Operations Research

Topics: Soybean, Soy protein, Costs Pages: 17 (5158 words) Published: January 30, 2013
Chapter 1
This chapter gives the background of the study, the statement of the problem, its significance and the scope and limitation of the operations research.

Company Background
Pao Pao Farms is located in San Isidro, Castilla in the province of Sorsogon, which is approximately 500 km away from Manila. The total land area of the farm is 10 hectares and mostly composed of productive coconut trees and has a natural free flowing water source located in the middle of the property. The operation of Pao Pao Farms started on March 28, 2008 with an initial 6,000 heads of ready to lay layer pullets sourced from Batangas. At the start, it only had 4 workers and a farm technician who supervises the technical aspects of animal health. The owners realized the big potential of layer farming in Sorsogon because almost 50 to 70 percent of the local egg supply comes from Albay and Camarines Sur which makes the relatively prices higher.

The farm has currently 40,000 heads of laying pullets which have different ages and are housed in 8-layer buildings equipped with a semi-hot dipped galvanized caging system composed of light materials like wood and good lumber. The building structures are of mixed concrete and wood because they make the building more resilient in times of typhoon or strong winds. There are also 4 growing/rearing buildings which house the pullets where they are grown from day-old chicks until the 16th week (the start of the laying period) and then transferred to the layer building. Generally, Pao Pao Farms’ core business operation is table egg production. But in the course of the operating cycle, there are by-products which add revenue to the overall performance of the company. One of the byproducts is chicken dung or chicken waste. A natural fertilizer sold to local farmers and some to viajeros who prefer cheap and organic inputs to their farming activities. Another one is after the laying period of the layer pullets (1.5 years), they are sold for slaughter and meat consumption to local buyer, at a lower price than the usual broiler chickens. Since the farm utilizes commercial feeds as their input, the used sacks are also a source of revenue.

The company employs a “business-to-business” model which involves transaction between the farm and the wholesalers or dealers. Given this setup, the owners are planning to initiate an expansion of the operation through vertical integration, which means that the company will assume the role of a supplier and/or middleman either in the marketing or production side. Considering the current pricing trend in the egg market, it is more practical to integrate a venture which will drive down the production cost of producing eggs. Thus, the owners are planning to set up their personal small-scale feed mill which will supply the feed requirements of the farm. Currently, feed consumption is about 3,300 kilos per day or 66 bags priced at P1,072 per bag which incurs the farm P70,752 feed costs. In one month this totals to approximately P2, 122,560.

Statement of the Problem
This operations research aims to determine the economic effects of establishing a small-scale feed mill which will be integrated into the overall business of Pao Pao Farms to replace commercial feeds as the primary input in production. This research will try to answer the following:

1.What are the advantages/disadvantages of the farm having its own feeds? 2.What are the costs in setting up a small-scale feed mill operation? •Raw materials
3.What is the overall effect of the feed mill operation in the aggregate operation of the business?

Scope and limitation
This study only focuses on the operation of Pao Pao Farms, specifically the economic cost of putting up its own small-scale feed mill. It involves the proper set of inputs needed in the method of production: raw material, labor and machineries. The specified costs that the researchers will look into are...
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