Financial Strategy

Investing in Energy-Saving Improvements

May 1, 2009

by Ryan Thompson, Murphy Company

As more corporations respond to an anemic world economy by putting capital improvement programs on a starvation diet, the age-old question asked in every cyclical downturn surfaces anew – “Is cutting capital improvements the right decision?”

In some industries, the answer is “yes,” but for many, it is not. There is a strong case to be made that 2009 is an optimal year for corporations to invest in energy-saving improvements.

The reasons? One is the certainty that the investment will cut a major operating expense – the cost of energy – immediately and long-term. And, cutting operating cost is one sure way to offset slowing sales. Second, the pay-back period for energy-saving initiatives is typically very short. In fact, many are cash-flow positive in the first month. Third, today’s business landscape is flush with federal-, state-, municipal- and utility-sponsored incentive programs that make it even better for your bottom line to invest in energy-saving improvements now.

Energy Use Is an Increasingly Significant Subject

Historically, utility costs (natural gas, water, and electric) have been viewed simply as a “cost” of doing business. Little significance was attached to them. That’s no longer the case. In today’s era of lean manufacturing, the drive to be competitive makes it imperative to find savings wherever possible. In the same vein, energy projects are now seen as a worthy pursuit of companies trying to attain ” practice” status. Finally, many customers (Wal-Mart among them) are requiring vendors to demonstrate their commitment to being responsible global citizens by becoming more “green.”

No Hiding From Higher Prices

While every industry suffered from the skyrocketing price of oil in 2008, the publishing and binding industries have been further affected by increasing internet use and diminished readerships, which have resulted in lagging sales. Initiating an energy project within your manufacturing facility has many significant returns on your investment. The ability to cut annual utility- and maintenance-related expenses by 10 to 30 percent also provides a solid foundation for future pricing flexibility and profit margin defense. The true beauty of investing in an energy-saving project is that once it is complete, the return-on-investment compounds automatically year after year.

Best Practices

Energy-saving opportunities are found in every faction of a production facility.

Lighting
Upgrading lighting systems is a popular energy investment right now. While the concept is admirable, there is more to it than simply installing new fixtures or bulbs. Does the lighting design supply enough foot candles to maintain quality and safety? Does the design meet the criteria required for incentive programs? How is the new system to be controlled – with motion sensors? bi-level switching? Will the new set-up negatively impact heating and cooling loads?

Compressor
Is your compressed air system properly maintained? Are there leaks? Has your compressor exceeded its life expectancy? Does your system have isolation valves to shut off zones when not in use? Would adding a staging compressor actually be a money-saving solution?

Motors
Are your motors designed to properly control power factor and avoid costly correction charges from your utility provider? Are you aware of your VFDs, VSDs, or capacitors?

HVAC
Since many publishers and binders operate HVAC equipment year-round to control humidity in production areas, big savings could result when the system is properly commissioned. Are you controlling humidity most efficiently? Are you over- or under-cooling? (Not only is over- and under-cooling costly, it can be detrimental to product quality.)

Questions to Ask an Energy Consultant

While some companies offer energy audits and energy upgrade services, their experience, capabilities, and scope of service vary greatly. Before you choose an energy consultant, find out:

1. Are they charging for a stand alone audit? Even though that sounds like a logical first step, audits can be costly and not always focused on opportunities that are feasible or make financial sense to the owner. Select a partner who will help you think through your financial and operational goals prior to purchasing an audit.

2. Do they have the expertise to analyze all systems within a facility, including mechanical, electrical, process, controls, and building envelope? A consultant that is only focused on one system may miss some of the best opportunities in your facility. It would be unfortunate to undertake a lighting project only to find out afterward that a controls project could have cost less money and resulted in greater savings.

3. Can they help to implement the savings strategies identified? Your partner should either be able to self-perform the project or be capable of serving as your construction manager. In the case of the former, his ability to do the work should be supported by an experienced and diverse group of in-house engineers and construction specialists. If you choose to use your partner as construction manager, he should provide you with single-source accountability as he specifies and procures bids from qualified service providers, selects the project team, and manages the project to a successful completion. These projects should unfold with minimal disruption to operations.

