Seat-of-the-Pants Management Alternative --DickesonAugust 2005
Take this accompanying table, for example.
|Job Throughput Hours|
|Job||Paper in Inventory||Work in Process||Hours to Billing||Collect Rcvbl||Total Hours||Annual Turns|
I don't think you've seen the likes of it before because I just devised it for this article. It's totally blue-sky. But I'd sure like to have it if I were back running a printing company again. Those of you with some commercial printing software probably haven't seen it either. Why? Because you haven't asked for it. I doubt that any supplier of printing computer systems can supply it, even if you asked for it. They haven't got the metrics for it. Although they could have if there was a demand for it.
What's the table mean? I don't see any dollar columns. It's sorta Eli Goldratt stuff—modified Goldratt. It's a table that purports to show how fast each job is moving through the plant, from cash out to cash back in. It starts with the prime raw material—paper. How many hours has the paper been sitting in raw inventory? For Job C, for example, the table says the paper for that job was in raw material inventory for 1,452 hours—60 some 24-hour days. Possible?
Adding it up
You say that Job C was in process for 98 hours—a little over four days. After it was finished and shipped, it took 480 hours to get the invoice out—about 20 days. Not likely, you say. Really? Ever
happen in your shop? Then it took 1,368 hours to collect the receivable for Job C—57 days. All in all, Job C was in the plant, in one form or another, 3,398 hours—141.6 days. Sheesh! That's a turnover of 2.6 times in a 365-day year. I'm definitely not happy with that result. Are you? Do you really care?
Are you concerned that C tied up your cash for more than a third of a year?
That's what I mean by having some numbers to use in making decisions. Yes, by the seat of your pants you'd have a hunch that Job C was hurting you. Maybe. If you ever thought about it at all.
Look at it this way. Suppose you had a hundred thousand dollars invested in a printing plant. The plant's making a cool 1 percent operating profit on jobs. If it's turning your $100K four times a year, you're getting a 4 percent operating return on that money. Right? Am I wrong? Think about it. Suppose we doubled that annual turnover rate to eight times a year. Now you'd be clearing 8 percent on your money. Which would you rather have: $4,000 or $8,000? Silly question.
Could you double that table average of 4.2 times a year to eight times? Look at the table again. What would you have to do? Could you cut the raw inventory time from an average 811 hours to 400 hours—16 days? Chop 11 days to get an invoice out in five days? Cut receivable collection to 25 days from 46? Maybe trim that processing time average by a couple of hours using XmR charting?
If only we had a table by jobs for the last quarter, the last 13 rolling weeks, we could lay out a clear, meaningful strategy, couldn't we? If only we had that table!
What would it take to get it? First we'd have to have a metric—a measure—of hours, by job. We'd need job hours by each of those categories: hours the paper was in raw inventory, in process, in billing and in collection. If we kept it in weekly chunks, we'd know each week where we were heading, what progress we were making, or not making, by category. Perhaps we could do it all by hand and put the results on a spreadsheet.
Then we'd have a measurement of the throughput speed of cash out to cash in, on average, and by job. We'd have an "accountable" metric. (Who's responsible for ordering paper for jobs, the job conversion process, the invoicing and the collection of the money?) The entire team of the printing business! We'd also have an entirely different way of looking at our accounts, jobs and price policy. In fact it'd be a whole different look at the business.
Maybe it's not the way you think about your business—your "business model." But, perhaps, it's the way you should be thinking about the print business. Eli Goldratt would have us look at how quickly we moved material in our plant. That's what WalMart and Dell do and it's worked pretty well for them, wouldn't you say? Anything that impedes the flow of material—cash—through the business is a constraint that should be minimized or abolished. The trouble is, it's new, and new means change, change from the way you've been looking at the business.
It's innovation, not of a process step or procedure, but of a mind-set. You're so accustomed to looking at, and thinking about, plant labor hours that you can't imagine another way of thinking about the printing business. Look again at the table. The least category of the time cash was constrained was in plant labor hours—work-in-process. Is that where you want to focus your efforts? There you may need some physical process innovation. . . which you can't afford because your free cash is tied up in inventories, getting invoices out and collecting accounts receivable!
Mindset is the toughest part of innovation. So, perhaps I'm wrong. Maybe the only way, after all, is to make our decisions by the "seat of the pants." Or, by that ancient Ouija board called budgeted hour labor rates. At the very least, we don't have to suffer the discomfort of mindset change.
But we do live in the age of innovation, don't we? Personally I favor discrete numbers as the basis of decisions. Maybe it's time for change.
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing consultant located in Pasadena, CA. He can be reached at firstname.lastname@example.org. A PDF copy of his recent book Monday Morning Manager is available without charge by e-mail request.