May 12, 2024

Rethinking the inventory pyramid

With the help of some surprising outside forces, a new visual model more accurately explains resource management on the ranch.

August 4, 2023

Ralph Waldo Emerson said, “There is no limit to what can be accomplished”. In the culture of sell/buy marketers that quote has been modified to “there is no limit to better.” We all know actions speak louder than words and based off that, not many of them believe this. I believe it simply because it means what I am about to share this week was foretold about.

Several years ago, when I was asked to assist with a marketing school, I was used to build the curriculum for the first ever stocker special. I added some original content and I improved, or tried to improve, some things.

One of the improvements was to the inventory triangle. At the time I really had no clue how to make a PowerPoint. Based on my real-world experience, I knew the element of time needed to be included into the triangle. I wasn’t sure how to do it. PowerPoint had a triangle with four smaller triangles inside of it, so I used that shape, even though it didn’t feel right.

That feeling has bothered me for years, and I spent a lot of time thinking about how to make it right. As things worked out over time, people will steal your idea and tweak it ever so slightly, so they don’t have to give credit. When I saw my inclusion of time was changed to an inventory square, I knew I had to get serious about getting this right because when other people changed it to the square, they made it worse.

It has become routine for me to have to explain why some of the things the sell/buy cozeners push don’t work, so I will explain this point. The original inventory triangle was set up so that feed and money were on the bottom, creating the base of the business. Cattle, or livestock, were on top. This was done for a reason. The implied hint is that if a business runs out of feed or money the triangle will collapse because the base was eroded away. This is a simple concept, and it is the natural order. The reason the square won’t work is because cattle, feed, money, and time were all included inside of it stacked on top of each other, with two on the left and two on the right. This ruins the illustration and destroys the point of the triangle. If we run out of either feed or money, only one side collapses, unless it is the side time was on. To me, this change proved the cozeners do not understand this material. I still didn’t know how to make it right, but after seeing this I knew I had to figure it out.

A few months later I got some assists from a couple of people. My daughter needed help with something and had a bit of an attitude no one was helping her. I got tired of listening to her and got up to help her fix what she was working on, all while explaining to her dads do these kinds of things because they love their kids. The next day I got some registration forms in the mail for a school I had coming up. These forms came from operations whose owner or manager has already been to one of my schools, only this time they were enrolling some of their other employees, and the business was paying their tuition.

I called one of them out of curiosity why they were doing this. Was this person going to be making marketing decisions? He explained to me, they try to promote from within as much as possible. That being said, there is only so much room for advancement in their operation. One of their measures of success of the business is if the business is helping their employees succeed. If an employee leaves this operation for a higher position on another operation, they feel this is a sign of success.

These two moments happened within 24 hours and it hit me, people need to be included in the triangle as well. They are the most important part. Everything else inside the original triangle is tangible, and so are people. Money exists because of people; it provides a medium of exchange so we may deal with each other. The business of feed and cattle is structured in a manner that we can benefit, and even prosper from it.

This is when it hit me. Put people at the base. Since they are the most important part, and the triangle only exists because of people, they are the foundation. It is people that make the decisions to move things inside the triangle after all.

Then I set the original triangle right on top of the foundation of people. The natural order is still in place. If something happens to the people, eroding the foundation, the whole thing collapses. If the people make poor decisions, like running out of money and/or feed, and they have too many cattle, it still collapses. An argument could also be made that if the foundation of people is not wide enough to support the three things above it, labor issues, the business can become wobbly, and adjustments would have to be made. Either by scaling the business back or hiring more people.

Time changes all things. People change over time and so does our inventory. It became clear that time was to become the perimeter of the pyramid, and to illustrate this I make it a different color. Here is what the Inventory Pyramid looks like that I have been using in my schools this year when I cover resource management.

Thank you to my daughter, the ranch manager, the feed yard owner, and the sell/buy cozener for your roles in helping me figure this out.

Last week I wrote that the biggest mover in the market was the bred heifer. She was again this week; it’s just the movement was in the opposite direction. The new wave of prosperity that was forecasted to wash over the female market is still out at sea. When sticking to the basic principles of sell/buy marketing and comparing relationships, there just is no point in breeding heifers in most parts of the United States.

Two relationships stick out to me this week. One was to sell mature spring pairs and replace with younger fall calving cows. The relationship differences show that we could sell $150 value into the market and get paid $500 for it on the swap. The ratio on this trade is outstanding, plus we increase turnover, step into a younger female, and there is a great capture of time value here.

The second one that gets my attention is selling the short solid, and broken mouth pairs and buying spring calving first calf heifers. The value this trade sells into the market is equal to what we are getting paid for it. The beauty of this trade is we avoid selling a cull, and we pick up a young female. Some people may not like the idea of heifer problems. Remember, time changes everything, even relationships. There likely will be an opportunity to resell her before she calves and pick up something else, generating even more positive cash flow.

The feeder market is a broken record again, this is a weight gain business. There were some values of gain (VOG) that topped $4 this week! I am going to reemphasize this point, absolute price is not the most important thing, relationships between them are what is important. Prices are higher in Nebraska and South Dakota than they are in Oklahoma, for example. The VOG were higher in Oklahoma than they were up north. The price may not be as high in Oklahoma, but the ratio of dollars to pounds is much more attractive there.

This week feeder bulls were up to $30 back and unweaned calves brought anywhere from a few dollars more than weaned calves to 15 back.

Doug Ferguson

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