WHAT MAMA DIDNT TELL YOU ABOUT BHRS JOE POLANCO, NEW DIRECTION - - PowerPoint PPT Presentation

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WHAT MAMA DIDNT TELL YOU ABOUT BHRS JOE POLANCO, NEW DIRECTION - - PowerPoint PPT Presentation

Sep 16, 2023 157 likes •393 views

WHAT MAMA DIDNT TELL YOU ABOUT BHRS JOE POLANCO, NEW DIRECTION PARTNERS WHO ARE THESE GUYS? JOE POLANCO BEGAN CAREER IN CUSTOMER SERVICE AND ESTIMATING GENERAL MANAGER POSITIONS WITH COMMERCIAL OPERATIONS 30 YEARS WITH

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SLIDE 1

WHAT MAMA DIDN’T TELL YOU ABOUT BHR’S

JOE POLANCO, NEW DIRECTION PARTNERS

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SLIDE 2

WHO ARE THESE GUYS?

  • JOE POLANCO
  • BEGAN CAREER IN CUSTOMER SERVICE AND ESTIMATING
  • GENERAL MANAGER POSITIONS WITH COMMERCIAL OPERATIONS
  • 30 YEARS WITH PRINTING INDUSTRIES OF AMERICA’S TEXAS AFFILIATE
  • NEW DIRECTION PARTNERS
  • PREMIER MERGER/ACQUISITION CONSULTANTS IN PRINT & PACKAGING INDUSTRY
  • OVER 300 M&A DEALS
  • 9 PARTNERS WITH AN AVERAGE OF 20+ YEARS OF INDUSTRY EXPERIENCE
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SLIDE 3

TRADITIONAL PRICING MODEL

  • BUILT ON BHR’S - INDUSTRY’S DEFACTO PRICING/COSTING TOOL
  • ALL INDUSTRY PRICING SOFTWARE USE BHR’S
  • MOST EFFECTIVE WAY TO ALLOCATE OPERATIONAL COSTS IN A CUSTOM

MANUFACTURING INDUSTRY

  • WEAKNESS
  • DO THEY REALLY MEASURE COSTS?
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SLIDE 4

BUDGETED HOURLY RATES

  • DIRECT COSTS (VARIABLE – EXCLUDING MATERIAL COSTS)
  • LABOR, TAXES, BENEFITS
  • MACHINE COSTS (SEMI-VARIABLE/FIXED)
  • CAPITAL COSTS, MAINTENANCE, UTILITIES, SUPPLIES, SOFTWARE, ETC.
  • OVERHEAD COSTS (FIXED/SEMI-VARIABLE)
  • GENERAL, ADMINISTRATIVE, SELLING
  • THREE TYPES OF RATES –
  • DIRECT
  • MACHINE (DIRECT COSTS + MACHINE COSTS)
  • FULL ABSORPTION (ALL INCLUSIVE)
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SLIDE 5

CHALLENGES

  • BHR ALLOCATION
  • INDIRECT COSTS (OVERHEAD) ALLOCATED BY VARIOUS FORMULAS
  • SQ. FOOTAGE; ACTIVITY; INVESTMENT
  • COSTS ARE ADJUSTED BY “CHARGEABLE” HOURS
  • 1,944 HOURS = 100%
  • 1,555 HOURS = 80%
  • 1,360 HOURS = 70% [MOST FIRMS BASE COSTS ON 70%; 85% IS CONSIDERED LIMIT]
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SLIDE 6

6/C PRESS 40” PRESS {1-SHIFT}

  • DIRECT COSTS (VARIABLE – EXCLUDING MATERIAL COSTS)
  • $74,000
  • MACHINE COSTS (SEMI-VARIABLE/FIXED)
  • $433,000
  • OVERHEAD COSTS (FIXED/SEMI-VARIABLE)
  • $295,000
  • TOTAL COSTS – $802,000
  • 70% = $589 PER HOUR ($802,000/1,360)
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SLIDE 7

