By John Roche, Haybrooke CEO
The printing industry today is dominated by the need for speed; faster admin processes, faster printing presses and faster job turnarounds. It’s a seemingly never ending round of business process and efficiency improvements with printers under constant pressure to keep up with the pace of change.
But why do we do it?
Let’s list a few of the reasons:
- To become more efficient
- To reduce costs
- To increase profits
- To win more work
- To future-proof the business
Achieving these efficiency goals is typically delivered in the form of manufacturing performance improvements. Printers are, after all, manufacturers – even if they sometimes don’t like to openly admit it. Moreover, solving manufacturing bottlenecks and production inefficiency nearly always requires some sort of tangible investment – quite a sizeable one if we are talking about the printing press itself.
Indeed, having a good investment strategy is pretty important to how well you do in business generally and is sometimes the key driver as to how long you will actually stay in business; especially if the competition is investing and you are not.
There is nothing wrong with having an investment strategy that focuses on manufacturing performance improvement, but there are a number of issues that arise out of this sort of investment that printers sometime fail to predict or understand.
Looking at the list, above, it’s easy to identify where hidden dangers might rise to the surface.
Becoming more efficient means that you will now be able to produce more ‘stuff’ per hour than before your investment. This sounds cool, but it also means you need to now sell more stuff. You might think that selling more stuff will be easier because you are now making more stuff and it is cheaper to make, but this is not always the case and, even when it is, selling more stuff for less money sometimes amounts to the same thing.
Say your hourly cost rate is currently £250 but, through investment, you manage to reduce it to £150 in comparable manufacturing terms (it is actually £300 per hour, but the new machine runs twice as fast). To get it down to this low level means you will have to manufacture a lot more stuff; twice as much in fact.
Let’s calculate your revenues based upon an OEE of 85% before and after investment to see the effect:
- BEFORE: £250 x 24 x 7 x 85% = £35,700 revenues generated per working week
- AFTER: £150 (x2) x 24 x 7 x 85% = £42,840 revenues generated per working week
The installation of the new machine has reduced your unit cost of manufacturing by 40%, but now requires you to sell twice as many hours to break even. The result is a projected 20% increase in revenues.
Now it might be perfectly feasible to sell twice as many hours due to the decrease in comparable manufacturing cost, but intuitively one would expect this to return double the revenues; but your intuition would be wrong. In the scenario presented the best you could hope for is a 20% increase in revenues.
It kind of gets worse.
The term ‘revenue’ as used here is synonymous with the costing term ‘recovery’. This means the value of hours that need to be sold in order that the machine pays for itself. It should not be confused with ‘profit’.
Using the above scenario again, if you are working to a profit margin of, say, 5%, which is not unrealistic in the printing industry, then £35,700 weekly revenue (pre-investment) might yield a £1,785 profit against machine hours, whilst £42,840 revenue (post-investment) might yield £2,142 profit – a weekly increase of £357.
That is, to create an additional weekly profit against machine hours on the new machine of £357, we need to sell production costs 40% cheaper and produce twice the volume of work in order to do it.
Of course, the increase in productivity that a new printing machine represents might create sales opportunities where none previously existed. At £250 per hour, you might have been struggling to sell product in the market. You might even have been discounting heavily to win any work at all. Reducing unit production costs by 40%, then, might open the floodgates to lots of new cheap work. Or it might simply help you to balance the books.
Or it might not.
You might just as well find yourself with a £1 million investment that you are desperate to fill with work, at any cost. It might even lead to the ultimate demise of your business.
This is not an uncommon occurrence in print; business closures following hot on the heels of an investment. Even within the last few weeks notable printing businesses have ceased trading following an investment including Kingsdown in Bristol and Stones in Banbury. Stones became a casualty in March 2018. Trade magazine Printweek described the closure as “ill-fated”, adding:
“Stones runs three long-perfecting sheetfed presses with reel-sheeters, including a new ten-colour Heidelberg Speedmaster XL 106 with CutStar that was installed last summer. At least one Stones employee had been holding out hope for a rescue deal, and said: ‘We’ve got the newest XL in the country and we were packed out with work. Perhaps the business could trade on as part of someone else’s empire.’” – Printweek, March 16th 2018.
It must be counted as one of the most telling comments an employee can make after a business closure to state:
“We’ve got the newest XL in the country and we were packed out with work”.
The paragraph stated earlier in this article perhaps needs restating:
To create an additional weekly profit against machine hours on the new machine of £357, we need to sell production costs 40% cheaper and produce twice the volume of work in order to do it.
If Stones had indeed adopted the model of selling product cheaply, requiring high volumes of work to satisfy the requirement with its newly enhanced efficiency and productivity measures, then yes, they might very well have been “packed out with work”. The problem, as we can now see, is that this work would have been of minimal value to the business and making a contribution far less than that needed to have a positive commercial impact.
In the reader comments section directly below the Printweek Stones article, Ray Siviter, MD at Imagery Direct Imaging Ltd, commented:
“Let’s hope that the industry learns from this and stops doing print at the ridiculous prices Stones have been trading at. That way we will get a sustainable industry for the few printers left.”
