A Truck Full of Melons — Dickeson

Dirty Little Secrets
Another little secret of our industry is that we don’t get our invoices out for an average of two weeks after delivering jobs. Walmart is making a profit on fast turns. We are not!

Taiichi Ohno, of Toyota, taught us the value of JIT—Just in Time inventory management. The shorter the time interval between receipt of raw materials and incorporation of them in the manufacturing process, the greater the profitability. Walton and Ohno both stressed the value of velocity.

Peter Drucker, in earlier writings, emphasized three aspects demanding management concentration: productivity, liquidity and being in business tomorrow. Turning over inventories and receivables is a pivot point of liquidity. Today, proponents of e-commerce are stressing supply-chain management and time compression as enterprise value-added using Internet communication. Once again we are addressing velocity—resource turnover—as a key profitability issue.

If we could demonstrate a credible valuation model for increased resource turns we’d shake managers into turning inventories and receivables at least 24 times a year, issuing invoices the day of shipment and climbing aboard e-commerce. We’d have a new group called the “High Velocity Printers.” But, alas, we aren’t trucking honeydews to Phoenix.

Although there’s a kernel of truth in that illustration, life in commercial printing isn’t that simple. If we examine the Margolis Ratio Study information, we see that the upper one-fourth of printing companies (profit leaders) are returning about 19 percent profit on assets employed. Let’s take a moment to stare at the table above.

PIA Ratio Studies 2000
Firms Leaders Others All
Average Assets $8,155,058 $7,798,684 $7,888,572
Average Sales $13,323,295 $13,151,369 $13,194,734
Average Income $1,535,421 $271,127 $590,019
Return on Sales 11.52% 2.06% 4.47%
Return on Assets 18.83% 3.48% 7.48%
Number of Firms 198 587 785

The other three-fourths are returning 3.5 percent on assets. They’d do better by putting their cash in a money market account if these numbers are typical. All 785 firms with 7.5 percent asset return are not doing sufficiently better than a money market account would. That level of return doesn’t justify the risks involved in printing.

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