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Enemy Number One --Dickeson

April 2002
"Roger, what would it cost Republic a month if we just locked the doors on your plant? Call me back at 2 p.m. with the number."

Sandy Sigoloff, then-president of Republic Corp., owner of Mid-America Webpress in Lincoln, NE, in the early '70s, was not well known for subtlety and diplomacy. Promptly at 2 p.m. I called back.

"Sandy, if we locked the plant it would cost Republic $250,000 a month for interest, taxes, loan amortization, insurance and security services. Want the details?" "No, Rog," he said. "How much are you losing now?" "About $100,000 a month," I told him. "Okay. Hang in there, babe," he replied and hung up. (Those numbers are fictional. I don't remember them now, but the gist of the conversation is true.)

Glenn Buck, president of "Nebraska Farmer," asked me to leave my law partnership in 1964 and take over as CEO.

"I don't know anything about running a printing and publishing company," I told him. "Don't worry," he replied, "I'll give you a tip. Just get a list of the checks written every day and the receivables collected, and make sure there's more coming in than going out. Don't pay attention to those cost accounting numbers. Watch the cash flow."

I thought Glenn was not a sophisticated manager and opted to adhere to Spencer Tucker's "Cost Estimating and Pricing With Machine Hour Rates," a sort of printer's bible at the time. Buck was wiser than Tucker.

The cover story in Business Week for February 11, 2002, on Sam Palmisano succeeding Lou Gerstner as CEO of IBM had this sidebar: "He doesn't believe in forecasts longer than a week. When he became president, IBM's monthly operations meeting went weekly. Big Blue had to build new information systems to handle the stepped-up time frame. Instead of reviewing 90-day sales forecasts, he asks managers what business they plan to close in a week. He requires a weekly e-mail on how they did."

What Sigoloff, Buck and Palmisano have in common is a mistrust of predictions or forecasts of the future as a basis for operating decisions. They needed simple, current information they can believe as a decision base.

When I spoke to one of the top leaders in our industry the other day about the Contribution model of Printrol II, he cynically responded, "Rog, printers don't care about accounting; they just want to get out there and sell. Most of 'em don't know the difference between an asset and a liability!"

Sigoloff, Buck, Palmisano and printers in general are experienced veterans of business combat. They're not stupid—far from it. Perhaps it's the statistical cognoscenti who "just don't get it."

By our behavior we're telling those wizards that monthly financials are steering the car by watching the center line in the road in the rear-view mirror; using absorption job cost accounting to establish prices is foolishness. Since the mid '80s, we've known that small changes in input can cause big variances in output. Yet the accountants and printing software firms still insist on predictive management models that ignore that truth. But not Sigoloff, Buck, Palmisano and printers.

Management is prediction and we can't predict reliably beyond next week. Want an annual forecast? Subscribe to "The Farmers' Almanac." We're telling the accountants and MIS firms, "Give us weekly financial information for our knowledge base. Make it simple, credible and current. If you don't do this, you're artifacts for future archeological digs. The lessons of the Enron fiasco are fresh. We're madder'n hell and we're not gonna take it any more.

"We don't want to hear any more of that EBITDA, LIFO, FIFO, FISH, WIP, Depreciation or Amortization stuff. Talk liquidity. Walk liquidity. We want a job contribution number for the prior week every Monday morning at 9 a.m. telling us the invoiced or cash sales with the weekly Break-even Bogey deducted from it.

"Tell us how many days' sales and days' raw paper were sitting in receivables and inventories at the week end. Talk productivity. Walk productivity. We must know how much of our time and material capacity we used for deliverable product for that week. We need these numbers to be in control of this business. If you'll just give 'em to us in rolling quarter reports we can try to shape up the week ahead. We've got all the computers we're going to get. Use them!"

No printing manager is saying that in so many words. But we're voting with our feet by closing our eyes to all the gobbledygook only some experts seem to dimly understand. Have you heard this one?

Fred and Jim decide to go fishing for salmon in the Northwest. They buy all the gear they need, book round-trip flights, check in at a motel and fish for two weeks—catching only one salmon. "Do you realize that single fish cost us $2,500?" Fred asks. Jim responds, "Whew! I'm glad we didn't catch two of them!"

You see, Jim was a cost accountant for a printing company. He believes in job cost accounting—absorption costing. Two fish would have cost them $5,000! But Fred (who might be a shirttail cousin of Glenn, Sandy or Sam) realizes that all the expenses of that two-week fishing period of time were spent catching that single salmon. Fred knows that period expenses are spread over all deliverable product produced in that period of time. If they had caught a hundred salmon in those two weeks, the period expense per fish would have been $25.

But Jim, based on experience, would predict a catch of 26 salmon a year and $65,000 costs and price his salmon accordingly!

Can you fault Fred for walking quietly away from absorption costing? Or Sam, Sandy or Glenn for ignoring it? Or Eli Goldratt for calling it enemy number one? Or printers just batting their eyes like frogs in a hailstorm?

What we're suggesting is that our gurus get cracking and concentrate on our needs for a simple, logical, current system to support our daily decisions—an approach we'll really use.

—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 roger@prem-associates.com, by fax at (520) 903-2295, or on the Web at http://www.prem-associates.com.
 

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