We Need Better Tools --DickesonSeptember 2001
Our job cost statistical system is a policy constraint on our industry, imposed and supported by management. This is what Peter Drucker suggests in "Management Challenges for the 21st Century." It is urged by Goldratt. It's what we learn from Activity-based Costing as opposed to Job Cost Accounting. It is inconsistent with Contribution Analysis. Job cost accounting is outmoded, thinkers and writers in the field of management accounting are saying today.
"But if we shift to some new statistical system for management decisions, how will we mark up estimated costs for pricing?" we ask. That's a profound question because it raises the issue of how change is to be made. If Socrates were present he might ask, "How are you really setting your prices now?" Another troubling question: "What pricing system are we changing from?" Are we really marking up predicted job costs to set our prices? How can we be doing that when it isn't how price is set in our market economy? Aren't we confused, saying one thing but doing another?
So what statistical model shall we change to? Is there a system presently existing we can use for the printing industry? We adapted Job Cost Accounting from General Motors 80 years ago.
Should we adapt from an existing system or systems in use in other industries today? Shall it be Goldratt's Theory of Constraints? Or should it be Activity-based Costing? Or Contribution Analysis? Or the Value Added principles of the PIA Ratio Studies? Or the Kanban—Just-in-Time—insights of Taichi Ohno of Toyota? Or some combination of those systems tailored to fit the needs of the printing industry?
None of these, nor any combination of them, is going to tell us how to price a job—reveal a customer's value perception or what competitors will propose.
In 1977 the Graphic Communications Association published a booklet I wrote entitled "Printrol" that argued the case for shifting our model to Contribution Analysis, assuming direct labor was a variable cost. Now, I realize that direct labor is not a variable cost in printing. We just don't (and can't) lay off our technicians to reduce operating expenses. Skilled people are too hard to find and train; we've invested too much in them and, besides, labor's just too scarce these days.
If our people increase production efficiency, it's morale-destructive to lay off the very individuals whose efforts made the gain possible. So we accept the increased capacity, driving down our pricing and under-utilizing the capacity we develop. What to do?
Suppose we use Contribution Analysis, but this time around we treat only the job materials—the paper, ink and outside job purchases—as variable costs. All the rest of our costs are OE—Operating Expense. Let's call it "Printrol II" for a working title and incorporate the teaching of Drucker, Deming, Goldratt, Ohno, Margolis and others. Let's develop an operating business model that's more consistent with our General Ledger accounting and reporting systems.
No, "Printrol II" isn't going to produce a TSP—Target Selling Price. We cannot come up with a statistical system that produces a magic number to "mark up" and hand to print buyers.
There is no Santa Claus, no tooth fairy, no digital Aladdin's Lamp that can assay the perception of value in a buyer's mind and balance it against competitive pressures. Nor is there any writer of books or trade magazine articles, computer programs, any super consultant, nor any e-commerce Internet service that can do it for us. That's the task of the entrepreneur covered with the grime of failures called experience. All we can do is hand that print manager a better tool—a sharper axe—better decision support to work with.
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at email@example.com, by fax (520)903-2295, or on the Web at http://www.prem-associates.com.