Posts Tagged ‘truecost’

The Art and Science of Competitive Bidding

Wednesday, November 3rd, 2010

Francis McMahonEvery print services provider knows the drill – quote too high and you risk losing the job – quote too low and you risk losing money. Balancing these risks requires both art and science. Nowhere is this balancing act more challenging than when estimating complex color jobs.

For many print providers, the three-variable quote equation is:  cost plus target markup plus or minus a “gut factor” based on current demand and available capacity.

The “gut factor” takes away a percentage of the markup when the market is slow, and increases the markup when demand is high. Printers use varying levels of tools and analysis to come up with each of the three variables in the main equation. Some refer to static pricing books, some create sophisticated spreadsheets and others may use commercial estimating software tools that use many variables to estimate the costs of the job and add a designated markup – but the fudge factor is always in there somewhere. That’s because most people don’t totally trust the cost numbers that get spit out of a computer.

That’s because costs are both complicated and dynamic.

Typically costs encompass people, processing and technology costs – each made up of many sub-components. On the face of it, “People” includes labor, service and monthly or yearly maintenance contracts, “Processing” includes running costs like paper, ink, and power; and “Technology” includes capital and leased equipment costs. The complicating factor is that capacity on each piece of equipment is dynamic, and the level of efficiency on one piece of equipment impacts the capacity of other pieces of equipment. People, Processing and Technology are inextricably linked so a job that requires multiple stock changes on a continuous inkjet printer reduces the potential capacity of the print device, increases labor usage and impacts inserter efficiency as well. Since jobs to be quoted may vary significantly – a catalog approach would have to include a “worst case scenario” on efficiency thereby potentially inflating pricing. Even printers who use estimating tools tend to apply a “gut check” if they know a particular job is either very simple or more complex than average.

The situation takes on a whole new level of complexity when the device in question is a full-color inkjet machine – and don’t forget the potential for built-in MICR. These machines offer your clients tremendous cost savings potential, which can make you more competitive – but only if you get the quotes rightRIGHT?

Now your “processing costs” aren’t just about a single ink and a single coverage percentage – you’ve got C+Y+M+K and maybe plus MICR, each multiplied by a different coverage percentage and unit cost. Again – do you use the most expensive ink as your baseline? An average? Either way could dramatically skew your estimates – particularly when MICR is in the mix, since it is roughly 13 to 15 times more expensive than other inks. Here, the gut check just won’t do – it’s critical to have tools that not only let you test ink coverage and costs in advance, but monitor usage/coverage for the life of the job and see if it stays true to your estimate.

Imagine that you have a job of one million pieces that started out with five or seven percent ink coverage and crept up to 20 percent coverage over time as your client added more graphics and messaging to the document. Are you still charging the same price you quoted six months ago? Do you have clauses in your contract to adjust pricing based on actual coverage? If you don’t, you could be bleeding money for the life of the contract.

What’s needed is a way to calculate the number of dots for every color in a sample and break out percentages of cyan, magenta, yellow, black, MICR or spot color coverage in order to generate more accurate quotes and collect essential color data on jobs in production. (Océ PRISMAproduction Truecost is a unique and valuable tool developed expressly for this purpose)

Another key, and often overlooked, factor that impacts costing is paper. Not the cost of the paper itself – that may be volatile but is at least directly measurable. I’m talking about the impact of the paper you use on the efficiency of the printer. Again – the linkage between People, Processing and Technology. Using papers that are not certified for a particular device can have dramatically negative results – increasing paper wastage,  “downtime” on the machine and potential fines for missed SLAs, and of course the potential to use more ink than required for the job due to absorption factors. Most print manufacturers have catalogs of paper that they have tested, certification programs with vendors and teams available to help you make wise paper choices. Take advantage of these resources both in selecting papers (or helping your customers to select papers) and in developing estimating guidelines that take into account the expected performance.

Estimating will always include the “art of the gut” to some extent, but the science is getting better and better.

What are your experiences with the challenges of estimating – especially when it comes to inkjet? I’m interested in hearing your take on the role job costing plays in creating accurate quotes – and the role quotes play in painting a brighter profit picture.