JDF and the business of print

May 31, 2007 2:56 PM

By Gareth O’Brien, CEO of Objective Advantage, a Houston-based provider of automation software and integration services to printers and publishers. Contact him at gobrien@objectiveadvantage.com.

New technologies, standards and software produced by various vendors all claim to change printers’ lives. PDF, PDF/X, PPML, PPML/VDX ... the alphabet soup quickly becomes overwhelming. Take JDF, for example. This has been described by some printers as well as by some industry media as “nothing but more vendor hype,” while others are of the mind that they need to “get JDF” because it will make them competitive. In both cases, they are missing the mark.

JDF is simply a tool for software developers to make various pieces of print production software communicate. What all of these various standards provide for printers is a business opportunity: the opportunity to automate processes that are currently done manually by employees, and for a lower cost.

According to the PIA/GATF’s chief economist, Dr. Ronnie Davis Ph.D., printers can be divided into two basic categories: Profit Leaders and Profit Challengers. Profit Leaders comprise the top 25 percent of all printers in the United States, measured by profitability; profit challengers make up the remaining 75 percent. In his 2006 roundup, Davis presented some staggering results. These profit leaders representing only a quarter of the industry generate 96 percent of the industry’s profit. That is a pretty bleak picture when you consider that the majority of the industry is making almost no profit whatsoever. (See the “So what makes a Profit Leader?” sidebar at bottom for further explanation/calculation.)

Perhaps the single most important difference between the Profit Leaders and the Profit Challengers is that the “Leaders” have a sound business strategy, and not just a strategy to take on any job that comes along to keep the presses rolling.

Business strategies for printers break down into two groups:

1. Selling a commodity.
2. Selling a value-added service.

Typically, the term “commodity” is one to which many printers react badly. Yet, in the right circumstances, and planned and executed correctly, it is a legitimate strategy that can be highly profitable. To illustrate the scenario of a low-cost commodity strategy compared with a high-value service, let’s consider an example from the travel industry.

To get from LA to New York, there are various flight options. “Low-cost” players, such as Southwest Airlines, make no bones about the product they provide: It is the cheap way to get from one destination to another. You might have numerous stopovers and changes, resulting in 8-10 hours of flying time, not to mention the the additional time traveling to and from the airports. So, by taking the cheap option, your two-hour meeting in New York will, in fact, take you out of the office for two days.

By contrast, you could opt for an executive jet company. It’s a more expensive option, but one that will pick you up from home, fly you in comfort from a local airfield and offer you access to telecoms and the Internet, thus enabling you to continue to work during your flight. Upon arrival, a driver will meet you and take you directly to your meeting. With the same itinerary for the return trip, you could be there and back within one day, whilst continuing to work remotely, thus maximizing efficiencies.

The low-cost option costs much less, generally is purchased based on price and provides no extras. The other costs a great deal more, provides a high level of customized service, and tailors those services to suit the customer’s needs. Both providers make money, but you can’t mix these strategies. You cannot provide the high-quality, high-service, expensive solution for commodity pricing and stay in business. The same applies to print.

Commodity printing is profitable, if done properly. Print about 20 products on two or three stocks in vast numbers and at a price no one can beat. All orders are Web generated, and if your job doesn’t match one of the products on the Web site, there is no way to order it. The resulting orders are batched, laid out, ripped and imaged without any human intervention. The sheets are removed from the press, then placed into automatically programmed cutters, folders and stitchers for final finishing.

The differentiation strategy is to provide a high-value service of which printing is a part, tailored to the customer so they can’t simply compare like with like based on price at the printer down the street. So the front end is provided as a customized Intranet portal used by a corporation to order all of its marketing collateral. Or, an automated asset management system that accepts orders from a manufacturer’s SAP system selects the correct PDF, prints the items, and delivers them to the next area in the correct bin with simple kitting instructions.

The pick lists, pack lists and shipping labels are produced automatically based on the shipping instructions entered or selected by the user at the outset of the job, thus doing away with the need for anyone else to reenter this data, as all the information has been captured up front. The employees simply follow instructions on the screen or printed page, scan barcodes, and everything runs smoothly.

Notice that in both strategies, commodity and differentiation, there is a high level of automation. It’s often the case that when employees have to stop to think, there is room for error. If each job requires a custom setup, separate press run and manual finishing, the cost of production is by definition very much higher, and the price of the product must reflect this. The differentiation strategy has a high setup cost per customer, so you need to have a long-term agreement in place before you set them up. This is a different kind of sale, “the value proposition,” and in many cases, the sales team might need retraining.

So what is the key differentiator between Profit Leaders and Profit Challengers? It’s a willingness to make capital investment in automated machinery and integrated software solutions that lead to reduced cost of production and improved reliability of service. Leaders’ capital expenditure typically exceeds that of Challengers by 50 percent. Leaders have an understanding that paying employees year after year to perform manual tasks always will work out to be more expensive than capital investment in automation. They understand that the use of automation in order to achieve a defined business strategy is the way to generate healthy future profits in the print industry.

So what makes a Profit Leader?

There are three types of lies: lies, damned lies and statistics!

So how do the numbers lead to a conclusion like this? It comes down to profitability. The average for the industry 2006 was 2.7 percent in 2006; that is, 2.7 percent of sales were retained as net profit.

The Profit Leaders had profitability of over 10 percent, and the Challengers less than 0.2 percent. So for any given $100 of sales, about $25 is sold by Leaders and $75 by Challengers.

Of that $100, the industry retains $2.70 as profit. The Leaders retain 10.3 percent of $25, which is $2.57; the Challengers retain the rest, $0.13. That’s 13 cents retained for $75 sold.