Graphic Media Alliance

03/28/2023

Take Action – Utilization

Source: The Management Guys, March 6, 2023

If profits are going to improve, the business model needs to be rethought. Probably, the most powerful area to address is plant utilization. The vast majority of printers are single shift operations with occasional overtime meaning that at least 75% of the hours in every week (there are168 of them) are idle producing no revenue and certainly no profit.

Moving the utilization needle requires more sales and then more employees. The first mission is addressed by a customer specific pricing policy that avoids losing orders because the quote doesn’t match the customer’s reality. The second is dealt with by more extensive overtime initially and then by more people.

These actions are guided by the reality that it’s contribution dollars that count, not percentages. Profit is reached by contribution dollars—the difference between the amount spent to produce the job (materials and outside purchases, factory wages and commission) and the amount of the invoice. When those dollars equal overhead (rent, machinery, front office) we’ve broken even—when they’re more, we’re in profit land.