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Free
advice for improving your printing organization.
Dear [fname] [lname],
This Ideas and Insights article contains expert advice to help you
improve your organization and welfare. We hope you find this information
helpful and choose to continue receiving our newsletter.
Sincerely,
Craig L. Press
President |
Printing Industry
Best Practices:
Spoilage Devastates
Your Sales & Profits
One of
the easiest ways a company can improve their businesses is by reducing
spoilage. Spoilage is defined as wasted materials and labor consumed as a
result of avoidable errors. Rework is another form of spoilage. Rework is the
costs associated with reproducing a job rejected by the customer or because it
did not meet your own expectations.
Most industries refer to spoilage as “waste”. But the printing
industry differentiates spoilage from waste. The printing industry
identifies waste as the paper essential to produce the good product
when setting up (makeready waste) and running (running waste) the
equipment. This waste is anticipated and is included in the
estimated job cost and sell price. If preventable errors occur
during production and more paper is needed, then the added paper is
classified as spoilage.
The most common method of measuring spoilage is to calculate
spoilage costs as a percentage of revenue. Using this method, a
company with annual spoilage costs of $30,000 and sales of
$10,000,000 would have a 3% spoilage rate. The industry leaders aim
for a spoilage rate between 1/2 percent and 2 percent of revenue.
There’s another gauge of spoilage that many companies fail to
recognize. If a company's profit margin is at 10%, then the profit
on a $10,000 job is $1,000. If the company spoils $1,000, then that
company losses $10,000 in sales. The lower a company’s profit
margin, the greater spoilage impacts the bottom-line. The following
chart can help employees realize how much that $100 mistake really
cost the company.
|
% Profit |
Spoilage Costs |
|
$10 |
$100 |
$1,000 |
|
3% |
$330 |
$3,333 |
$33,333 |
|
5% |
$200 |
$2,000 |
$20,000 |
|
10% |
$100 |
$1,000 |
$10,000 |
| |
Sales required to
recover spoilage costs |
So who pays for spoilage? Since all
printing organizations are in the business to make a profit or at
least breakeven, the customers ultimately pay for spoilage. The
higher an organization's spoilage, the higher the product sell price
must be to recover spoilage costs. Obviously higher prices will make
an organization less competitive and more likely to loose business.
To reduce spoilage a company must first identify what’s causing the
errors. Errors can be tracked by recording the error cause, the
solution, and the recovery costs. (download example spoilage tracking forms). Most business management
systems also have the capability to track and report errors.
Spoilage should be reported and monitored by reason on a weekly,
monthly, quarterly, and yearly basis.
Reducing spoilage will also eliminate the non-value added activities
needed to recover from errors. Non-value-added activities are those
activities that aren’t required but still occur. Anything that adds
unnecessary time, effort, or cost is considered non value-added. To
put it another way, non-value-added activities are any activity for
which the customer is not willing to pay.
Most errors can be avoided by implementing better processes and
through training. Organizations that implement a spoilage reduction
initiative will reduce production costs, add more capacity to
perform value-added activities, improve product quality, improve
competitiveness, and increase profits.
By Craig L.
Press
President, Profectus, Inc.
craig.press@profectus.com
Phone: 888-868-8662 or 941-379-8700
Craig L.
Press is president of Profectus, Inc, a national consultancy that helps
printing organizations implement best business practices and maximize the
value of their information technology investments.
www.profectus.com |
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