Let's Confront Reality --Dickeson

"The buck stops here," as President Harry Truman put it. Responsibility starts at the top —with the Chief Executive Officer of every printing company—every company, in fact. The CEO sets the policy for the company, sometimes consciously, most often unconsciously, by his or her demands and actions.

Take the question of when a job can be billed. Is it with the first product delivery, mailing, or shipping? Or is it when the final delivery or shipment is made? It's up to the CEO to say, isn't it? What's the policy in your shop? Is it different for different customers? Do you even have an articulated policy on when a job can be billed? Is it important?

It's very important. The day when a job is actually billed becomes day one—the birthday of an account receivable. From that point onward we count the candles on the birthday cake—the days until the customer pays the bill. If we're giving a discount for quick-pay, that birthday starts the timing of the discount period, doesn't it? If we've set limits on credit extension, until we bill we don't know how much credit we've extended any particular customer until we bill the job. If we're financing receivables, that birthday is when the money's available.

The CEO, in order to do his job properly, needs a metric of accountability—fancy name for a simple report. The CEO must have a report that tells him/her how many days or hours elapsed from job eligibility for billing—from policy date—until the date or time the invoice actually issued. That's policy execution time. Call that the "pre-invoice" time period. Is that time important? Only if we're dealing with a "for profit" business.

How much time is acceptable for that pre-invoice period? In my view, there should be only a matter of a day—at most!

Take Accountability

Who's accountable for that pre-invoice time period? Is it a customer service rep, a sales rep, an accountant, or maybe even the CEO? Somebody, some person, or persons are accountable for any time lag between eligibility and invoice issuance for each and every job. Who is accountable for policy execution? The report must tell us.

Our report must name the eligible account, the person accountable, and the time that has expired for the billing (days or hours to bill). Group the report by responsible person and show the totals of days (or hours) to invoice. Competition among the billers for the lowest "days (or hours) to billing" will focus process correction and will benefit the company.

We're suggesting a time-reporting system that is truly significant for the printing company. (Thanks to a friend who wrote me in detail how one major printer had solved the problem.) It's time-reporting for the administrative processes. Think about it for a minute. Is it as important to speed up money collection for work as it is to know "chargeable" hours at work centers? You tell me. The "time-to-billing" is an impediment that must be minimized.

How frequently should that time-to-billing report—that metric of accountability—issue? If you're asking me, I'd say it should be a weekly report in a rolling 13-week (quarterly) format reviewed every Monday morning. If you wait for monthly reports, that's far too long of a period to make any timely and necessary corrections.

Summarizing, we started with a policy declaration by the CEO of when a job is eligible for an invoice. This gave rise to a metric of execution in days or hours. Next we had a report by accountable persons showing weekly and quarterly impact. The process afforded us corrective insights to increased profitability by speeding collections.

Too simple, too easy, you say. Try it for the next quarter in Excel, Lotus or Quattro. Review and post the weekly reports. Tell me if your time-to-billing is going up or down. Then tell me whether your receivable collection time is increasing or decreasing.

Whoa, boy, that's next. Don't rush things. Just get the invoices out promptly first, and start the collection machinery grinding. Next quarter, for receivables, we'll start with a policy declaration by the CEO, a personalized collection metric, report and speed-up steps.

Paper Is Next

You say that's not enough? Two quarters from now, we'll start that same process method for paper inventories. Declaration, metric, accountability weekly report, corrective steps to get inventories down.

I know, I know. There are one or two eager-beavers reading this stuff that'll start this whole process of administrative reporting in real terms (forgetting those silly budgeted hourly rates for manufacturing centers). They won't wait a quarter or two to see how things work out. They may stumble and get bruised but, on the other hand, they may change their focus toward what's really important for a going commercial print business. Who knows? Who wants to make money anyway?

Remember ABC (Activity-Based Costing) for printers? It was sorta popular for a short time. That was where you took the annual dollar cost of an administrative department or activity, divided it by the number of estimates, or some such units, in a year. Then you were supposed to assign that unit cost to a job. It went over with a dull thud in printing. It was still cost accounting with a lot of assumptions, a few of which were true.

You added those ABC rates to budgeted hourly rates for manufacturing. Budgeted hourly rates were replete with assumptions, very few of which were true. As a result, you were caught up in a mythological fairy tale to run your commercial printing company.

The kind of accounting (if you insist on calling it that) we're talking about here is throughput tracking. No dollar assumptions are assigned. Just simple numbers—policy, execution, reporting and correction.

Over the years we've made costs and accounting things enormously complicated and less meaningful. I've watched the monthly reporting system of the NAPL members for some time now. It follows the old model of hourly cost accounting. I've spent years following the annual Ratio Studies of PIA and trying to make sense of them. I'm saddened by these ancient models that haven't helped us make daily decisions in commercial printing.

It's time for us to confront the realities of our business.

—Roger V. Dickeson

About the Author

Roger Dickeson is a printing consultant located in Pasadena, CA. He can be reached at rogervd@sbcglobal.net. A PDF copy of his recent book Monday Morning Manager is available without charge by e-mail request.