How to navigate the capex maze

Poor investments can take two forms. First, there’s picking the wrong investment, which is essentially a question about product. The second is just poor investment strategy. This is a more complicated pitfall and involves the printer’s choice of vendors, its financier and its accountant, to name just some of the players involved in the process of separating a print company from its hard-earned capital.

Before you start, take note of the traps for the unwary. Shane Hanlon, head of product management and remarketed equipment at Heidelberg Australia & New Zealand, has seen his fair share of mis-investments. The problems often start from trusting the sales pitch on a PowerPoint over the product’s technical realities.

“The ones that come to mind most commonly are those that have been based on best-case productivity and efficiency data and that haven’t factored in the realities of day-to-day print production. I have seen presses that could in no way deliver on the promised reduction in waste, makeready and production time. This includes digital.

“In some cases, we have even seen devices unable to effectively produce the product they were intended for. It can all sound good in a sales presentation or on a positive weighted ROI spreadsheet, but you need to dig further than that,” says Hanlon.

Doing your homework

The first step is to know the market – what’s out there and what’s on offer. When Sydney commercial and packaging company Centrum Printing decided to invest in a new KBA Rapida 162a with coater, the company thoroughly researched the market, says general manager Sandra Mascaro. Centrum also evaluated Manroland and Heidelberg before deciding on the KBA Rapida. Mascaro gives a deeper insight into Centrum’s approach to capital expenditure. “We keep up with trends in the industry by reading trade magazines and attending shows. We also liaise with clients to get a feel for the direction of the market by inquiring about the total range of work that they need, how often they need it and in what quantities. Then we endeavour to progressively supply more of that range.

“But printers also know that their machines may become less efficient with age. If the maintenance bills go up, it may be time to look at new technology.”

Once Centrum has accumulated its basic data, it is back to vendors for more details. “We make comparisons based on price and functions. Our general internal assessment also includes logistics such as floor space and staff or training requirements but any major equipment requires a detailed cost analysis.”

Mascaro says that while established relationships with vendors are important, it also pays to review new offerings from others in the market. “There will be trade-offs, including warranties, training and service supports, and expected life expectancy and capacity of the machine, versus price and availability.”

So how does Centrum Printing engage its suppliers? “It’s largely determined by deciding what equipment will suit our needs. But price, negotiated extras and supplier reputation will come into it.”

How does the company plan its budget? “We set a ceiling by determining how much funds we can raise and repay. But the final decision on what and when to purchase boils down to a combination of what option yields the best cost-benefit analysis. Value for money on the direct price of the item is only part of the cost-benefit analysis.”

Mascaro is a firm believer in cost-benefit analysis. “This is essential, especially with any larger commitment. It forms the basis for any business plan you present when seeking finance.

“The cost-benefit analysis must be conservative in terms of profit estimates and allow for worst-case scenarios with expenses. There will likely be operating downtime. One should assume some hidden costs and delays with any major installation. Sometimes a new site may need to be secured and prepared. There may be special power needs. Management must liaise with accounts staff or a professional accountant to note hidden extras such as insurance costs.”

The investment process can be long, so Mascaro believes in factoring that in as well as timing it in order to match equipment requirements.

In the end, it is all down to the ROI flowing from the new kit. “A sensible investment would generally give you at least 30% net return. But how quickly we expect a return will depend on a lot of factors, including logistical costs and efforts and the likely ratios of new business and expansion with existing clients. These factors all need to be considered in the cost-benefit analysis. That analysis needs to include the initial lean period and whether the business can survive it.”

Along the way there are plenty of potential pitfalls, Mascaro cautions. Missteps generally consist of overcapitalising in relation to potential returns, taking on too many staff at high salaries and overcapitalising on the premises, she says. “Major commitments should centre on good machinery and if possible, be aimed at securing a niche market or point of difference. Without a firm direction, printers are too easily trapped into selling work at ridiculous or unsustainable prices to print brokers and then going bust.”

