Business Principles of Wyatt Earp, Buffalo Hunter Case Study
After carefully reviewing the information presented in the case study “Wyatt Earp — The Buffalo Hunter,” which is included within Chapter 1 of Operations and Supply Management: The Core by F. Robert Jacobs, the connection between this historical account and fundamental economics becomes quite evident. The buffalo hunting circumstances described by Jacobs — as relayed by Wyatt Earp himself in Stuart Lake’s biographical account Wyatt Earp: Frontier Marshal — represent a closed commercial market in which both supply and demand remain relatively constant. In this particular commercial environment, a business (the buffalo hunter and his assembled team of skinners, spotters and other hired hands) cannot effectively manipulate pricing, so the most effective method of ensuring profit margin is to streamline operations. Despite this economic truism, the average buffalo hunter during Earp’s era “set out for the range with five four-horse wagons, with one driver, the stocktender, camp watchman, and cook; and four others to skin the kill & #8230; (and) provided horses, wagons, and supplies for several months” (Jacobs, 2009), basing their sizeable operational expenses on an expected haul of 100 felled buffalo per day. This volume-based approach required the average buffalo hunter to meet highly unsustainable quotas in order to meet the threshold of profitability, and the majority of hunting excursions resulted in take of only 50 or so hides, meaning the hunter’s obligation to pay for outfitting, supplies and labor resulted in a net loss for days of hard labor.
In order to interpret this case study strictly through an economic lens, it is important to filter the relevant data from the superfluous contextual information included as part of the narrative. Although Earp lacked a formal education in economic theory, he observed the generally accepted practices employed by his fellow buffalo hunters and instinctively employed a concept known as cost — volume — profit analysis, and through this process the legendary gunslinger discovered that by killing fewer buffalo, he could actually derive greater profit despite diminished revenues. According to Colin Drury’s appraisal of Earp’s methods, presented within his authoritative textbook Management and Cost Accounting, the iconic Western figure “saw that the typical hunting party had considerable idle capacity. So Wyatt scaled things down. He decided to use one wagon plus four horses and another horse for riding in place of the four wagons and 20 horses other hunters used & #8230; (and) he hired one good skinner in a profit-sharing arrangement” (2007). Financial management scholars have developed a consensus which holds that “the conventional analytical tool cost-volume-profit, commonly called breakeven analysis (BE), is used widely in managerial decision making to examine sales prices, sales volume, variable costs and fixed costs in relation to target profit levels” (Yuan, 2009), and although Earp had no awareness of these concepts as such, he naturally implemented a process of calculations to reduce expenditures while increasing efficiency.
Earp’s novel solution to the problem of overextension on the part of buffalo hunters was to streamline his operational processes in order to reduce expenses and increase net profits. He introduced an innovative distribution of labor system, in which he “was to finance the hunt; the skinner would drive and cook; and, greatly to the disgust of older hands, Wyatt was to assist in skinning and butchering & #8230; (and) at the end of the hunt, Wyatt was to keep the team and wagon, deduct all other expenses from the gross receipts, and share any net equally with his skinner” (Jacobs, 2009). This profit-sharing scheme devised by Earp ensured that the periodical scarcity inherent to the buffalo hunting industry did not affect his ability to generate sufficient revenue to turn a profit. A hunter with an inordinate amount of experience and proficiency with the use of firearms, Earp also managed to improve the efficiency of his operational procedures, employing a proprietary technique involving the use of a shotgun and herding abilities to maximize his haul of hides from a single attempt. As Earp himself described the philosophy behind his personal management style, “during my three seasons as a buffalo hunter there was never a day when I hunted that I did not have a profitable kill & #8230; (and) I shot one stand a day, which meant twenty to thirty-five dollars apiece for the skinner and myself every day we worked. That was cash in hand, not hopes” (Lake, 1931).
The preceding statement by Earp demonstrates a natural acumen for sound accounting practices that would serve him well during three extremely profitable years in the buffalo hunting industry. By bucking the trend of overindulgence engaged in by his competitors, Earp realized that reducing his investment in labor, supplies and transportation automatically “reduced his exposure to unexpected downturns in volume, and in today’s parlance, he had a lower break-even point and a lower degree of operating leverage (i.e. The mix between fixed and variable costs)” (Drury, 2007). Modern accountants and organizational managers rely on years of formal education to learn that “a higher degree of operating leverage — more reliance on fixed costs in the mix — leads to greater profits when volume is increasing but erodes profits faster when volume declines” (Drury, 2007), but Earp needed only his instincts to recognize the realities of the buffalo hunting industry’s rapidly accelerating pace of development. By remaining willing to participate in a higher proportion of the labor process, thus lowering the amount of expenses devoted to labor, Earp guaranteed that his smaller daily haul of buffalo hides resulted in a greater net profit than that earned by his overextended competitors.
References
Drury, C. (2007). Management and cost accounting. Cengage Learning.
Jacobs, F.R., Chase, R.B., & Aquilano, N.J. (2009). Operations and supply management. New York, NY: McGraw-Hill.
Lake, S.N. (1931). Wyatt Earp: Frontier Marshal. Pocket Books.
Yuan, F.C. (2009). The use of a fuzzy logic-based system in cost-volume-profit analysis under uncertainty. Expert Systems with Applications, 36(2), 1155-1163.
