced by Among these are (l) density of livestock pro­ duction, (2) terrain, and (3) road network. Inasmuch as these will vary greatly between areas no effort is made to arrive at a transporta­ tion cost function. One may conclude, however, that average trans­ portation costs incurred in shipping the livestock from the farmer to the auction will increase as distance from the auction increases. Figure 8.1 illustrates the effect transportation costs incurred in shipping the livestock from the producer to the auction may have upon the shape of the average total cost curve incurred by the auction oper­ ator. In this illustration average total costs incurred by the auction decline as volume of livestock handled increases. It is assumed that in order to obtain an increased volume, the radius of the territory from which the livestock is received will also increase. As this distance increases average transportation costs will increase, i.e., it will cost ^Hereafter in this chapter, unless specified otherwise, when trans­ portation costs are referred to it means transportation costs other than those actually incurred by the auction operator. 138 Figure 8«1* Effect of Transportation Costs Incurred by Producers Upon Average Total Costs. Average Auction Cost Plus Transportation Costs Average Transportation Costs Average Total Costs Incurred by Auction Volume of Output more to move an animal ten miles than it will to ship it five miles. This is illustrated by the average transportation cost curve. If the average transportation costs are added to the average costs incurred by the auction the total average costs will be as indicated by the average auction cost plus average transportation cost curve. It should be noted that the lowest point on this curve is achieved at a smaller volume than the lowest point on the average total cost curve of the auction. As long as average transportation costs increase with distance, the lowest point on the combined curves will always be at a smaller volume than for the auction curve alone. It should be emphasized that in the preceding illustration the only transportation costs considered were those arising from transport­ ing the livestock from the farm to the auction market. 139 Tran sportati on 00313 of buyers include those incurred in (l) driv­ ing from one auction to another to buy livestock and (2) those incurred in transporting the livestock from the auctions to the slaughtering plant* If livestock buyers find it necessary to drive from one auction to another in order to purchase the desired number of livestock, then the average costs per, head in doing this would most likely tend to decline as auction size increased* This is indicated in Figure 8*2 by going from GXx to ~0X2 with a cost reduction of 0CX minus 0C2 . Figure 8*2, Hypothetical Cost Curve of Livestock Buyers Average Cost Per Head Average Size of Auction This cost reduction might be achieved because the buyer would be able to obtain the needed livestock at perhaps only one or two auctions instead of a larger number with a resultant reduction in labor and transportation expense. This average cost reduction might hold true, however, only up to a certain point beyond which average costs would increase. This increase in average costs could be brought about because a buyer who was purchasing all the livestock he needed at one auction lho might have to drive a greater distance to get this livestock if auctions became still larger in size but fewer in number. This is illustrated in Figure 8.2 by moving from 0X2.to 0X3 with a resultant average cost increase of 0C3 minus 0C2. Figure 8.2 could also be applicable for costs incurred in shipping "the livestock from the auction to the slaughtering plant. Average transportation costs incurred in transporting the livestock from the auction to the slaughtering plant might decline as auction size in­ creased up to the point where all the livestock slaughtered by one plant was being received from one auction. This decline in average cost could be brought about because the total distance required to travel between auction and slaughtering plant might be less, and the trucks used to transport the livestock could be used more nearly to capacity, i.e., the frequency of hauling only ''part-loads” would be reduced. As auctions continued to increase in size, however, and became fewer in number (and further apart), then the average costs incurred in transporting livestock from the auction to the slaughtering plant would likely begin to increase because of the additional distance from the auction to the slaughtering plant. No attempt was made in this thesis to study the costs incurred in moving the meat and meat-products from the slaughtering plant to the ultimate consumer. However, in attempting to arrive at a total average transportation cost curve this cost would have to be considered. 