If we combine these views together, we broadly have the following:
Stones had the newest XL in the country and were packed out with work that they were selling at ridiculous prices. It is hoped that the industry learns from the company’s demise and becomes more sustainable as a result.
Stones – and printing companies like them – are not a great advert for an investment in production, albeit other printing companies have no doubt made similar investments and made a success of it (get in touch or comment with your success stories please).
In light of the above, we can now address the other pro’s and con’s for an investment in production methods with greater clarity:
FOR: Unit production costs will decrease
AGAINST: Actual business costs will increase
FOR: Increased profit-making potential
AGAINST: Increased loss-making potential
FOR: Can help win new work
AGAINST: New work might be unsustainably priced
FOR: Can future-proof a business
AGAINST: Can cause the collapse of a business
Doubtless, a hike in manufacturing productivity can and does have a profound effect on a printing company’s general economic outlook; both good and bad. Sometimes it will be good and sometimes, inevitably, it will be bad.
One such company who have pushed the boundaries of productivity to the absolute limit is ESP Colour in Swindon. Here is a business whose productivity achievements have become almost legendary in the industry (and, as a side note, are among the nicest people in print). Acclaimed as the most productive printer in the world in 2012, over the last 8 years they have certainly pushed the boundaries of productivity and efficiency in terms of overall equipment effectiveness.
So where has it got them?
Looking purely at the published accounts information at Companies House, it seems to show that the rise in productivity resulted in a corresponding diminishment of profits. It also suggests that, upon adopting its use of an Amazon-like customer buying experience, things began to get better again.
On the other hand, the printing industry has been going through tumultuous changes over the last few years. Had ESP not ramped up its productivity to the levels it did, by 2012 it might have been out of business altogether. The graph, therefore, might be hiding an amazing survival feat, engineered through hyper-productivity. Moreover, the correlation between the adoption of new ways of customer pricing and ordering might be nothing more than a coincidence.
What the graph might actually be showing, then, is that following any substantial investment there will be an inevitable slump before the ROI in productivity gains manifests itself, perhaps 2 or 3 years later.
Be this as it may, if the return of a major investment in machinery does not mature for 2 or 3 years, this might be long enough for a lot of printers to go out of business.
Let’s look at another company, to illustrate the point further. Pureprint Group is a creative printing outfit who specialise in adding value to its broad customer base. As a result, it has enjoyed good growth and profits over the last several years. In November 2015 it invested in two new Heidelberg XL 106 printing presses as part of a general business restructuring and manufacturing overhaul. The company stated in Printweek magazine at the time that it hoped the investment in the two super-fast printing presses would “boost capacity at the company by 35%”.
Here is a graph illustrating how the investments impacted post-tax profits as reported by Pureprint at Companies House:
In its published full accounts, Pureprint attribute £425,000 of a £1.3 million pre-tax loss in 2016 to its intensive business restructuring, which is understandable. The remaining £875,000 loss, then, must be attributable to the productivity investments directly. Regardless, Pureprint is a cash-rich, well run organisation and there is no obvious reason to be concerned for its future.
UPDATE: December 2018. In its year ending December 2017 accounts at companies house, Pureprint posted anther record loss of (£1.58 million) reducing total equity in the business to just £871k – down from £2.1 million in 2016.
But what about other printing companies?
- What if those that are not doing as well as Pureprint or ESP become persuaded to invest in new manufacturing equipment based upon the lure of business salvation?
- And what if the pockets of these hopeful enterprises are not as deep to fund the inevitable cash-crisis that such investments can create?
- And what if they cannot find a way to stop a downward trajectory of profits as its new manufacturing asset beds in?
These are exactly the sorts of questions that Stones of Banbury and Kingsdown of Bristol could not find an answer for.
Convenience will be king
So, is an investment in manufacturing productivity and efficiency the only way a printing company can enhance profits and improve its position in a competitive marketplace?
The alternative approach looks at the mindset of the buyer. It tries to encourage new buying behaviours from the customer that favour the printer and enhance profits, without a sizeable investment.
The focus is on buying convenience.
The reason buying convenience is so important is simple: human beings do not like to queue.
Think about it, how often have you changed your mind because you would have to queue for a purchase?
Queuing, of course, is simply another form of waiting. So, to put it another way, human beings do not like to wait.
We hate to wait.
Moreover, people will sometimes accept an inferior product or service requiring no waiting time over a product or service that requires some waiting time. They will nearly always accept the same product or service with no waiting time over the same product or service that requires some waiting time.
So how does this benefit a printer?
Using the list of desired outcomes for an investment we put together earlier, we will examine how these might be met with the introduction of customer facing ‘Amazon-like’ pricing and ordering functionality.
#1 – Estimating and administration functions will become more efficient
ESP introduced instant online customer pricing in 2014. Since then, it has seen the number of customers handling their own enquiries rise dramatically to in excess of 2,000 quotes every month – and rising. This has had a huge estimating and administration time saving impact on the company. 10 minutes per quote equates to 333 estimating hours saved each month. That’s £5,000 per month saved at an assumed cost per quote of £15.