Countdown to new kit

At 27-year-old Crystal Printing in Cannington, Western Australia, a new Heidelberg Speedmaster XL SM75 with Inpress Control will be installed in January and commissioned a few weeks later. Operations manager Neil Zaltsman says the new arrival will eventually replace a six-colour CD press and share the offset workload with an eight-colour Speedmaster via a Prinect workflow, with Polar and other Heidelberg post-press equipment in the bindery.

Uptime and productivity are vital to the company: it is a key production hub for the network of Worldwide Printing Solutions stores across Australia.

Zaltsman says the XL was chosen for its quality and also for the automation of Inpress Control. Through a cost-benefit analysis, the broad aims were set before the hunt for new kit began. Crystal Printing gang-prints relatively short B2 runs of its staple products (calendars, flyers, presentation folders), typically around 2,500 units, so makeready length is critical. The aims were to reduce makeready from the current range of 250–500 sheets to 50 sheets, to reduce plate changes from 15 minutes to five minutes, and to reduce waste.

While Crystal Printing’s print manager Oliver Bogden searched the market broadly, the reliability factor was an incentive to stay with Heidelberg, says Zaltsman. The XL75 did not have the cheapest sticker price, but when quality and reliability were factored in, it won out in terms of value for money.

The search for the new press began in late 2011 and Bogden saw an XL in action at a Melbourne printer last year, so the time from signing the contract to commissioning the press will be around 24 months. But ROI is expected to be short term, says Zaltsman.

“We print to the ISO standard. Inpress Control provides a degree of automation to processes that currently require manual intervention. At the moment, in managing colour consistency, you’re almost having to rely wholly and solely on the expertise of an experienced printer. Inpress Control takes over that function, so it is more consistent. And in Australia’s ageing workforce, especially in the printing industry, that kind of experience will be increasingly hard to find in the coming years, so with Inpress Control, while you still will need a printer, of course, their level of experience will not be that important, given that part of the process is now automated.”



Vendor views: cost-benefit analysis

“Some customers will always stick with existing suppliers based on loyalty, regardless of what other press manufacturers are offering, but the open-minded customers generally have a look at what all press suppliers have to offer.”

Dave Lewis, general manager, sheetfed presses, KBA

“We work with our clients to understand how the new equipment will help their business. This involves detailed discussions with the financial managers and owners. We initiate the financial cost-benefit process. This is best for the customer, and is no longer about pushing equipment. The process has changed. Printers are more focused on long-term savings.”

Rayne Simpson, general manager, Ferrostaal Australia & New Zealand

“These days, I would expect that in every case, enterprises would do a cost-benefit analysis when it comes to a major piece of capital equipment, otherwise they would find it impossible to get finance.”

Steve Dunwell, managing director, Manroland Australasia

“Typically, printers would do a basic ROI on the equipment they are contemplating from various suppliers and see if they can support the purchase. This is not always something you can do without sound technical and financial advice. The real goal is to find an affordable solution for your particular needs.”

Shane Hanlon, head of product management & remarketed equipment, Heidelberg ANZ

“From time to time, we see providers overcapitalising on a solution simply because it has a gamut of capabilities, when in reality the increased functionality has no business benefit. Customers should work through what and where revenues will come from as a result of any investment, and what their revised cost structures might be before budgeting for any capital purchase.”

Stephen Ball, industry marketing manager, Graphic Communications, Fuji Xerox Australia



Big spenders

Rounding up of some of the biggest investments in 2013

Active Display Scitex FB 10000 and Latex 3000

Centrum Printing KBA Rapida 162a plus coater

CMYKhub HP Indigo 7600

Colorpak Manroland R706 LTTLV

GT Print Heidelberg Speedmaster XL 75

Hannapak Manroland R706 LV HS

Picton Press Kodak NexPress SX2700 & SX3900, EFI Pace MIS and KBA Rapida 106

SOS Print & Media Fuji Xerox 2800

TC Printing Heidelberg Speedmaster XL 106

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