4. Is the consultant experienced in your industry? An expert who knows your specific industry can help reduce the time and cost of the audit by quickly identifying the most promising opportunities based on past experience. Make sure your partner is cognizant of the special requirements for your process and facility. Energy savings should never compromise safety or quality of the product.

5. Is your advisor affiliated with a specific manufacturer or product line? Will the equipment recommendations be unbiased? More and more companies are positioning themselves as “energy consultants” as a way of selling their product. An independent energy consultant will evaluate multiple products to determine the most cost- and energy-effective solution.

6. Is the consultant knowledgeable of and able to qualify your project for all applicable federal-, state-, and utility-sponsored incentive programs? These programs can be very complex and cumbersome, with stringent requirements. Your partner should have in-depth knowledge of the specific standards, calculations, and paperwork required for each of the various existing energy-efficiency incentive programs. A misinterpretation of the program could result in loss of incentives.

With “green” and “energy” the buzz words of the day, many consultants who claim to have specialized, comprehensive expertise, in reality, do not. Do your homework to ensure your trusted advisor brings value to your unique energy project.

Incentives Can Cover Costs of an Energy Improvement Program

As noted, federal-, state-, municipal-, and utility-sponsored incentive programs are abundant and can offset a portion of the cost of an energy improvement project. At the federal level, the rapid depreciation schedule in force in 2008 is expected to be renewed in 2009. Additionally, many projects qualify for a federal tax deduction of up to $1.80/SF for boosting the energy efficiency of an existing commercial facility or building a highly efficient new one. Many states and utilities offer separate incentive plans, ranging from low-interest loans to cash rebates that reward companies that invest in energy-wise equipment.

Founded in 1907, Murphy Company is an integrated mechanical contracting firm with an in-house staff of more than 40 engineers that serves a national clientele from offices in St. Louis, Mo., Southern Illinois, and Denver, Colo. Its Energy Solutions Division, staffed by Certified Energy Managers (CEM) and Leadership in Energy and Environmental Design Existing Building (LEED EB)-certified energy engineers, delivers turnkey solutions from design and engineering through installation and maintenance. As an Energy Star partner, Murphy Energy Solutions can help binding and publishing companies optimize energy savings and significantly reduce maintenance-related expenses. To find out more, contact Ryan Thompson at rthompson@murphy-stl.com or (314) 692-1555.

Estimating and Selling Are Two Different Functions

November 21, 2007

by Mark Porter, Dienamic MIS

There are many reasons to automate the estimating function within your bindery.

Faster, more consistent estimates.
Re-quotes are much faster.
Allows you to spend more time planning the job then crunching numbers.
Letter of Confirmation faxed or e-mailed provides a more professional image.
Estimate history allows you to find and analyze estimates quickly.
Single entry of data eliminates mistakes because estimate is automatically converted to a Ticket.
Ability to download common or simple estimates to a junior estimator.

…and there are many more reasons, but one of the biggest reasons is the fact that estimating and selling are two different functions.

Estimating vs. Selling: Not Every Job Equals Profit

We have installed our software in 70-80 post press companies and have talked to many more binderies and print finishers over the years and very few, if any, operate their business using this concept. Most binderies estimate by calculating numbers and adding them up. They then present this price to the customer. There is no addition of markup at the bottom of the estimate. This signifies that these binderies do not practice the concepts of cost accounting that are vital to any job-oriented manufacturing industry.

When I bring up the concept that estimating and selling are two different functions, most binderies respond by saying that the market dictates the selling price. This is 100 percent true, but the market does not dictate your costs to produce the job. It certainly doesn’t stop you from evaluating if this job, at the market price, covers your costs and provides the desired return.

A good estimating system should use the production standards that you have determined through a variety of different methods that will be discussed shortly. The standards then can be multiplied by hourly cost rates that accurately reflect the cost of running the machine on a hourly basis. These rates are called Budgeted Hourly Rates (BHR) and they encompass financing charges, labor costs, benefits, miscellaneous materials, and overhead. Information as to the number of shifts and levels of productivity are entered and the software can determine accurate hourly rates for each piece of equipment.

