Weekly Versus Monthly Pubs –Dickeson

Henry Ford had taught it with a continuously moving assembly line for his Model T in the ’20s. “Hey, you can’t possibly sell Tin Lizzies at those prices,” they said. Sam Walton reinforced it in the ’90s with superb inventory management software for the Wal*Mart stores. “Hey, Wal*Mart can’t survive at those prices,” we keep saying. We hear faint echoes of Sergeant Bilko in the old TV series shouting, “Move it. Move it. Move it. Move those direct materials,” is the repeated message. Laidlaw intimated it in his comment about weekly pubs and costs.

Job# Sales Direct Matls. Thruput Hours Value Added Val. Add /Hr. Val.Add /Sales Sales/ Matls.
427 $9,856 $4,269 152.1 $5,587 $37 56.7% 2.3
527 $4,872 $1,985 68.0 $2,887 $42 59.3% 2.5
459 $7,895 $3,874 97.8 $4,021 $41 50.9% 2.0
387 $8,796 $4,258 90.1 $4,538 $50 51.6% 2.1
555 $3,785 $1,358 32.5 $2,427 $75 64.1% 2.8
715 $11,789 $5,025 156.3 $6,764 $43 57.4% 2.3
638 $8,652 $3,580 114.6 $5,072 $44 58.6% 2.4
952 $3,879 $1,485 51.3 $2,394 $47 61.7% 2.6
247 $2,869 $1,258 44.7 $1,611 $36 56.2% 2.3
248 $4,056 $1,982 79.6 $2,074 $26 51.1% 2.0
249 $13,580 $5,987 165.9 $7,593 $46 55.9% 2.3
250 $6,875 $4,258 89.8 $2,617 $29 38.1% 1.6
251 $7,056 $3,284 90.2 $3,772 $42 53.5% 2.1
252 $6,859 $2,406 66.6 $4,453 $67 64.9% 2.9
253 $6,025 $2,789 71.4 $3,236 $45 53.7% 2.2
254 $10,589 $4,358 103.8 $6,231 $60 58.8% 2.4
255 $12,879 $5,705 120.3 $7,174 $60 55.7% 2.3
256 $4,705 $1,856 62.6 $2,849 $45 60.6% 2.5
Tot. $135,017 $59,717 1,657.7 $75,300 $45 55.8% 2.3
Avg. $7,501 $3,318 92.1 $4,183 $45 55.8% 2.3

What’s so different about the table included above? There’s a “Throughput Hours” column. For each of the 18 jobs listed, we see how long it took the Direct Materials of each job to get through the conversion process of the plant. Here’s what this 18-job sample tells us:

* It takes 92 hours to get a job through the process.

* On average, each job yields $4,183 Value Added (VA).

* We’re producing at $45 VA per process hour.

* Pricing is roughly 2.3 times materials.

* An average job sells for $7,500 and uses $3,300 direct materials.

The focus of this analysis is twofold: 1.) Rate of satisfying customer demand and 2.) Rate of converting materials to claims for cash. This points our concentration to results desired by both customer and printer. There’s a third aspect of the table: marketing analysis. Perhaps there’s a fourth aspect as well: capacity utilization. We’re really appraising enterprise productivity with this table—satisfaction of both customer and supplier needs from the printing conversion process.

This 18-job sample suggests that Work In Process (WIP) inventories took 3.84 days to complete. (92.1/24) That’s a process churn rate of 95 times a year. (365/3.84) Try this analysis on your own data. Then noodle it a bit. At your current price yields, how many times must you increase that WIP turnover to produce satisfactory earnings? As you increased turnover couldn’t you drop prices and optimize enterprise earnings? Heresy! Shades of Sam Walton.

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