New Equipment = More Profit
A recent press release from a press manufacturer described how a printer, who just made a multi-million dollar investment on a new press, would increase their profits by the press making ready and running faster. There's no doubt that was the printer's plan, but would it work?
Since it is also unlikely that the existing equipment was fully utilized (24/5 at minimum). It’s unclear whether the printer evaluated the possibility of building additional volume by adjusting pricing without making the large capital investment.
Since the printer’s estimating software was focused internally and ignored the value of the project to the customer, it’s likely that it would incorporate the reduction in makeready and running times into its calculations; thus, giving them away to the customers and sharply diminishing any return from the new press.
The bottom line is that unless the existing equipment is fully utilized—approaching 24/5, or the proposed equipment purchase opens the door to an entirely new business which is not physically doable with the existing equipment and then only if the volume of new business will support it, this type of purchase is a bad idea.
The Captive Customer
It seems odd to consider a customer to be “captive” but it happens when a publisher or other creator of material that will be distributed through print concludes that they want to have their own print facility, usually with a view to doing it more cheaply “in house.” In reality, the result is usually just the reverse.
As the publisher customer’s print needs grow, so does the pressure to buy more expensive equipment and a larger plant to house it. Since it naturally focuses on its own needs, the equipment and facility tend to be underutilized as any outside work is a secondary consideration. This underutilization causes the output to be significantly more expensive. The challenge is magnified by a pricing policy driven by the “cost” of the plant’s production which tends to be over market because of its underutilization.
The best solution is the realization that the publishing and printing businesses are separate, and both would prosper by focusing on the goal of maximizing their individual returns. The publisher could lower its costs by opening itself to the power of the competitive print market to lower its costs. Similarly, the printer could concentrate on the power of market-based pricing to expand its equipment and plant utilization.
While this discussion centers around publishers who print for their own needs, the phenomenon is readily seen in any “Inplant” printing operation.
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quoins2pixels is written by Bob Lindgren and Joe Polanco. Bob and Joe have spent decades in the printing industry, and throughout their careers, they have counseled hundreds of company owners on a variety of management topics. As a value-added service of Graphic Media Alliance, they are available to expand on these articles, or aid with projects. Bob can be reached at (818) 219-3855 and Joe at jspolanco49@gmail.com.