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Dec 1, 2000 12:00 AM
Concern about tough competition and lack of skilled employees continues to present challenges to web printers in 2000
There's a lot of excitement about the future of the printing industry as it increasingly competes with other media. New technology continually fills the programs of seminars and conferences throughout the industry. But successful printers also must focus on the nuts and bolts of their business. Productivity improvement, process control, customer satisfaction, changing markets and personnel issues are just a few of the issues printers face every day.
Web offset represents the largest segment of the printing industry in terms of volume. It boasts the biggest companies and the most employees. Checking the pulse of this industry segment is a strong indicator of the health of the graphic arts industry as a whole.
Because of its predominance in the industry, AMERICAN PRINTER publishes an annual outlook for web offset. This special report is prepared in conjunction with the Web Offset Assn. (WOA) and the Web Printing Assn. (WPA), which conduct a survey of their market segment each year. The 2000 Market Outlook for Web Offset Printers provides unique information about the current state of the web printing industry, as well as forecasts for the coming year and historical data to act as a baseline for future planning.
A PROFILE This year's portrait depicts an industry enjoying the benefits of a healthy economy and continuing demand for the types of products web offset is well suited for: catalogs, advertising, magazines and direct mail.
But with increasing competition from other media and a softening economy, the web offset industry is not without its problems. Characterized as a tough competitive environment, it is severely challenged by demanding customers looking to cut print production costs by five percent annually. And these same customers want turnaround times slashed by as much as 50 percent in the coming years. Add to those challenges the worrisome ongoing labor shortage, which experts expect will last for the foreseeable future.
This AMERICAN PRINTER exclusive report presents highlights from the most recent web market outlook. It was developed in conjunction with WOA and WPA, along with this year's vendor-sponsors, Day International, Heidelberg Web and Sun Chemical.
The 2000 survey was sent to commercial heatset, coldset and combination web offset printers in North America. By far the majority of web printers use some combination of heatset, coldset and sheetfed presses, with 25 percent of respondents being coldset web only and slightly more than 39 percent heatset web only. Fiftenn percent of respondents are heatset and sheetfed printers, while eight percent run coldset and sheetfed. Only five percent of respondents run heatset, coldset and sheetfed presses.
In spite of the fact that 27 percent of respondents indicate they have too much capacity, web plants are busy places. Sixty-one percent on average run three shifts per day and an additional 33 percent run two shifts per day. These figures are about the same as in 1999.
These presses are running an average of five days a week in 46 percent of the plants surveyed. Twenty-six percent (down from 33 percent in 1999) operate six days a week and 21 percent (up from 13 percent in 1999) report running seven days a week.
With a solid economy and continuing demand for web products, printers are optimistic about the coming 12 months. Thirty-one percent expect to be running five days, 41 percent think they will be running six days, and 22 percent running seven days a week in the coming 12 months. This is up considerably from projections made in 1999 when only 14 percent expected to be running seven days a week.
KEEPING THE IRON RUNNING If the money is being made in the pressroom, keeping the iron productively operating as many hours as possible is the goal of these high-volume printers. They understand that profitability can lie in press running times. As we will see, the work is there to keep the presses running, but printers still face problems with makeready times and overall productivity - especially with increasingly demanding client turnaround times.
Median run lengths during the past 12 months were 100,000 impressions for heatset web presses and 26,750 impressions for coldset web offset presses. This is down somewhat from 1999, when median run lengths were 120,000 impressions for heatset and 30,000 impressions for coldset web offset.
These numbers are in keeping with other projections showing an overall decline in run lengths. In fact, heatset printers anticipate their run lengths will remain the same in the coming 12 months at 100,000 impressions, while coldset printers project that the median run length will grow to only 30,000 impressions.
In 1999, projected run lengths were much higher, with heatset printers expecting median run lengths of 137,500 and coldset printers seeing run lengths increase to 40,000. These projections have proven to be unrealistic as more versioning starts to affect the overall run lengths.
Median press speeds, according to the 2000 survey, are 30,000 impressions per hour for heatset printers and 18,700 impressions per hour for coldset presses. These numbers remain steady from year to year, with slight increases recorded on the coldset side.
