The Cost of Color Print Revisited

Transcription

1 October 23, 2008 Strategic Assessment The Cost of Color Print Revisited Authors Steve Adoniou Jim Hamilton Published by On Demand Printing & Publishing Consulting Service Abstract This document examines the cost of four-color printing and compares the HP Indigo 7000 Digital Press to a typical 19 x 25 offset press. In this analysis, which revisits a 2006 InfoTrends study, we calculate the print run length crossover point between offset and digital for a representative market basket of jobs as well as the comparable run times for the jobs. We also report on recent InfoTrends research about the trend toward shorter run lengths InfoTrends, Inc. For More Information If you would like to order extra copies of this report, receive permission to use any part of the report, or be informed of upcoming market updates, reports, and related projects, please us at info@infotrends.com. Headquarters: Europe: Asia: 97 Libbey Industrial Parkway 3 rd Floor, Sceptre House Hiroo Office Building Suite Castle Street Hiroo, Shibuya-ku Weymouth, MA Luton, Bedfordshire Tokyo United States United Kingdom, LU1 3AJ Japan info@infotrends.com euro.info@infotrends.com info@infotrends.co.jp

2 Table of Contents Introduction... 2 Market Perceptions... 3 Declining Run Lengths... 3 Determining the Cost of Color Print... 5 Job Costs... 6 The Sell Sheet... 8 The Postcard... 9 The Catalog The Book The Newsletter The Menu The Market Basket Approach The Historical Costs of Digital Printing Conclusion Introduction Today s print service providers are continually working to reduce their production costs. The production digital color print market is also actively driving costs down, as will become apparent in this analysis. Since production digital color printing devices entered the market in the early 1990s, the cost of digital printing has declined dramatically while at the same time the products have become faster, more capable, and more productive. At the same time, offset printing has also seen productivity improvements that impact cost but they have not occurred at nearly the same rate as with digital. Both digital and offset printing equipment vendors constantly emphasize the efficiency of their respective technologies. While all agree that digital technology is clearly less expensive for short runs (between 1 and 250), there is less agreement on where the actual crossover points lie. Most would agree that the crossover between digital and offset methods occurs somewhere between 250 and 2,000 pages. With the improvements in cost and productivity for production color documents, however, we believe that the run lengths suitable for digital have expanded significantly. In the summer of 2006 HP Indigo approached InfoTrends and expressed an interest in sponsoring some research that explored the topic of the cost of color printing. To facilitate this research HP Indigo agreed to share running cost data on the HP Indigo press InfoTrends then used this data, in combination with industry data on offset presses, to develop a model to compare the crossover points of digital and offset for a market basket of print applications. In October of 2006 we published a description of this in a white paper called The Cost of Color Print. This analysis provided objective information on the economic crossover between the HP Indigo press 5500 and offset presses. With the introduction of the HP Indigo 7000 Digital Press and its increased speed and lower running costs, the time is right to reexamine how the crossover points have changed since A review of crossover points is also timely in light of research indicating the trend toward lower run lengths. InfoTrends has done research in the past that examines this topic and recently (October of 2008) InfoTrends, Inc.

3 Percentage of Respondents The Cost of Color Print Revisited October 2008 we updated this research. This survey, conducted in partnership with the North American Publishing Company (NAPCO Publishers of Printing Impressions and In Plant Graphics Magazines), surveyed 318 print service providers. The results not only further validated a previous study, but also provided with a perspective on the run length characteristics on various digital and offset printing devices. Data from this research will be used in this paper to preface our discussion on the run length crossover points for the HP Indigo 7000 Digital Press. Market Perceptions InfoTrends recently completed a study on print run lengths. Conducted in partnership with NAPCO, the study is based on the responses from 123 in-plants and 193 print-for-pay service providers. The following section covers some of the key findings of that research and compares these results to a similar study conducted in Declining Run Lengths In 2004 InfoTrends conducted a brief survey on print run lengths. That study revealed that run lengths are getting shorter. This month we completed an updated survey that confirms this trend. In the 2004 and 2008 studies (see Figure 1) the data revealed stronger growth in lower run lengths. The 2008 data shows that the trend continues and that it extends even to the shortest run length categories. This may show the impact of increased use of Web-to-print tools since they facilitate short run jobs as well as true on-demand ordering. Figure 1: Print Run Lengths Increasing, Change in Print Jobs Per Run Length ( ) For the following run lengths (sets of documents), do you see an increase or decrease in the frequency of printing jobs? % 80% 13% 6% 4% 8% 46% 46% 53% 17% 32% 44% 6% 9% 7% 13% 43% 42% 49% 23% 43% 55% 60% 40% 48% 52% 45% 41% 60% 57% 43% 33% 20% 40% 48% 50% 39% 30% 23% 15% 50% 49% 45% 27% 20% 14% 12% Decrease Stay the same Increase 0% < to to 999 1,000 to 4,999 5,000 to 9,999 Run Length Range 10,000 to 49,999 50,000 + < to to 999 1,000 to 4,999 5,000 to 9,999 10,000 to 49,999 50,000 + *Note: 2008 volume data has been calculated to match the volume break shown in InfoTrends, Inc InfoTrends, Inc.

