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Move Over, Elvis --Dickeson

October 2005

It all feeds into a computerized database written in an SQL language, and every employee has access to a computer terminal for listings and forms. Then there's the piece de resistance: a subprogram called "System Buster." When someone or something happens that doesn't comport with the checklists, the System Buster detects the problem. It's immediately flagged for correction. If it's a personnel default, that person is called for an explanation. This puts an end to the finger-pointing circles that are the nemesis of print quality programs.

Maintaining Expectations

I love the idea of System 100 and its checklists that assure personal accountability. Inventories are restricted. Delivery dates are kept. Invoices issue immediately. Plant cleanliness and equipment maintenance are assured. Every needed tool is immediately at hand. Everyone knows what's expected of him or her.

Why haven't we done this before?

But two paramount issues of marketing remain unresolved for the printing industry which System 100 wasn't designed to address: pricing and receivable-collection. These are policy decisions of individual printers. Pricing continues to be marked-up internal "costs"; receivables still stretch to 60 or 90 days.

Allowing receivables to stretch is "buying" sales. It's a pricing concession. It's a widely, almost universally, practiced concession by commercial printing firms, isn't it?

Marking up BHRs (Budgeted Hourly Costs) to set a TSP (Target Selling Price) is a silly, ancient, practice indulged widely, almost universally, by commercial printing firms, isn't it? This is where the other half of the Nashville axis comes into play—G. David Dodd with his clarion call to "Throw Away BHRs: Win the Pricing Game."

Dodd makes one of the most cogent, scholarly arguments pointing out the many flaws and weaknesses of budgeted hourly costing I've yet seen. Read it! It'll make you reconsider your "computerized" estimating system or whatever similar version of BHRs you may be using.

There's a vast difference, Dodd says, between variable and fixed costs in printing. Variable costs are the cost of raw materials and outside purchases for a specific job. Fixed costs are all of the other costs, such as the compensation of people, rent, depreciation, insurance, utilities, etc. Think about it.

These fixed costs, Dodd contends, do not vary with jobs. That's true. They may vary over a longer term, but they're not causally related to a job. Yet we struggle to fabricate a causal relationship by allocating some portion of those fixed costs to every chargeable hour of press, bindery, or other production time. Kind of makes you weep for the silliness of it all, doesn't it?

A Simple Formula

Instead, Dodd ventures, just add up all the fixed costs you expect for a year and divide by all the hours of people you expect will be involved with jobs for the year and, voila, you have a CAR—Cost Accumulation Rate per hour. To estimate a base TSP for a job, just add the variable costs, together with the hours you "expect" to use for the job, multiply by the CAR, and there you have it—a breakeven TSP.

This is a lot simpler than working with BHRs, says Dodd. You can change the Cost Accumulation Rate any time circumstances of hours or costs appear to have substantially changed. It's still a backward approach to pricing—marking up costs—but it's a lot simpler.

Maybe it'll satisfy some printers still wedded to marked up costs, but it's still unrealistic, I think. Price must be the value perceived by the customer, constrained by the competition. That's totally unrelated to your internal costs. You agree? I still prefer working with the pragmatic approach to pricing I discussed earlier.

Philip Beyer and G. David Dodd, the Nashville thinkers, have taken us a long way down the road to thoughtful, sensible, commercial printing management. We owe you guys that cuppa Starbucks and much more.

—Roger V. Dickeson

About the Author

Roger Dickeson is a printing consultant located in Pasadena, CA. He can be reached at rogervd@sbcglobal.net. A PDF copy of his recent book, Monday Morning Manager, is available without charge by e-mail request.
 

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