Discussion

By Kevin Klansky on Dec 12, 2018

Great article...couldn't agree more with Tim's quote! "They have a foundation in place to grow because their Print MIS system runs their business; their people run the system."...

By Robert Lindgren on Dec 12, 2018

I have to handicap every estimate because our Print MIS estimate is always wrong.

The assumption in this statement is that the estimate is a detailed prediction of the "cost" of production. The estimate is then used to determine the "price" for the work.

The reality is that the price should the highest number that the customer will pay. This has nothing to do with "cost" and everything to do with the value and importance of the job and the customer's perception of what they might pay from an acceptable, trusted alternative supplier.

Cost is not irrelevant, it just sets a lower floor which is the out-of-pocket cost of production. It would be rare that the maximum amount the customer will pay is less than that number.

The printer's objective should be to fully utilize capacity by selling all of the plant hours at levels at which orders can be obtained. Producing estimates that do not turn into orders is a waste of time which simply show the customer that a competitor is a better deal.

By Jonathan Stuart on Dec 12, 2018

I've seen many print MIS systems, and in my experience there are two root causes of the dissatisfaction described in this artice.

1) The original launch project was never finished because the business ran out of resources or patience mid-way through. So the users will tell you "the system can't do X" when the reality is that the "X" module was never properly configured.

2) Skills decay. The original project team knew everything about the system but over time they all left. No-one really learned what they knew and now we've forgotten how to update paper prices, machine speeds, etc. so the quotes are all wrong. So now we just use Excel for price calculations and the system is empty.

Print business owners: take ownership! take an interest! make it compulsory for everyone to use the MIS. Yes, even you!.

By Jennifer Matt on Dec 12, 2018

Robert Lindgren,

Cost and price are of course different things but understanding and trusting your costs is critical to making really good decisions about your pricing.

Cost is relevant. Where we're seeing lots of profitability leaking from printers is the capture of costs of technical resources required to get jobs on press (data cleansing, personalization, etc.). When costs are captured, pricing can come dangerously close to zeroing out significant margins on a job. This is why I hate combining technical services into pricing costs.

By Jennifer Matt on Dec 12, 2018

Jonathan,

Two great points that have happened way too often in our industry. The Print MIS never stops getting implemented. You have to have people in charge of the Print MIS forever. Your business keeps moving, the software keeps moving, on-going adjustments are needed.

Jen

By Robert Lindgren on Dec 13, 2018

Jennifer…

I agree that cost and price are different things. The problem is a thought process that mechanically moves from cost to price.

The reality is that our objective ought to get as much as the customer is willing to pay, but also get the order. Willingness to pay is a function of the value of the job to the customer and their perception of prices from acceptable alternate suppliers.

A cost driven pricing process will underprice the job that is central to the new product launch and is already behind schedule and over price the job which is to be sold to a buyer who gets five bids on everything and takes the lowest every time (like a public agency).

The pricing system must distinguish between customers and focus on value. Otherwise, dollars will be left on the table and potential sales passed up. The symptom of this is a hit ratio of 20%. Eight our of ten times, the printer has misjudged the market and demonstrated that a competitor is a better deal.

Will value focused pricing enhance profits? Yes! Picking up the dollars left on the table is great, but the real gold is in selling the work that will fill the plant. The typical commercial estimate involves about 60% actual expenditure (wages, paper, buyouts, commission)leaving 40% to help pay for the overhead for the month. If the printer gets the order for 10% less than the estimate, they still have 30% for the overhead. If they don't get it, they get zero.

By Jonathan Stuart on Dec 13, 2018

@Robert
You're right in theory, about taking work at marginal contributions. If your press is otherwise idle it might make sense to take a job at prices less than full overhead recovery.

Unfortunately, the flaw in this argument is when marginal pricing becomes the norm for all jobs, because then you never can recover your overhead costs, however full the plant, and we become busy fools.

Consider the fact that there is always a printer somewhere with spare capacity, prepared to take a job at little more than materials plus direct costs. So in effect that printer sets the "market price". If you can only win business by beating the market price then everyone loses money all the time (and we see this in some print sectors).

The logical extension of this situation is that we have to find market segments that value the overall package of product+service and are prepared to pay a premium to have it.

By Robert Lindgren on Dec 13, 2018

One of the most profitable printers that I even met said, "every hour that a press doesn't run, It's picking my pocket." Another even more profitable one spent four years working on building an operation that runs 24/7 with four crews.

Both of these accepted the reality that the price is determined by the customers not the estimating system. Instead of focusing on BHRs and production standards, their pricing systems focus on customer relationships, competition and value of the job to the customer. That means that two jobs that are mechanically identical are priced quite differently as the pricing is based on what can be gotten for the work.

This is a profit maximization strategy because profits come from dollars not percents of margin. From dollars of overhead contribution after wages, materials and commission are paid.
Once the overhead is covered, we're in profit territory. Full utilization of the machinery and plant the printer already has makes paying for the overhead easy and profits plentiful.

By Chuck Stempler on Dec 14, 2018

MIS - learn it, live it, love it.