Published Article

Can Your Company Justify the Investment in Postpress Equipment?

By: Fred Daubert, Vice President, The Riverside Group
Published in: Printing News

The term “value-added” is a hot one in graphic arts industry today. Companies have sought to stem the defection of customers by adding a wider array of services, all with the goal of being able to say “Yes, we can do that!” to every customer request. This is nothing new; service bureaus are all but a thing of the past as printers now have their own prepress departments. “Value-added” services offered by printers also include mailing, data processing, packaging, and fulfillment capabilities, among others.

One value-added service in which some printers have invested is postpress capabilities. Of course, postpress services can range from folding and cutting to mechanical and perfect binding, and the investments required range from minor to substantial. We all want to tell customers that we can handle whatever it is they’re requesting. But is adding all capabilities in-house always the best way to do that?

A Smart Investment?
For some printers, adding postpress services – even heavy-investment ones like perfect binding – can make sense. Before you plunk down your money and dive in, however, you must gain a full understanding of what you’re getting into. Forecast the impact that such an investment will have on your cost structure and expected revenues. As with any forecasting model, you’ll need to make a few assumptions. Here are a few things to consider:

Utilization is one of the most critical elements to determining your company’s ability to make money on in-house postpress services. To get a feel for your potential utilization of a piece of equipment, use this quick-and-dirty formula: Multiply the realistic cycle time of the equipment by 2,000 hours – the number of hours a machine would be active in a single-shift operation. It’s important to use a realistic cycle time, as many equipment manufacturers’ published cycle times can be a bit optimistic.

Using this formula, a machine with a realistic cycle time of 5,000 products per hour multiplied by 2,000 hours of production would be able to produce 10 million products per year. Although these are round numbers that reflect 100% utilization in a hypothetical production environment, they offer you an idea of the number of products that must be produced in order to justify the investment in a piece of equipment. Downtime is the enemy of ROI: If a printing company cannot realize at least 80% utilization (or about 8 million pieces using our formula above), your return on that investment will be minimal.

Of course, “investment” refers to much more than the purchase price of the equipment. Floor space, utilities and operational costs including wages, benefits and training for floor personnel and management, equipment depreciation, and the need for complementary equipment (such as folding and cutting to go with that perfect binder) are just some of the myriad items that are rolled into an investment in a new service.

The Solution: Outsourcing
Once you’ve considered the overall capital investment required to add postpress capabilities, you may find that outsourcing these services is the best solution. The benefits of outsourcing are numerous. Essentially, outsourcing allows you to pay only for your utilization of a service, leaving all overhead, management and related costs to the service provider. It also gives you access to a range of services that would be cost-prohibitive to bring in-house.

As the range of products you print expands, so too will your need for postpress services. Your ability to partner with one or two carefully-selected providers that offer the services you need - and the ones you will need in the future – will help keep your costs consistent. When selecting one or more postpress outsourcing partners, keep in mind that, as the saying goes, you get what you pay for. Measure postpress services providers on their production quality, overall level of service, and their ability to meet their commitments. Then determine if their pricing is commensurate to their service.

The decision to add value to your service offerings by bringing postpress services in-house should be very carefully considered. Too often, a temporary boost in the production of one type of product will convince a company that adding end-to-end production capabilities is in their best interests, when in reality outsourcing these services is more practical and profitable.

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Fred Daubert is President and Peter Pape is CEO of the Riverside Group, an “under-one-roof” bookbinding and finishing company located in Rochester, N.Y. They specialize in both soft and hard cover binding production, including perfect binding; PUR binding; notch binding; Smyth sewing; cased-in mechanical and perfect binding; and more. Additional capabilities include mechanical binding; laminating and UV coating; folding; gluing; tabbing; die cutting; foil stamping; embossing and more. For more information, contact Fred Daubert at (800)777-2463, or book@riversidegroup.com.