WASTE AND SPOILAGE With customers looking for faster cycle times, and with new 24-page and gapless presses moving more aggressively into the marketplace, makeready concerns still remain prominent. Now, more than ever, printers must consider waste and spoilage, as well as chargeable time. Bottom line increases are to be found in productivity enhancements, not just press speeds.
In the 2000 survey, printers reported average makeready waste of about 7.2 percent, slightly less than in 1999 and 1998. Average makeready times for heatset printers ran at 1 hour, 43 minutes, with one hour, 15 minutes reported, on average, for coldset web offset printers.
Average running waste remained the same as in 1999 and 1998 at 5.4 percent. This is in keeping with other recent studies done by vendors in conjunction with industry associations. The results of these studies show average running waste at about five percent.
Makeready and running waste statistics often are difficult to evaluate because of the lack of exacting waste standards. Variations can exist due to the age of the press, makeready methods, peripheral equipment, coverage, color requirements, etc. Interestingly, in one recent comparison of 16-page presses vs. the newer 24-page web presses, makeready times were slashed in half. This is not magic, since the study was based on producing a 48-page catalog. Obviously, three makereadies are needed to produce this 48-page form, whereas only two makereadies are required on a 24-page press.
The work done on these models using vendor and association data also showed that gapless press alternatives could drive waste down. The studies showed run waste reduced from five percent to as little as two percent. But even the newest press must have makeready procedures optimized by the crew in order to enjoy such impressive savings.
Spoilage, however, is another thing. Calculated in tons or pounds, a printer's spoilage should be less than two percent, according to industry consultants. If your spoilage runs between two percent and five percent, it may be an indication that there is room for significant cost savings improvement in this area.
The fact that average waste and spoilage numbers remain stable across this web offset segment from year to year indicates that there is still work to be done. With paper prices projected to continue their upward trend during 2001, printers may be more concerned about waste statistics in the months to come. They may also experience increased pressure from customers, especially catalogers and publishers, to cut paper costs through innovative approaches.
Certainly with postage costs increasing exponentially, catalog and publication producers will be looking to printers to act as cost consultants. The web printer that can be a cost-control expert for its customer will be particularly savvy at controlling both makeready waste and spoilage, as well as handling lighter paper stock with no loss in quality.
FAMILIAR STORY When the survey asked about the causes of makeready waste, a familiar story unfolds - color issues continue to hold sway as the biggest culprits. Color issues encompass registration, color matching and color settings. In 1999, the biggest percentage of respondents reported color issues as the major cause of makeready waste, with color and registration issues coming in second. In 2000, the results remained the same.
Interestingly, however, some areas appear to have been effectively addressed in improved makeready procedures (or perhaps new technologies). Plate remakes, once in the top three causes of makeready waste, did not appear in this year's survey. But a new category has cropped up: versioning.
Versioning is starting to be more widely used as a way to increase response. Marketers are slowly seeing the advantage of this approach. One web offset printer reported the shortest runs his company would undertake had been 1,000. Continuing pressure from clients to add more versioning, however, resulted in web runs as small as 350. Obviously in this scenario, versioning has a major effect on makeready waste.
Registration problems in general, however, are on the decline. Newer presses with more automated registration and color controls account for some of these advances, along with the adoption of computer-to-plate (CTP) technology.
Still, getting to color remains the biggest cause of waste in this area. Some problems can be attributed to client idiosyncrasies. But, as CTP becomes more widely adopted and CIP4-compliant prepress interface systems penetrate the market more deeply, color issues may decline.
Using new digital systems, ink key settings will automatically be provided through prepress interface software to press consoles. These ink key settings are determined by digital prepress data, which also have been used to generate contract proofs. These data are then applied to ink key settings to ensure that the printed sheet matches the customer-approved proof.
One web printer recently commented that the digital proofing technology is finally catching up with CTP technology. This will allow printers to more fully embrace digital workflows throughout their plants.
