Paul Dombrowski - ROI Analyst for Digital Print Systems, Chicago, Illinois

Chicago, Illinois

Chicago, Illinois

Investigating the Return on Investment for...

(12/15/2016) ​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. System.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.  Conclusion 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, pauldombrowski@mac.com   This brief was published in Graphics Journal, November 2016, by Printing Industries of America, Great Lakes Graphics Association. 

Estimating ink usage for production inkjet...

(12/15/2016) Estimating ink usage for production inkjet presses – What, no job file?  Ink is the single largest variable cost for production inkjet presses. What’s the estimator to do when the estimate request has no job file?  The cost figures shown in Fig. 1 below are generated from estimates to manufacture 500 each of 11 books on a roll fed inkjet production press with finishing to collated book blocks. In this example, ink is ~ 22% of costs. Fig. 1 Estimated costs for manufacturing 500 each of 11 books on a production inkjet press & finishing  platform. Direct press costs are comprised of the lease payments for production inkjet press and digital finishing platform.As you would expect, ink usage is determined by the job content and then by the number of drops required to print that content. In this case, the ink usage difference between a book with the lightest vs. the heaviest ink usage is ~ 9x. With this range of ink usage, multiplied by the cost of a barrel of ink, you can see that running a profitable inkjet press compels printers & converters to learn to use the tools and processes to estimate and reconcile ink consumption.  It’s helpful then, that press vendors provide tools for ink usage estimation and reporting. For estimation, the process involves running the job file through a software program. Ideally, the vendor also provides a post-production tool to report actual ink usage after jobs have run. This report allows the estimator to reconcile estimated vs. actual costs.  The post-production reporting tool should also account for ink waste – that’s ink consumed during start-up and shutdown, and for jetting module maintenance functions. Press running conditions impact the ink waste factor. For example, a press used for proofing, with a lot of idle time and a daily shut-down cycle, will typically report a higher ink waste factor than a busy production press with less idle time and fewer shutdown cycles. Press running conditions determine your ink waste factor. You won’t know what it is unless you pull reports and work the data. Ink waste adds up and it should be accounted for in the job costing calculations.  For estimation, one sticking point might be that the customer’s job file is not received together with the request for estimate. In the plain language spoken by an inkjet press owner: “Pigs will fly when our estimators are supplied with job files together with the estimate request. It never happens.” In other words, ink estimation tools have a limited function when there’s no job file in-hand.  Consider this scenario. Your prospective customer is shopping the job around to 2 or 3 printing companies. The horror! Each company has the same problem – how to generate a precision estimate when there’s no file in-hand.  Here’s a work-around to consider. If it was accepted by all 3 companies, then, when it comes to ink estimation (without a job file) the prospective customer would hear the same common sense guidance from printers with production inkjet presses. To accommodate the customer’s requirement for an estimate prior to submitting the final production file, the estimator will use best judgment for ink usage based upon visual inspection of the available art and print specifications.  Advise the customer that a reconciliation estimate will be provided upon receipt of the final job file. Adjustments to the estimate for ink cost (up or down) are submitted for the customer’s approval prior to running the job. This reconciliation step follows old school Trade Customs of the Printing Industry of North America, especially No. 5:  ACCURACY OF SPECIFICATIONS: Quotations are based on the accuracy of the specifications provided. The provider can re-quote a job at time of submission if copy, (data) or other input materials don’t conform to the information on which the original quotation was based.  Employing an ink reconciliation step in the estimating process offers protection for both the customer and the provider (press owner). This practice would put competitor companies on the same footing vis-à-vis the customer.  This suggested work-around takes the position that the end-user customer must be made aware of the printer’s requirements for delivering estimates. It attempts to balance the customer’s need for an estimate with the printer’s need to accurately estimate ink costs to produce the job.  Even better, encourage customers to pursue training and education to optimize the design for inkjet. This is a whole different subject. It’s most recently presented in The Designer’s Guide to Inkjet, (from Canon Solutions America) by Elizabeth Gooding and Mary Schilling.  When a process is set-up and followed to estimate and report on ink usage, over time the estimator will become familiar with what to expect. Here are a few steps estimators can deploy internally to control ink costs:  • Generate reports for actual ink usage (from the press) and compare to ink sold for the period. • Maintain a database to track ink usage by job and customer. This can be useful to inform future estimates for pickup jobs and jobs with similar specs.  Conclusion Every printing organization plays within the confines of its customer relationships. Educational book manufacturers deal with multi-year contracts. Direct mail printers and label converters might be job shops where every job requires an estimate. The bottom line is – control ink costs. You must know what your files look like. Adapting old school trade customs, where the customer is advised upfront that the estimate will be revised upon receipt of the final production file – might prove to be a useful work-around when there’s no file submitted with the job estimate. This step protects customers and press owners alike. It might even put competitors on the same page when it comes to estimating ink costs.    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, pauldombrowski@mac.com   This brief was published in Graphics Journal, December 2016, by Printing Industries of America, Great Lakes Graphics Association

Economic Study for Comparing Printing Presses

(12/14/2016) The art of the economic study for comparing printing presses – How job data and cost information are used to inform capital expenditure decisionsEconomic 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.   Conclusion    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, pauldombrowski@mac.com

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