2The diseconomy associated with increased distance from auction to slaughtering plant would not be as great as one might think because the cost per cwt. per mile would tend to decline somewhat as distance in­ creased . liil The information assembled for this study was not sufficient to permit an estimate of the effect on average total transportation costs associated with changes in the number and size of auction markets. Additional information concerning such factors as the, density of live­ stock production, movement of livestock after it is sold at the auction, presence of alternative market outlets, and the meat consumption pattern must be obtained before the problem of determining optimum auction size and location can be solved. CHAPTER IX SUMMARY AND CONCLUSIONS This study was concerned with certain aspects of livestock auction operations in Michigan. The first objective of this study was to determine if differences exist between auctions as to methods of handling livestock and if so which methods permit handling the livestock at low­ est average cost. The second, and primary objective was to determine the relationship between costs and volume of livestock handled at Michigan livestock auctions. The final objective was to show how transportation costs, other than those incurred by the auction owner, may have considerable effect upon the average costs incurred in market­ ing livestock and thus may influence the conclusion one arrives at con­ cerning economies of scale in livestock auctions. Studies of livestock auctions have been conducted in other parts of the country. Some of these were descriptive in nature and others represented attempts to determine the relationship between average total costs and volume of livestock handled. Most of the studies indicated that average costs do decline as volume increases but these conclusions may not be applicable to Michigan auctions for at least two reasons. First the research methods employed in conducting many of the studies are open to question and, secondly, Michigan auctions may differ suf­ ficiently from those in other parts of the country that the results of other studies are not applicable to auctions in this state. 1U2 1U3 The results of this study are based upon cost accounting records and. time studies conducted at eight Michigan auctions. In determining the procedure to follow in conducting this investigation the merits and weaknesses of various methods were considered. Most other studies directed toward determining the relationship between cost and volume have employed either the cost accounting approach or the synthetic approach. Primary emphasis in this study was given the synthetic ap^ proach because of certain limitations to the cost accounting method, Cost records of the eight auctions included in the study were utilized, however, in estimating certain cost components. The cost records indi­ cated that there were rather wide differences between auctions in average cost per head of livestock handled. There was a tendency for average costs to decline as volume of livestock increased, but there were exceptions to this. The two smallest auctions, in terms of number of animals handled and gross dollar sales, incurred highest average costs. Lowest average costs were achieved by the auction ranking fifth in size, and the largest auction achieved second lowest average costs. There were certain limitations to making inter-auction cost com­ parisons, however. Certain items of expense were either not included or incomplete at some auctions and this could influence the results, In addition the auctions did not handle the same proportion of each species of livestock, i.e., some handled relatively large amounts of one species but relatively small amounts of others. Inasmuch as the different species require different amounts of labor and other expense items, a direct comparison of costs was somewhat difficult. HOi Labor was the most important item of expense incurred by the eight auctions included in the study, constituting nearly 60 percent of the total costs. Most o,f the other cost components constituted no more than five percent of total costs. The livestock auction operations were separated into six stages. These stages were? unloading, bringing up, weighing, selling, bringing back, and loading out * Time studies were conducted at each stage at all auctions. Large differences were observed in the amount of labor utilized per head of livestock at the various auctions. These differences may be attributed to (l) species of livestock, (2) number of livestock per lot, (3) number of workers and (U) method of handling the livestock. On the basis of the time studies and direct observation it was concluded that an auction designed to handle livestock most efficiently would incorporate the following features: 1. 2. 3. U, Separate structure for doing write-ups, Calf and hog pens close to unloading area, A ufeed11 chute for bringing-up cattle. Separate buyer pens for cattle, hogs, and calves. Double tag chute for tagging cattle. There would be an elevated platform between the two chutes so that a worker could stand on it and mark the cattle easily. 6* Scales opening directly into the sales ring. 7. Scale gates that roll sideways or upwards so that animals could not get lodged behind them. Costs of operating twenty-four synthetic auctions, each employing similar methods of handling livestock, were estimated. These cost estimates were for auctions of six basic sizes ranging from 10,000 animals handled yearly up to 110,000 animals yearly with four variations of each. The variations were in the relative proportion of the total that each species of livestock constituted. lU5 The amount, of labor required for each auction was estimated from the time study results, and the wage rate was obtained from the cost records of the eight auctions studied. total labor costs for each auction. The two together provided the Labor constituted slightly over one—half of all costs and as such was the major cost component. Transportation, utilities, supplies, advertising and Tlother” cost components were estimated on the basis of costs incurred by the eight auctions included in this study as well as those incurred by livestock auctions