The technology is here. The problem may be getting press and bindery operators - and customers - to embrace it fully. Using CIP4 protocols in a customized manufacturing environment can help web printers cut makeready times and makeready waste by getting presses up to color - and registration - faster and with less spoilage. It is management's responsibility to drive these technologies through the pressroom, and increasingly, the bindery. Automated digital workflows throughout the plant can substantially add to your productivity and your bottom line.
CHARGEABLE TIME Moving away from the issues of waste and spoilage, the web offset survey takes a look at chargeable time on press. According to the survey, chargeable time on press is the average ratio of chargeable time to total time on web offset presses, expressed as a percentage.
In general, the results of this year's survey were encouraging. Overall, there were increases in total chargeable time. Almost 27 percent of respondents reported chargeable time ranging between 76 percent and 80 percent, up from 24 percent in 1999. Nineteen percent of respondents reported chargeable times between 81 percent and 85 percent. Almost 27 percent reported chargeable time between 71 percent and 75 percent, up considerably from 19 percent in 1999. However, only six percent reported chargeable times between 86 percent and 90 percent, which is somewhat less than the nine percent reporting in that range during 1999.
Most encouraging are the gains on the lower end of the spectrum. Only five percent reported chargeable times in the 60 percent or less category, and about four percent reported chargeable times in the 61 percent to 65 percent range, down considerably from the 10 percent reporting in that range last year. Clearly, printers are getting better at dealing with the competitive nature of this industry segment. With industry averages falling between 70 percent and 80 percent, it is contingent upon all printers to improve their chargeable on-press time if they wish to remain profitable.
CAPACITY VS. OUTPUT Web offset printers were asked to compare their firms' current and expected capacity to actual output. Twenty-six percent reported having too much capacity, up slightly from 24 percent last year. Approximately 37 percent report balanced capacity, as compared to 47 percent in 1999. For the first time in years, 35 percent indicate insufficient capacity. This is up from 29 percent.
These figures vary more than usual from last year's numbers, indicating that there are definite differences among plants. With a good economy during 2000, however, more printers seem to be keeping their presses running more often on a more regular basis (see earlier chart on number of shifts operated). There is still a wide spread between the winners and losers in this competitive marketplace, though. It is only fair to point out that regional and product differences may account for some of the variation in the web offset segment.
WHAT KIND OF JOBS? With presses continuing to run faster and faster, and printers moving to add more shifts, let's take a look at what is actually being produced - and what execs think they will be printing in the months to come.
General commercial and advertising printing continue to dominate this industry segment, settling in at around 25 percent, the same as last year. General commercial is defined as producing the following materials: brochures, annual reports, catalogs, advertising, flyers, sell sheets, booklets, direct mail, books, newsletters and stationery. WOA does not include magazines or business forms in this category.
Printers project the numbers for general commercial and advertising to decrease somewhat in the next 12 months, settling at almost 23 percent.
Catalogs have shown substantial gains during 1999, jumping from 8.6 percent of the product mix in 1998 to slightly more than 14 percent in 1999. In 2000, catalogs actually grew to 18.4 percent. But printers anticipate the growth spurt will end, reporting that catalogs will remain around 19 percent in the coming 12 months. Although the threat from the Internet remains very real, retailers are still investing in print catalogs. In fact, catalogers appear to be slightly expanding their use of printed catalogs to drive traffic to their websites. We expect the long-term outlook for catalogs to be fairly bright, but catalogers are still experimenting with the Internet.
In the meantime, printers are enjoying the benefits of continuing catalog printing, with the emphasis on "unique" looks, cost-efficient production and increasingly faster turnaround times. Gradually, catalog producers are looking toward more personalization to drive increased responses. This means more versioning for web printers, leading to shorter and shorter runs. In some cases, it may also indicate increased competition from "digital" printing devices and/or the addition of these devices into the web printer's stable of equipment.
The demand for newspaper inserts has declined from 11.5 percent in 1999 to nine percent in 2000. Printers project those numbers to grow to slightly more than 10 percent in the next 12 months.
Newspaper shoppers were hard hit in 1999, sliding from 19 percent of the product mix in 1998 to only 10 percent in 1999. Business has increased slightly to 11.5 percent in 2000, but is expected to remain approximately the same in the months to come.
