In Your Face Reports--Dickeson
Productivity increase is credited as the factor that has made the economy of this country so buoyant for the past decade. The rate of annual productivity increase has far exceeded expectations. It's created billions of dollars in national budget surpluses. By developing an information base from new technology and taking the oftentimes-painful actions mandated by that information, we've succeeded in the transition from a manufacturing to a knowledge economy.
We've downsized, outsourced and become increasingly efficient based on information. Our printing industry, however, hasn't really participated in this new, knowledge-driven approach to increasing productivity. Why is that? Why have we lagged behind?
We just haven't yet given up reliance on our old business model. We remain hooked on job cost systems that are not conducive to efficiency increase. Marking up estimated cost for pricing has been our modus operandi since who knows when. Analyzing effectiveness by examining job cost summaries is how we plan and make our decisions.
A shift to enterprise resource management using the principles of activity-based costing remains a mystery to us. Misuse and nonuse of enterprise resources is a model change we don't yet comprehend—it's still years ahead of us. ERP and ERM (Enterprise Resource Planning and Management) is not the subject of our printing trade meetings or trade publications.
What must we do to provide a resource management system for our industry? Let's start with our primary raw material resource—paper—as a suggestion of what we mean. Our objective is to identify and value use, misuse and nonuse of paper. Let's look at the activities that consume paper, the cost-drivers.
When paper sits in our warehouse it's nonuse of a resource. Idle paper, just like idle people, wastes money. What does that cost us? Nonuse of paper is an activity consuming capital and space resources that must be measured and valued. We don't find the dollars lost by idle paper in our job cost system.
When paper from a machine makeready is trashed, that's a resource misuse. How many dollars does paper eaten by makereadies cost? Yes, it's a process cost, but it's also misuse of a resource. When you measure, in dollars, how much money you're losing by paper wasted in makereadies, you'll focus on doing something about it. You'll get a report that smacks you right in your face. Like using a two-by-four to get the donkey's attention, those IYF Reports (In Your Face Reports) of activity-based costing say, "It's the paper, stupid."
Trimming to product size is a misuse of the enterprise paper resource. So is running waste. Likewise re-start waste and re-work, and sample pulls and blanket washes, and on and on. How many dollars were eaten by each of these misuse activities?
We need that two-by-four blow delivered as an In Your Face Report to take some action. That's what you get from activity-based costing—ABC—a component of Enterprise Resource Management—ERM. It's a discipline to enable competitiveness and survival. It's painful, but no pain no gain. It's acceptance of similar statistical rigors of ERP and ERM that's prompted our national productivity gains.
As of right now we say, "The customer pays for it." "The customer pays for normal process waste." We estimate it, tuck it in job cost jackets and forget it. This is sheer nonsense. Worse, it's deadly.
ERP/ERM/ABC, which I've labeled Statistical Print Production Management, or SPPM, starts with the dollar cost of capacity, and reports the costs of the activities consuming the capacity. This is 180 degrees from the old job cost model. Using this revised model, activities that use, misuse, nonuse and abuse the resource capacity are presented as IYF Reports in dollars based on the financial plan of the company.
Production time is another example. Time is a limited resource. What is the dollar cost of capacity of that resource? The plan or budget spells out the expected cost and states the critical capacity assumption in hours for each cost center. Expected cost divided by defined capacity hours is the SPPM cost rate.
Forget utilization and "chargeable" hours. We must know where every hour of capacity went in use, misuse and nonuse stated in terms consistent with the enterprise plan. A machine changeover or make-ready is a cost driver, for example. It's an activity that eats a piece of the time resource of the company.
How much did makereadies on Press 456 cost us yesterday? Last week? Month? Quarter? Out comes the old two-by-four, the IYF Report that says, "Hey, lookie here, Buster, is this where you really want to spend your dough? Ain't no customer gonna give you a nickel for that makeready cost."
Many people seem to think that activity-based costing is just about tracking the unit cost of estimates or customer service as resource consumers and adding it to jobs and customers.
It certainly can be. Carry it as far as makes good sense to you and helps you make action decisions about your printing enterprise. But, for starters, I suggest you use it for paper and production resource measurement first. After that's in place and settled, move next on turnover velocity of inventories and receivables. Get that working.
Now, if you're greedy, start tracking estimates and customer service costs to jobs and customers. You may have to fire some unexpected people—customers you've been subsidizing—to create capacity for new customers. Instead of adding capacity, start adding profits.
SPPM (or ERP/ERM/ABC if you choose) is about the degree of success or failure, the competitiveness, the productivity, of the printing business. It's a system that mandates corrective actions. It measures the activities that consume the company resources—paper, time, etc.—in dollars, and spits them in your face.
—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 firstname.lastname@example.org, by fax (520)903-2295, or on the Web at http://www.prem-associates.com.