4 Percentage of Respondents Percentage of Respondents The Cost of Color Print Revisited October 2008 In our 2008 research we also asked about the distribution of jobs by run length for various types of printing technologies. For the purposes of this discussion we will look at both production color digital printers with 45 page per minute (ppm) or greater capability (Figure 2) and Four-color Offset Presses with a maximum sheet size up to 29 inches (Figure 3). One way to get a view on this is to only consider those who are not offering runs of certain lengths. We found that as the run length increases, there are fewer print providers offering that capability on production color digital printers with 45+ppm, which we would typically expect. What is interesting is that a small yet noticeable percentage is producing jobs with run lengths over 50,000. These could very likely be either small format jobs like postcards, or some types of variable data job. Figure 2: Number of Jobs Produced at Different Run Lengths Production Color Digital Printers (45+ppm) 100% 80% 44% 40% 32% 17% 9% 5% 32% 17% 10% 8% 42% Jobs per Month 60% % 58% 59% 80% 88% 91% 1 to % 55% 64% 20% 49% 24% 0% 4% 5% 10% < to to 999 1,000 to 2,499 2,500 to 4,999 5,000 to 9,999 10,000 to 24,999 25,000 to 49,999 50,000 + Run Length Range Figure 3: Number of Jobs Produced at Different Run Lengths Four-Color Offset Press Up To % 80% 19% 23% 31% 29% 26% 20% 12% 8% 6% 46% 60% 40% 49% 54% 53% 63% 66% 68% 64% 53% Jobs per Month to % 0% 32% 24% 15% < to to 999 1,000 to 2,499 8% 8% 2,500 to 4,999 Run Length Range 12% 5,000 to 9,999 24% 10,000 to 24,999 39% 25,000 to 49,999 48% 50, InfoTrends, Inc.

5 Determining the Cost of Color Print When InfoTrends published The Cost of Color Print report in 2006, we developed a spreadsheet model to facilitate the calculations. This spreadsheet calculated crossover points our assumptions for digital color and offset presses. Since this time HP has developed a tool called the Commercial Job Estimator, which performs a similar function as InfoTrends spreadsheet but with more features and in a much more elegant fashion. For this analysis we have used HP s Commercial Job Estimator to produce the comparisons between the HP Indigo 7000 Digital Press and a representative 19 x 25 offset press. In an effort to normalize the input cost variables (wages, overhead, etc.), InfoTrends worked with HP to base the calculations of the Commercial Job Estimator on data from the National Association for Printing Leadership s (NAPL) Budgeted Hourly Rate Studies for Cut Sheet Presses. Below are the assumptions we are making for the purposes of this study: A 10-hour shift (assuming that many establishments operate more than one shift per day) 22 working days per month (this is a 5-day workweek 1 ) $25 per hour offset and digital press operator wages (aligns with the NAPL studies) Non-perfecting offset presses 3 minute RIP time per plate; 3 minute plate making time (per plate) 15 minute proof time for offset press 8 minute press make-ready time per 19 x 25 plate Percent coverage was estimated at 60% total coverage for offset The consumable assumption for the HP Indigo 7000 is based on an all-inclusive impression charge, and therefore is not coverage dependent. Normalized/equal paper costs per print run $500,000 offset press acquisition price 2 Our assumption on productivity is 75% of available hours, with 25% of the hours spent on nonchargeable activities such as maintenance, waiting for jobs, personal breaks, meetings, and rework. The HP Indigo Commercial Job Estimator (CJE) tool is designed to help print providers compare and contrast the cost and timing for a specific job in terms of traditional offset and HP Indigo digital devices. We have also relied upon our ongoing research in the field and our experience. In conducting our field research, we often run jobs and time the various production functions. Every attempt has been made to provide unbiased data, hence the use of NAPL s Budgeted Hourly Rate studies. For this reason, we are using a generic 29 press, so that we can apply averages for those products. 1 The shift and hour assumptions are intentionally conservative but are used to set a level playing field. Any device, whether digital or offset, that runs on a 24 by 7 schedule would be able to produce output at a lower cost per unit than one running a one-shift, five-day a week operation. 2 We used this acquisition price to represent existing presses in the market. The NAPL reports show an average list price of over $1,000,000 for a new four-color 19 x 25 offset press. While it is true that many newer presses have shorter make-ready times, we chose to use this lower acquisition price in combination with representative makeready times. This may provide an advantage to the offset products in this cost comparison, but we felt it reflected the market reality InfoTrends, Inc.