Magazines and inserts is another area that has grown in 2000, from 15 percent last year to 19 percent. This market is expected to remain steady for the next 12 months.
Magazines also have benefited from the Internet, spawning new titles, some of which only last a short time. Web printers specializing in special interest titles generally enjoy higher profitability as this publishing segment continues to grow and expand. But the emphasis for growth in the future will depend on shorter runs. Partnering with publishers to shave cycle time and control postage, paper and production costs is a necessity in this web offset segment.
Direct mail continues to hold its own at around nine percent, although it is being increasingly impacted by the Internet and personalization. Printers should look to new technologies and services to assist their customers in driving higher response rates. This segment will prove stable, if not growth-oriented, in the years to come.
Books, which enjoyed a nine percent market share in 1999, dropped to just under five percent in 2000. Projections for book printers remain about the same in the coming 12 months.
PAPER TYPES Running those webs at 25,000 iph seven days a week takes a lot of paper - a point not lost on printer respondents. But what types of papers are being used? During the past 12 months, heatset printers' usage of coated paper dropped slightly from 67 percent to 61 percent, while uncoated dipped from 25 percent to 22 percent. Newsprint in the heatset market has rebounded in its attractiveness, now representing 11 percent of the mix, contrasted with a decline during 1999.
These trends are expected to continue with coated leading the pack at 60 percent for the next 12 months. Uncoated and newsprint will continue to be used at current levels, according to the survey, with SCA edging up from five percent in 2000 to six percent in the coming years. There is increasing interest among catalogers and publishers in SCA, probably driven by a desire to control paper and postage costs.
Coldset printers, not surprisingly, continue their commitment to uncoated paper and newsprint. Newsprint accounts for approximately 57 percent of the paper used in coldset, followed by 37 percent uncoated. Those numbers are expected to remain the same in the next 12 months.
THE PRICE OF PAPER Paper is one of the major costs involved in any print job - for web printers, it can represent as much as 52 percent of the cost. Paper prices in general have increased during the past 12 months, with survey respondents reporting price increases of eight percent for coated paper and uncoated. And the cost of newsprint has increased 9.6 percent, along with SCA, the price of which has increased a comparable 9.3 percent.
When asked to project paper prices for the coming 12 months, the picture was somewhat better. Web printers see the price of coated paper increasing five percent in the coming 12 months, and uncoated moving up at about the same rate. In addition, newsprint is expected to move up 6.1 percent, while SCA will attempt to recoup lost ground with seven percent increases.
An usually large number of respondents left this question blank, however, indicating a great deal of uncertainty in the market regarding paper prices. The number of mills in this country has decreased somewhat over the past few years, and there has been a great deal of consolidation within paper companies. Apparently the paper industry is determined to enforce increases, which it often sees as being inadequate to support the extremely high capital costs involved in manufacturing.
With cutthroat pricing already in place, printers have a difficult time absorbing paper price increases while maintaining a healthy bottom line. Still, a repeat of the paper price run-ups of some years ago are not forecast for the coming year.
BUYING IRON Aside from paper, what are printers buying in the coming year? Will web presses be their number one purchase? How about digital prepress equipment? What about the bindery?
Press purchases still rank high. Slightly more than 20 percent of survey respondents indicate that they plan to purchase a heatset web offset press in the next 12 months. Only five percent plan to purchase a coldset/open web offset press. Heatset press purchase plans appear to be up slightly from 1999, but intent to buy for coldset has dropped from 10 percent to five percent. Heatset web printers are very serious about their press upgrades.
In addition, web printers plan to buy sheetfed offset presses, but at a slower rate than in 1999. Almost nine percent of respondents are looking to add or replace sheetfed units in the coming year.
In the process of selecting a press, printers have a long list of features they consider important - all of which add up to increased productivity and savings. Features designed to increase efficiency (reduce waste/spoilage) were seen as having primary importance, followed closely by units that have high-speed printing capabilities in terms of impressions per hour. Printers also are interested in purchasing automation features that will reduce makeready times.
Other key considerations include the dependability and durability of the equipment, the quality of the impressions themselves and last, but not least, the projected return on investment.