When these hourly rates are applied to the production standards that you determined, you will have an accurate representation of how much the proposed job will cost to produce. You can now evaluate the risk, the desired return and the markup of the quote to determine the selling price.

If the market will not bear your desired price, you now have all of the data required to evaluate at what price you are unable or unwilling to bid on the job. There may be times you will bid on work below your cost – BUT YOU WILL KNOW THAT YOU ARE BELOW COST.

Once time standards and BHRs are established, it is vital that you constantly monitor your production processes to ensure they are consistent with the standards used when estimating. For example, if we have our estimating system calculating the speed of the binder at 5,000 per hour and we are only obtaining 4,000 out on the shop floor, it means we are losing money on the job as soon as we win it. Conversely, if we are estimating at 4,000 per hour and actually obtaining 5,000 per hour out in production, it means we are losing jobs that we could be producing profitably. This monitoring can be done through software that measures productivity and compares estimate vs. actual values for every estimate.

These concepts of cost accounting and management information systems are vital to any job-oriented manufacturing businesses (such as binderies) no matter how big or small. The results will provide more data, allowing you to manage your business in a more profitable manner.

Budgeted Hourly Rates (BHRs)

BHRs are determined by simply identifying all of the costs for each cost center in your plant. The purpose is to recover all costs incurred in the production, sales, and administration of your bindery products. You have to be careful not to include costs that are not part of a production process and conversely, not miss costs associated with a production process. Either error will cause your hourly rate to adversely affect your profitability.

The process of determining BHRs begins with identifying the processes you perform in your plant. You must then determine and collect the related data. Just because ABC Bindery and DEF Bindery have the same folder does not mean they will have the same hourly rate. ABC Bindery may have paid cash for its folder, its facility rent may be less expensive, and it hires less skilled employees. This will all lead to a lesser cost per hour for ABC Bindery.

A sample BHR sheet for a folder is included to demonstrate the type of information that is required for the BHR calculation.

The Manufacturing Cost per Chargeable Hour is not the Budgeted Hourly Rate. It is useful if you must charge back house errors to the company.

The BHR reflects all costs incurred to produce the product, as well as the Sales and Administrative overhead. BHRs are not the prices. The calculation of the BHR multiplied by the time estimate should reflect the true cost to produce a product with no profit.

One note regarding overtime and multiple shifts. If a cost center is reaching 40 percent overtime, a second shift should be considered. The advantages of the second shift are the reduction of overtime and the ability to spread the fixed costs over a larger time block. This can result in substantial savings.

Software is available to easily calculate your BHRs based on industry-specific guidelines.

Production Standards The estimating system now has accurate hourly cost rates. The second piece of the puzzle is accurate production standards. Production standards are a measurement of the output that you achieve on a certain machine under a certain set of circumstances.

A bindery company can determine its production standards in six ways.

Data collection
Intuition
Published results
Competition
Manufacturer
Time and motion studies

Methods 2-5 use outside information that does not reflect your actual conditions and therefore is of very little benefit. Method 6 is accurate but very expensive and is not on-going. Method 1 represents the best method, as it uses your own historical data and is gathered in a continuous process that constantly reflects changes in your output. Shop floor data collection devices are used to constantly send data to Job Costing Software where the data can be sorted and analyzed by different jobs, machines, and employees.

Production standards are used by the estimating system to provide the time element of the quote. Production standards must be constantly monitored to ensure the estimating department is using standards that accurately reflect the production capabilities on the shop floor.

Both components of the estimating system, BHRs and production standards, can constantly change. Equipment gets old, new employees with less skill start working, and other factors change the production we achieve. BHRs change with rent increase, purchasing new equipment, and adding shifts.

A good system will allow you to monitor both components of the estimating system with an Actual vs. Estimate report for each job. This report will allow you to see at a glance how you estimated the job compared to how it actually was produced. Any variations should be examined. Weekly and monthly production analysis reports both of processes and employees will allow you to spot changes in production standards. This will ensure that your estimating system is always using the most accurate data and allow you to obtain the type of work that can be produced most profitably.

This is a good policy in good times and slow times. In good times, when there are never enough hours in the day, why work overtime to produce jobs that don’t provide you with a good return? In slow times, it is vital that you know your exact profit position when customers demand price cuts.