6 We are assuming that all jobs are received as digital files, are ready to print, and in the case of offset make use of computer-to-plate technology and an automated workflow. Our analysis is activity-based, including all the common steps we observe in the production process. For instance, operators of digital and offset equipment generally look at a proof of a job before running it. It takes some time for operators to review job tickets, gather all elements (i.e. paper), and then run jobs. We have used our activity-based studies to develop the underlying assumptions and we believe them to be fully representative of actual production times and practices. For the purpose of this research, we chose a market basket that included six job types (see Table 1). In the previous study we had a market basket of five jobs: a 4/0 sell sheet, a 4/1 sell sheet, a 4/4 marketing brochure, a 4/4 eight-page product catalog and a 4/4 sixteen-page product catalog with a color cover. We expanded the market basket in this study to include job types with a variety of characteristics. Table 1: Summary of Job Types Document Type Color Finished Size Method Pages 3 Finishing Sell sheet 4/4 8.5 x11 Static 2 Trimmed to size Postcard 4/1 6 x 9 Addressed and Postal Sorted Catalog 4/4 8.5 x11 Electronically collated on the digital device 2 Trimmed to size 16 Saddle-stitched Book 4/4 8 x10 Electronically collated on the digital device 80 plus cover Perfect bound Newsletter 2/2 8.5 x11 Electronically collated on the digital device 4 Trimmed to size and folded Menu 4/4 11 x17 Static 4 Trimmed to size Job Costs Job costs are based on the most recent cost data for offset and digital. The steps for offset are: Job review Imposition Production of a proof (assumption used in this scenario is on an inkjet proofer 4 ) The use of a Heidelberg Prosetter 52 (2-up) or 74 (4-up) The designated press Any required finishing 3 This figure represents the numbered pages or sides in each document. For example, the sell sheet is one 8.5 x 11 sheet printed front and back. 4 In the case of digital the proof could be done on the same device InfoTrends, Inc.

7 We assumed the following examples of (and similar) finishing equipment for offset: Heidelberg Polar Paper Cutter Model 66 MBO B118 folder Standard Finishing Systems Horizon StitchLiner SPF-30 for collating and saddle-stitching. For digital, we assume the following: The prepress department reviews the job The operator reviews the job ticket, loads the stock, and makes a proof prior to running the job. As the digital device produces collated output, a CFS Products 1020 Bookletmaker is used instead of the SPF-30. We must make a number of assumptions about costs and productivity. We used industry averages for much of our cost data (i.e. labor rates, cost of paper, overhead, etc.). The actual costs and production times in any given shop may vary, but we believe our assumptions are representative of market conditions. As mentioned earlier, we are using NAPL s Budgeted Hourly Rate studies as a source of independent third party data points to validate our assumptions. We are assuming normal operating procedures. Where applicable, we use a work-and-turn imposition to reduce the number of plates and amount of make-ready required on an offset press. We assume that the staff is skilled and the equipment is in normal operating condition. We do make adjustments for waste; for example, make-ready sheets are included in the calculation as waste. Paper costs are normalized for offset and digital so that they are considered essentially the same for any given run length. Based on these assumptions and the market basket of applications, we will now look at the crossover points and the time required to print these applications InfoTrends, Inc.

