Fable
In the dye works, one watches the dye money, the other watches the profit and loss of the whole vat
At the dye works in the west of the city there were three people, each calculating differently. Old Jia managed dyes—how much indigo cost per catty, by what percentage cinnabar's purchase price had risen, how much material each bolt of cloth used on average. He was very frugal with materials: adding one extra ladle of water to the dye vat saved seven li per bolt. On the month-end report, dye cost dropped by two points, and Old Jia felt he had made a contribution.
Shopkeeper Old Jin looked at the whole vat—how much the white cloth cost to bring in, how much the dye cost, how much the water fee, charcoal money, and porter wages added up to, and how much the dyed cloth could sell for. He drew a line: revenue minus these direct expenses, to see what was left. When Old Jia lowered the dye by two points, Old Jin's line rose a little, but it was neither here nor there.
The key problem arose the year dye prices rose sharply. Old Jia was extremely anxious, calculating that each bolt of cloth would consume forty percent more in dye costs. Old Jin checked and found that dye prices had indeed risen sharply, but they accounted for only a little over ten percent of the total vat cost—the bulk was the purchase price of white cloth and the labor of porters, both of which had actually fallen this year. Old Jia stared at the unit price of dye every day, but what squeezed profits was what he did not look at.
There was another problem in the dye vat that was harder to spot. The seven li of dye Old Jia saved produced cloth with a lighter color, and the defect rate rose from five percent to nine percent. On Old Jia's dye cost report, two points had indeed come down, but when Old Jin calculated the whole vat's profit and loss, he found the discount loss from defects was more than three times the dye savings. Cutting one cost brought a rise in another, invisible on the report.
Old Jin later switched to a different bookkeeping method. Each dye vat had its own cost sheet listing all direct expenses. Dye appeared as just one line on the sheet. Old Jia still managed the dye, but he was also required to watch the line next to it—the defect discount rate. If saving two li on dye raised the defect rate by two li, that vat was not making money.
When young apprentices entered the dye workshop, the first thing Old Jin taught them was not color formulas, but to look through the entire cost table before starting. He said whether your effort to save dye is worthwhile does not depend on how much you cut, but on whether other trades are rising at the same time. Looking at only one line is called managing materials; looking at all lines is called doing the accounts.
At year-end closing, Old Jin plotted each vat's gross margin together with the trend of dye cost in the vat, and pointed it out to the owner: a five-li fluctuation in dye cost affected overall gross margin by less than one point. What really made the gross margin curve jump was the purchase price of white cloth, the porter's route and the defect rate—none of these three things appeared on Old Jia's report.