Driving Profitability with Productivity
Printing companies today have to navigate the requirements of shorter run lengths, faster turnaround times, and using streamlined workflow all while facing relatively stable print prices and higher consumables prices. With all of these challenges, it’s virtually impossible to maintain, yet alone increase, profitability without making changes to your business model or operations. There is a wide range of profitability and performance for printers in the industry; the key is to know what differentiates profit leaders from the rest.
According to independent research1, the profitability of the average printer is just over 2%, with costs distributed among factory, administrative and material costs, as shown below.
The question often arises, “how can we maximize profitability?” The simple answer is producing print at the base cost – the lowest cost per 1,000 sheets. It has been shown1 that a 1% decrease in manufacturing costs equates to a 34% increase in the profitability of a company, while a 1% reduction in all costs equates to a 43% increase in profits. The distribution of performance from different printers shows a wide gap in their profitability, Figure 2. While median printers are making just over 2% profit and spending almost $98 for every job, the profit leaders (top 25%) are only spending approximately $91 per job, and those with profit potential (the bottom 25%) are actually losing money and spending almost $104 — $4 more than the $100 in sales.
Evaluating the cost differences between printers, it has been shown2 that the leaders have managed to not only reduce their manufacturing costs but also become much more productive with a higher value add. To achieve this, they have significantly more capital investment per factory employee, Figure 3. These investments have resulted in an excess of 44% more added value per factory employee than those with profit potential. To put in perspective, for a $10 million printer, this would equate to 17 fewer factory employees for the profit leading companies compared to those with profit potential — all of this dropping to the bottom line.
The reason companies continue to invest in equipment and technology is to maximize the assets in their manufacturing facility and boost profits. To do this, they are replacing older equipment and technologies to improve efficiency and competitiveness in today’s aggressive marketplace. Their decisions on technology, equipment and processes are driven by the impact on the whole manufacturing process, and how the individual elements can work together to ultimately increase profitability.
How do these companies drive profitability? It is the combination of base manufacturing costs with the Budgeted Hourly Rate (BHR) and the actual productivity achieved on the equipment. Combining these numbers together, it is possible to evaluate the best manufacturing scenario. PIA’s Print Management Alert2 put it quite simply by stating, due to the productivity differences of the equipment, the lowest BHR does not automatically equal the lowest manufacturing costs. From this, they developed the Productivity Equalizer, Figure 4, which shows the relationship between equipment price differences and the productivity difference that would be needed to have the same production costs. What the equalizer shows is that in terms of profitability, productivity is three times more important than any price differential.
In evaluating productivity, the instinct is to look at the technical specifications. However, what happens in reality is much more important. We all know that equipment can have the “same specifications” but in a production environment, perform very differently. Taking motorsports as an analogy: while the cars may be similar, it is not the performance on a single lap but over the duration of whole season that matters — how well do they perform in each race, how efficient is each pit stop (transition between jobs), and can they repeat this race to race (week in, week out) throughout a whole year. This is when we see the real performance of the complete package and not just evaluating a few pieces of technical speculations. Printing takes a similar approach: how many sheets can you effectively get onto the floor day in, day out, minimizing interruptions while maximizing the uptime.
To quantify this, it is best to look at the real performance of actual printing presses as they perform in printers’ facilities. A new independent study by Smithers Pira3 evaluated recent presses of more than four colors and recorded their details including the number of impressions and the age of the press. This data provides statistically accurate insight into the actual performance of different presses and showed that there were clear differences between presses (results are shown below).
How does this relate to your costs? To understand, we need to combine the cost to produce the job with the equipment productivity to get an estimate. Smithers Pira used their own costing model to estimate the comparative unit cost of production, looking at the direct manufacturing costs from the different manufacturers. Evaluating five unit press configurations, the results from three presses are shown in Figure 6. The data showed that Heidelberg presses are significantly more cost effective. In selecting the correct press, it is also important to fully understand the job mix and pairing this with the right press. To quote the report3, “The analysis shows that the profit opportunity for Heidelberg machines is significantly higher than for competitive models.”
Entrepreneurs with the lowest cost per sheet smile when they hear their competition say, “They will go bust offering those prices!” In reality, they know they are making more profit on their “low” prices than their competitors would have made at a higher price — prices that couldn’t even win them the job in the first place!
To download the two Management Alerts from PIA and the study from Smithers Pira, please visit http://news.heidelbergusa.com/press-productivity.
Click here or below to watch the video:
1. Impact of Cost on Productivity in the Printing Industry, Print Management Alert, R. Davis, Printing Industries of America, 2017.
2. Understanding Productivity: The Key to Lower Cost and Higher Profits in the Printing Industry, Print Management Alert, R. Davis, Printing Industries of America, 2017.
3. Real Production Capability of Pre-Owned Sheetfed Litho Presses, Smithers Pira, 2017.