Discussion

By Clint Bolte on Oct 27, 2009

Predicting the optimum size for a job shop, manufacturing operation has been an important but often esoteric exercise because of the presumed dynamic nature of the business. Instead of growing to keep up with expanding market needs, those who acknowledge an "optimum size" design an entity whose: o Incremental cost structure is competitive, o Overhead level assures adequate service and consistent quality, o Management structure is lean, o Realistic volume projections deliver maximum profits and yet o Worst case volume projections are still profitable. If market share could be increased, they don't expand the optimum plant. Clone it in another regional/distribution market! How do you know when a plant is at optimum size? You can feel it! When asked to discuss the point of when their firm experienced their best profit ratios, the somewhat unexpected and surprising responses were: "We didn't particularly work any harder but obviously worked smarter," or "I don't think we have ever had as much fun managing this firm as during that period." When confronted with two or more years of similar good profit results, quite often one of the time periods will be remembered as being easier and more satisfying. That seems to be the first point of consensus among the profit leaders when reflecting upon their best year; they were embarrassed at how easy the management task seemed and how good it felt because there were less stress and pressure than the year before or even after. Do you remember the last time: o Your plant operated at full capacity without excessive overtime? o Your plant had no silly mistakes or rework? o Your management team was all smiles and could tackle the world? o Employee esprit was at its highest? o Your profits were so high that you were actually embarrassed? The exact point at which all of those great feelings were happening, your operation was at its optimum size. Unfortunately, you won't realize you are at optimum size until you pass through that euphoria and the pendulum continues swinging. In anticipation of that point, quantify everything possible. Every number and ratio is vital except dollars. How many employees do you have? What was the ratio of overhead and management to total employee count? How many jobs were in the shop? What was the square footage of the plant? What equipment was on the floor? What utilization on key equipment was being experienced? What productivity figures were achieved? Obviously the degree of software automation will have a serious bearing on the number of jobs being processed, etc.

By Howie Fenton on Oct 27, 2009

No optimum sizes but there are sweet spots Wow this is a great discussion. OK I am going to discuss this from an financial and operational point of view. In my opinion there is no long term optimum size of a print company. You can define the optimum size for one month, two months maybe even a few years, but not too much longer. The reason is simple - demand changes and therefore capacity must also change. Let’s back up and start at the beginning. Printing is a capital expensive business which requires a certain volume of work to cost justify certain staffing levels and equipment. This volume of work is called demand and the amount of work you can do with your staffing and equipment is called capacity. Although oversimplified the goal is to match demand and capacity in the most cost effective way. When these match well you are profitable when they don’t they your not. This would be easy if demand was constant or shifting slowing but sometimes it changes drastically. When demand changes you need to be flexible to match that change in demand. When demand exceeds capacity then you have to increase capacity (more shifts, more equipment). When capacity exceeds demand then you have to cut expenses or increase sales. In my experience demand will change for companies of all sizes and in many cases it is unpredictable and inevitable. Positive growth is obviously preferred and easier to manage, but negative growth occurs too. Just look at the market today and you will see the results of demand cut by about 30% across the board affecting companies of all sizes. I think the question is not what is the optimum size of a print company, but what is the best strategy for growth. From my experience studying the NAPL leaders performance, leaders try to grow at a manageable level and are very conservative with capital expenditures and staff levels. For example when a sudden increase in demand occurs, they may approve overtime, add shifts or outsource until they are confident that the demand is sustainable. If there’s a sudden decline in demand then they are at less risk then companies who added expensive equipment of large numbers of staff. But there is a possible complicating factor. What some call optimum size others may call sweet spots. Sweet spots are a combination of dollar volume, workload, profitability and enjoyment. Sometimes when companies grow they say it was not worth. For example, a $2m printer may regret growing into a $6M printer. They may talk about how they are working harder, billing more but less profitable and more stressed. But I don’t think sweet spots are tied to size either. Sweet spots are tied to ongoing new sales efforts that results in a consistency or moderate growth as well as matching the demand and capacity which results in profitability. Referring again to NAPL Leaders research I would say that companies with a profitability over 10% are the right size, those below 5% are not.

By MichaelJ on Oct 30, 2009

I think Clint and Howie have pretty much covered it in their comments. Just wanted to add my two cents. Dollar volume and head count are less then useful categories in thinking about where print companies are going. How do you measure head count or dollar volumes at Staples and the other big box stores or the in plants in enterprises? Even more difficult is to measure for franchises like AlphaGraphics and the others. Or for outfits like CGX which is a network of local business. I think as print moves from standalone manufacturing facilities to "distribute and print" output centers, we need network metrics to see the big picture. At the level of the individual printer, as Howie says the best guide is moving in the direction of sustainable profitability or not. As the market continues to change that means 1. locate new markets 2. cut overhead 3. radically improve the selling and buying process 4. lower the cost of production. The size that facilitates the fastest decision making between 1,2,3 or 4 is exactly the right size.

By Joe Metzger on Nov 10, 2009

If you're not growing, your going! Howie hit it right with positive growth and negative growth. But, it all comes down to "having fun". If you're having fun, you're the right size. And, most likely if you're having fun you're hanging in the 10% or higher net income range, and playing like a profit leader. Patrick, Clint, Howie & Michael... thanks for starting my day on a great note. Now I have to get out there and get working on getting my business back to having fun!

By Patrick Henry on Nov 10, 2009

Joe, thanks very much for your comment. I'd love to hear in more detail about the "fun" you've been having as you keep TJ Metzgers at the right size and on the right track.