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Oct 31, 2001 12:00 AM
Printers estimate that they lose one percent to 20 percent of annual sales on costs associated with spoilage and waste. Many printers would obviously like to decrease spoilage and waste, but it's an elusive goal. Three obstacles must be overcome: inadequate definitions for spoilage and waste, insufficient measurement systems and common ignorance of what factors cause waste.
Printers' perceptions of waste and spoilage are so skewed that the loss estimates of one percent to 20 percent are probably inaccurate — different companies have their own definitions for these occurrences and therefore account and report different dollar figures.
For the sake of this article, spoilage is defined as an error caught after the printing or binding process. The printer either reworks the product or compensates the customer for the defective product. Examples of spoilage include reprinting signatures because of color variations, cutting errors, shortages and overlooked, unimplemented author's alterations. Spoilage measurements are based on cost, e.g., it cost $1,512 to reprint the signatures.
We'll define waste as the amount of time and material consumed during the production process that is not billable to the customer, including excessive materials and time. Examples of waste include plate remakes, makeready waste and production inefficiencies. Waste measurements are process-focused, e.g., four percent of the plates had to be remade.
Management typically focuses on spoilage because it is easier to measure and the costs are obvious — you can't overlook a $2,000 customer credit for color variation. Waste, however, is often reworked quickly, or is part of a larger problem, such as inefficient makeready. These hidden costs can be huge — if a printer averages plate remakes of four percent, the monthly remake expense is $4,000 (40 plates x $100 per plate in paper, plate and labor expense). And, because corrections to waste are made quickly, the rework cost is not always calculated. Even though the $4,000 waste expense is twice as high as the $2,000 spoilage cost, management tends to focus on the more apparent spoilage.
Measuring both costs and processes is the best way to control and reduce spoilage and waste. Spoilage can be measured in two ways: by cause/frequency and cost. An automated job-costing system can be a useful tool for capturing the frequency and cost of reworked jobs.
As employees rework a job, they charge their time and materials to a spoilage job number — opening a new job for each reprinting. When the dollar amount is posted to a customer's account, accounts receivable can also track the frequency and cost of credits issued. Ultimately, management will have an accurate dollar value and frequency of spoilage.
A Pareto diagram, such as the one shown in Figure A at the top of this page, is both a measurement and communication tool. It illustrates the annual frequency and cause of spoilage for a sheetfed press department. Managers can use it not only to evaluate their operations, but also to show employees and ask for help in addressing ongoing problems. The Pareto diagram measures the process — how do you measure the cost of spoilage?
The dollar value of spoilage can also be measured as a percentage of company sales, as shown in Figure B (right). In this diagram, the current year's performance is benchmarked against the average monthly level of spoilage for the previous year. This chart enables printers to determine whether the level of spoilage is getting better, staying the same or getting worse, compared to a prior time period.
As previously stated, waste includes materials and time that can't be billed to the customer. Material waste can include film, paper and plates, while time waste includes inefficient makereadies and slower-than-expected run speeds.
Figure C (p. 13) plots waste impressions for a five-color sheetfed press. Although makeready waste is usually included in the original job estimate, it still needs to be controlled and reduced. If a printer can consistently reduce the amount of planned waste, it will realize a significant decrease in wasted paper, ink and press time. Even a relatively small reduction in copies produced can achieve a significant annual cost savings. For example, if a company purchases $2 million in paper each year, saving one copy out of every 100 will yield an annual paper savings of $20,000. Plate remakes, film remakes and run waste can be measured using the same method.
Makeready and run speeds are measured to analyze time efficiency. If a machine runs at a slower rate or takes longer to makeready than previous performance levels, this extra time is waste. Figure D (top left) tracks the makeready time for a sheetfed press. The extra makeready time spent in the month of February resulted in increased press hours, which means waste in the form of labor expense.
This should serve as a red flag for management. What happened? What improvements can be made? Note that the efficiency on individual jobs is not measured; instead, the graph charts the efficiency of the makeready process.
Figure E (left) tracks the run speed of a sheetfed press. The slower run speed in March resulted in extra hours spent on press, creating a labor-expense waste. The cause needs to be investigated and resolved.
While a successful waste and spoilage reduction effort must measure costs and processes, companies achieve greater gains when they concentrate on process improvements.
Consider a printer with annual sales of $10 million with the following expenses:
|Material and paper:||$3,624,000*|
|Total cost of product:||$7,651,000|
|(* Computed as a percent of sales using ratios from the PIA (Alexandria, VA) “Ratios” reports)|
This printing company experienced losses from spoilage and credits during the year equal to two percent of sales, or $200,000. Management's goals for the year were to save one sheet of paper per 100 sheets purchased, as well as improve makeready and run speeds by one percent.
The company achieved its goal. The resulting reduction in factory expense was $76,510 — material, factory and payroll expenses multiplied by one percent. During the same year, the company was also able to reduce its spoilage and rework by one percent. This yielded an additional annual savings of $2,000 (one percent of $200,000). Therefore, waste reduction is the key to improved operations. You can measure, control and reduce spoilage, but ultimately, the key to maximizing profits lies in process measurements.