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Let's Keep It Simple--Dickeson

September 2003
"I really don't trust the integrity of the formula establishing them," remarked a print executive. He was talking about the cost numbers produced by his computer management information system. "By and large, printers just don't trust the MIS cost data," said a printing industry expert consultant.

More than a quarter-century ago, Wally Stettinius in his classic "Management Planning and Control," warned that, ". . .Unless they [cost accounting data] are complete, and reconciled regularly to the figures reported for financial purposes, the possibility—actually the probability—is that inconsistencies will creep in."

Several times, over the past years, I've challenged printers to prepare a variance analysis of "profits" reported by cost systems with the "profits" for the same period shown by their financial reports. How many have done so? I can count 'em on one hand and still have fingers left over. "Why don't you do this simple task?" I asked an executive.

". . .Printers don't want to use any type of variance analysis. Sometimes we look pretty dumb. . .and do you really want to know what happened. . .are we that inept?"

Just too, too embarrassing. . .that sums it up.

We're wallowing around in quicksand. Here we are with expensive computer systems for which we paid a bunch of money to give us results that we don't trust. And really don't use. Yes, it's embarrassing. Wally told us 28 years ago that unless we reconciled cost regularly with general ledger values we'd probably be inconsistent.

Not-So-Little Mistakes

Since Wally spoke, we've learned that small inconsistencies in input have profound impact on results. In estimating a job, we have inconsistencies both great and small! If Wally were writing today, he would say results will be inconsistent, not "probably" so.

Whose fault is it that we're now in hot slop with inconsistent, embarrassing, incredible, computer cost systems? We've just got to blame someone. Let's have an old-fashioned, finger-pointing, post mortem, blame session.

Hey, it's the system suppliers, isn't it?

"No way," they shout. "We've given you exactly what you asked for. Our computer systems and programs work just as they're supposed to work. It's your fault if you don't keep the systems complete and reconciled as we, and your Wally Stettinius, told you to do. Garbage in, garbage out."

No. It's us. The moving finger now points at us. We asked for it.

"But we're busy getting jobs out the door," we scream back just as loudly. "We can't spend all of our time keeping your magic systems updated. We're printers, not statisticians and computer geeks. You didn't tell us about the constant care of the system and the errors in specs."

Nobody wins the blame contest. We spec'ed out the MIS framework before we'd ever heard of Deming, Shewhart, Wheeler, Goldratt, Ohno, Chaos Theory and all that stuff. Mandelbrodt hadn't yet mentioned the non-linearity of numbers. Both we, and our system suppliers, were doing the best we could with what we knew at the time.

We didn't think about the fact that we mainly wanted the system for estimating—predicting costs—so we could price jobs. Now we know. We can't predict. Can't predict sales—job quantity, job mix and job timing. We just can't predict job or form sequence in commercial printing. We can't predict what customers will demand. We can't forecast what hours will be chargeable and what hours won't. We can't predict the weather, the national or state deficits, unemployment or the stock market. What were we thinking about?

Because we didn't know these things, we developed estimating/ pricing systems that seemed right at the time, but no longer are. Now we don't trust numbers because we don't trust ourselves. Some of us say things like, "I need that computer estimating system because it clues me on how my competitor will price." Honestly? Isn't that an oxymoron or something?

We thought the cost systems would tell us where we went wrong when we lost big time on some job—post mortem stuff. But we just didn't know about routine process variation. Maybe that loss was just routine variance. We didn't think about the non-linearity of the numbers—didn't know how to measure and find out. And even if we did know, what can we do about it now? That knowledge won't work in our computer system. The one we've already bought and paid for.

So, we wallow on in the deep quicksand we created, blaming everyone but ourselves. Blame the customer, blame the crews, blame the suppliers, blame the weather. Did we miss anybody?

But when we run out of blame, let's sit down and figure out what we're really going to do. Okay. . .I'm listening.

We can't use the books of account for management decisions. General Ledger Accounting is always a rear-view mirror. Can't use job cost accounting because it's 99 percent wrong and we don't, and shouldn't, trust it.

We've just got to SIMPLIFY. We need numbers we all believe and that make sense with what we know now. We're pretty smart people and we've got to trust ourselves and what our gut says is right.

SIMPLIFY.

About the Cash

Let's get back to cash. That's simple. We can trust ourselves to know how much cash goes in and how much comes out. We know what we billed a customer and what we spent for materials for that job. The difference is value-added. What we're spending for payroll and everything else is cash going out as general business expense. That's it. Don't sweat it. Don't complicate it. Don't make a deadly quicksand of "costs."

It really is that simple. Just know the value added by job, customer and the totals. Simplify. Know how fast or how slow the customer pays his print bill. Simplify!

How do we price a job? How are you doing it now? You're really not using that fancy estimating system you mistrust, are you? Just figure out what you think the materials cost will be and then double, triple or quadruple that number, as you deem best. You then have a target price. Proceed as you're now doing. But make it a judgment call based on informed intuition. It's really that simple, isn't it?

—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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