8 The Sell Sheet One of the key drivers in the trend toward shorter print run lengths is the ability to produce multiple versions from an original document. This practice is common with sell sheets. Our analysis yielded a crossover point of 2,857. This amount represents the quantity at which the HP Indigo 7000 and the 19 x 25 offset press have exactly the same unit cost. Above this figure, offset has the lower per-unit cost. Below this figure, the HP Indigo 7000 has the advantage. Recent InfoTrends print buyer research indicates that the average run length for sell sheets was around 3,000 which leads us to believe that most sell sheet jobs are ideal for digital printing. In particular, this is evident where the curve cost of running the job on the HP Indigo 7000 increases only incrementally for a run of 4,000 while remaining cost-competitive. Figure 4: Sell Sheet Unit Cost by Print Technology Crossover Quantity = 2,857 In regard to prepress time, offset is nearly four times longer than digital, and thereby results in a much shorter runtime on the HP Indigo We should also mention that the run length in 8.5 x 11 equivalent impressions is over 5,700 four-color 8.5 x 11 impressions. We will see in other examples that the cost-effective run lengths on the HP Indigo 7000 far exceed the previously assumed number of 2,000 impressions. Figure 5: Sell Sheet Job Timeline Run Length: 2, InfoTrends, Inc.

9 The Postcard In this example, we are assuming that the postcards require addressing. A key difference here in the finishing process for offset, is that the static cards must also run through an inkjet addressing device. When run on a digital device like the HP Indigo 7000, addresses can be printed in one pass, enabled by variable data printing (VDP) technology. It can be argued that for variable data printing jobs, each record or unique item that gets printed is a print run of one. In this case, however, we are looking at print job run lengths, so our print job is the total amount of postcards. What s remarkable about this type of job is the quantity. As we mentioned earlier, the area of contention between offset and digital has been for run lengths around 250 to 2, ,096 6 x 9 postcards would be equivalent to nearly 13, x 11 impressions, far exceeding this older view of run length contention. Again, the running cost on the HP Indigo 7000 is still cost-competitive at 30,000 postcards. Figure 6: Postcard Unit Cost by Print Technology Crossover Quantity: 22,096 The assumption is that these would be run as 4-up on the HP Indigo 7000 and 8-up on the 19 x 25 offset press. The job timeline for the HP Indigo 7000 and the offset press is not all that different. In fact, this is the only job where the offset job takes slightly less time than the HP Indigo The main differentiator is that the faster print speed of offset is enough to overcome its slower make-ready time. Figure 7: Postcard Job Timeline Run Length: 15, InfoTrends, Inc.

10 The Catalog Like sell sheets, catalogs also benefit from the ability to create more targeted versions. If we consider that catalogs are sales and marketing tools, the concept of sending a more relevant piece to the recipient holds significant value. The total 8.5 x 11 impressions for this job would be over 20,000. Like the postcard job, this far exceeds previous assumptions for cost-effective digital print run lengths. Figure 8: Catalog Unit Cost by Print Technology Crossover Quantity: 1,262 The offset press setup time and finishing time is far greater than on the HP Indigo We can attribute this to the finishing mechanism being employed to create the booklet. The key difference here is that the HP Indigo 7000 output will be pre-collated for finishing, while the offset press output will be non-collated and therefore will require more time for finishing. Not only is this quantity or less more cost-effective on the HP Indigo 7000, but it would take less than half the time to run the job, compared to offset. In fact, the job could be turned around well within a standard business day if run on the HP Indigo Figure 9: Catalog Job Timeline Run Length: 1, InfoTrends, Inc.

