An Anatomy of Determining Total Cost of Ownership for Production Inkjet Printing Presses
What adopters of production inkjet systems don’t yet know about their new presses won’t necessarily hurt them. But, as they sometimes discover, closing the gaps in their knowledge as they put the equipment to work can entail expenses they didn’t anticipate. Leading OEMs agree that the way to avoid surprises is to be clear about the total cost of ownership (TCO) and the bearing it has on justifying the purchase or the lease of an inkjet press.
TCO isn’t a difficult concept to grasp: it simply means making a reliable estimate of all the expenses that come with acquiring and operating a piece of equipment over the full span of its life cycle. That knowledge, combined with the intended selling price of whatever is to be produced on the equipment, indicates how long return on investment (ROI) will take to achieve and how much profit the device will contribute.
As Rick Bravo, HP PageWide Industrial, Global Strategies, senior manager, puts it, “for prospective customers, TCO is a theoretical mathematical exercise, which ends up being agreed upon after some assumptions are taken.” By identifying and price-tagging the assumptions, printers remove TCO from the theoretical realm and turn it into a practical tool for business planning.
‘The Numbers Are the Numbers’
Candor and comprehensiveness are the key ingredients of the exercise. “The numbers are the numbers,” Paul Marnell, digital press specialist, Komori America, points out. “Printers have to be honest with themselves.”
So do the manufacturers. Aron Allenson, sales support specialist, Screen Americas, declares: “If we’re honest with our customers, and if the customer is conscientious about his own costs, you have to factor in everything. We don’t hide any of the formulas.”
Another precept of inkjet TCO is not to stop at the press when making the calculation.
“One of the biggest issues observed when discussing TCO is the assumption to just look at the press portion,” Bravo notes. “For HP, this includes looking at finishing, inventory, warehousing and even landed cost to end consumers.” (“Landed cost” is the total cost of a shipment arriving at the purchaser’s site, including freight charges, insurance, customs duties, etc.)
“Frequently, when printing cost is evaluated, only the cost-per-print is considered,” Dr. Doug Sexton, HP PageWide Industrial, Global Strategies, director agrees. He says that a more in-depth analysis will also take in the costs of finishing, which can differ markedly by application.
The Big Four – and More
TCO combines fixed costs (those that aren’t affected by production output) with variable costs (those that do change in step with volume) over the period of time in which the equipment is used. Its basic components — the “big four,” as Todd Potrykus, manager, product marketing, Ricoh USA, calls them — are hardware, maintenance, paper and ink.
But, with their vendors’ help, printers can articulate the list in as much additional detail as they wish.
According to Michael Poulin, director of product marketing, Production Print Solutions, Canon Solutions America, the TCO of a production inkjet device consists of “the initial capital investment of the equipment including pre- and post- and the inkjet press engine, the labor costs (press operators), consumables (ink) and facility cost (energy, HVAC, square footage, etc.).”
William Troxil, senior VP of strategic business development, Konica Minolta Business Solutions, says the company asks customers for a representative set of files that can be used to establish a basic “ink out” (i.e., consumption-based) model of TCO. Then charges for finance, service and other cost components are factored in. “This is not cost-per-copy, where everything is hidden,” Troxil remarks.
Allenson says Screen has devised a set of cost calculations that give customers an accurate, inclusive estimate of TCO. Its elements include:
- capital expenditure, including the cost of money borrowed to finance the acquisition, which becomes part of the overall monthly cost estimate;
- service, the cost of which can be reduced if the customer performs some of it;
- software licensing, which Allenson says “can be big” as a cost item, depending on whether or not annual licensing fees cover upgrades;
- electricity for the drying, air conditioning and venting needed in an inkjet pressroom;
- labor, which may be a hybrid of fixed and variable costs depending on how frequently the inkjet press is run and what other tasks its operators are assigned to complete when it is idle;
- ink usage, which Allenson says is only “loosely related” to ink cost because ink yields — the actual coverages the inks provide — can vary;
- click charges, which, if the usage model of the press is based on them rather than on ink consumption, raise questions such as the difference in price between color clicks and black ones;
- fluids, such as bonding agents and pre- and post-coat treatments, with their costs and potential “failure points” (e.g., the head clogging they can cause);
- replacement inkjet heads, provided either as a fixed monthly allotment of backups or expensed individually as heads on the press fail; and
- paper, which can account for up to 50% of job cost depending on the types of substrates that the press can handle.
