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We Need Better Tools --Dickeson

September 2001
Commercial printers convert paper for customers for many types of jobs: books, pamphlets, newspapers, business forms, catalogs, lists, leaflets, magazines, posters, bibles, hymnals, greeting cards, programs, calendars, albums.

There are thousands of printers throughout the world, from Helsinki to Auckland, from Vladivostok to Capetown, from Beirut to Hong Kong. No two print jobs are identical, no two print shops are the same, and the needs of no two print customers are exact counterparts.

The basic economic problem of printers is pricing their conversion service for hundreds of different jobs using technology that is shifting—even as we write. Price is what customers will pay for the value they perceive—"what the traffic will bear." Pricing is not constrained by a printer's costs. Prices are based on a customer's value perception and restrained by the prices offered by various print competitors.

Printers try to predict—estimate—the cost of a job in order to mark it up for pricing. Thousands of dollars are spent on computerized systems and many hours of effort are devoted to job cost predictions.

All the while, printers know that internal cost computations are not relevant to customer value perception and the competitive environment. It is the ultimate trivial pursuit. One writer suggests that one would do as well in pricing by examining the entrails of road kill. Another used his computer to generate random numbers and doubled profitability. So why do printers try to predict costs? "Tradition!" It's our own fiddler on the roof.

Trouble is we've come to regard job cost accountancy as revealed truth. We adapted the General Motors cost accounting system for mass-produced auto parts in the 1920s to printing jobs in order to provide a predictive cost base. Then we came to accept those costs as the business model for printing decisions, even though we didn't appreciate all the implications of absorption costing.

Change Is Needed
Computer application software suppliers and printing trade associations enshrined job cost as "The management decision support system for printers." And here is printing today with chronic over-capacity and risk return rates that do not justify investment in the business. The Japanese don't even use cost accounting!

Should we now change our economic model? What do we change to and how do we accomplish the change? These are questions framed by Eliyahu Goldratt in his TOC—"Theory of Constraints"—first presented in his classic novel "The Goal" in 1986.


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