Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

Graph Expo 2006 Reflections: Haves Versus Have Nots

In years past a big equipment trade show would be worth a lengthy article highlighting new product announcements. Perhaps because the exuberance of attendees and exhibitors was the highest in half a decade or perhaps because of industry news and announcements made during the show, I find it necessary to break out my reflections on the importance and impact of Graph Expo 2006 in a series of topical articles. A number of panel discussions and presentations by leading prognosticators offered insights and even contradictions that I thought readers might find interesting for their own planning purposes.

Official Numbers For Naught

Economists covering the printing industry suggest that 2006 will be off somewhat from the higher results of the previous two years and universally forecast even lower GDP and print figures for the next couple of years. Richard Romano, analyst and researcher for The Industry Measure, reported in their industry briefing that Merrill Lynch has revised downward their expectations for advertising expenditure growth from 5.1% to 4.7% for 2006 and from 3.5% to 2.8% in 2007.

In his annual "Renewing the Printing Industry" presentation Dr Joe Webb does not expect print revenues for 2006 to be anywhere near 2003 or 2004. He expects the commercial printing segment to be $91-92 billion in 2006 and then falling off to $87-88 billion next year. While total print numbers are actually higher, there is a continued shift to office superstores and desktops, which, of course, don't report aggregate print values. While these figures are falling off, the average annual revenue per employee continues to climb to $205 thousand per production employee and $144.5 thousand per each employee. This is due to continued efficiency gains and the disproportionate increases in non-print revenues from so called value-add services. Webb was quick to add, "Value-add is a myth. Buyers deal with the whole company."

The annual PIA/GATF Financial Ratio Studies have shown the industry profit leaders, defined as the highest quartile or 25% of participants, and the all industry averages. What is not shown is "all others" or the lowest 75% of the participating printers. This is easy to arrive at by simply subtracting the results of the top quartile from the "all others" numbers. The results in virtually every year for nearly a decade has been that the rest of the industry is at or below breakeven. Or stated another way, about 30% of all printers are generating 100% of the industry's profits. Andrew Paparozzi, NAPL's Chief Economist, writes and reflects often on the industry's growth leaders. If all economists report that the printing industry is struggling to keep up with the Gross Domestic Product and Paparozzi continually reports the industry growth leaders are experiencing double digit percentage growth year over year, the conclusion is clear. The leading printers are also generating all of the growth and progress in the industry.

Webb opined, "Strategy starts with a situation analysis. All of the (general) data are suspect!" Webb had some interesting observations on print strategies. He feels that printers have a choice of seven different strategies, which are often client driven and may differ slightly among major clients; four communications and three production strategies. The communication strategies are (1) sender - design, creation based, (2) message conduit - connects sender and receiver, (3) receiver - data base creation/management, publishing services, and (4) feedback - fulfillment warehousing services. The production alternatives are (1) communication logistics - managing the details of marketing services, (2) corporate outsourcing - removing the logistics burdens from the shoulders of clients, and (3) commodity printing, i.e., low cost producer.

As printing prices have cascaded, many printers, voluntarily or involuntarily, have tried to follow the "commodity pricing" forte. If done well, this does not mean "no or even low profits." Those successful share these characteristics; expanded geographic sales area, lean overhead, high productivity, high utilization, less equipment, more shifts, super backroom operations, i.e., management information system expertise, and complimentary product mix. The downfall of many printers in the commodity printing genre is their inability to recognize their situation and build an appropriate model for success.

The industry seems to be abuzz with the success of Vistaprint and their Internet ordering and computer integrated manufacturing business model. Webb offered that Vistaprint is taking advantage two situations; (1) every +0.1% in e-com retail results in a loss of $1.8 billion in commercial print and (2) the 2006 United States economy is generating 78,000 net new businesses every month. All of these are potential Vistaprint clients.

Webb advises print sales and marketing professionals to attend media selector meetings and educate yourself on the weaknesses of the new media. Are you aware that a third of all e-mails don't get through, e-mail addresses go out of date faster than physical addresses, subscribe to the best on-line newsletters. "Lead generation and brand building are the major advantages of print."

He concluded, "Credibility of any strategy is decisive implementation."

The Vistaprint rage has taken front page in the recent couple of years. However, another heavily automated printing plant facility in the planning stages for four years was officially announced at Graph Expo by two of its major equipment suppliers, Muller Martini and Goss. Cox Target Media will be opening a 470,000 square foot plant (one acre under roof) in Largo, Florida near St. Petersburg to produce the familiar and proprietary Valpak coupon product. Culminating a $200 million capital investment this plant will have the capacity to more than double the current 20 billion coupon output to 54 billion in half the current manufacturing time in a near "lights out manufacturing environment." There will be minimal work-in-process as rolls of paper will be converted into coupon-filled envelopes with no human hands ever touching the product.

Two Goss Sunday 4000 presses each with eight units will be capable of generating six signature streams of product being accumulated into Muller Martinis patented and proven print rolls at 2,500 feet per minute. These press configurations are designed for "zero make ready time" as four units will be running the 10,000 quantity process color order in concert with the other four units cycling through their automated plate removal and rehang tasks "off-impression" every 12 minutes. The double circumference presses will print as many as 88 coupons per cylinder revolution. Each press will consume 12 tons of stock an hour.