BUDGET VS. REALITY

April May June July August

Budgeted Hourly Rate $589.00 $589.00 $589.00 $589.00 $589.00 Budgeted Hours (70%) 113.4 113.4 113.4 113.4 113.4

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SLIDE 8

BUDGET VS. REALITY

April May June July August

Budgeted Hourly Rate $589.00 $589.00 $589.00 $589.00 $589.00 Budgeted Hours (70%) 113.4 113.4 113.4 113.4 113.4 ACTUAL Utilization Rate 80% 70% 68% 60% 50% Actual Hours 129.6 113.4 110.16 97.2 81

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SLIDE 9

BUDGET VS. REALITY

  • OVER/UNDER ABSORPTION

April May June July August

Budgeted Hourly Rate $589.00 $589.00 $589.00 $589.00 $589.00 Budgeted Hours (70%) 113.4 113.4 113.4 113.4 113.4 ACTUAL Utilization Rate 80% 70% 68% 60% 50% Actual Hours 129.6 113.4 110.16 97.2 81 Over (Under) Absorption $9,541.80 $0.00 ($1,908.36) ($9,541.80) ($19,083.60) ACTUAL HOURLY RATE (COST) $515.69 $589.36 $606.69 $687.59 $825.10

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SLIDE 10

BUDGET VS. REALITY

  • PRICING CONSTRAINTS

BHR

Target Utilization (70%) $589.00 Pricing Rate $260.00 Overhead Underabsorption $447,440

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SLIDE 11

REALITY

  • “EXISTING” MODEL DOES NOT MEASURE COSTS
  • MIS/ESTIMATING SYSTEMS DEVELOP PRICES
  • MANAGEMENT MAKES DECISIONS ON JOB “COSTS”
  • IGNORES IMPACT OF MATERIALS/OUTSIDE PURCHASES (40% OF SALES) ON

PROFITABILITY

  • DOES NOT ACCOMMODATE THE REALITY OF MARKET PRICING

(COMPETITION & VALUE TO CUSTOMER)

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SLIDE 12

WHAT’S THE FIX?

  • ACTIVITY BASED PRICING (CONTRIBUTION/VALUE ADDED)
  • ACCOUNTS FOR ALL DIRECT COSTS
  • CONTRIBUTION TO OVERHEAD IS KEY METRIC
  • NEED TO MOVE AWAY FROM JOB COSTING MINDSET
  • PRINTERS DO NOT CREATE HOMOGENOUS PRODUCTS
  • LABOR
  • MATERIAL
  • CAPITAL RESOURCES
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SLIDE 13

WHAT’S THE FIX?

  • VALUE ADDED
  • SALES

LESS: PAPER CHARGEABLE MATERIALS (INK, DIRECT SUPPLIES, “CLICK” COSTS) OUTSIDE PURCHASES

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SLIDE 14

WHAT’S THE FIX?

  • CONTRIBUTION
  • SALES

LESS ---

  • PAPER
  • CHARGEABLE MATERIALS (INK, DIRECT SUPPLIES, “CLICK” COSTS)
  • OUTSIDE PURCHASES
  • DIRECT LABOR COSTS
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SLIDE 15

STD Costing

JOB A JOB B Materials Paper $425 $750 Chargeable Materials $85 $85 Outside Purchases $370

Hours BHR

Prepress 2.5 $90.00 $225 $225 Pressroom 4 $230.00 $920 $920 Bindery/Finishing 2.5 $45.00 $113 $113 Total Costs $1,768 $2,463 M.U. $177 $246 Selling Price $1,944 $2,709

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SLIDE 16

STD Costing

JOB A JOB B Materials Paper $425 $750 Chargeable Materials $85 $85 Outside Purchases $370

Hours BHR

Prepress 2.5 $90.00 $225 $225 Pressroom 4 $230.00 $920 $920 Bindery/Finishing 2.5 $45.00 $113 $113 Total Costs $1,768 $2,463 M.U. $177 $246 Selling Price $1,944 $2,709 Value Added $1,434 $1,504 V.A. Margin 0.74 0.56

