Printing industry analyses typically come down in favor of large batches because the material costs of the product (paper, ink) are so inexpensive compared to capital costs and set-up times. These analyses typically do not include other, intangible costs: storage, tracking, transactions, search time, spoilage, damage, etc.

 

A key intangible (but still measurable) cost of the inventory is obsolescence. How many times have companies thrown out reams of stationery because the area code changed? How many times have they thrown out boxes of business cards because the person got a promotion, or left the company? How many times have they thrown out packaging because the ingredients changed, government labeling regulations changed, or marketing decided to add "New!" in bright yellow? The waste of obsolescence is like rework; it includes not only the sunk cost of the old product, but the cost of producing (or, typically, overproducing) the new product as well.

 

Adding in these costs will significantly change the equation, and reduce the economic order quantity, hence inventory.

 

As with most problems, resolution requires a broad, simultaneous array of solutions. Here are some of those basic approaches:

 

 

 

1. Value Stream Mapping: The first step is a value stream mapping project. The result of value stream mapping is a detailed implementation plan, showing for each project its measurable objectives, priority, sequence, champion, start and end dates and resource requirements.

 

 

2. Reduce set-up (changeover) times. Measure set-up time from the last good impression of the previous run to the first good impression of the next run. Divide all the individual, specific set-up tasks between internal tasks (require the press or other machine to be shut down, such as cleaning, ink color change, etc.) and external tasks (can be accomplished while the machine is still running). Change as many tasks as possible from internal to external. Record the specific machine settings for each run, so they can be duplicated with minimal trial impressions. Reduce variability by controlling temperature and humidity precisely within the press room and in the paper storage room.

 

 

3. Conduct an Activity Based Costing analysis (don't change accounting systems; just do an ABC analysis every six months), to allocate "overhead" costs more precisely to specific product direct costs. Much of the "intangible" costs of maintaining printing products inventory are based on the volume or mass of the inventory, rather than its value. Allocate these costs (storage space, working capital interest, obsolescence risk, spoilage risk, etc.) according to the most-applicable basis (volume, weight, value-added, etc.) rather than just allocate "overhead" costs against gross sales. Recognize these costs in the product cost/pricing analyses, so that customers (internal or external) recognize the total costs they are asking you to absorb. Your remaining "overhead" allocation can then be lower, because you will capture more costs as direct costs. Measure your reduction in "overhead" multiplier.