11 The Book One critical factor in the overall costs for book production is warehouse storage. Traditionally, publishers tend to print large quantities of books, based on a forecast of the number of books they hope to sell, and then warehouse them with distributors for shipping at a later date. On demand digital printing technology allows publishers to dramatically reduce their inventories and requirements for warehouse storage. This also has a positive impact on the costs of document obsolescence. If books are printed in the quantity needed, or better yet, printed on-demand when they are ordered, then there are significant implications in regard to stockpiles of unused or obsolete books. We should also note that at this quantity, the equivalent 8.5 x 11 impressions would be over 90,000. Figure 10: Book Unit Cost by Print Technology Crossover Quantity: 1,131 Not only are the set-up and finishing times considerably longer on offset than on the HP Indigo 7000, but the print time for offset is much longer as well. Finally, once again we see that the finishing time for offset is greater due to non-collated output. Altogether, it would take half a day to complete this job on the HP Indigo 7000, and about 2-3 days with the offset press. 5 Figure 11: Book Job Timeline Run Length: While it s possible that a book job would be done in less time on a press larger than 19 x 25 we feel that many print service providers would not consider printing short run jobs on their larger presses InfoTrends, Inc.

12 The Newsletter We can apply the concept of versioning once again to newsletters now, since these are produced for a specific audience (the regional division of a large corporation, for example). In addition to versioning impacting newsletter print run lengths, we can also consider the impact that electronic media has on the printing of newsletters, where the primary format may come in the form of , PDF, Web site, etc., which will cause run lengths to decline. Figure 12: Newsletter Unit Cost by Print Technology Crossover Quantity: 1,871 This quantity of newsletters would take half the amount of time to run on the HP Indigo 7000 than the 19 x 25 offset press. We should note that these are run 2/2, which demonstrates the further costeffectiveness of the HP Indigo 7000 s (and other Indigo devices) ability to print 2-color and monochrome jobs cost-competitively against offset. The fact that the HP Indigo devices run faster on monochrome and spot color work is an important differentiator from other production color digital products. Figure 13: Newsletter Job Timeline Run Length: 1, InfoTrends, Inc.

13 The Menu Although they are a relatively uncommon print application, menus are becoming a popular item to be printed digitally, particularly since the print runs can be very small. This is easy to understand for local, independently owned establishments, but it can also apply to large national regional chains where each establishment needs to cater to the local clientele. Figure 14: Menu Unit Cost by Print Technology Crossover Quantity: 1,428 The majority of the time difference between the HP Indigo 7000 and a 19 x 25 offset press resides in the prepress and plate making time. Once again, the HP Indigo 7000 is still cost-competitive at a quantity of 2,000 and still remains attractive from a job turnaround perspective. Figure 15: Menu Unit Cost by Print Technology Run Length: 1, InfoTrends, Inc.

14 The Market Basket Approach Up until now, we have been discussing cost-effectiveness and time efficiency related to specific jobs. Figure 16 shows the percentages of total print spending that were attributed to various applications. These numbers come from a vertical market study that InfoTrends conducted in Most of the applications from the market basket of jobs rank among the applications with the most print spending. This includes sell sheets (see brochures and flyers), postcards (see direct mail), catalogs, books, and newsletters. In addition, applications such as manuals/technical documentation, proposals/reports, and directories have many aspects in common with the market basket applications. It is therefore our conclusion that the market basket applications in this research provide a good representation of the type of applications that print buyers are purchasing. Figure 16: Percentage of Print Spend by Application Office stationery 9% Financial and legal printing 7% Newsletters 4% Proposals, reports 7% Investor publications 4% Direct mail 9% Presentations 16% Catalogs 5% Books 6% Magazines and periodicals 4% Directories 5% Manuals and technical documentation 9% Brochures, flyers 15% Source: A Vertical Market Approach to Document Services in the United States, InfoTrends 2006 For each application, Table 2 shows the crossover point quantity, the total number of impressions at the crossover point, the specified run length, and the times (in minutes) required by each technology for the run length. The final column shows the time differential. Wherever the number is negative, the HP Indigo time is faster. The total aggregate time for running these jobs on the HP Indigo 7000 is 962 minutes, or about 16 hours. The corresponding aggregate running time on the 19 x 25 offset press is roughly 46 hours nearly three times greater than the running time on the HP Indigo Granted, the run lengths represent some relatively short runs for offset presses, but this time differential is remarkable and should be considered as an additional factor beyond cost that would favor digital processes above and beyond the crossover point. There are also other advantages of digital print in addition to cost and time differential. These include: The environmental benefits of a print only what you need strategy, which also has implications for reduced warehousing costs and eliminating waste associated with obsolete documents Targeted content for more effective marketing and response rates InfoTrends, Inc.

