Polyface Case Study

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Other differences:

- Infrastructure:

(i) Relying on natural design enabled Polyface to abstain from huge capital intensive equipment usage. This meant that while a typical farm spent $4 on infrastructure per $1 of annual sales, Polyface spent only $0.50

(ii) Each infrastructure piece could be used for multiple purposes. This enabled rotation of different species through each of the structures. This further helped in avoiding pathogen development.

- Interlinked ecosystem:

(i) Rabbit-Chicken: During winters, rabbits and laying hens cohabitated rakens. Rabbit droppings provided insects and insect larvae to hens which they got from cows during summers. The chicken in turn upturn and enable composting of both their and rabbits’ droppings by their natural scratching motion.

(ii) Cow-Chicken: During summers, egg-houses followed cows from paddock to paddock with a lag of three days to feed on 4-inch long grass. Hens debug the cow droppings by eating insects and insect larvae thereby reducing risks of cattle infections. Hens also help in getting cow droppings incorporated into soil by their instinctual scratching motion.

(iii) Cow-Pigs: During winters, pigs were used to aerate the cow droppings and wood chips’ bedding. This happened because Pigs fed on oats and corn which was regularly sprinkled in the bedding. While digging the bedding to root out the hidden feed, the pigs aerated the bedding thereby converting a potential pollutant into nutrient rich fertilizer.

(iv) Turkey-Vineyards: The rearing of turkeys enabled Polyface in getting rid of weeds that grew in the grape vineyard.

Question 2

What are the challenges of managing and growing economies of scale and economies of scope operations?

Economies of Scale

Economies of scale are referred to as decrease in average costs due to increase in production volume. As a plan gets larger and volume increases, the output average cost per unit typically comes down. The fixed and variable costs are distributed between larger no. of products bringing down the average cost per unit. The utilization of the dedicated resources also increases which helps in gaining efficiencies in the process.

Some of the challenges that Polyface will face while to get into economies of scale operations are –

- Increase capacities to increase volume production and scope of optimizing prices

The very first challenge is to make sure that the existing resources and capabilities are fully utilized. However, many of the resources are efficiently utilized in the current scenario. For example, Unlike the industrial farms, Polyface is able to grow two calves into cows per year as compared to the industry standard of one. By efficient utilization of resources.

Secondly, it is mentioned that the market growth is far higher than the current capacity. Hence, there are two options to increase the capacities –

- Acquire more land in a new area or local farms with similar structure

The new location will increase the clients of the farm. The challenge will be to recruit and train more employees who can move over to the new land and manage the place. Setting up a completely new supply chain and distribution system will also be a challenge.

- Increase capacities in the existing setup

Polyface seems to have maintained a very delicate balance of the resources. An excess of the chickens will lead to excess nitrogen in the soil from the dropping. This will cause pollution from the runoff.

- Increasing sales channels

The increase in volume may require development of more sales channels to sell. Right now, it seems that demand from existing customers is more than current capacity. But Polyface should also start developing sales channel for future.

- Maintain same high quality standards of the products

The expansion should not happen at the cost of superior quality standards which Polyface has established and because of which consumers are willing to come and take their products travelling large distances. The increase in capacities should be carefully accompanies with similar focus on product quality.

- Specialization

Economies of scale operations are typically successful when there is specialization in few products so that entire focus is on improving the efficiencies instead of product variety. So, if Polyface decides to operate via scale mode, it may have to sacrifice some of their products and focus on high topline and bottomline products.

Economies of Scope

Economies of scale are referred to as decrease in average costs due to increase in product variety at a given output level more cheaply than a combination of separate firms producing similar outputs. Some of the challenges that Polyface might face in this route are –

- Identify new market needs which can be converted into new products (diversification) or can be addressed with existing ones

- The network of resources like animals, birds, feed etc. is closely linked and hence any new addition has to be done very carefully without affecting the existing ecosystem adversely.

Question 3

How would you measure the productivity of Polyface farm?

The productivity of Polyface can be determined in three different categories of Beef, Chicken and eggs. This is because the case doesn’t provide any data related to land usage, labor involved and capacity utilization.

Beef:

Productivity (pounds/month per acre of land) = (Weight of cow – Weight of calf) * Cow per acre/Months given to calf to mature

Industry

Polyface

Weight (Calf)

600

450

Weight (Sellable cow)

1050