Am I Wrong Here? — Dickeson

After more than a year of offering my book “Monday Morning Manager” free on e-mail request in this column I’ve sent out almost 400 copies. Have I changed one mind? Not so far, as I can tell. Has one single printer stopped using budgeted hourly rates to set prices? I don’t think so. Has any software supplier begun using weekly reporting of financial results for a printing company? I don’t believe so. Please tell me if I’m wrong.

Am I discouraged? Is it time for me to shut up and quit? Not as long as I have breath, a keyboard and a willing publisher! Let’s look at a few facts. Here’s what we know at this moment.

We cannot predict or forecast with accuracy. There are just too many variables in our business or any business. Small variations always lead to surprising, unexpected, results. This is true in budgeting, inventory management, production, pricing, cash flow—almost any aspect of business you can name. Call it the Chaos Factor.

Knowing the Chaos Factor, to persist in “budgeting” and relying on budgeted hourly costs for a price is like beating our head with a rock because it feels good when we stop doing it. But we do it anyway. Tell me why.

Predicting Results

To manage is to control. To control is to forecast a result from a cause. We have, at the moment, one statistical tool for forecasting results. From it we can call a result either “noise” or a “signal.” If it’s “noise” we attribute it to the Chaos Factor resulting from the usual barrage of unanticipated results.

If it’s a “signal” we shout “Eureka” and leap like Archimedes from our bathtub to discover the cause of the “signal.” We study and fix the causes of aberrations that provoke “signals.” That’s how we improve the process—fix the causes that are signals, ignore the distractions that are noise. (Alas, many of us still run about like mad dogs and Englishmen in the noonday sun trying to fix noises.)

But we must have the data on which to base these findings. If this were pre-1985 we’d wait for hand-worked monthly reports. Many of us are still living in that pre-1985 age. Since 1985, however, desktop and laptop computers can be found in every crook and cranny of our shop. Technology has changed, but we haven’t changed our way of getting and looking at the numbers. There’s no reason why we shouldn’t have the operating data that will enable signal detection at least weekly—every Monday Morning so to speak. Ask your data supplier, or tell him you’ll outsource the problem to India if he doesn’t change.

You need this data for each machine you run, call them op-codes or stop-codes. Did the machine stop itself? Why? Did the operator stop the machine? Why? Look at how this coding of stops has succeeded for web presses and binders in the past 15 years. It can do the same for folders or envelope inserters if we apply the logic. Collect the data. Analyze it by looking for signals. Fix signal causes. Ignore noise.

How do you see these weekly signals and detect noise? Read the book I sent you for free. Better still, spend a buck and read “Understanding Variation, the Key to Managing Chaos,” by Donald J. Wheeler. I guarantee you’ll never look at data the same way again.

You’ll see that chaos reigns for whatever series of numbers you’re looking at. The best you can do is get a “range of expectancy” for control. As long as actual performance falls within this control range, you’re okay. Don’t sweat it. The minute you see a signal—POW—BAM—GOTCHA!

All this we know, but blithely proceed to ignore. Why? Too complicated? It’s not the way we do things around here? It’s innovation. The toughest part about innovating a process is changing mind-set, say the experts. I think that’s it. Changing the mind-set. Some folks chide me for being ahead of my time. They’re 100 percent wrong. It’s our industry that’s behind its time. We’re just slow to change our mind-set. But, fear not. We eventually shall adapt for eventually we must.

What Do You See?

We cling to our rear-view mirror financial reports and try to guide our future by watching that yellow center line in the highway behind us. It won’t work. Never has. Never will. Profit is a series of assumptions that attempt to link successive balance sheet equities. It’s useless and ignored by the market and most persons of knowledge. Cash is more nearly the criterion of success or failure of the business. Are we generating or are we burning cash? Simple?

But with that simplicity comes a realization: throughput or, more accurately, velocity of throughput, is the essence of the cash game. The faster you can move working capital cash through the business process back to working capital cash once again, the more successful the business becomes. If we’re burning cash, it means our velocity is low—the cash is tied up in inventories and receivables. If our throughput velocity is high, then our inventories and receivables are minimal. Whatever margins there are, no matter how small they may be, are quickly realized and in the bank! And they are repeated and repeatable many times in a year. Cumulatively they add up to net revenue for the year. Just ask WalMart!

That all leads us back to pricing the job, doesn’t it? How can we turn it over more times if we can’t price it right and sell it? That’s the old velocity stopper isn’t it? So crank out those Budgeted Hourly Rates and those old production schedules. That’s all we know how to do. It’s the way Spencer Tucker taught us to do back in the 1950s, isn’t it? It’s the way our competition is setting a price for the job, isn’t it?

We know that’s not the way price is set in a competitive economy. Commercial printing is sure a prime example of a helluva competitive economy. WE DO NOT SET A PRICE BASED ON OUR FICTITIOUS INTERNAL COSTS. No customer gives a hoot what we think our costs are. That’s the plain truth, like it or not. And you know I’m telling it like it is. Price is the customer’s perception of value constrained by the competition.

In “Monday Morning Manager” I’ve given you some 70 questions to consider in coming up with a price. You can add to the list. I don’t promise you a rose garden. It takes hard thinking and a willingness to fail many times.

Have I shared my thoughts truly with you over the years? I’ve tried my best to do so. Am I disappointed that you haven’t piled onto my wagon? Not really. I know you will. Some day.

About the Author
Roger Dickeson is a printing consultant in Pasadena, CA. He can be reached at rogervd@sbcglobal.net. His most recent book, Monday Morning Manager, is available in PDF file format, free of charge, by e-mail request.