DIGITAL WORKFLOW PLANS What about digital workflow? Almost 32 percent of respondents plan to purchase CTP systems in the coming few months. These figures are up from 1999, when 29 percent of respondents reported buying CTP. The intent-to-buy numbers also are up, reflecting the willingness to invest in this productivity-enhancing technology. CTP is maturing, and the introduction of a wider choice of digital proofing systems will only drive adoption of digital workflow more aggressively.
There is no doubt that CTP technology has come into the mainstream during the past year. There are not only more users, there are more satisfied users providing a solid base of experience that can be tapped into. There is no lack of experience in the industry on issues ranging from implementation to staffing to workflow to realistic payback periods.
Still, buying CTP isn't like buying a new car - you have to buy the car, a gas station, the highway and the on-ramps. Fortunately, the investment can pay off in reduced makeready times, reduced waste and increased quality. The benefits of an automated digital workflow are being illustrated every day in printing plants cross the country.
This might best be illustrated in the fact that 10 percent of respondents have indicated their desire to add onboard closed-loop color controls. With color continuing to be a major problem associated with waste, printers are beginning to understand the advantages of building an automated manufacturing operation. Closed-loop color controls are one important part of that evolution.
Web printers also are purchasing imagesetters (14 percent) and four-color proofing systems (25 percent). More printers intend to buy proofing devices this year than last, probably due to new entries in this volatile marketplace. New entries into both the imagesetter and proofing markets should make choices easier for printers looking for new solutions to existing problems.
In the finishing arena, mailing and distribution capability is of special interest to web printers, with 15 percent indicating their intent to purchase. This is up considerably from 1999, when AMERICAN PRINTER did not even report response rates in this category. Undoubtedly, mailing and distribution capabilities are being enhanced in response to customers looking for a one-stop shopping experience. Fulfillment is a major area of value-added service for the marketing-oriented printer of today.
INCREASE SALES, IMPROVE EFFICIENCIES The survey also asked printers how they planned to improve their firms' operations. As in the past two years, the No. 1 answer was to increase sales in their present market (although there is equal interest in improving efficiencies). Twenty-nine percent of respondents are looking to increase sales in their present market, while 30 percent are looking to improve efficiency.
In 1999, 22 percent of respondents indicated they were interested in increasing sales in new markets. In 2000, this number dropped to 14 percent. In many cases, printers have learned the value of selling more products and services to their most profitable customers. Web printers also are finding that the costs associated with developing new clients - and luring them away from the competition - may be too stiff.
It is heartening to see web printers starting to become more sophisticated marketers. With so many companies fighting over the same pie, opportunities for expansion in existing markets must be fully explored. By improving internal efficiencies and learning how better to serve customers' needs, printers can become consultant/experts to their clients. By helping customers solve their problems, printers can stand out from the competitive crowd.
Customers don't buy printing, after all - they buy the results that printing provides. The best salesperson is the one who understands the driving forces behind customer demands. If customers are concerned about distribution costs, for example, opportunities for new services may lie in innovative solutions to this problem.
Printers always need to ask what differentiates their company from the competition. To be successful in the coming years, printers should offer services that distinguish their operation from others. And these services must be oriented to the needs of the client. To stand out from the commodity supplier (who often has trouble maintaining profit margins), printers must find new ways to get customers' products to market faster, cheaper and more effectively.
Proactive innovation is the key, along with an in-depth understanding of the key drivers in the buyer's business.
But web printers also understand that increasing sales is not the only answer in today's marketplace. Successful printing companies also must keep an eagle eye on increasing productivity. It is therefore impressive that 30 percent of the respondents are looking to improve efficiency as the best way to improve operations. This is an impressive gain from 1999, when only 22 percent of respondents identified this need. An additional 10 percent are looking to install more production equipment, undoubtedly in an attempt to fuel more in-house efficiencies.
MAJOR PROBLEMS Finally, the survey asked web printers what they considered to be major problems facing the industry. In 1999, lack of skilled employees weighed heavily on the minds of web offset printers, with 73 percent listing it as their No. 1 concern. And it is still a big issue for printers, with 77 percent of respondents listing it as their major concern in 2000.
