I teach a university class on statistics. It is the most unpopular of all my classes. It’s really not all that difficult but students resist going into the numbers. Other than the math people, they prefer theories and new ideas.
In my consulting experience I have found a similar tendency. In fact, I could probably divide all the companies with which I have worked into two categories: Those that use industry metrics (industry ratios on everything from direct labor to EBIDTA) and those that do not.
But wait, there’s more. Many may have owners who are very conversant with the expected numbers, but may have people running the production end who are not. The latter scenario is dangerous.
Back in the day printers were like hotels—price levels were connected to different quality and service. We are long out of that era now. We have what I have often called equipment parity—everyone has pretty much the same machinery. What’s more, the price is set in the marketplace. The printer—whether quick print or sheetfed—makes his profit by producing the job efficiently.
And that brings us back to the numbers: what I call metrics. If you are comfortable with metrics you are in the choir as far as this article goes, but if you are not or if you are entrusting your production to someone who is not, listen up.
We just finished a three–article series on phases through which companies go. We spoke of Sweat Equity, Organization, and Planned Growth. In the last two, knowing the numbers is critical to gaining control of your operation.
What numbers should you use?
Depending on what type of printer you are, you would be well to contact your national (or regional) association and get the metrics from them. In any case, you want to get friendly with the industry averages. Whenever I do a company turnaround, I look there first.
Checking your company against the industry metrics is the business equivalent of getting a physical from your physician. Like a physical, you want to look at some general numbers first. Those reports are very detailed, and if you are real metric cruncher you can get lost in the forest and move right by the trees.
For me, four general numbers standout:
- Gross Income
- Cost of Goods
- Direct Labor
- Indirect Labor.
Given the amount of dollars coming in, I want to know what percentage of our revenues go directly into producing a job. I want to be better, at, or very close to the industry average. If I am not, I can go deeper into the metrics to find where the leak is.
I spoke recently to a printer who found he was spending much too much time in graphics. Another was overpaying his vendors. Still others have too many people in the office. Believe me, if you are way off it won’t take long to find the problem. A bear leaves big tracks in the woods, and there will be some clear tracks in those number.
I can hear someone saying, “Dr. David, my company is unique. Those metrics don’t work for my operation.” Oh, really? First, they usually do, perhaps with a bit of adjustment. But if they do not, or if nothing is available, find a similar printing company and talk to their CEO about what the ratios should be. There is a scorecard out there somewhere.
Here is the big enchilada: Be sure your production supervisor understands the basic metrics. I have run into production supervisors all over country who believe their job is simply to “get the work out.” It isn’t. Like every other person in the company, it is to make their department a profit center. If your production super is simply a bit too lazy about paying attention to them, take action. Maybe you can attach some compensation to reaching the desired numbers. If he does not understand the metrics, then teach it to him or send him to a class to learn them.
Remember, understanding all those lines at the top makes the bottom line larger.
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