Without knowing it, some Printing companies may be quietly losing money to themselves. Not to competitors, not to a digital substitution, not to paper prices, but to the unresolved tension between three internal functions that exist to optimize different parts of the business. Sales is paid for closing deals. Operations is measured on utilization and throughput. Finance is accountable for margin, working capital and often, being the person at the end of the parade with the broom and shovel. Each is doing exactly what is asked of them. Each is individually correct. And yet the combined output is a business that often runs full, but on thin or no margins. This is not a culture problem.
In the recent blog: The Plant is Full. Sales Are Up. And You’re Still Underperforming, I discussed the importance of following a framework that has three clearly defined elements:
· Sales: bringing in the right work, not simply more revenue.
· Finance: enabling profitable decisions, rather than merely reporting results.
· Operations: producing profitable throughput, not only focused on maximizing equipment utilization.
All three of these are central to achieving profitable capacity: the right work, at the right price, on the right equipment, in the right sequence.
The other dimension that should be considered is the theory of constraints. You need to be aware of and manage your constraints. Those constraints could be on the shop floor, they could be in poor pricing discipline or sales comp structure, or lack of coordination between estimating and production. All these things are critical to achieving the results you deserve.
Constraint-Adjusted Contribution
Understanding your constraints when taking out work can help evaluate and test the true contribution that work can bring. For example, a higher gross margin job that will tie up a piece of equipment and create a bottleneck may ultimately deliver a lower contribution per hour return, then a lower gross margin job that bypasses those constraints and picks up velocity through the shop. And while each print company operates differently, this is worth testing in your organization.
Integrate the Models
In the blog that was mentioned earlier, that framework is further identified in a paper I’ve developed that focuses on aligning sales, finance, and operations for profitable capacity. This framework can become a playbook for midmarket printing companies. This concept focus is on aligning enterprise decisions. Adding the layer of the theory of constraints directs further improvement towards your organizations limiting factors, or constraints.
Taking this further, we’re not only asking are we selling, pricing, and producing the right work to maximize profitable capacity, but in addition, what’s currently preventing us from increasing that profitable capacity. Together these form an operating methodology, as well as a roadmap for prioritizing improvement within that system.
If your margins are where they should be, this blog will have a little effect on your business. However, if you’re a bit frustrated with where your results have been, despite your best efforts, discussing this concept with your team might be helpful. Remember, this is not a culture issue or a “this is the way it’s always been” issue, this is a design problem and one that can be improved upon should so choose.
Mike Philie helps owners and CEOs in the Graphic communications industry validate what’s working, identify what needs to change, and create a practical path forward.
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