Pumping Printer Profits

Using tiered pricing mechanisms small producers of customized products can fill non-productive downtime with revenue generating business.

October 21 2010 by William Gindlesperger


When an organization produces customized products (like printing, machined parts, textiles, and more), the goal is to keep production busy with work that produces a profit. However, that goal is rarely met more than 70 percent of the time, as there are always periods when production sits idle — when there is no immediate work.

In the printing industry, 30 percent of the typical printer’s production schedule is downtime. That’s because the printer must have sufficient capacity available to meet the needs of its customers at peak times, only to have it sit idle and unused at non-peak times. When work is not forthcoming, the printer is stuck with downtime, no income, idle staff and machinery and a non-billing period.

This creates a bad situation. On the one hand, no work produces losses. On the other hand, cutting back on production capability (downsizing) means not meeting customer needs during peak periods. Layoffs yield unhappy employees looking for more stable jobs elsewhere. These same employees soon discover that working slower can procrastinate lay-offs, which, of course, also results in lower productivity and lower profitability on what should be higher profitability work.

What can you do? Cutting prices can yield more work, but does not resolve the problem. In fact cutting prices can exacerbate the problem by yielding higher peak periods and deepening the valleys – while lowering contributing profitability.From Ben Franklin down, printers have learned that the one way out is to charge enough on sold jobs to pay for both productive and non-productive time. There was a time that this seemed to do the trick. Not anymore.

The problem is that there is too little work to go around. Supply and demand is killing higher prices. Printers cannot charge enough to meet the costs of productive time let alone covering the cost of non-productive downtime as well.

One answer is to close out the business, declare bankruptcy, or retire. Many printers are choosing this avenue.

But there is another answer. It is called tier marketing. The idea is that you charge whatever each marketplace in which you work whatever the price that that market allows. For example, you may charge more to customers in one locale than in another. You may charge more to customers in one vertical business than in another. Or you may charge more per production hour for one type of work than you charge for another.

Most printers already get this. However, there is a subtlety hiding here that is a powerful profit booster. Think what would happen if after you optimized a tier marketing approach, you had the additional opportunity to fill downtime on an immediate basis. You could accept or decline jobs without affecting your opportunity to accept or decline future jobs. In other words, you eliminate non-productive downtime and operate at 95%.

Would price for these fill jobs really matter? After all, any amount of revenue generated during downtime is an improvement over the alternative of no revenue. The key is to be able to accept jobs at a lower rate without affecting the price of other work.

This is one of the concepts behind the patented Automated Vendor Selection (AVS) technology. It allows those buyers who license the technology to offer their work to their own qualified suppliers. However, the suppliers do not have to bid, or can bid higher or lower based on each supplier’s need for work to fill downtime. If a supplier no bids or bids higher today, there is no effect on receiving an opportunity to bid on all future work that fits the supplier’s production and quality capabilities. Quality and service are assured by the specifications, while being the low price among the qualified suppliers wins the job and fills the immediate downtime. The only way to be removed from the qualified list is (just as it is with any customer) do a lousy job, ship late, or be non-responsive.

The trouble with CEOs is that they are human, too.

William Gindlesperger, founder of ABC Advisors and its successor, e-LYNXX Corp. www.e-LYNXX.com is an inventor and developer of cost reducing procurement methods such as AVS Technology.