Again, software is available to help you easily perform all these functions, leaving more time to manage your bindery business in a way that is both well-informed and profitable.

Mark Porter is the president of Dienamic MIS Software. Dienamic develops and markets software solutions specifically for the post press industries of trade binderies and print finishers. Dienamic offers estimating software, management information systems (order entry, shipping, data collection, scheduling, etc.), and e-commerce software designed to meet the specific needs of binders and finishers. Dienamic offers stand-alone modules for BHRs, die management, and receiving goods as well. For more information, call (800) 461-8114 or e-mail mark@dienamicmis.com.

Investing in Equipment: Look Before You Leap

November 21, 2007

by: Brian J. Marder

It’s time to invest in machinery!

There are a multitude of scenarios that have driven you to this conclusion. Perhaps this is something you have thought about in the past, but now the decision has become unavoidable. But where do you start? And what should you look for?

Upgrade or Stagnate For whatever reason, you have concluded that there is no looking back. You must invest in upgraded machinery. All of the reasons in the list below are good indicators that it’s time for a change.

Your competition is upgrading – you should too.
Your customers have been requesting a service or product from you that you cannot currently provide – so they go elsewhere.
Your customers are installing machinery that is competing with yours and you must get something better, faster, or more versatile – or your customers will no longer need you.
It is taking too long to makeready your equipment, slowing production time for your customers’ work.
You have been spending too much on maintenance and repair – or worse, you can no longer get parts for your machinery.

It is amazing to me how this exercise has become an anomaly or a special event for many companies in our industry, especially for smaller or privately-owned companies. The fact is you have chosen and continue to choose to be in a machinery intensive enterprise. You cannot exist without bookbinding machinery in your plant. Upgrading your machinery should be an ongoing process and standard operating procedure for your business.

How do you begin the process of exploring the addition of new machinery? Do your homework. Talk to your customers, talk to your employees and talk to your competitors. This is a time for due diligence on your part.

I strongly recommend that your machine operators be included in the process and that their valuable input is considered. They will take a certain amount of ownership in the process that will be invaluable. When the machine hits the floor, your operators will have pride in their decision, confidence in the operation of the equipment, and a unique increase in morale that is priceless.

New or Used: That is the Question During this exploratory process, you need to decide whether to buy new or used. The biggest difference in buying a used machine compared to new is time. Used machines are unique and are subject to sale at anytime. Once sold they’re gone. New machines, on the other hand, are available at your convenience. There may be some improvements or enhancements available over a short time, and the price will most certainly be higher the longer you wait, but the machine that you had originally planned to purchase will still be available. So if you have determined it’s best for your business to purchase a used machine, there is no need to call on a dealer until you are ready to “pull the trigger”.

The second, and most obvious, difference in buying a used machine compared to new is price. A substantial savings can be had if you do your homework. Recognize that with used machines – there are no bargains! A machine that on paper seems to meet your requirements and is being sold for a very low price will almost always require additional expense on your part. The price of used machines is based on current market value, and because of the internet, this is a very accessible bit of information. As for new machines, prices from the major manufacturers have never been higher. Most machinery today is manufactured in Europe. As of this writing, the exchange rate of the Euro against the U.S. Dollar has never been stronger.

But the most significant difference in buying a used machine compared to new is technology. All the major manufacturers are designing machinery to minimize the reliance of an experienced operator. The number of people with experience and skills to operate bindery machinery is diminishing in this country, and the wages of experienced operators are too costly in Europe. It makes sense to design machinery that is “user-friendly”, requires less experience to operate, and sets up quickly. Add to that the capability of machinery to communicate with each other, and you can take advantage of the latest technology in bindery machinery. Or you may choose not to embrace the new technology. Reliance on software upgrades, electronics, and machines that utilize more cost effective composite material instead of metal may not be for you. If so, you have to buy a used machine. Generally speaking, a used machine will be classified as “As Is, Where Is,” “Reconditioned,” “Refurbished” or “Rebuilt.” “As Is, Where Is” simply means what you see is what you get. No party has made any effort to modify the condition of the machine in any way. Do not expect it to be cleaned up or have any normal wear parts replaced. “As Is, Where Is” implies that the burden of the condition of the machine is entirely your responsibility. “Reconditioned” or “Refurbished” implies that the machine has undergone a thorough inspection, normal wear parts have been replaced, and parts necessary for the correct operation of the machine that were damaged have been repaired or replaced as needed. “Rebuilt” is one of those terms that is easily abused. To “rebuild” a machine implies that it has been taken apart down to its castings. All parts have been inspected, and if they show any wear are usually replaced with new ones. If the part is no longer available and cannot be manufactured, those parts are repaired. To actually “rebuild” a machine may require more effort than it took to manufacture the machine originally. There are only a few people who can truly rebuild a machine, and that short list includes the original manufacturer. So be careful about this classification.

