The art of the economic study for comparing printing presses – How job data and cost information are used to inform capital expenditure decisions
Economic studies make use of 3 tools, including: the manufacturers’ total cost of operation instrument (TCO), ink estimation tools, and data-driven cost analysis.
The economic study delivers data-supported comparisons for the printing press’ cost-per-unit for the current state vs. future state. It’s a collaborative exercise that typically involves: press and finishing equipment manufacturers, estimators, production managers, IT technicians, and senior management from the printing organization.
Every economic study starts with a question. Here’s a sample of questions that focus the analysis for comparing printing presses. Rows read across and provide summary descriptions for: (1) Manufacturing segment & press, (2) Question, and, (3) Deliverable (report).
The economic study is referred to as an art because it is a creative, solution-finding exercise. No two printing organizations are the same. Each study is customized. At its core, the economic study is a data-driven connection to the printing organizations’ presses. The focus is limited to one or two questions. For example: “What’s the cost per unit (i.e. per simplex page, or, per thousand square inches - MSI) for jobs produced on this press over a 1-year period?” The study would assemble job data from the MIS and cost information from accounting for the time-period. Data is cleaned and put into proper context. Costs are apportioned across each job and a cost per unit is calculated. The study allows for modeling the costs and output for the current equipment and comparing it to a new press and finishing platform.
The reports shown below (Companies #1 - #5) were developed using cost information from accounting, job data from the MIS, and a small slice of press data – depending upon what was available. These data-driven reports were instrumental in informing management about press cost and performance over a 1-year period. These reports represent just a small taste of the fruits of data-driven analysis.
Take note of a new class of data-analysis tools that are capable of monitoring press performance. These powerful tools develop comprehensive slices of press data into on-demand reports describing press performance – by the minute. One such tool is the spencermetrics®connect®system.SpencerMetrics has taken the Overall Equipment Effectiveness (OEE) Industry Standard for measuring manufacturing equipment and adapted it to printing presses. This type of tool raises data analysis for printing presses to a new level and is the subject for another discussion.
What do the reports show to management?
The condensed summaries of economic studies shown below illustrate how management used data-driven economic studies to inform their CAPEX decisions. These summaries are extracted from actual studies and have been sanitized for publication.
Case #1 – Management decided to shut down & sell its 1 offset press and accelerate the transition to digital. All booklet production could be transferred from the company’s sheet fed offset press to its electro photographic presses. Evaluated the option to out-source jobs that did not fit digital. Calculated the financial impact to shut-down and sell the offset press and platemaking equipment. This move generated $110,000 in cost savings per year, and infused capital into the company from the sale of the offset press.
Case #2 –Management used the report to justify the CAPEX for equipment and for production planning. Quantified the volume of pages that can be shifted from the monochrome offset web presses to an inkjet and inline finishing platform. Validated management’s internal calculations about what offset press to de-commission. Used the page volume transfer figure to program the inkjet press manufacturer’s TCO instrument and constructed running cost and capacity scenarios for the inkjet and finishing platform. Set the stage for production planning on day-1 by using customer’s job production data to profile the priority of work to transfer, by book size, substrate, and binding style. (See suggestion below about using data-supported volume figures to program the TCO instrument).
Case #3 –Estimator used the report to implement best practices for ink usage estimation & reconciliation. Ink estimation for inkjet presses is a bit different from offset. Inkjet press ink usage varies by up to 10x and more. Ink usage is determined by the job content and then by the number of drops required to print that content. To run a profitable printing organization, estimators must have controls for both estimating and reconciling actual ink usage. The economic study was driven by the question: “How are ink costs controlled?” An ink usage reporting feature was perfected for the inkjet press and best practices were developed to guide the job cost estimation process, especially for ink costs.
Case #4 – Management used the report to quantify the cost savings of a print on demand business model for educational booklets. Inventory waste is a part of the cost of manufacturing books. The economic study quantified the cost savings by reducing, or eliminating inventory waste and by implementing a print on demand business model.
Case #5 – The report helped management to understand its “true costs” for digital. Digital press operations require cost monitoring and updating to accurately configure estimating software tools. The economic study assembled the direct costs and allocated the indirect costs across its presses. The goal was to gain insight into the company’s true costs for producing work on its presses.
One suggestion to get more precision from the TCO instrument – Use real volume figures, not guesstimates
It happens at some point in the typical press sales presentation. The TCO instrument is being programmed to show a rough-cut scenario as to how the press performs from a cost standpoint. The sales rep asks the prospect: “What’s your volume?” Management might have a solid figure to offer in response. However, oftentimes a ‘guesstimate’ is made.
It’s at this point when the sales conversation hits a sticking point – the ‘guesstimated’ volume figure does not inspire confidence. Presses are a big investment. Getting it right requires more than a guesstimate.
Volume is the single largest multiplier input when programming the TCO instrument. Why not raise the confidence level in the volume figure to load onto the press? TCO calculations are more accurate when the proposed volume load is supported with data-driven analysis. Press manufacturers and printing organizations both benefit by getting it right.
Data-driven economic studies allow for management to more precisely model printing press cost & performance. This is especially useful for comparing the current state (press, costs, and production) to a new press and finishing platform.
Comments are welcome.
Paul Dombrowski www.pauldombrowski.com
is an independent ROI Analyst for digital print systems. Paul works with printing organizations to help calculate the costs and benefits of new digital presses. Paul can be reached at (312) 401-7464, [email protected]