American Ed. Dec 2019
American Ed. Dec 2020
On Ice Cream
"On Ice Cream" featured in Dairy Foods magazine
and sourced from "On Ice Cream" technical short courses.
Management in Ice Cream Manufacture:
How can costs be effectively managed when manufacturing of ice cream?
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)
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
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.
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