Is Measuring Value-Added...Important...?

By: Sid Chadwick

“When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say, ‘I used everything you gave me’.”…….Erma Bombeck

Are you almost out of production capacity….?

Are you producing – with lots of Overtime….?

On months with 5 weeks, do you have special pricing for improved profitability for 5th weeks – since fixed costs are already covered…?

Do your final production Job Costs - frequently exceed the Estimates….? Do you closely examine why?

Finally, have you run an analysis of Value-Added Contributions of your production mix over the last 90 days, from highest to lowest, to discern jobs and customers needing – “Remedial Attention” – at the very least – such as increased pricing…?

Here are Three Different Sample Estimating Profiles:

Estimated Cost	Sample #2	Sample #1	Sample #3
Prepress*	$150	$100	$150
Paper	$750	$1,000	$650
Press*	$900	$700	$800
Finishing*	$300	$200	$150
Packing M. + Shipping	$100	$100	$100
Sales/OH + Admin*	$850	$862	$722
Total Estimated Cost	$2,950	$3,062	$2,572
Expected Selling Price	$3,540	$3,674	$3,086
Estimated Profit	$590	$612	$514
Value-Added $'s:	$1,850	$2,212	$1,822

The Clear-cut winner is no. 2, all other issues being equal, which they are not……such as: (a) How well does the work fit our plant..? (b) What is the potential of the customer – beyond this project...? (c) Does this work require Overtime…? And (d) is the customer willing to pay more than “Target Price?”

What additional guidance does your Pricing Policy receive…or need….for improved profitability?

*Note: Value-Added defined as: “Revenues less all out-of-pocket material and supplier costs.”

Sid Chadwick, President

Chadwick Consulting, Inc.

336-558-4939

sidchadwickcc@gmail.com