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SLIDE 17

JOB A JOB B Materials

STD DIRECT STD DIRECT

Paper $425 $425 $750 $750 Chargeable Materials $85 $85 $85 $85 Outside Purchases $370 $370

Hours BHR

Prepress 2.5 $90.00 $225 $75 $225 $75 Pressroom 4 $230.00 $920 $288 $920 $288 Bindery/Finishing 2.5 $45.00 $113 $45 $113 $45 Total Costs $1,768 $918 $2,463 $1,613 M.U. $177 $246 Selling Price $1,944 $2,709

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SLIDE 18

JOB A JOB B Materials

STD DIRECT STD DIRECT

Paper $425 $425 $750 $750 Chargeable Materials $85 $85 $85 $85 Outside Purchases $370 $370

Hours BHR

Prepress 2.5 $90.00 $225 $75 $225 $75 Pressroom 4 $230.00 $920 $288 $920 $288 Bindery/Finishing 2.5 $45.00 $113 $45 $113 $45 Total Costs $1,768 $918 $2,463 $1,613 M.U. $177 $246 Selling Price $1,944 $2,709 Contribution $1,026 $1,096 Sales Commission $156 $217 NET CONTRIBUTION $871 $880 P.V. 0.45 0.32

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SLIDE 19

General Commercial

Sales $3,840,000 Material Costs Paper $806,400 Ink/Supplies $202,450 Outside Purchases $218,158 Total Material Costs $1,227,008 Direct Labor Costs $921,600 Direct Selling Expense $215,040 Contribution $1,476,352 P.V. 0.38 Direct Factory Costs $226,560 Gross Pofits $1,249,792 GP Margin 0.33

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SLIDE 20

Commercial Direct Mail Purchase Magazines Services Services Total

Sales $3,840,000 $1,440,000 $1,152,000 $1,920,000 $768,000 $480,000 $9,600,000 100% Material Costs Paper $806,400 $244,800 $322,560 $422,400 $1,796,160 18.7% Ink/Supplies $202,450 $76,050 $66,206 $110,346 $24,948 $480,000 5.0% Outside Purchases $218,158 $53,684 $150,947 $236,579 $60,632 $720,000 7.5% Total Material Costs $1,227,008 $374,534 $539,713 $769,325 $85,580 $0 $2,996,160 31.2% Direct Labor Costs $921,600 $345,600 $195,840 $460,800 $161,280 $88,800 $2,173,920 22.6% Direct Selling Expense $215,040 $92,160 $82,944 $92,160 $43,008 $26,880 $552,192 5.8% Contribution $1,476,352 $627,706 $333,503 $597,715 $478,132 $364,320 $3,877,728 40.4% P.V. 0.38 0.44 0.29 0.31 0.62 0.76 0.40 Direct Factory Costs $226,560 $69,120 $46,080 $113,280 $19,200 $12,000 $486,240 5.1% Gross Pofits $1,249,792 $558,586 $287,423 $484,435 $458,932 $352,320 $3,391,488 35.3% GP Margin 0.33 0.39 0.25 0.25 0.60 0.73 0.35 General/Administrative $2,208,000 23.0% Selling Expense $595,200 6.2% Earnings Before $588,288 6.1% Interest/Taxes

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SLIDE 21

TAKE AWAYS

  • CONTINUE TO USE YOUR EXISTING BHRS
  • UNDERSTAND THEY DO NOT REPRESENT COSTS!
  • DEVELOP DIRECT COST BHR’S
  • DEPARTMENT COSTS WITH ACCURATE UTILIZATION (6 MONTH ROLL)
  • CREATE THE TOOLS TO MEASURE VARIABLE COSTS BY JOB/PRODUCT/CUSTOMER
  • VALUE ADDED
  • CONTRIBUTION
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SLIDE 22

Joe Polanco

New Direction Partners jpolanco@newdirectionpartners.com (214) 336-8586