If purchasing a used machine, don’t forget that you also will have to dismantle, remove, and transport that machine. Make sure that the person who dismantles the machine is the very same person who installs it. He knows what wires need to be attached to the correct terminals and where all the small, but important, parts are packed. To ensure that your machine will operate as you expect, hire an experienced professional to handle this part of your investment.

Inspections and Demonstrations

Of all the classifications of machinery, “As Is, Where Is” implies the very lowest price possible. This is a great opportunity to get a valuable machine for an excellent price. But I strongly encourage you to have someone knowledgeable inspect the machine before you purchase it, so that you can make a well-informed purchasing decision. Make sure there is a sufficient loading dock, adequate equipment available to move the machinery, and note the utility requirements. If you do not have anyone in your employ who can inspect the machine, make the investment to hire a professional consultant.

If the machinery you plan to purchase is a substantial investment or highly sophisticated, your contract should include a clause that the deal is subject to machinery inspection, and allow for a refund if the inspection is not positive. That inspection also should inform you of the correct application of the machine – what are its capabilities and what is it specifically designed to produce. Again, you should employ a professional to inspect the machine.

Purchasing a new machine requires a more straightforward strategy than buying a used one. Call in several of the representatives from the major machinery manufacturers and they will make a presentation to you on what they believe will best meet your needs. Best of all, you are assured of the latest technology and the support of a large organization.

Ask for a demonstration of the machine you are considering. You may request to see one in a “real operation”, but that may not always be the best environment for the demonstration. Visiting the manufacturer’s demo facility is the best way to go. Yes, it is a controlled environment, but you will have the opportunity to see the machine perform exactly as it was designed to perform. You will meet and speak with technical and support personnel from the manufacturer who can answer your questions better than anyone. Most importantly, you will begin to develop a valuable relationship with these knowledgeable people.

Here’s a secret! Machines being demonstrated at trade shows provide an excellent opportunity to purchase a new machine. They have been finely tuned, usually include some important options, and are the very latest version. The manufacturer has a tremendous incentive to sell it so the machine does not have to be shipped back to a warehouse. You also have a special opportunity for publicity as the manufacturer will place a sign on the machine naming your company as the “Sold To.” And perhaps the best part, for at least a few hours, is that you will be treated as a VIP. Make sure your machinery salesman takes you out for a nice dinner. (I would recommend Smith & Wollensky.)

If you have met with more than one vendor, and find yourself confused, call in a consultant as a third party to explain what the new machinery vendors are trying to sell to you and explain the benefits of that machinery for your application requirements. One of my cardinal rules is to establish a plan and stick with it. When you determine what you need, don’t be influenced by forces to change the course of your strategy. I recently worked with someone and we both determined the specifications and specific model of the machinery he required. We even considered new machinery. However, in the end a financial package offered by one of the vendors persuaded him to go with their machine instead of what was objectively determined from research. Did he make a bad decision? Time will tell.

Investing in a new machine sends a positive message to your customers and employees that you are investing in your business! Many of your customers are quite knowledgeable about the machinery that is available. Informing them that you have purchased a particular saddlestitcher or perfect binder – new or used – may be enough information to reconfirm their choice of business partner. Making a capital investment in your own company will enhance the level of confidence your customers will have in entrusting their business to your company.

