On pages 3 and 4 of the 10-K for their fiscal year ended June 30, 2019, Farmer Brothers detail their efforts to “Reduce Costs and Compete More Effectively” (note: DSD refers to direct store delivery) Farmer Brothers is a “price taker” and a relatively small player in a big market. If they fail to control costs, they will fail as an organization. For a company like Farmer Brothers, it can accurately be said that for the most part “they don’t manage costs, instead, they manage processes and costs are outcomes.”

From 2019 10-K: Reduce Costs to Compete More Effectively

•	Acquisition Integration. Through our recent acquisitions, we have worked to reduce costs by integrating the acquired businesses into our existing corporate and operational structure. Eliminating redundant functions, merging delivery networks, and combining production processing and facilities have resulted in added synergies and efficiencies compared to their pre-acquisition cost structures.

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New Facility. We undertook the relocation of our corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California to Northlake, Texas, in part, to pursue improved production efficiency to allow us to provide a more cost-competitive offering of high-quality products. We believe the ongoing improvements in production efficiency will allow us to operate at a lower cost, generally over the long term.

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DSD Restructuring Plan. As a result of an ongoing operational review of various initiatives within our DSD selling organization, we have reorganized our DSD operations in an effort to streamline operations and improve selling effectiveness and financial results. We continue to analyze our sales organization and evaluate other potential restructuring opportunities in light of our strategic priorities.

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Supply Chain. In recent years, we have undertaken efforts to streamline our supply chain, including replacing our long-haul fleet operations with third-party logistics (“3PL“), resulting in a reduction in our fuel consumption and empty trailer miles, while improving our intermodal and trailer cube utilization; using vendor managed inventory arrangements to reconfigure our packaging methodology and reduce waste; and engaging third-party warehouse management services at the Northlake facility to facilitate cost savings by leveraging the third party's expertise in opening new facilities, implementing lean management practices, improving performance on certain key performance metrics, and standardizing best practices.

•	Telematics. In an effort to make our DSD fleet more fuel-efficient, we installed telematics monitoring devices in our delivery trucks, allowing us to see contributing factors to our transportation-related carbon footprint. Installation of telematics monitoring devices has resulted in reduced idling time, a cut in rapid acceleration, and a reduction in fuel expenditures.

a. Based on the disclosures provided in the section “Reduce Costs and Compete More Effectively,” provide three examples of initiatives undertaken by management that are intended to utilize fixed costs more effectively.

b. Based on the disclosures provided in the section “Reduce Costs and Compete More Effectively,” provide three examples of initiatives undertaken by management intended to manage variable costs more efficiently.

Answer rating: 100% (QA)

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