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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.
 

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