When printers improve their productivity, lots of good things happen. But there’s one very bad thing that often happens by accident: prices come down even before customers have begun beating up the printer.
Here’s why: If you reduce your make-ready times or improve your running speeds, it’s logical to raise your production standards. But when you increase your production standards for estimating purposes, you can wind up giving the entire productivity increase away in the form of lower prices.
Let’s look at an example:
A printer selling a six-color press for $375 per hour cut his average make-ready time by fifteen minutes, cut his average wash-up time by ten minutes, and increased net running speed from 8,500 to 9,000 sheets per hour.
In a two-sided 7500 sheet work-and-turn form, this reduced average production time by almost exactly one half hour (twenty five minutes in set-up and wash-up, plus about five minutes in running time). When the shorter production time was used for estimating, the half-hour time saving was passed along to the customer – until the printer raised the estimating hourly rate to adjust for the higher productivity.
At the old hourly rate of $375, the customers were accidentally saving $188 on the cost of presswork, because the time for producing the two-sided sheet was reduced from 3.5 hours to 3.0 hours. Only when the estimating hourly rate was raised to $440 did the price for the presswork stay the same – $1318.
We know that everyone is facing relentless pricing pressure, so if you have to lower your prices, go right ahead. And if your productivity has improved, you have plenty of room to lower prices. But be sure you’re doing it on purpose, not by accident!
After all, customers don’t need any additional help in forcing printers to lower prices, and printers need all the help they can get in building profitability.
If you’d like to have a tool for evaluating the effect of productivity changes on pricing, just e-mail us and I will send you a small easy-to-use EXCEL file that shows how much you can (and should) charge for press time if you change your productivity standards. There’s no charge.
This post originally appeared on Bob Rosen's website: www.RHRosen.com
Discussion
By John Zarwan on Mar 17, 2008
This phenomenon is not limited to printers but is common to all capital intensive industries. Productivity gains are given away to customers and to labor (particularly if unionized). Costs are lower, so prices don't have to be raised. Labor is more productive, so higher wages can be justified. It's a particular problem where there is excess capacity - after all, we need to fill that press time.
By Ronnie Williams on Mar 18, 2008
My family runs a small commercial printing company, the business is 115 years old and has seen all of the major changes in printing since 1893. The most distrubing trend to us is this idea of everytime new equipment is installed to slash prices. Ofcourse certain parts of the job become faster and easier with technology but technology isnt cheap. My father and I were just talking about this and over the past 25 years in our location he can recall 10-15 major shops who went by the slashing philosophy and not one of them is still in business. You might say, good (it is) but the problem is in the mean time they are slowly killing the rest of us. Our feeling is, continue to charge a fair rate, provide great customer service and quality.
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