This is not a problem unique to the printing industry. With unemployment running at 4 percent, employers are scraping the bottom when it comes to filling positions.
We are becoming a graying society. The 55 to 64 age group will double by 2020, while at the same time, 16-year-olds continue to shrink as a group.
In the U.S., we are seeing a shift away from the traditional worker to the increased use of independent contractors and temporary help. The median workforce age in 2000 is 45.
Claud "Tex" McIver, partner in the law firm Fisher & Phillips, predicts that about one worker in six is going to be a caucasian, non-Hispanic male. The recruiting pipeline will deliver middle-aged minorities in the years to come. Managers must be prepared to deal with that new workforce.
Finding good people is not an easy task, and printers must be willing to hire some less obvious choices. Printers must look more closely at what attracts people to their company. Increasingly, it won't be a case of who pays the most money. Tom Carroll of R.R. Donnelley & Sons believes that "a new social contract will have to be redefined between employees and companies. It will have to address workplace stress, increased flexibility, continual training and retooling for new skills. Employees will believe in their own skills and abilities, not in the old promises of companies or the government."
The Donnelley human resources expert therefore concludes that companies that create environments where development of employees occurs through new experiences and varied work assignments will attract and retain a better workforce than other employers.
To that end, companies that provide training, tuition reimbursement and fast-track advancement programs are positioned to attract and retain the best employees. And firms willing to provide unique benefits, including flexible hours, will position themselves as desirable employers.
What else is on web printers' list of challenging issues? Competition/ low pricing. Seventy-five percent of this year's respondents view competition as extremely troubling, up from 71 percent in 1999. There's no doubt that it's a tough market out there, with printers struggling to find the magic formula for attracting customers' business. With increased dollars moving to non-print promotional projects and printers still clustering together in major markets, competitive pressures will only increase.
There will be winners and losers, and in the years ahead we can expect to see our industry shrink. Printers that cannot maintain comfortable profit margins will find it increasingly difficult to compete. Printing is no longer the only media choice. We, as an industry, have to find more and better ways to use print to make our customers' jobs easier. That will be the competitive advantage today and in the years to come.
For the first time in four years, paper prices are of major concern to printers. Slightly more than 50 percent list paper pricing as one of the top three problems facing the industry.
Digital technology still looms large for web printers, with 33 percent of respondents listing it as one of the top three problems they face. Tied to the concern about digital technology is production problems, listed as one of the top three problems by almost 23 percent of respondents. As the industry slowly but surely moves to an automated manufacturing operation, challenges abound.
Finding the capital to invest in digital upgrades is only a part of the problem. Deciding which technologies are appropriate and which can be bypassed is a major concern. And with vendor consolidations and tales of financial instability, printers need to keep a close eye on their expected after-purchase support.
To help companies wend their way through digital pitfalls, technology managers are playing increasingly important roles. These individuals must not only understand the digital world, they must understand printing and customer needs. A truly effective technology manager understands the whole better than the parts. If your company does not have a chief technology officer on staff, now is the time to find one.
Only 16.5 percent listed capacity problems as a top three concern this year, compared to 28.8 percent last year.
Environmental issues, once a major problem, has fallen in importance. Only 3.8 percent of respondents listed environmental issues as a major concern, down from 9.3 percent in 1999.
DIFFERENTIATION Today, more than ever, it is vital for web offset printers to differentiate themselves in the marketplace and define themselves as "more than printers." They must add value-added services and be ready to serve as consultants to customers looking to trim money and time off of their print production needs.
Along with perfecting marketing skills, printers must continually work to improve internal operating efficiencies. Providing services and products that customers value and that distinguish one printer from another is absolutely essential. But attention also needs to be given to internal cost-cutting measures, especially conerning unexpected spoilage, makeready time/ waste and workflow automation.
The gloomy predictions of the demise of print are premature. Printers must guard against believing all they hear and giving up the battle to survive. Those that wish to survive in the long term must make changes today. They must redefine their products, services and position in the marketplace. They must invest in digital tools to improve and speed internal operations. They must create a corporate culture that attracts quality employees and offer innovative programs to keep staff members content. With these strategies, web offset printers will find the future filled with excitement and promise.