A WIP-challenged Industry --DickesonOctober 2002
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 firstname.lastname@example.org, by fax at (520) 903-2295, or on the Web at http://www.prem-associates.com.