TCO calculation doesn’t always have to be this granular. Andre D’Urbano, director of dealer sales and corporate marketing, RISO Inc., says that when it comes to assessing the cost for the kinds of entry-level inkjet solutions his company provides, “it’s the ink, and that’s it.”
There’s room for nuance in the assessment of TCO. Steve Lynn, director of inkjet sales, Fujifilm North America, Graphic Systems Div., notes that while commercial printers think of “consumables” mainly as paper and ink, some inkjet OEMs include heads in the definition as well.
In addition to hard costs, there are soft costs, such as operational inefficiencies, which are hard to quantify,” Marybeth Gilbert, VP, Production Inkjet Business, Xerox, observes. “However, it is important to estimate the savings you would gain from end-to-end process improvements, such as forms elimination, co-mingling and productivity.”
Finally, never underestimate the impact of operator experience and skill sets, adds Komori’s Marnell. “Whoever you put on that inkjet press,” he says, “will affect the overall TCO.”
Feeding the Beast
The relationship between anticipated production volume and TCO is something else to gauge with accuracy. In general, the more work an inkjet press is given to do, the more efficiently its economic model works.
“As with a car payment, if one drives more, one gets greater return on a per-mile basis — but it will cost more in gasoline,” Bravo explains. “So, as production volumes increase, TCO increases in total but decreases due to greater amortization on a per-page basis.”
Amortizing fixed costs over increasing volumes of work can have a “huge impact” on TCO, Potrykus agrees. This becomes apparent, Troxil notes, as work migrates from the plant’s “traditional assets” to its inkjet press.
Will Mansfield, director, worldwide product marketing & category management, Enterprise Inkjet Systems, Eastman Kodak, says that some vendors, including Kodak, may offer their inkjet customers print-more-pay-less volume discounts to encourage offset-to-inkjet migration. But, he reminds adopters to ask whether they’ll have to meet minimums to which their costs will be tied.
As in all forms of printing, “volume” for inkjet TCO purposes can be a relative term. According to D’Urbano, a shop can cover the lease payments on an entry-level device from RISO as long as it can put 50,000 to 100,000 sheets per month on the press: “stuff that most big printers do in a day,” he asserts.
Once TCO has been established, a prospective inkjet adopter can use it to reality-check what he or she hopes will be the outcome of investing in an inkjet press. Sometimes, the auguries can be very favorable indeed.
The thing to determine, says Kent Wolford, manager, technical marketing/sales support, Xeikon Digital Solutions, is “how long will it take me to pay for this asset” given the number of shifts over which the press will be operated. He contends that some label printers, enjoying margins of 35% or higher, have been able to pay back a $500,000 investment in an inkjet press within 20 months.
Printers aren’t going to wait “seven years” for an ROI on an inkjet press, according to Troxil. “Most owners want their money back in 36 months,” he contends. Some want to break even in half that time — a feat Troxil says they can pull off if they have enough sheets to print on the B2-format inkjet equipment that Konica Minolta supplies.
What Is the Business Case?
However, assuring volume and ROI isn’t just a matter of selecting the right press. It’s also a function of having chosen the right press for the right reason.
The principal justifications for inkjet, says Skip Powers, business analyst, Fujifilm North America, Graphic Systems Div., are the means it offers to:
- produce short runs profitably;
- grow the business with versioned and variable data applications;
- recover outsourced work;
- reduce post-press costs in a digital production workflow;
- minimize offset makereadies; and
- put offset equipment to better use by reserving it for longer runs.
The business case for investing in inkjet should mesh with the adopting company’s general strategy. As Poulin observes, “If you are in a growth mode, it’s less about how much you are spending, and more about how much you stand to make with your investment. It’s essential for printers to understand what their total cost per application will be for the new technology, as well as what their sellable price will be.”
Allenson recommends being realistic when estimating how much work a new inkjet press will attract. “If you anticipate getting 5 million of something, assume you’ll get 90% of that volume,” he says. If the work is expected to come from markets that the company is just starting to build a presence in, be more conservative than that.
TCO calculation “isn’t always 100% of the story” in the inkjet investment decision, according to Potrykus, who spent 20 years as an operations manager at a large printing company before switching to the OEM side. He says that improving customer satisfaction with shorter turnarounds ranks with increasing revenue as a justification for the spend.