The Cox SAP management information system will be working in conjunction with the Dalfuku logistical system to management the automated guided vehicles (AGVs) moving the print rolls on monorails to populate the eight-story high 200,000 square foot storage silo for interim and finished product. Robotic cranes pick the print rolls and bring to one of nine high-speed envelope collating systems to feed into one of four unwinding stations at each collator. The entire manufacturing cycle is designed to provide a four-hour turn around cycle, which is half the current manufacturing time frame. Twice the capacity at half the throughput time with half the labor content is an audacious goal.

Goss and Muller Martini showed mock-ups of the work and material flow. With a start up date of first quarter 2007 the trade press will be given live shots very shortly.

It is interesting that this Florida location was chosen for this plant since it is distributed nationwide. A Midwestern location would seem to make distribution by USPS faster and more efficient and would have avoided the potential hurricane alley adverse impact of the west coast of mid-Florida. Plus the incremental distribution time and expense of getting train carloads of roll stock to the southeastern corner of the US instead of the upper Midwest would seem to be an opportunity. The implications are that Cox has done some extensive planning as part of a potential disaster recovery program if confronted with any local hurricanes. This could well be part of a future article.

Digital print has been an exaggerated, unfulfilled, but hoped for revenue stream for printers for more than a decade. But the hype continues as select protagonists and advocates forecast it to become the dominant print process in a strikingly short period of time. Most of the printers making money in digital print treat the process as a compliment to their mainstay lithographic cash cow as statistically reported by Heidi Tolliver-Nigro, Senior Analyst for The Industry Measure marketing research firm. Their current annual survey just published indicates that the actual use of variable data peaked during the fourth quarter of 2004 at 21% of the printers surveyed. The current regular usage is down to 17% with a full 63% of those firms limiting their variable data printing to simple address lists for mail distribution purposes. Thirty-six percent of printers acknowledge doing some variable data printing at some time in the past while 11% actually outsource the requirement.

Of those firms doing variable data production printing, 80% do it on small desktop units with only 32% of those responding doing any digital color copying. A full 97% of all digital color printing is static printing, not variable data. Nearly three-quarters of all printers do not use web-to-print online order entry while of those printers with digital print capability 55% do not have web-to-print capability.

NPES' marketing research arm PRIMIR reported during the Executive Outlook 2006 conference the day before Graph Expo that digital print had doubled from the 2001 tally of $7.8 billion to $15.3 billion in 2005 for a compound annual growth rate of 18.6%. This is the highest growth rate of any printing process and yet represents only 8% of all North American print revenues in 2005. Wide format printing has grown at 16.1% a year over that same time period to $4.9 billion. While these numbers are attractive, there is no reason to mortgage the farm to get into the NASCAR-rated, gas-fumed big print engines until your market is receptive and expertise is proven.

At least a half dozen major conferences in recent years have had featured speakers and/or panel discussions comprised of leading successful print practitioners talking about their initiation of and rebirth into lean manufacturing practices and culture. IPA, the association for graphic solution providers, hired select consultants to develop a print centric tutorial package comprised of webinars, a handbook and coaching to help the industry to understand and adopt this powerful graphics workflow improvement program, called e-LEAN^TM. A 12-page pullout can be found in the October issue of Graphic Arts Monthly or downloaded from ipa.org/e-LEAN. David Haridan, Director of IPA's Webinar programs, unveiled the offering at Graph Expo in a seminar sponsored by Kodak.

This is a solid effort, a good tool and hopefully will fall on willing ears. The issue of how to get started is worth more extensive discussion, which surely trade associations and the press will pick up on. One simple, inexpensive option will be mentioned briefly here. The principles of lean are well known and have been taught extensively at all engineering colleges for eons.

Hire a rising junior or senior Industrial or Mechanical Engineering student as a summer intern from any engineering college. This is an inexpensive investment of perhaps $5-6 thousand for a brief 8-10 week summer period, which could yield one or two "lean" and clean departmental walk-off winning base hit(s). (This is World Series time and deserves a game winning analogy).

These young professionals reporting to the company's e-LEAN Program Manager, as Mr. Haridan appropriately advise to be assigned, could do the necessary workflow data collection for the necessary and time consuming value stream mapping task. Their complete and total ignorance of the printing industry is absolutely no deterrent from them doing an exceptional job in a short time period. Presentations to and discussions by the affected departments would then take less of your staff's time and still assure their buy-in. These personal departmental successes can build enthusiasm and commitment throughout the plant to attack more complex and difficult areas of opportunity later in the year.

If this idea is attractive, it is advised that you not wait until next spring to contact the Engineering Department Chair, describe your summer job opportunity, and your desire to hire the number one or two person in the class. If you don't move now, these highest ranked soon-to-be young professionals will already have summer jobs lined up by Christmas vacation. While any of their students should be able to do a good job for you, you might as well hire the best if you have the opportunity!

One caveat to which you should be sensitive. Most schools have senior year projects for which the students scurry around looking for pertinent and live issues. Your chosen student intern will probably ask you for the opportunity to come back during the school year to document the progress of his/her lean initiative. This is a modest request but might take some staff time to help compile these results for the student. Who knows you might light the fire for a potential hire upon graduation. In addition to getting a solid engineering job done, at the very least your firm would be recognized for its public relations efforts with the state institution of higher education.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.