Brian Marder is president of Marder Machinery, specializing in the marketing of used bindery machinery. Marder also is the president of Bindery Consultants, providing advisory and consulting services for the bindery and finishing industries. Marder has spent almost 30 years representing two of the foremost manufacturers of bookbinding machinery in the world. He also is a graduate of Rochester Institute of Technology, School of Printing. For further information, e-mail brian@mardermachinery.com, call (732) 972-8500, or visit www.mardermachinery.com or www.binderyconsultants.com.

Maximizing Yields in the Bindery

August 21, 2005

by Kevin Rickard

In our highly competitive graphic arts industry, labor costs, raw material costs, the bottom line and most importantly, client goodwill are on the firing line every time a job is produced. An effective quality assurance program and reducing spoilage are vital in maximizing yields.

Let’s first look at quality assurance from a bindery’s perspective. Suppose a printing company sends a $10,000 print job to a bindery for $1,000 of bindery services. If the bindery expects to net a 10 percent profit, it is accepting $10,000 of risk for only $100 potential profit. Since printers hold binderies accountable for their performance, the reality of the bindery business is that only a few bad jobs will destroy the financial performance of the company. In short, binderies, as well as printers, must do their work right the first time, every time.

Get Correct Information

Quality assurance begins by obtaining the right information about what needs to be done, how it should be done, and what acceptable quality standards are. All the parameters of the job should be precisely and completely defined. Binderies use the term “preflighting” to mean the process of obtaining and reviewing reliable and detailed information about every aspect of a job before setting up any manufacturing operations. Without proper information, the scheduler can’t plan the job and department leaders won’t know what is required.

Every bindery has produced jobs that it is embarrassed to admit came in its front door, let alone went out the back – yet the customer was delighted. Similarly, every bindery has produced what it thought would be award-winning work – but for some reason, the customer was disappointed. What can we conclude from this? Quality is whatever the customer needs it to be. On a job-by-job basis, binderies should make every effort to discover how customers define quality and adapt their internal standards to meet customer expectations. To accomplish this, at the very least, binderies need detailed purchase orders with written instructions and pre-production samples, bluelines or samples of prior jobs.

Setup

When a bindery has compiled all the information necessary to begin a job, the internal job order must be clearly written up in straightforward language so that every operator and supervisor understands what is required. After the job order is approved, but before production begins, a progressive series of approvals and signoffs should be collected. The operator who sets up a machine must be satisfied that it will produce what the customer wants, according to the job order and provided samples. Good standard practice is to have the operator run a small quantity of material, take it to a supervisor and ask for written approval. This supervisor should measures the pieces, examines them for imperfections such as blemishes, smudged ink, scratching and folding sequencing problems, and then verifies that all parts of the machine are functioning correctly. If applicable, bundle counts should be checked as well. When the supervisor is satisfied that everything is correct, this information should be sent to others involved with the job, including the customer service representative and quality assurance manager (if one exists) for final signoffs.

Production

It must be the primary responsibility of the machine operator to maintain quality control. Managers approve setups, but once jobs are running, operators are the ones with their hands on the throttle. The operator must carefully read job orders and understand all instructions pertaining to their particular function before loading the machine, producing product and packing pallets. Operators should constantly monitor their jobs and check their output lift-by-lift and bundle-by-bundle. In the unlikely event of post-production issues surfacing, a time-stamping process is recommended to create a relevant production history and allows any problems to be isolated.

It also is recommended to provide employees full authority and responsibility to stop production if they have any doubts about quality. Operators should have a comfort level to go to their supervisor at any time to request a second opinion. If a supervisor instructs an operator to proceed with the job, the supervisor should then assume responsibility by signing and time-stamping a sample. Operators then keep at least one signed sample as proof that they have been instructed to proceed. Then, production continues as long as quality doesn’t further deteriorate.

Reducing Spoilage

Good spoilage planning is the second thing we are going to look at to maximize yields. Every significant printing job will incur some spoilage. Since spoilage rates aren’t consistent, it’s impossible to predict exactly how many sheets will be wasted during any given production run.

