Dickeson--Use the Right Efficiency FormulaJanuary 1999
Productivity can be indexed and measured by a combination of market effectiveness and internal efficiency. If a business is producing buggy whips with optimal resource use, it's "efficient." But since the value perceived by the market is essentially nil for buggy whips today, the business has negative effectiveness. It cancels out any efficiency and results in zero productivity for the effort.
So what are the basic resources that must be productive for the printer? They are:
- knowledge, and
All four must be achieving full productivity in order for the company to thrive. But, let your inventories and receivables pile up and there goes the capital. Likewise, as material waste rises, productivity of materials declines. Cut short training for new people or hire too many employees, you've bought time that's wasted.
How, then, shall we measure the productivity of a printing company? Don't suggest dividing chargeable hours by hours available!
Until someone suggests something better, my crude number is sales, less materials (value-added), divided by the number of people on the payroll—annualized.
Productivity needs some ideal number for an index or benchmark for monitoring change. You pick it for your company. Can't do it? Just take value-added per head for last year as a default. That's your base point. Say it's $80K per head. If the next quarter comes in at $60K per head, your productivity has fallen 25 points! If it comes in at $85K, productivity's up 6.25 percent.
Take your sales, materials and average head count for three or more prior periods (quarters or years), and you can figure where the combined effectiveness and efficiency of your enterprise is heading.
Do it. It'll give you a rudimentary trend. Then dig out the PIA ratio studies and benchmark with comparable companies. You'll know whether you're healthy—but starting to slip—or whatever.
I said it was a crude index. Inflation should be indexed among many other things to get a solid handle on trends. And then we know that there are really three competing kings to manage in our empire:
- King Liquidity,
- King Productivity, and
- King Tomorrow.
Productivity's just one of the three. No mention of the accounting fiction called "profit" in that list, is there? King Liquidity is availability of current assets to cover current liabilities. King Tomorrow is the cost of reinvestment for the future. King Tomorrow always fights with King Liquidity.
Complicated? Hey, if it was easy, we'd all build a new home in Omaha right next to Warren Buffet's.
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in The Woodlands, TX. He can be reached via fax at (281) 419-8213 or e-mail at firstname.lastname@example.org.