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A WIP-challenged Industry --Dickeson

October 2002
Back in the mid-1900s, managers had piecework, incentive pay, layoffs, short-hour call-backs and employment schemes reminiscent of the longshoreman's daily "shape-up" they used. There are still remnants of those practices. But, in printing? No way.

Well, perhaps in emerging economies in Africa, Asia or Indonesia. Pre-1960, when variants of those employment practices were still around in our industry, by stretching a tad, you could call direct labor a job-variable cost. When a press was waiting for plates, you told the crew to "clock out" and go home. Anybody tried that lately? In the last 30 years?

In the '60s we were still listening to Spencer Tucker and his complex schemes for Budgeted Hourly Rates centered on "Chargeable Hours" of labor in "cost centers." By 1976 we'd begun to waver when Wally Stettinius cautioned us that "...Any manager using an hour rate in his decision-making deliberations must look behind the stated value." ("Management Planning and Control," page 313.) In the '80s we heard about Chaos Theory, TOC (Theory of Constraints), JIT (Just in Time), WOW (War on Waste) and SQM (Statistical Quality Management). The realization began to dawn that hourly budgeted rates of production centers were misleading us.

Going With Our Guts

Still, we've continued our cultural commitment to tracking job costs, even though we'd pretty much abandoned them for sales and marketing. We replaced them with "gut feel" and no reliable statistical system at all for operating decision support. Why do we continue?

You see, good buddies, NAPL, R&E, PIA, GATF, local associations, printing management information system suppliers and old-time consultants hang on to tradition like Rev Tevye in "Fiddler on the Roof." They scratch their beards and sagely ask, "Do you really know your costs?" That intimidates us. We don't know, and will never know, our "costs." But neither do, nor will they!

Our professional accountants know better, but they hang around in order to preserve their precious WIP (Work in Process) construct. The WIP is a part of their General Ledger Accounting routines that borrows BHRs and chargeable hours from Job Cost Accountancy. The assumption is that incomplete jobs should bear some of the period expense cost load that "matches" the future revenue to be generated by those jobs. So we "defer" reporting some expenditures until a future time by the WIP. Logical? Appealing? Seductive?

Well, that's what WorldCom thought, so they said. "We'll just defer some of our costs until they match up with the sales revenues those costs will generate." It's 2002 and, painfully, we now know better. There's some "point" beyond which you mustn't go in any effort to match costs (whatever you define costs to be) against probable revenues. What and where is that point?

Are we manipulating cost deferrals with our WIP systems to the point of misrepresentation? Probably not. But we sure do wind up confusing ourselves and delaying vital statistical needs, don't we? Our accountants know that BHRs and chargeable hours are myths and metaphors, but they're dedicated to the notion of matching costs with revenues. Using BHRs and chargeable hours is all they have to work with. And, besides, the IRS is quiet with those fictions.

Now we recognize that wages and social costs of production people are simply expenses to be managed like all other expenses. They're all expenses of a period of time. Trying to tie the expense of plant labor to specific jobs makes as much sense as trying to tie the water, phone or insurance bills to specific jobs, or shoot billiards with a rope. It isn't logically justifiable.

Then attempting to export those job costs (whatever you define those costs to be) to general ledger zero balance accounting for WIP valuations by chargeable hours is plain foolish. So why don't we stop all this baloney and just get as close to cash with our statistical model as we can?

But what happens to our sacred WIP—our matching of expense to revenues—if we just quit BHR job costing chargeable hours? Scary, isn't it? Scary because it's all so simple and logical. Any mystique of the professionals vanishes. We just quit deferring all those little pieces of period expenses we're post-poning for later as BHR "costs." No longer will we be a WIP-challenged industry. (Hello WorldCom, we learned the lesson!)

Check Your Invoices

The only job cost we have is direct materials. Do we know our materials job costs? You bet your bippy we do. We've got invoices from suppliers. No BHR SWAGS. No job chargeable hours to distract us. Do we know our WIP? Easy. It's only the job-direct materials we bought and appropriated to jobs still in process. Do we know our period costs? Sure. We've got our check register to prove them and our Break-even Bogey to alert us. Do plant people understand this decision model? Of course they do.

Here's the best part of all. We start measuring MHP (Materials Hours in Process). That's what we're really concerned with for increasing efficiency and effectiveness. How fast are we moving direct materials dollars through production? Where are the bottlenecks—the constraints on materials speed? Suddenly we're mainstreaming again, with TOC, JIT, TQM, WOW, Six Sigma and. . . you name it.

The PIA, R&E, NAPL and GATF are happy as clams because they now have new books to peddle and scads of fresh seminars to tout. The print MIS suppliers are ROFL (Rolling on Floor Laughing) with all the upgrades and add-ons they can bill. Consultants can stroke their beards and ask, "But do you know your real RMT (Rate of Materials Throughput)?

It's win/win for printers. The better and faster materials flow, bottlenecks are alleviated and the more capacity we have. The greater our capacity at constant or lowering period expense, the more we can sell at ever-lowering prices while making ever-greater enterprise earnings. (Hello Wal-Mart, we learned from you, too!)

"If this be treason," said Patrick Henry, "make the most of it!"

—Roger V. Dickeson

About the Author

Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at, by fax at (520) 903-2295, or on the Web at

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