Coping with high investments and low margins
In today’s competitive market, making an investment in altogether new equipment costing millions of dollars is a high risk proposition. This makes a successful enterprise look at some innovative options and ‘out of box’ ideas.
V Siva Raja shares his thoughts on some ways to
reduce the capital deployment and achieve a faster
ROI (return on investment) while increasing variety
and capability of a printing plant.
Suppose you were to buy a brand new heat-set web offset machine for ten million dollars, it would be interesting to know as to how much real value you would get once the machine is installed at your facility. You could safely knock off a 25 percent on the taxes and duties, another 5 percent on the packing and shipping costs, 10 to 15 percent on profits and commissions, 5 to 7 percent on the service and warranty costs and around 5 to 10 percent on the development and
R & D costs. That adds upto a very conservative estimate of 55 percent of the value you have paid for the machine while these costs do not add up to your productivity or the real value.
Let us look at another side of the economics. If this machine were to run at 80 percent capacity utilization for 300 days in a year and produce 4,00,000 prints over a day for 10 years, how much would be the cost of each print in terms of the machine utilization over the life time of the asset and the cost of the funds be, over this period. A realistic figure would be around Rs 0.83. Besides, we would need another Rs 0.40 per print towards materials like ink, plates, energy, labour and other overheads including profit adding upto Rs 1.23 each copy printed.
We all would be too surprised in today’s market scenario to get an average rate of Rs 0.50 per copy. This translates to a net loss of Rs 0.73 per copy. Does this make sense at all? I am sure these figures could translate into similar values in other currencies and countries.
It would be interesting to understand as to what goes wrong with a press which is ten years old. While we depreciate a press on the entire value over the assumed life, it would be interesting to note that most of the high value parts never wear out. It is the moving parts like the bearings, bearers, the sleeves which constitute around 10 percent of the cost of the machine as also the electronics and controls which might cost another 10 to 15 percent. These components need to be changed to bring the machine to the original condition. Every machine would need this change every five years to keep it fit and fine, even if it was purchased brand new.
What turns this simple exercise into a complex and difficult decision matrix is the fact that a second hand machine needs a much higher degree of talent and innovative skillset right from identifying the right machine and vintage, inspecting the features and digging out the problem areas. It is very important to note that the machine was not designed for your specs. You buy what is available and on an ‘as is where is basis’.
Most buying decisions go wrong because the buyer has not invested quality time into the buying process, nor was the inspection done properly and by competent persons before the decision was made. Used equipment requires a much higher degree of skill and commitment while decommissioning, shipment and reinstallation as well as refurbishment and commissioning, unlike new equipment which is supported by the manufacturer. As there are no drawings and support, it is more like a Jigsaw puzzle and is not meant for the impatient or incompetent teams who could land you into serious trouble. Any damage to the equipment in transit or elsewhere could put the entire project at stake.
The buyer needs to have a deep understanding and experience about the developments in the industry and the ability to dig into the information and signs of accidents or damages during the life time of the previous ownership. He also needs to have a clear vision of the usage and purpose for which the machine is being bought. A lot of small additions in the plant could help in value addition of the delivered products.
For a professional buyer of pre-owned equipment, the ideal equipment would be available from closed down businesses, auctions or sparsely used equipment available for a song. On some rare and desperate occasions the seller even pays the buyer to clear the site as he does not have the resources to clear the site. No wonder we keep getting huge amount of mail for these used equipment.
What is available in the pre-owned market is a very wide array of machinery from very small accessories to complete plant and machinery. These could be of prepress, press, post press, and of a wide variety and vintage.
What makes this equipment so popular across the world is the fact that it gives an entrepreneur with an open and innovative mind-set a great head-start. At a fraction of the cost and risk he is able to launch his business and as he goes up the ladder, he could add new equipment and go up the value chain.
These equipments also serve the very important purpose of redundancy at a fraction of the cost. There would probably be very few printing plants who have not ventured into some or the other equipment which is pre-owned. With pre-owned equipment in place, organizations can effectively participate in the market with competitive offerings and deferential pricing.
New sets of equipments however have their own advantages. These translate into service support from the manufacturer, higher productivity, new technology advantages, lesser manpower, and a greater goodwill for the organization. However the biggest advantage is the fact that the machine is tailor-made to the buyer’s requirements and this ensures a better utilization and the desired quality levels. Besides, it substantially reduces the risk associated with pre- owned equipment and the knowledge gap in getting the desired results from the pre-owned equipment.
A prudent mix of new technology initiatives balanced with sustainable and reliable pre-owned systems could be a viable answer to the rapidly changing market scenario & cut throat competition.
Ultimately it is the man behind the machine who makes the difference, if he is not trained to deliver the desired quality and is incompetent; he would deliver a poor product whatever the machine input is. The same would apply to other inputs as well. While a machine becomes the focal point of good delivery, the other factors like the men, methods, materials and environment play an equally important role in the optimum delivery of any product.
There is of course a ‘BIG CAUSE’ that gets served in this process of innovation and reuse of a used asset. The mother earth would thank you for saving tons of steel and lots of other metals and plastics from being scrapped. Think of the huge amount of energy and pollution and greenhouse gases saved in not manufacturing these materials for your new machine.
(V Siva Raja works for HT Media Ltd. He has been working since last 30 years in the areas of innovation, projects, training and development. He has worked in various organizations like The Printers House, The Times of India, Indian Express and Dainik Bhaskar.)
World Young Reader Prizes:
open for entries
World Association of Newspapers and News Publishers (WAN-IFRA) has announced to summit entries by May 4, 2012 for World Young Reader Prizes - the annual awards to recognize success in engaging the young. The awards in five categories - Editorial, Making the News, Newspapers in Education (NIE), Public Service, and Brand - will honour newspaper companies that have devised the best projects and activities during the past two years to promote newspaper reading and usage, on all platforms, among those who are under 25. Two special categories for 2012 are ‘Enduring Excellence,’ to honor young reader programmes that have continued delivering benefits for both the newspaper and the young for at least two years, and ‘The Natasa Prize for Printing Plants,’ for a newspaper printing plant action that teaches the young about journalism.
The top prize in each category is 1,000 Euros and free registration to WAN-IFRA's first Asia Pacific Young Reader Summit, set for July 10-11 in Bangkok, Thailand, where the awards will be presented. Judges will also choose a ‘Young Reader Newspaper of the Year.’ Entries for all categories require creating a PowerPoint presentation following prize guidelines. In 2011, the Jawa Pos newspaper of Indonesia earned that honor, while the prizes in the various categories honored 24 projects from Brazil, India, Portugal, The Philippines and the United States, among other countries. The World Young Reader Prizes are supported by Norske Skog, the Norway-based global paper producer, as part of its partnership in WAN-IFRA's Newspapers in Education Development Project.
For more details contact: Larry Kilman, director of communications and Public Affairs, WAN-IFRA, Paris (France).
Tel: +33 1 47 42 85 07. E-mail:
larry.kilman@wan-ifra.org