Many things cause bindery spoilage. Paper characteristics such as thickness, curl, brittleness, grade and coatings are very important. In general, thin sheets are more easily damaged than thicker ones. For example, when planning saddle stitched jobs, 4-page signatures should be given twice the spoilage allowance of 16-pagers, if the paper is the same weight. Exposure to too much heat can make paper and ink brittle, resulting in excessive cracking and increased spoilage. As the job runs, accumulating press powder and varnish buildup will gradually change the grip of the fold rollers, changing the fold position. Humidity will make paper limp, but excessive dryness can cause static. Either condition might hinder sheets from moving squarely into plate sections – again increasing spoilage.

Common Causes of Bindery Spoilage

Varnish. Varnish is one of the bindery’s worst enemies and best friends. On the one hand, it generally doubles the amount of spoilage during folding, but on the other, it certainly reduces marking problems. Varnish buildup changes the coefficient of friction of the fold rollers. Inexperienced operators tend to change fold settings instead of cleaning the rollers. In most cases, cleaning will cause the fold position to return to its original setting.

Shipping. A lot of “bindery” spoilage occurs during transportation from the pressroom to the bindery. When shipping printed material between facilities, some damage is inevitable. Not surprisingly, the amount of damage is directly proportionate to the care given during shipping preparation and the skill levels of those involved. Sometimes packing choices comes down to the lesser of two evils. Applied improperly, banding wire can cut into and damage sheets. Stretch wrapping without corner boards will bend corners of the sheets, causing downstream machine-feeding problems. The key to minimizing transit damage is carefully and tightly containing product so it won’t vibrate during transit or slip off the pallet.

Wood pallets and tops. Many wood pallets and tops are made from new, or “green,” wood with very high moisture content. Without a barrier, moisture will migrate from the wood to the paper. This moisture migration can destroy up to ½-inch of otherwise perfectly good printed material.

Mixing paper stock: Mixing brands, grades or even different lots of the same paper will increase spoilage. If a pressman runs out of stock and substitutes a similar sheet, expect different performance levels in the bindery. Paper lot changes should be clearly marked on skids and kept separate as the job transfers between departments. For example, if a cutting operator finishes cutting a job and mixes different papers without identifying which is which, a folding operator will have no idea why a fold position suddenly moved and why the crossover, which was perfect ten sheets ago, is now 1/8″ out of alignment. If the operator doesn’t waste a lot a sheets making the necessary adjustments, a lot of time will be wasted – or very likely both. Even worse, if an unmarked skid from the first lot remains, the machine will have to be adjusted back to the original settings. In general, whenever different stock is used on a job, plan for 1½-percent additional spoilage allowance.

Quality assurance is an excellent way to maximize yields in a bindery, however, you have to reduce your spoilage in order to reduce waste and save money. These two things are very important items to consider for every job. Don’t waste more than you need to and provide customers with a job that is of great quality and done right the first time. Your company will stand out and it will show in your bottom line.

Building Profit Through Accounts Receivable Practices

May 1, 2005

by: Andrea Schlack

All too often business people center their growth strategies upon “getting the sale” as opposed to what happens after the job is delivered and money has not been paid for the job. This is through no fault of their own. The goal of this and future articles is to help businesses determine those strategies for credit management that can help minimize bad debt losses.

Credit Applications vs. Credit Agreements

The first and most critical step to better receivable management is to “know your customer”. Name recognition or a prior business experience is not sufficient criteria for granting credit. All businesses fluctuate; what was good yesterday may not be true today. There are lessons to be learned from the numerous well-known companies that have seen their demise over the past several years.

The two variables to be defined in all credit transactions are “Who is this customer?” and “Will I get paid?”. These can be defined by the proper use of an established application and agreement. Those will help facilitate your ability to verify stability, viability, and predict potential risk of new customers.

There is a difference between an application and an agreement, so you need both. According to Webster’s Dictionary an application is “a form used in making a request”. Agreement is defined as “harmony of opinion, action, or character, an arrangement as to a course of action, or a contract duly executed and legally binding, the language or instrument embodying such a contact”.

Simply put, an application is your customer’s request for terms. It provides the grantor relevant, verifiable information by which informed decisions can be made while the agreement defines under what condition credit will be extended. A properly worded agreement protects a lender’s rights and remedies. It is very important that a completed agreement be required from all customers.

