Get a 12-Step Program --Dickeson
Let's look at a rolling 13-week quarter, but make our predictions for only the upcoming week. I learned this trick from Europeans. It's a way of making forecasts that are fairly consistent with facts.
We're basically concerned with CASH—how much is in the drawer for any period. Is there more or less than expected? If, at the end of a period such as a year or rolling quarter, there's less than we started with, we're headed for trouble unless we've got a damned good explanation. Call it the Grandpa's Cash Drawer system.
I advocate the use of a bogey, a target, to give weekly direction. Call it my Break-Even Bogey. Change it as necessary. It's a realistic prediction of cash needs. Everybody understands the cash target and break even. It's not set in granite like a yearly budget. Simple common sense.
Then we MUST measure the "dwell" time of our inventories: raw materials, work-in-process, finished goods and accounts receivable. Cash-to-cash. Did it take 64.7 days or 22.3? We're investing cash in raw materials and, at the end of the game, we're receiving cash from receivables. Shift your concentration from expenditures for adding value to inventories to the inventories themselves. This is a radical innovation for our industry but, again, one that's consistent with simple common sense.
This seems so hard to grasp in our industry. Perhaps I'm wrong but, still, I have no doubts at all. It's more important, far more important, to watch the speed of our inventories than it is the speed of our presses. If we're making 2 percent on each sale, then we're making 20 percent on cash working capital if we're turning over our inventories 10 times a year. Is that difficult to understand? Seems simple common sense to me, Goldratt, Ohno, Michael Dell, Wal*Mart and a host of others in different industries. So pick out your most important raw material—paper in commercial printing—and watch the speed of flow of the paper through the process.