In a previous blog, we talked about pricing and the importance of updating your costs. This was based on a presentation for one of the franchise printers, but it is just as important, if not more, to in-plant printers.
I am reworking this content for the IPMA Conference in Denver because, in my opinion, it is more important for in-plant printers to maintain up-to-date costs because mistakes could fuel threats from outside companies.
If a commercial printing company is using a cost-plus model for pricing and has not updated their costs that means they might be charging a little bit more or a little bit less than they should. Although not ideal, it does not become an immediate threat to the commercial printer.
However if an in-plant printer has not updated their costs and is charging too much, that could create an opportunity for the outsourcers and facilities management (FM) companies to claim you are overcharging and could save money by outsourcing.
Are your costs and prices out-of-date? One quick and dirty way to find out is to ask:
- “Have we updated out-budgeted hourly rates (BHR’s) and time standards in the last five years?”
- “Do we have the same staff and equipment we had five years ago?”
If you’re like most other companies we work with, chances are you have not updated the BHRs or times standards, have added more productive equipment and have changed the headcount and likely lowered the manufacturing costs.
Why is this important? One of the main strategies used by companies trying to motivate interest in outsourcing printing is to compare the in-plant’s pricing to the outside pricing. All it takes is a difference of a few pennies per product for these outside companies to plant the seed with executives or administrators to consider outsourcing.
What should you do? Admittedly, for anyone that has not updated their costing model for years, this can be intimidating. But, like everything else, it is a step-by-step process.
- Break down the production areas into cost centers and measure the space of each cost center.
- Gather all the information about yearly overhead costs and divide the overhead costs based on the space.
- Calculate the equipment costs based on the estimated life of the equipment and cost of consumables.
- Calculate the BHRs based on the equipment, staff, and consumables.
- List all the production steps and measure the production times per task.
If you have an estimating program or Excel spreadsheet, this data should plug right into the program. If you calculate by hand, the formula is (BHR x time standard + cost of materials) for each step, which is then added together.
For those unfamiliar with the process, it may take a few weeks. When we do it, it takes a few days depending on company size.
But it does not matter who does it or how long it takes. What’s important is maintaining up-to-date costs and prices to avoid the appearance that your prices are uncompetitive.
Howie Fenton is the Vice President of Consulting Services for IMG. For 25 years, he has helped in-plant and commercial printers measure, identify and overcome operational issues. To learn more about how IMG can help you measure performance, benchmark against leaders, and overcome production issues e-mail firstname.lastname@example.org.