One way to verify the information on an application is to consider these points:

Is the application filled out completely?
Did the customer provide you with a physical address as requested?
Is the provided address a commercial property, a “mail-drop” or a home-based business?
Did your customer provide you with ownership information including names and addresses as requested?
Are the phone numbers provided listed to the business that is requesting credit?
Did your customer disclose all their banking information as requested and did they include their account numbers?
Has the customer crossed out or altered any of your terms without your consent or approval?
Are the references verifiable and of value to meet your needs?
Did your customer sign and date the agreement?

Non-paying customer’s cost the company lost revenue, lost time that could have been better spent with productive accounts, and wasted resources.

Be cautious of the customer who rejects or refuses your reasonable request to fill out an application and agreement completely. Credit agreements are an accepted business practice in today’s credit heavy society; he who refuses to provide adequate verifiably information may have something to hide.

The Verification Processes

Extending credit terms simply because an agreement was completed can leave a vendor vulnerable to high risk, slow, or non-paying customers. In order to maintain a low percentage of bad debt, it is recommended that all applications be verified and periodically updated.

There are numerous “fee based” reports that provide easy to read, statistical data necessary when evaluating credit worthiness and are a cost-effective solution to making the “quick decision”. Dun & Bradstreet or Experian reports, for example, use public records and subscriber information as well as company provided details as the basis for their reports. The accuracy of any report will depend greatly upon how often report data is re-verified.

On-line public records are the fastest and easiest way to verify information. The majority of states, counties, and cities provide “real-time” data on the web that offer a wide range of detail such as verification of a corporation’s charter, identify shareholders, confirm current ownership, provide details of pending litigation, judgment awards, UCC searches, and other related business or trade names associated to your customer. Identify the type of business conducted, provide business license information, identify any name changes, and stock ownership transfers. In many cities you can even see driving tickets that have been issued to an individual.

The Internet provides additional resources for instantaneous verification. Those same tools utilized by credit reporting companies are available to the web-savvy businessperson at no or low-cost. However, the information obtained might not be the most current, so you need to be careful.

Search engines such as Lycos or Google provide sources to verify addresses and phone numbers. Outwardly this may seem to have little importance, after all what customer would intentionally provide a “bad address” or a “bad phone number”? How could they get their completed jobs if they did not provide a good address for delivery, and how can the customer confirm or proof the work processes requested if the phone number isn’t right? Remember the steps you take before granting credit to help you identify those customers who would do anything to get “free work”.

Addresses are something you really need to be aware of while verifying information. Over the past 10 years the business of providing “virtual” offices such as mailbox rentals or “common-space” office suites has grown to a multi-billion dollar industry. Mailboxes Etc and UPS have more than 5,000 franchises nationally while HQ Global has nearly a thousand locations in more than three hundred cities. Cellular phone usage is growing at a faster rate than land-based lines. There are thousands of companies that allow businesses to operate in disguise. While these operations may cater to small and/or home-based businesses that potentially could be very profitable and well run organizations, they also provide a safe haven for slow and non-paying customers. Credit grantors need to be wary.

Common web titles you need to be aware of and that may indicate a virtual office are:

Business Services
Conference Centers
Mail Services
Office Suites
Packaging and Shipping
Fax Service
Boxes and Bags
Copying and Duplicating

If during the verification process you suspect an address is a mail drop, call the listed company and simply ask if they rent mailboxes. If the answer is “yes” ask if your customer is renting from them. Also, if the phone number provided by the customer is not listed or appears to be a cell phone ask for the main number to the company and verify it. “No” is always the answer to a question not asked.

Following Practices

Remember the procedures established by your company are a means to protect your bottom line profitability. Your processes for extending credit should not be perceived as an impediment to any ongoing business relationship with customers who are genuinely looking to do business with you on an honest basis.

This article was an excerpt from an upcoming CD-ROM offered in cooperation with Printing Industries In/IN Association and its’ author. Future articles will provide other solutions to the most prevalent problems associated with managing and collecting accounts receivable. Your ideas and suggestions are welcome. For more information, contact Andrea Schlack at andreaschlack@comcast.net.

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