The Cost of Printing
It would be a massive understatement to say that publishers are dealing with an uncertain set of business conditions right now. Demand is flakey, especially in verticals like education, interest rates are rising, paper supplies are threatened, and warehouse space is at a premium. It is hardly surprising that heads are spinning in production planning departments, where they are making tough decisions on what to print, in what quantities, where, when and how.
With all this to consider, planners have an insatiable appetite for good data, and one key component of that need is cost data. Cost of Goods Sold (COGS) data in particular, is an important piece and one on which many companies rely to make basic decisions on the question of which titles to print and how.
In this series of three blogs on publishing costs, we review the arguments for relying on product costs to make supply chain and production planning decisions and discuss the relative merits of two alternate costing models.
The first method is the traditional Unit Manufacturing Cost (UMC) model, where we typically break down the manufacturing cost of each title in terms of the labor, material and overhead allocation that went into its production. The second method of viewing cost is a Total Cost of Ownership model (TCO), where we look at a broader range of direct and indirect costs that may lead us to significantly different conclusions.
We will look at costs in three different areas where TCO gives us more insight into real costs:
- The cost of printing or manufacturing
- The cost of distribution, and
- The cost of infrastructure
Unit Manufacturing Costs (UMC) and Total Cost of Ownership (TCO)
When we look at the UMC of a book, we typically include the calculated or estimated impact of returns, royalties, paper, printing and binding, plant costs, and estimates for obsolescence and allocations for indirect operating expenses. These components may vary in the case of digitally prepared and delivered products of course. UMC is fine when we simply need to compare the unit cost of one title against another, or one printed title against its cost for an alternative delivery media such as digital or audio. The problems arise when we try to use UMC for making high level business decisions about the actual cost of producing that title, and of making investments in new workflows and business models. Equally important, it takes absolutely no account of cash and its availability.
It is effectively taking decisions from a micro-view of the data and giving zero visibility to macro-cost considerations. This means making decisions about production without considering actual demand for an item (compared to forecast), and ignores the costs of waste and overproduction, the cost of infrastructure, or the warehouse costs and the amount of time an item may spend sitting there, as opposed to being quickly moved out and sold.
That is precisely where the Total Cost of Ownership model has value and why it is even more important at this time, when demand is so inconsistent and interest rates are rising. Publishers need to consider ALL costs, at a macro level, when committing cash to work in process i.e., to unsold finished product. Ideally, in those conditions, we should not produce anything (print or digital) until the consumer has bought. What is the point of attempting to lower the Unit Manufacturing Cost of a title by printing larger quantities, when those books may sit unsold for an extended period in a warehouse, or are moved out and then returned later, unsold?
The Cost of Printing or Manufacturing with a POD Strategy
The first costs we will review are the costs of printing. Depending on the publishing sector, the classic model of course is to print books based on orders from retailers and distributors that are based on the latest demand forecast. And what is not sold or recycled at retail is returned and eventually pulped – or worse, landfilled. That is a PRINT FIRST SELL LATER model. It is expensive for the publisher and unsustainable from every viewpoint. In our costing systems, we need to recognize the TOTAL cost of production (including delivery and infrastructure as we will discuss in later blogs in this series). ERP providers can help in tracking all the other “ownership” costs that are not evident in the Unit Manufacturing Cost that we typically use today.
A less costly, more sustainable way to manufacture is on a SELL FIRST PRINT LATER model, using a Print on Demand (POD) strategy which not only reduces the waste of overproduction but can print much CLOSER to the eventual consumer, thus reducing “book-miles.” This applies specially to end-of-life or books for export. If we print a book in China, ship it to a distribution center in Chicago, and eventually deliver to a consumer in Los Angeles, that is neither sustainable, nor inexpensive for anybody in the supply chain, especially the publisher who bears the cost of waste and returns. POD is even being used temporarily as an overflow to make up for conventional offset delays caused by the pandemic. It is not a strategy that can be used in all situations. Specs may not always be suitable and large run quantities make offset printing more economical, but publishers need to push digital compatibility with print specs, and design-for-digital in the first place. In addition, most ERP software suppliers to the publishing industry (including knkPublishing) have good integration between their own systems and POD.
Excessive supply chain costs and sustainability amount to the same problem. As we shall increasingly see in the future, consumers will demand that our manufacturers show leadership in lowering the carbon footprint and supply chain complexities of their products. Consumers are beginning to show their preferences with their pocketbook. We CAN monetize sustainability in the print business, and ERP providers will no doubt provide some of the metrics and KPIs that will be required to measure and control total costs and allow us to perform an end-to-end reexamination of our wasteful supply chain.
SELL FIRST, PRINT LATER, PULP LESS could be the mantra of the day. In Part 2 of our series on Total Cost of Ownership, we will examine the challenge of lowering the costs of distribution.
Photo by Studio Media
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