Mansfield also urges looking beyond the basic arithmetic. The premiums that can be charged for tight-turnaround jobs and other services that inkjet makes possible impact TCO as well, he points out.
Come Out, Come Out …
Inkjet adopters who take their TCO due diligence seriously shouldn’t have to fear being blindsided by unexpected complications. But, because no one can foresee every contingency, there could be “hidden costs” to deal with — those that inkjet adopters either fail to anticipate or don’t ask enough questions about.
As Xerox’s Gilbert says, “It’s no fun to learn that what you thought was the final cost didn’t actually include hidden fees, like installation and training, or that ink costs were calculated in kilograms, not liters. There are other costs, such as energy use and facility modifications, that are frequently overlooked.”
Equipment depreciation times often do not get full consideration, according to HP’s Sexton. “An investor should determine a supplier’s average product platform lifetime before obsolescence, the fraction of older platforms which have been upgraded to current performance standards and the cost of upgrades,” he counsels.
“Beware of limitations in the press marketing data sheet,” Bravo warns. “The hidden costs often arise when a faulty analysis is presented in the form of lower production volumes built upon unrealistic duty cycles, higher maintenance, downtime, limited substrate choices or higher consumables costs.”
Wolford acknowledges that it can be “a little bit of a shock” for inkjet adopters when they learn what they could be paying for service contracts and replacement heads. Understand that the relationship of ink coverage to ink cost is not the same in inkjet as it is in offset, Potrykus advises.
Something else to clarify is press speed — specifically, how close the press will be able to come to its top-rated output when running different types of stocks, and what effects variations in speed could have on ink coverage and job cost.
Canon’s Poulin explains, “Some machines can hit 1,200x1,200 dpi and can print on coated and uncoated offset stocks, but only at lower running speeds. Therefore, a print services provider (PSP) needs to factor in additional labor time and print time into the TCO for these applications.
“PSPs should be sure to ask if the inkjet press in question can achieve the highest quality output at the highest possible speed, as this is not always the case,” Poulin adds.
Allenson also recommends getting a handle on “the realistic speed of the machine” with all of the papers it will be expected to run. He points out, for the benefit of those thinking about continuous-feed inkjet production, “if you’ve only ever been a sheetfed printer, the pricing scheme is very different for rolls than it is for sheets” — paper bought by the pound instead of by sheet count.
Sometimes it’s not cost, but opportunity, that’s hiding in plain sight. According to Wolford, one is the positive surprise of discovering that vendors of inkjet substrates “have geared up to have more reasonable selections of stocks” at prices that close some of the gap between inkjet and conventional papers.
What surprises Troxil is the fact that more commercial printers don’t ask him about what they could save in paper and labor by moving to 6-up production on B2 inkjet equipment. “I have to bring it up all the time,” he says. Some even fail to ask the right questions about inkjet ROI, Troxil contends, because they’re so tied to the cost-per-page models of their toner devices.
Part of the selection process should be learning whether the press is built for the “heavy lifting” of high-volume production and finding out what its track record for downtime and service calls is like, urges Fujifilm’s Powers. If possible, says his colleague Lynn, visit a plant where the press under consideration has been installed, and ask its owner how much productive uptime the device is delivering.
Closing the deal should include specific questions about what warranties and service contracts do and do not cover, notes Komori’s Marnell. For example, will there be separate contracts for software and DFEs? What will upgrades cost?
Allenson believes printers should expect their OEMs to educate them about all costs associated with inkjet adoption. When the details are firm, he says, “make sure they’re written into your contract in black and white.”
Are Customers in the Loop?
When a new inkjet press is on its way, D’Urbano says, customers shouldn’t be kept in the dark about it — especially if the new process might change the look of the color that they’ve grown used to seeing from other platforms. He advises informing them, “We’re moving to a new technology. Do you approve?”
As the acceptance of production inkjet grows, questions about its TCO profile and its possibilities for increased customer satisfaction will become commonplace throughout the industry.
“At some point, you’ve got to bite the bullet and jump in,” declares Brent Moncrief, Fujifilm’s VP, strategic marketing & brand management, to those still on the sidelines.
He’s convinced that thanks to steady progress in inkjet technology, the industry has crossed “the dangerous chasm of bad decisions” and is now in a place where printers can embrace the process with full confidence in the soundness of the investment they are making.