15 Total Cost Per Page 8.5x11 4/0 Equipment, Service & Supplies The Cost of Color Print Revisited October 2008 Table 2: A Summary of Crossover Points and Running Time (in Minutes) Document Type Crossover Point Quantity Crossover Point Impressions Run Length for Job Time 6 Job time HP Indigo 7000 (minutes) Job Time Offset (minutes) HP Indigo 7000 Time Differential Sell sheet 2,857 5,714 2, Postcard 22,096 12,761 15, Catalog 1,262 20,736 1, Book 1,131 95, Newsletter 1,871 7,484 1, Menu 1,428 5,712 1, Total 8, ,019 21, ,769-1,807 The Historical Costs of Digital Printing As part of this research, InfoTrends also analyzed digital color printing costs. In 1996, the featured Indigo product was the E-Print The E-Print 1000 offered an operating speed of 17 ppm (2-up); about half of what the HP Indigo 3000 and 5000 currently produce. The HP Indigo 7000 is capable of 60 ppm (2-up). Over this period of time, the costs of services and supplies have come down. The devices have also become more productive in many ways, resulting in increased uptime and net productivity. We calculated the cost of an 8.5 x11 4/0 sheet for depreciated equipment cost over five years (services and supplies), but this is not the fully-loaded cost used in the above analysis. We assumed a monthly volume of 200,000 2-up 4/0 sheets a month for the 1,000, 400,000 2-up 4/0 sheets for the 3000 and 5000, and 500,000 2-up 4/0 sheets for the These are reasonable volume assumptions for these products. Figure 17: Changing Cost of Digital Output (4/0 8.5 x11 ) $0.10 $0.096 $0.062 $0.05 $0.040 $0.020 $0.00 E-Print 1000 Indigo 3000 Indigo 5000 Indigo The run lengths chosen for the job time calculations are close to the crossover point levels for most of the applications. For books, we used 100 units to represent typical short-run book quantities InfoTrends, Inc.

16 The lower running costs associated with the Indigo devices enable the technology to be more costeffective at higher run lengths. While offset technology has improved, the cost reductions are not on the order of a 58% reduction. There have not been comparable changes in the speed and cost of offset technology. For example, press speeds are identical to what they were ten years ago. In addition, the cost of plates and inks for offset has increased by 5-10% annually over the past several years. Despite smaller, incremental increases in consumable costs for digital, our studies have shown that page volumes are growing significantly for digital, resulting in an overall decline in cost per page. Our studies have also shown that one of the primary factors for the growth in digital color volumes is that of offset pages migrating to digital. Considering this and declining run lengths, we believe that the cost per page for offset is increasing significantly. Conclusion As our studies have shown, the market continues its migration to shorter run lengths. At drupa 2008, HP introduced a new generation of its Indigo press family, including the HP Indigo This device has not only increased its print speed to 120 ppm, but has also improved upon the productivity of its predecessors (the HP Indigo 5000 and 5500). These improvements have elevated this device into a position that enables it to compete effectively with offset presses with larger formats and faster speeds by producing common print job run lengths cost-effectively and often in less time. This study has also revealed that the HP Indigo 7000 is capable of running jobs with print runs over 5, x 11 impressions and as high as 90,000 impressions when printing books. Considering that print run lengths are decreasing and that the HP Indigo 7000 is capable of printing these longer print runs, InfoTrends expects that the HP Indigo 7000 will impact current and future sales of offset presses. We should also note that this study is focused on comparing one HP Indigo 7000 to one 19 x 25 four color offset press. One could also argue that it would be fair to compare two HP Indigo 7000 devices to one 19 x 25 four color offset press or even one 26 x 40 four color offset press. This argument is compelling, considering that one operator could feasibly run two HP Indigo 7000 devices whereas such a scenario is less likely with offset. InfoTrends continues to forecast strong growth for the production color digital products. The results of this research support our contention that these products will succeed. Lower costs and improved productivity have expanded the range of pages that are likely to shift from offset processes, but these efficiencies are also opening up new opportunities for applications and services that meet customers needs for the timely delivery of information. This material is prepared specifically for clients of InfoTrends, Inc. The opinions expressed represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies. We believe that the sources of information on which our material is based are reliable and we have applied our best professional judgment to the data obtained InfoTrends, Inc.