in other studies. Staff members in the Agricultural Engineering Department assisted in estimating building costs, including wiring, and repair and maintenance expense. All other costs were estimated with the assistance of local businessmen and state insurance and tax officials. Average total costs per animal handled ranged from about $0,60 at the largest auction up to about $1.50 at the smallest. Most of the reduction in average costs was achieved as soon as a volume of 35,000 animals yearly was attained. In moving from size 1 to size 2 the re­ duction in average total cost amounted to approximately $0,50. In mov­ ing from size 2 to size 3 the reduction amounted to about $0.20 and had diminished to about $0.05 when moving from size 5 to size 6. Even the relatively small average cost reduction achieved in moving from size 5 to size 6 should, however, be well worth the auction owner1s consider­ ation. loss. This amount might represent the difference between profit and The average total costs declined somewhat as the proportion of hogs increased and the proportion of cattle decreased . The linear regression equation arrived at on the basis of the synthesized costs was: llj.6 Y *= $10,51+7-60 4- .1+1+5 x i +. -526 X 2 + 597 x3 + .1+861 X4 /V Where Y -*= Xx — X2 = X3 = X4 == estimated number of number of number of number of total cost hogs calves cattle sheep R2 « .995 It is obvious that hogs are handled at lowest cost followed by sheep, calves, and cattle in that order. However, the differences in cost of handling the different species of livestock are not as large as one might have believed on the basis of the,time study results. are at least two reasons for this, only labor requirements. There First, the time studies showed Other cost components may show relatively small differences between species, Secondly, in the synthesis of auction costs, the largest labor reductions, as compared with actual auctions, were achieved with cattle. This resulted in the difference in auction handling costs between species being much less than existed at the eight auctions studied. Although average costs tended to decline as volume increased, for the synthetic auctions, it does not necessarily hold that these costs will continue to decline as volume exceeds 110,000 animals per year. Diseconomies may arise if more than 110,000 animals are handled yearly. The increasing costs might arise because as a larger building is con­ structed, it may be necessary to use other than the pole-type construction and this other type construction may be far more expensive. As the building becomes larger it will be necessary to drive the livestock additional distances and average labor costs may increase considerably. 11+7 Selling additional numbers of livestock will take additional time and worker efficiency may decline as a result. restless and want to have a lIbreak period.” The buyers may get This nbreak period” will extend the duration of the sale and consequently increase the labor costs« Other diseconomies may also arise which are unforeseen at the present time. Assuming that lower average total costs can be achieved, both by using more efficient methods of handling the livestock and by Increasing the volume of livestock handled, what will be the effects of this? If the auction operator succeeds in reducing his average total costs he will increase his net revenue in the short run if the lower average total costs are retained by him and no reduction in the selling charges is given the producer. On the basis of limited information it appears that auction owners are very reluctant to reduce their announced selling charges. One of the reasons for this may be that the auction operator is afraid that his competition will retaliate. If an average total cost reduction is realized and if none of the reduction is passed on to the producer, others may decide that there are very good profits to be obtained in the auction business and will start up their own auction sale. This would result in the other auctions losing some of their livestock volume which would be accompanied by a rise in the average total costs and profit might be no greater than they were prior to the original cost reduction. The long-run effect, in this case, of a cost reduction through either an improved method of handling or increased volume, would be larger numbers of auctions. XU8 If the auction owner fears both retaliation from competitors if he reduces his selling charges and the entry of newcomers if he does not he may engage in some non-price competiton which will tend to benefit the producers* This non-price competition may come in the form of free trucking of the livestock from the producer to the auction, free meals at the auction or any of many other favors of this nature. The owner may also maintain his original quoted selling charges but offer a private discount to the sellers if he sells his livestock at the auction owners place of business. The latter practice occurs regularly in Michigan livestock auctions. The auction industry may benefit from this study in that if they achieve lower average total costs and pass these on to the producer it is likely that, in the short run, they will increase their volume of business at the expense of other types of market outlets. If they do not pass the lower costs on to the producer, in the short run their profits will be higher, but if newcomers enter into the business, their long run profits may remain unchanged. Producers may profit from the auctions1 achieving lower average costs depending