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Some Sweet Memories --Dickeson

December 2005
More than 20 years ago I sat in a committee meeting of printers and magazine publishers in, as I recall, Hershey, PA. The conversation turned to Just-in-Time raw paper inventories. "What are the benefits of stocking paper inventories?" someone asked. "We get a price break from the mills and paper merchants that our printers can't get," a publisher piped up. "It's a safety cushion to protect against shortages and railroad or trucking mishaps," a printer rejoined.

"Well, what are the detriments—the disadvantages—of having a 30- or 60-day backlog of paper sitting idle in the warehouse?" was the next question. "Insurance premiums." "Property taxes." "Taking up valuable floor and rack space." "Damage and aging." "Bank interest charges for idle money." "Drawing down your line of credit," responded the printers. Have our ideas changed in 20 years?

Are you comfortable with these answers? They're all true, aren't they? But is there something more? Some detriment conspicuous by its absence from the listing? Suppose we speculate a bit.

What's all this current chatter about supply-chain management? Isn't that idea simply a further implementation of JIT—Just-in-Time—management? Well then, if so, why is it so damned important to have raw materials or components arrive just as needed and in the quantities required? Who needs Just-in-Time? Where's the payback for the millions of dollars for software now being spent on supply-chain management? What's the theory? Show me the money!

Yes, I know all about Lean Manufacturing and TPS—Toyota Production System. And I'm up to here with all the gee-whiz stories about Wal-Mart and Dell managing with scanty inventories and (here we go again) supply-chain management. What has all that stuff got to do with running a commercial print shop and safety-cushion inventories spilling out of our plant warehouses? Are we missing something?

Return Policy

I'm afraid that maybe we are overlooking the concept of ROI—Return on Investment—or, more particularly, RONA—Return on Net Assets—or, even far more importantly, ROWC—Return on Working Capital. Note that term WORKING. When paper just basks lazily in inventory, it ain't working. It's not making dime one for the home team.

Capital is a scarce resource—next to time, the most limiting resource we manage. While we noodle around with silly budgeted hourly rates for labor, we blithely overlook how fast, or how slowly, our working capital is truly working for us. We only have so many dollars (cash or credit) to run our commercial printing company. Whether we're a five-person shop or a multi-plant company with a cast of thousands, there are limited dollars available for working capital.

The name of the game is turnover—speed of turnover. How many times can we use those limited dollars, over and over again, to complete jobs and to increase net revenue accumulation? That's how they score this game. Anything that constrains that turnover speed is what we must now address.

Was this the factor unmentioned during that committee meeting in Hershey? Is lazy working capital a major detriment of accumulated paper inventories critical to profitability? What do you think? Me? I'm currently hooked on Goldratt's TOC—Theory of Constraints. We just didn't understand the full implications of idle materials in the print production stream at that time. I'm now convinced that we pay harsh penalties for delaying working capital turnover. But TOC, and a more complete understanding of JIT, take us beyond raw paper backlogs.

In addition to raw paper there is another inventory in the working capital print production flow where constraints present themselves: WIP—Work-in-Process.

Beyond production flow there are two additional working capital inventories: FIG—Finished Goods and A/R—Accounts Receivable.

Supply-chain management helps minimize inventories of paper and other outside materials for jobs. But once the job hits the plant floor, internal controls and systems such as TOC and JIT must apply to accelerate the flow of the working capital assets of WIP, FIG and A/R. (Whew, what an alphabet soup!) It's all a matter of concentration on the rate of throughput speed of those internal inventories—WIP, FIG and A/R. The search is on for flow impediments—constraints—in order to identify and minimize those drags on the velocity of working capital.

What this clearly means to us in commercial printing is that working capital speed is where we must focus to win net revenue return. Minimize raw material lead time. Don't start jobs too early. Ideally, start them Just in Time to make the agreed delivery date. Don't delay invoicing finished goods while you fiddle around with cost sheets. Minimize the buying of sales with extended credit terms.

Collect the cash. Speed. Velocity. Throughput. Turnover acceleration. Eliminate constraints. To manage and accelerate working capital speed, we must have time measurements.

On the Clock

How many hours did paper snooze in raw inventory before moving into production? Hours expired while producing the job? Hours delayed while invoicing? Hours from invoicing to actual cash collection?

Hours, not days, if we're really intent on making money the way that Dell and Wal-Mart do (Oops!) with lower prices. And I do not mean "job chargeable hours."

I mean we count 24 hours of every single day; weekends, vacations and holidays NOT excluded. We're not fooling ourselves here with some cockamamie time-count assumptions.

Don't wait around for the print management information suppliers to provide the needed hourly metrics. They're all so 1990s. No. Crank up your own Excel spreadsheets and find out now. Give those computer print system suppliers another 10 years to get with it. Time's a wasting.

Golly, I wish I knew 20 years ago in Hershey what I know now. I could have wowed that committee meeting with my alphabet soup wisdom. Maybe I wouldn't have convinced 'em. Maybe even now I'm not convincing anyone. Who knows? I'm not always right nor always wrong—just never in doubt!

—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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