Changing our course of business within the next five years is critical to the beef industry's survival, says Ed McMillan. How we manage these changes will determine how well we adjust.
McMillan, director of mergers and acquisitions with ABG, Inc., an Indianapolis consulting firm, says change may be viewed as an opportunity or a threat. Successful managers, he says, view it as an opportunity to strengthen and build business.
In the process of managing change, McMillan says a good manager will follow this sequence.
1) Constantly read about what's happening in the feeding industry and its periphery including input suppliers, cattle suppliers and buyers.
2) Put into perspective what trends are evident, what's driving them and what the implications of the trends are to your business. Think about where that trend may drive your business or create an opportunity.
3) As you analyze trends, determine the opportunities these changes create for you. Do these trends create a change for what you're selling? Is it a change in incoming cattle or feed inputs? Run some risk scenarios to determine where opportunities will arise.
"A feedyard manager should keep his finger on the pulse of what's happening around him, understand the implication of new trends to the business and think about alternatives," McMillan says. "Before a game, good sports teams put together a game plan, determine a general direction and make decisions as the game progresses."
Gather Information Information overload is a fear, but McMillan says there can never be too much of it. He warns there's no need to assimilate every piece of information about the business. What's important is information storage.
"As I see information happening, I save it into specific files, some on my computer, some in my desk," he says. "Sometimes I refer to these files, sometimes I don't. It's the process of creating the file in my mind that develops a profile of where business is headed. Simply following the process can begin the process of change in your business.
"I also have a 'follow' file. I may read an article I want to read again in 20 days, so I put it in a 'date' folder noted for 20 days from today. I read it again at the appointed time and see what's happened with the specific situation. You can do this with paper or on the computer - just do the process. Also, read about other industries with similar characteristics to find out how managers respond to specific situations."
McMillan says macro trends are the ones to prepare for most. The trend toward beef branding is a good example.
"Eventually, a firm will put its brand on the product we produce," McMillan says. "That entity is putting its reputation on the line to the consumer. This will work when a portion of the value added to our product is passed on to the producer who helps create the added value."
Historically, he says players in any segment of the beef industry took production risks and market risks. In production risk, management was driven to optimize feeding productivity and livability. Market risk was how much the product cost and was sold for. That's changing.
"In the future, we'll have three kinds of risk: production; quality, or agreements that establish quality standards for the products; and market risk which will be set up on a participation basis tied to a quality contract.
"The manager will still be responsible for production risks such as death loss, feed and other inputs. But as part of that, he's also got a relationship with someone who is participating with the market quotient," McMillan says.
VW Beetle or Edsel? He adds that some may interpret this trend as becoming subservient to a system, but it's how industries unrelated to beef have operated for years. For example, a supplier to General Motors is in a business situation where it has a profit opportunity if it delivers the quality at the right time. McMillan says the feedyard manager's future challenge will be to deliver the right quality of beef at the right time, as well.
In the last 30 years, the auto industry had trouble determining what consumers wanted. During this time, parts suppliers couldn't get long-term commitments from manufacturers. McMillan says that's analogous to the beef industry - as packers try to figure out what consumers want, genetics suppliers are whipsawed one way to another. And, feeders must feed the results.
The auto industry now provides a mainline product that meets most consumers' expectations with a general level of consistency, says McMillan. He says this gives suppliers the ability to focus on specific areas. In turn the auto industry creates profitable relationships with those suppliers. In many instances, these supply chain relationships have cemented so well that just-in-time inventory works well.
"This is the direction the beef industry needs to go if it's going to remain a player in the global protein market," McMillan says.
"Future feedyard managers will still have to manage beef production risks and employees," McMillan says. "They'll also be charged with developing relationships within the beef supply chain for product needs. They'll be more than efficient animal and business managers - they'll be managing contractual relationships with measured risk."