Upon the reaction of the auction owners to the cost reduction. If no cost reduction in any form is given to the producer, he may not profit from the increased efficiency. It is the author* s opinion, however, that in the long run some concessions, price or non­ price, will be offered the producer in an effort to persuade him to sell his livestock at a given auction. Society, which pays the marketing costs, may profit by being able to obtain the livestock products at a somewhat lower cost if a method Ik? is found -whereby auctions can achieve lower costs» These lower costs are theoretically possible because if they are passed on to the live— stocx producer, the total costs of producing and selling the livestock have been lowered and the price necessary for the buyer to obtain a grjven volume of livestock is now lower than before. Since the buyers® costs in obtaining the livestock is lower than before, the price necessary to be paid him in order to receive a given volume of livestock is also lower. The amount society may actually benefit will depend in large measure upon the extent to which the lower average total costs are passed on by the auction owner to the producer, from the producer to the buyer, and from the buyer to the consumer. Although average total costs declined with increasing volume, it does not necessarily follow that marketing efficiency in Michigan would increase if there were fewer auctions but of a larger size. In con­ sidering marketing efficiency from a general viewpoint one must consider all marketing costs incurred in moving the livestock from the producer to the marketing outlet and finally to the ultimate consumer. The only costs estimated in this dissertation were those actually incurred by , the auctions. From the auction owners standpoint the !toptimum" size auction might be 110,000 animals yearly as shown in Chapter VII. conflict with the producers* interests. This, .however, might They might prefer having larger numbers of auctions so that they would have only a short distance to haul their livestock to market. 150 Packer buyers and order buyers might prefer fewer and larger auc~ tions so that they could purchase all the livestock they needed at one source • This would eliminate the necessity of their traveling from one small auction to another in order to obtain the numbers of livestock they desire. From the more general viewpoint when all livestock marketing costs are considered— those in shipping from the farmer to the market outlet, from there to the slaughter, from there to the consumer— maximum market­ ing efficiency will be achieved when the costs are lowest for marketing a given amount of livestock, or, In somewhat different terms, when the maximum amount of marketing services are provided at a given cost. This investigation was concerned primarily with ascertaining the nature of the relationship between costs and volume of livestock handled by Michigan livestock auctions. merit attention. Several areas for future study should One of these is the problem concerned with the advis­ ability of an auction operator conducting a sale on more than one day per week. If this could be accomplished, and if the total volume of livestock handled was increased, costs might be lowered because of a reduction in average fixed costs. In addition to this, it would be easier for the auction owner to hire more capable workers if he could guarantee them a full week’s pay each week. On the other hand the total number of livestock handled might be no greater than when the auction sale was conducted weekly and, since the daily sales would be smaller, the average variable costs would probably increase considerably. In addition to this one would have to consider the number of buyers available and the resulting effect on the price of the livestock. 151 A second area of research might be that of prices paid for live­ stock at Michigan auctions * Although this dissertation was concerned with costs of auction operations, there is no doubt that livestock producers are interested both in the costs incurred by them in selling their livestock at the auction and in the prices that they receive for the livestock. A slightly higher price for the livestock may more than offset any cost reduction achieved through increased marketing efficiency. A very, broad, general area of research is that mentioned previously of determining the flow of livestock from the producer to the ultimate consumer and combining this with information on livestock shrinkage in transportation, density of livestock production, and the presence and location of other market outlets in an effort to determine the ”optimum” number and location of livestock markets. As additional information is received in these areas it may be possible to solve this problem. BIBLIOGRAPHY Abel, Harold, and D* A. Broadbent. Trade In Western Livestock at Auc ti on s Dev el opmen t, Relative Importance. .Operations . Bulletin 352, Utah Agricultural Experiment Station, Logan, Utah, 1952. Black, Guy, ^Synthetic Method of Cost Analysis in Agricultural Market­ ing Firms,” Journal of Farm Economics. Vol. 37, 1955. Cox, C, B., and M. A* Blum. 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M., and Joseph LeY. Statistical Inference. Henry Holt and Company, Inc., New York, 1953- APPENDIX A FORM USED IN CONDUCTING TIME STUDIES 155 AUCTION STAGE Species Number of Head Number of Minutes Time in Minutes Start Stop APPENDIX B FLOOR PLAN OF LIVESTOCK AUCTION TRUCK DOCK LOAD OUT 1r Floor Plan of Live s to ck uc tl on TRUCK DOCK UNLOADING 156