Questions & Answers
from "On Ice Cream" featured in Dairy Foods magazine
and sourced from "On Ice Cream" technical short courses.

Cost Management in Ice Cream Manufacture:

Question: How can costs be effectively managed when manufacturing of ice cream?

Answer: It is often easiest and best to consider sources of costs first, quantify the opportunities, and then deal with cost management based on specific priority considerations. Priorities can be based on total cost saving, convenience, need, and/or speed. Priorities do vary organization-to-organization and even within a single organization, so care is necessary when applying an appropriate priority to a cost savings opportunity.

Elements of cost include variable costs, fixed costs, yields and losses, and margin targets. Variable costs are costs that vary with production volume. The higher the production volume, the higher the variable costs. Variable costs can include mix ingredients, flavors, and inclusions, packaging, labor, storage, freight and shipping, utilities, etc. Fixed costs include costs that are fixed but as production volumes increase fixed costs, as percent of total cost, are reduced. Fixed costs include general, sales, and administration (GS & A), marketing, advertising, depreciation, taxes, etc. Of course, yields and losses are critical elements of cost as well.

Many times we tend to ignore the impact of yields and losses on cost savings opportunities. As losses in terms of ingredients, packaging, finished product, etc., are reduced and as yields (amount of finished ice cream made) are increased, the more ice cream is made available for sale. The more finished ice cream available for sale, the more total margin is returned. Many times managing yields and losses can be as effective as managing ingredient costs. Further, managing finished product weights (i.e., overrun; inclusion rates, etc.) can prevent giving ice cream away (i.e., ice cream beyond targeted weight per gallon) at sale.

Remember everything depends on specific situations relative to specific products made in specific plants. Ingredients can be 55-60% of finished product costs depending on composition, package size, flavor type, etc. Packaging can be 15-20% of total costs again the smaller the pack size, the higher the relative packaging costs. Variable and fixed costs can be up to 25% of total costs. Losses of 1-2% of total costs are pretty typical and, of course, minimizing losses can be critical to success. Add freight, warehousing, merchandising, etc., to these costs. Add margin needs of 20-25% on top of total costs and on can easily see that managing ingredients and finished product yields can be critical to success. Again, the per cent contribution of each element is dependent on many factors.

Ingredient cost saving opportunities are limited by regulatory, technical, and marketing considerations. Regulatory limits can include limits due to claims or restrictions due to standards of identity. Marketing considerations are based on what needs to be said about the product. Technical limits can include consumer acceptability as well as ability to meet certain quality targets.

Yield is affected by various operational losses and the amount of finished ice cream that can be made. Yields are directly affected by mix density and overrun. The heavier the mix and the higher the overrun, the more finished ice cream that can be made from one volume of mix. Thus, by managing mix density (i.e., mix composition) and overrun, more ice cream could conceivably be made from one unit volume of mix. Since finished ice cream has all costs bundled into it and nets a margin return on all investments, then selling more ice cream returns more to the bottom line.

It is also critical to understand quality can limit the opportunities in cost savings programs. If quality means delivery of specific sensory characteristics (appearance, body, texture, flavor), then deviation from a targeted quality can create potential market problems. Quality issues can include increases in defects such as coarse, icy, fluffy, and greasy ice cream, as well as potential for reduced freeze/thaw stability. Quality issues can also effect inclusions and the inclusion/ice cream interface.

“ Cost savings” due to improvement in yields can be equal or greater than cost savings opportunities from managing ingredient costs. However, managing these and other sources of costs can help maximize return on your overall investment.