12/31/2023 0 Comments Printing impressions![]() For a conventional printer, this could include cost-centers such as: pre-press, platemaking, printing, finishing and packing/shipping. Using these definitions, let’s consider a simple situation of a business that uses a linear process to make products, graphing profit against production volume in a set time period. The key equations of Throughput Accounting are: There are plenty of online resources describing TOC and its related "Throughput Accounting” methods so I will not describe them at length here, except to define the basic terms: Throughput (‘T’) is equal to Revenues (‘R’) minus Totally Variable Costs (‘TVC’) such as direct materials Operating Expenses (‘OE’) captures the non-varying costs of creating Throughput - crucially, this includes direct labor since, in the short term, this does not vary with production volume and Investment (‘I’), which includes inventories and other assets. Goldratt’s Theory of Constraints (TOC) teaches a different approach - one that takes a holistic view of the company’s ability to reach "The Goal" – which is to increase "Throughput." Goldratt holds that allocating costs within a business is potentially misleading and, like attempting to maximize the utilization of individual machines, results in sub-optimal decision-making. ![]() A cost accountant will argue that allocation of labor costs and overheads to cost-centers is a good thing, because it ensures that jobs can be priced to ensure that all the business’s costs are covered, and that it allows managers to be held accountable for metrics like departmental profitability, set-up times and machine utilization. These estimating systems - while not necessarily wrong - can give a misleading view of how to price jobs and how to judge investments, because they allocate costs to jobs and press-hours. Many printers rely on a software-based estimating system to generate quotes, and to provide the absorption-cost, Budgeted Hourly Rates (BHR) that go into an analysis of potential investments in new machinery. The first problem to address is conventional job costing. (Elsewhere I have proposed a manufacturing simulator that shows an animated workflow, and allows some degree of statistical variation of orders and productivity to be built into an ROI analysis.) But in this article, I want to take a step back from detailed analysis and suggest a broad way of looking at productivity investments that is different from the standard approach. I am going to suggest that the well-known spreadsheets frequently used to analyze the Return on Investment (ROI) of digital printing equipment are neat, plausible - and potentially misleading. Among the problems that printers face today is how to stay competitive with new capital investments, especially in digital equipment needed to enter new markets. Mencken wrote: “There is always a well-known solution to every human problem - neat, plausible, and wrong”. It’s almost 100 years since the essayist H.L. Today on Printing Impressions newsletter. ![]() Top 100 Print Buyers Forecasted for 2024.
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