Investigating the Return on Investment (ROI) for Digital Presses
An ROI Analyst offers insight on tools that help printing organizations calculate the costs and benefits for new digital presses. How do these tools work to expose the return on investment that you can realistically expect?
New digital presses and finishing equipment are magnificent examples of inventive engineering.
If we could match these new machines with equally brilliant financial engineering to enlighten the purchasing decision – printers would be geniuses once again.
The Wright Brothers couldn’t find a press they liked – so they built one. Today it is easier to find the right press – with research, a capital budgeting framework, customized data analysis, and TCO calculators. These are the ROI tools in the tool cabinet. They must be calibrated and customized to align with the press, your operating parameters, job data, and cost information. When used in combination with support from your vendor’s sales professionals and your entrepreneurial spirit, ROI tools help you to confidently produce a financial and business plan that’s as good as any.
The starting point for using ROI tools is when you’ve narrowed down the press and finishing equipment you believe might be right for your applications and capacity requirements.
Total Cost of Operation (TCO) calculator – “What will it cost to run your jobs on this press?”
Request the press manufacturers to print samples using your files, substrate, and finishing requirements. Select jobs that represent the gamut of work you produce. If you’re not satisfied with the samples, then this press is not for you.
Ask to see technical data such as ink usage and ink costs for each job. Does the substrate require pretreatment? What’s the press speed, duty cycle, uptime? Is there a click charge and how does it work for your press forms? Think about post-press – job planning starts with finishing – invite finishing vendors into the conversation.
The TCO calculator shows the cost for running the press. It uses rough-cut estimates for inputting average job specifications and allows inputs for press load, capital & service costs, and more. It can be programmed as a “skinny TCO” with just the running costs (i.e. capital, service, ink, substrate, electricity, and replacement parts).
A fully-loaded TCO includes the costs in the “skinny TCO” above, plus the cost burden for labor, general administrative, and selling expenses. When a fully-loaded TCO calculator includes an average sell price per unit produced, and volume projections, it calculates an estimated payback period. It’s a capital budgeting framework linked to the cost to operate the press.
There’s another use for the fully-loaded TCO. It’s an income statement for the proposed digital work center. It’s a capital budgeting framework to project revenue and costs for a 3-year period. This allows you to not only forecast when the press will go into the black, but to also have a plan to work towards.
TCO calculators are customized together with your input. It’s a mutual responsibility (you and vendor) to get in alignment on your goals. Vendors should supply transparent worksheets. General competitive comparisons are useful. However, cost details should come directly from each vendor. Get clarity on the terminology – what’s the unit measure? How are system uptime and productivity defined and calculated? Figure 1 illustrates a section from a TCO calculator. It allows customer & vendor input for the time parameters.
Figure 1. Section from TCO calculator allows for customer & vendor input and calculates productivity.
Comparing vendors’ TCO calculators can be tricky. There’s no common format and parameters are rarely the same – it’s the apples to oranges syndrome. Running costs are derived from a variety of things and are calculated and presented by manufacturers in different ways. Manufacturers do need to recover costs for service, ink, jetting modules, and replacement parts. Their “cost-recovery” plans are spelled out in the service agreements. Beware of hidden costs. Start with the big numbers: ink, substrate, utilization, and uptime.
You need to know what volume you have for the new press. Marco Boer at I.T. Strategies makes the point: “The biggest variable if you’re going to make it in terms of profit is the volume you load onto the machine. One of the keys to really becoming successful out of the gate is to have a very clear understanding of how many pages you can shift to the digital press. Once you have that baseline, investigate how you can grow that by doing new things for your existing customers and taking on customers that you couldn’t touch before.”
So, how exactly do you quantify the volume you have to transfer? The cross over analysis is an ROI tool to investigate transfer volume.
Cross over analysis – “How much work do you have to transfer onto the new press?”
Every printer and converter is different. Formulating your strategy is the starting point to set-up the ROI analysis. Here are just a few of the strategies that drive the ROI analysis. Offset and flexo transfer looks at crossover point, selective job transfers, and cost reduction. New work like variable data jobs looks at cost, sell, and profit. You might be looking to bring outsourcing in-house. Or, if you’re replacing aged digital presses, then, the appropriate analysis tool is current cost of operation compared to proposed cost of operation. You might be replacing offset shells + imprinting with a streamlined process for white paper in – finished product out.
The cross-over analysis is compiled from your job data and cost information. This allows for precisely identifying the volume of work that can be produced on digital presses at lower cost. It allows for rich data views into your jobs. You’ll know where to drill into your data. Maybe you’ve not recently seen your data organized like this, however, you will recognize the patterns:
• What work can be moved first?
• What’s the breakdown for substrates – can you consolidate?
• Identify jobs with white ink, 7-colors, monochrome.
• Segment the binding styles, finishing requirements.
• And more...
The formulas for the cross over analysis calculate cost per unit for each job by allocating production costs across the units produced. Production costs typically include: labor for plate maker & press operator, plates, processor, chemistry, substrate, ink, press maintenance, supplies, press time, and inventory costs.
Cost per unit (i.e. letter-size simplex page or MSI) is calculated for each job. In turn, cost per unit serves as a data point to clearly identify all the jobs above the cost for digital.
Typically, printing organizations generate data from presses, job jackets, and invoices. Often times the data lies dormant and is never looked at after the job is invoiced. Analysis of your job data and cost information will offer valuable insight about your true offset and flexo costs.
Cross over analysis calculates a cost per unit for your current jobs. The TCO calculator shows the cost per page for the new press. The cross over analysis reveals what volume can transfer to digital – at a lower cost. The cross over analysis also describes the job specifications in the transfer bin - so that you know exactly how the new digital press must perform to get your jobs out the door.
Estimating ink costs – “How are ink costs estimated and managed?”
Ink represents the single largest variable cost for production inkjet presses.
Digital press ink is powerful. Dynamic imaging generates efficiencies by eliminating plate costs, accelerating makereadies, and reducing material waste and inventory costs. It makes possible sequential numbering, versioning, personalization, multiple SKU’s, faster time-to-market. You know this. The usage and cost for digital press ink is different from what you’re used to for flexo and offset. Your key questions are: How would your jobs be impacted? What tools are available to estimate and manage your ink costs?
Digital ink costs vary based upon the density required to print. The cost difference between a piece with the lightest density and a piece with the heaviest density flooded across the substrate can vary by a factor of 10x.
To run a competitive and profitable digital printing enterprise, estimators must have control of ink estimating tools starting on the 1st day. And, have a strategy for educating customers about both the ink costs and the possibilities created by digital imaging.
Typically, job estimates are followed-up with a cost reconciliation after the job is run. Ideally, the press manufacturer makes available the tools, process, and training to allow for estimating ink costs before the job is run, and reconciling ink costs after the job has run. For inkjet, not all ink purchased gets onto the substrate. What controls does the press vendor provide to the press owner so that waste ink is accounted for and charged to the jobs?
Ink usage estimating and controls should be addressed with the press manufacturers.
This article provided an overview of 3 tools for investigating the ROI for digital production presses. The ROI investigation is a research and discovery process. Every printing organization is different. In future articles, I’ll take a deeper look into the art of the cross over analysis and the essentials for ink estimating for inkjet presses.
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]
This brief was published in Graphics Journal, November 2016, by Printing Industries of America, Great Lakes Graphics Association.