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Balancing People Capacity --Dickeson

April 2003
Last month we looked at 10 years of Printing Industries of America (PIA) Annual Ratio Studies thanks to PIA's Ronnie Davis and Steve Kobey. Specifically, the history of Value-added resulting from Manufactured Sales minus Direct Order Additives (materials and buy-outs) was viewed. Values-added by the Profit Leaders (top 25 percent of reporting firms) were compared with those of the lower 75 percent and found to be within a half percentage point of each other over the years.

Conclusion: It isn't pricing that distinguishes between the high and low groups. You could multiply the DOAs by 2.75 and have a reasonable Target Selling Price for either group. So what is it that makes the Profit Leaders that much better than the lower 75 percent?

It is capacity and capacity utilization.

Not hardware capacity. When we say the word "capacity" we automatically think of the impressions a press is capable of producing or the number of signatures a binder can handle. Forget hardware capacity. Think of capacity as the value that can be added by the people employed by a printing firm.

That's the value adding capacity. If you had a room full of presses and binders you couldn't add value without people to operate and administer them. Capacity issue restated: how much desired value can the people add? Look at the difference between Profit Leaders and the lower 75 percent of printers reporting to PIA using the total comp paid out as the measuring tool of capacity.

This is where the rubber meets the road, where the difference in profitability between the groups is to be found. The lower 75 percent of firms have consistently spent 9-10 cents more of every Value-added dollar for people capacity for the past 11 years. In 2002, the last reported year available, it shot up to 12.4 cents more for the lower 75 percent. The lower group is simply spending more for capacity.

YearLower
75%
Upper
25%
Variance
200261.73%49.35%12.38%
200163.84%54.35%9.49%
200063.38%53.76%9.62%
199963.91%53.79%10.12%
199863.09%54.25%8.84%
199763.70%55.08%8.62%
199664.25%55.04%9.21%
199563.86%55.38%8.48%
199464.64%56.16%8.48%
199364.99%55.25%9.74%
199265.39%56.78%8.61%
Here are the numbers taken from the PIA Ratio Studies plotted in the graph. As best I can recall we haven't ever looked at these data points in a time series before. I don't remember ever having thought of them as measuring capacity before now.

But when we do this we get a fresh, global view of our industry, don't we? We're suckers paying a dime more for every dollar of value we add for people we can't, or aren't, using! When we see those two graph lines and when we scan down the Variance column in the table we ask ourselves: "Didn't we know this? Are we that dense?"

The answer is that we knew, or sensed, that something was wrong. We called it "over-capacity" and blamed suppliers for sweet-talking us into equipment purchases. Yes, we were that dense. We bought the machines and then kept all the same people cashing the same, or increasing, paychecks. We dreamed that, in some magic way, new sales would keep everyone busy. Never happened in 11 years.

Or we didn't buy the new machines when we should have and the old equipment required more payroll capacity to deliver the jobs. We delayed equipment decisions beyond their time. In either case, it comes down to people as the capacity constraint, doesn't it? With new equipment we have unneeded staff.

With older equipment we need to have more staff to get the work out. The key is the delicate balancing of capacity with adding values demanded by the voice of the customer. And at the right moment in time.

And then there's that old marketing myth that in order to keep accounts we must supply ALL the printing needs of the account. (If I hear that one more time, I'll vomit!) We support inefficient processes to avoid a competitive printer getting cozy with "our" account. This excuse is offered to support capacity for processes we can't justify.

It all comes back to top management decisions, doesn't it? The buck stops right there. We must make the right decisions at the right time and then execute. As Jim Collins puts it in his "Good to Great" book, it's all about knowing when to curl up into a ball, make like a hedgehog and do what we do best.

Personally, I'm obsessed. We haven't been providing ourselves the support information we need to make and execute those critical decisions. We're still far too busy specifying, planning, budgeting, and setting unattainable goals and targets. That old model died in the '80s when we began to learn about variance and prediction. We're still reluctant to admit it's gone.

The game is to balance capacity with what we can do well and forget the rest.

—Roger V. Dickeson

About the Author

Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached via e-mail: rogervd2@cox.net.
 

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