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Ordinarily I receive an e-mail response or two
to my scribblings here, sometimes none at all. But my column in January must
have touched a nerve. It was headlined by the editor, "Goodbye Job Cost
Accountancy."
Half a dozen readers posted e-mails, one from
as far away as South Africa. Printing Impressions is demonstrably an
international journal. I've had postings from Birmingham, UK, and Beirut,
Lebanon, just in the past weeks.
The monthly database I keep for web printers
has included firms in Austria, Canada, Australia and Sweden. Yes, it is a
small world growing smaller by the hour with the reach of the Internet.
I subscribe to an e-letter called JOHO
(Journal of Hyperlinked Organization) by David Weinberger, (http://www.hyperorg.com/current/current.html)
because it's outrageous, stimulating and provides URLs to undreamed of
sources.
Weinberger is writing a new philosophical book
and has begun by posting drafts of sections to a Website, inviting critique
as he posts. This really intrigued me. I decided to copycat.
I began by posting a draft of the first pages
of a book I'm writing to the Web in late February, intending to add pages
and revisions from time to time. I fully expect and invite e-mail reactions
and interactions leading to improvements in the manuscript and exhibits.
I sent URL notices to the respondents to my
January article on Job Cost Accountancy. Readers of this column are invited
to join in the hoe-down at http://www.prem-associates.com/WOWDraft.pdf.
Activity-based accounting for printing as an adjunct of Enterprise Resource
Management is the basic theme, but also utilizing Pragmatic Cost Accounting
for marketing analysis.
How to Get Started
One of the first responses raised this question: With all of the present
overcapacity hanging over the present print market, how can we expect to
implement Activity-based Costing? What's your answer?
Here's my suggestion. We can't begin to
address the problem of industry overcapacity. All we can do is examine the
capacity utilization in our own enterprise.
Activity-based Costing (ABC) is designed to
provide the cost of "not doing," as well as the cost of doing-- not just the
cost of jobs. Idle time of a binder in our plant is an activity. What is
that idleness-activity costing us in profitability? Activity-based Costing
provides us the information to support an action decision.
Now that our new ABC model has told you how
much the idle time of that binder is costing you every day, what are you
going to do about it? What's your action decision? List your alternatives.
There are always alternatives.
The first is to do nothing--hope that
something will turn up. But, wait a minute. That's what you've been doing
for years and you're pulling down 3 percent to 4 percent on value-added
sales. Okay. What are some other alternatives?
Sell the binder and outsource that kind of
binding. Get going on marketing and sales. Solicit outsourcing from your
competitors. The meter is running on that idle binder-taxi. That ABC Report
is In Your Face telling you to take some affirmative action. Your Job Cost
Accounting system buried that kind of information in job costs.
Activity-based Costing smacks you on the schnoz with it.
Or take initial makereadies on your presses as
another example. Because you're a commercial printer doing a variety of
commercial jobs, one after another, you're wasting expensive crew and
machine costs doing changeovers--changing side-guides, washing fountains,
resetting calipers, grippers, etc.
Changeovers are activities consuming your
labor, capital and time resources. ABC tells you the cost of the changeovers
that you've been hiding in job jackets. The dollars you're wasting on static
makereadies are eating your lunch.
What are you going to do about it? The ball's
in your court. What are your alternatives? Make a list. Do something. Don't
just sit there, ABC is telling you.
Accounting for Waste
Or, consider raw material. If you're not delivering it to the customer as
finished product, it is waste. No question. The ABC system demands that you
account for wasted, as well as delivered, raw material resources. Every
identifiable activity that consumes the paper resource must be reported and
valued in currency. What do you do about all those materials waste bucks
that have stopped right in your chair?
Low turnovers of inventories and delayed
collection of accounts are misuse of capital resource--wasted opportunity.
How shall we pin a dollar value on those donkeys? They're stealing our hay.
Here's my current idea--RONA--Rate of Return
on Net Assets. Divide EBITDA (Earnings Before Income Taxes, Depreciation and
Amortization) by Net Assets (Assets less Valuation Reserves.) This is our
present rate of return on our asset resource.
Suppose you cut your average inventory in
half. Multiply the reduction by that rate of return. Got a better
suggestion? Let me hear it. What happens to that rate of return if your
EBITDA is zero or minimal? That means that the fat lady's singing your song,
doesn't it?
Activity-based Costing for printing is a
productivity view of the enterprise. The idea is to support decisions that
produce a better bottom line-result so that you can buy the products
supported by advertisers in these pages. Kapishe?
We must do something. We're a marginal
industry now, aren't we? What are the action alternatives?
Is Activity-based Costing as I've outlined it
out in left field? Admittedly it's a pioneering concept for printing. I'm
neither aware of anyone using it nor of any printing software supplier
offering it.
If this be treason, then make the most of it.
--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 roger@prem-associates.com, by fax
(520)903-2295, or on the Web at http://www.prem-associates.com.
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