#2 – Estimating and selling costs will reduce
With customers doing their own quotes, the cost of handling the enquiries is reduced. The cost of selling to your customer base also reduces as they are now able to convert an enquiry into a quote as soon as they have the estimate in hand – which is immediately.
Remember, people hate to wait.
Let’s do a thought experiment.
Imagine you are a buyer and you want to obtain a price for, say, 1,500 6pp A5 leaflets, printed 4/4 on 130 gsm gloss paper. You know you can get an instant price from ESP, so you begin by logging on to its pricing website and select the specification required – a 2 second job. A moment later you are provided with your price. It looks like this:
You now have before you a confirmed price for the job in hand. It is a real job and you want to place it in the market with a supplier you can trust. ESP is a supplier you can trust. Its efficiency in delivering to you an instant price upon which you can now place an order is evidence enough of this.
Why does an instant price evoke a feeling of trust?
For the same reason that an instant response from any other service you are interested in using promotes a feeling of trust.
- You book a holiday, the booking confirmation comes through immediately. Trust.
- You purchase a domain name, the confirmation of registration is with you a moment later. Trust.
- You file a document at Companies House, the filing confirmation comes back within a minute. Trust.
So, you trust ESP. They have delivered to you an instant price and you take a look at it. Unless you are an expert buyer of print, there is no sure-fire way of knowing if a price of £150 is a good one in the marketplace for 1,500 6pp A5 full colour leaflets. Even those printers among you reading this will not know for sure without checking.
As the customer, you do not really know without conducting further market research if £150 is a good price or a bad price, but it doesn’t matter; for now an entirely different mental process kicks in. You actually begin to appraise the value of the job independently of the marketplace and ask the question of yourself, do I think £150 is a good price for 1,500 6pp A5 full colour leaflets?
Much of the time – even the majority of the time – the answer will be ‘yes’. That is, without reference to the outside world you will decide for yourself if the price just obtained is a fair one. And, having now considered it to be a good price, you now want to place an order – with ESP.
Go on then – the order button is sitting right alongside it; begging to be pressed. So press it.
This is good news for printers as it demonstrates a simple mechanism for improving ones business outlook without the need for a hefty investment in manufacturing productivity. Indeed, it seems the power to persuade a customer to place an order through sheer convenience is beginning to win out over practically every other sort of investment a printing business can make.
#3 – Business profits will increase
Deploying Amazon-like instant customer pricing and ordering is proven to enhance profitability. Since 2014 ESP has slowly increased its use of instant customer pricing, using online solutions to deliver prices to print management customers and, more importantly, its own direct customers.
Recall, in 2012 ESP was cited as the most productive printing company in the world. In the same year its profits were at the lowest point in its history. Since then, however, profits have risen in direct correlation with its use of online pricing solutions. As stated before, this may be a coincidence, or it may be evidence that customer buying convenience is becoming king in the printing playground. Today, post-tax profits are five times greater than at the height of its super-productivity era in 2012. It has prompted Paul Bradley, ESP executive director, to state in the Jan/Feb 2018 edition of Print Business magazine:
“Press automation can only help to some extent. The company needed to automate its estimating and order handling. It made no sense to spend £2 million on a new press to shave a few seconds off a make-ready”.
#4 – You will win more work
All the evidence for the effectiveness of the system ESP is using – Haybrooke’s PDQ Sales Hub platform – suggests that buyers are pressing the order button without conducting any further in-depth research in the marketplace. This has led to conversion rates of quotes to orders at some customers rising to as high as 70%.
In plain English, 7 out of 10 times the customer gets its own price, it goes on to place an order with ESP. No selling costs. No estimating costs. No admin costs.
#5 – Instant pricing will future-proof your business
We live in a world of automation and immediacy. As Nick Lee, Managing Director of ESP stated in the BPIF’s Oct 2017 edition of Inprint magazine:
“[instant pricing] … becomes part of the solution and, rather than replace the face-to-face and normal dialogue, it actually promotes conversation”.
This is an important point. Printers sometimes hold an old-fashioned view as to how they should conduct a relationship with its customers. A tactile, human, hand-holding experience is the one that has been delivered by them since time immemorial. Changing to a new way of engaging with customers takes courage, but it is not just about changing the relationship you have with customers, it is rapidly becoming the relationship you must have with customers; or risk losing them.
Let’s look at a summary of the pro’s and con’s of an investment in Amazon-like instant customer pricing and ordering versus productivity:
Despite the arguments discussed here, there is no doubt that many printers can and do benefit from investing in its manufacturing productivity and efficiency prowess. It is likely that a whole bunch of ‘em have left comments at the foot of this article describing just how well this approach has worked and how it has improved profits as a result.
However, if you want to make an immediate, cost effective impact on your business and its future prospects, you can do so quickly and cost-effectively with the introduction of instant pricing and ordering for your customers.
Not just any system; a production-ready solution such as Haybrooke’s PDQ Sales Hub. It is not based upon price lists or templates, but your own manufacturing equipment. Moreover, the calculations it makes are the very same ones performed by your local management information systems.