Clarke Joe, Lynch Colleen C. M&R Professional Screen Printing Series

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. 41

The table below profiles some typical work at arguable production rates. The pro-

file is very generous to the performance of the manual because they just cant

keep up with an automatic. For those of you who have been relying on your

manual for short runs, think again.

Costing

Number

of Colors

Manual

Setup

Mins.

Manual

Cycle

Rate

Auto

Setup

Mins.

Auto

Cycle

Rate

Breakeven

Dozen

Breakeven

Pieces

Elapsed

Time

22.5

270

5.0

2.6

1.6

1.0

Figure 6.39 This table illustrates the point of the manual and automatic. Begin at the left, on a three-color job on the

manual sets up in six minutes and cycles at 13 dozen per hour (were being generous). The automatic sets up in fifteen min-

utes and coasts at fifty dozen per hour. At 2.6-dozen or 32 pieces the elapsed time is 18 minutes and the two presses are

even. So if your times are similar to these and you get a three-dozen order, you want to run it on the automatic.

Figure 6.40 Shows the Chameleon manual press. It is the perfect companion piece to your automatic. As you will learn

in the text there is no way a manual can generate profits against an automatic but the Chameleon can be the back up for

both Challenger and Gauntlet presses. It keeps floor space down to a minimum with its two-tiered construction. It holds the

exact same screens as the automatic. Once you print your sales samples or strike off on the Chameleon, you can use the same

screens for full production. You never have to tie up your automatic and run short of capacity with a Chameleon.

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Since an automatic can always outrun a manual press, if it can be setup in the

same time, there would never be a reason to use the manual. But there are a cou-

ple of exceptions; you want to utilize your manual to complement and supple-

ment your automatic press. If you need sales samples, strike offs that have to wait

for an approval or to test-print a color match, use your manual press. For all real

press runs, your manual is too slow, it runs you out of time and labor capacity

and it wont let you compete with the automatic world

Pricing

We will deal with pricing on two levels, first the nature of price setting for con-

tract work and second the viability of pricing that includes a garment. In any and

all cases, your price should be above your specific costs and below what the buyer

will tolerate. We are in a mature industry and the buyers have been well educated.

They shop comparatively for apples to apples buying. This means that they can

get a feel for the market value of your product by shopping it with many com-

petitors. But do not fall to the ruse, you may be very tempted to cut price

because your competitor can reportedly do it for less. If you go prepared with

cost and potential profit information in hand and then choose to meet or beat a

competitive price it is your call. But we caution you that if you do it indiscrimi-

nately you can get into serious trouble.

Chapter 6

PRICE MODELING

Unit Cost

$0.96

Date:

6/00

Run Length Pcs.

3600

Units / Yr.

936,000

Time to Print (hours)

Total

Cost

Percent

Markup

Percent

G.M.

Absolute

G.M

Selling

Price

Break

Even

Pieces

Total

Invoice

Amount

Revenues

$ / Yr.

Profit

$ / Yr.

$0.96

25%

20%

$0.24

$1.20

2,880

$4,320

$1,123,200

$224,640

$0.96

14%

13%

$0.14

$1.10

3,150

$3,950

$1,026,926

$128,366

$0.96

13%

11%

$0.12

$1.08

3,200

$3,888

$1,010,880

$112,320

$0.96

61%

38%

$0.59

$1.55

2,230

$5,580

$1,450,800

$552,240

$0.75

65%

40%

$0.49

$1.24

2,177

$4,464

$1,160,640

$458,640

$0.96

-13%

-15%

-$0.13

$0.83

4,147

$3,000

$780,000

-$118,560

$0.96

34%

25%

$0.32

$1.28

2,696

$4,615

$1,200,000

$301,440

$0.96

45%

31%

$0.43

$1.39

2,489

$4,998

$1,299,560

$401,000

Figure 6.41 This pricing model, courtesy of First Aid Ltd., illustrates a hypothetical company with a per print cost of

96 cents, a 3600 piece run length and eight hours to print that job. Their average pieces per hour would be 450 pieces on

their automatic press. If they ran this job over and over again, straight time, they could print 936000 pieces in one year.

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The table on the previous page is a matrix of costs, prices and

profits. It allows you to get a quick review of some of the

dangerous grounds in the price game. If you choose a wrong

perspective on which you base your price, it may be extreme,

either windfall cash or serious losses. Anyone who understands

these basic relationships can negotiate far better.

The price model on the preceding page takes one hypothetical

order and in each row uses a different method of arriving at a

price. Some of these approaches are sound and reliable, some

are very risky and a few of them make no business sense.

Each row in the table is numbered below and the details fol-

low.

1. Markup is something that you do to a cost in order to get a

price. Reading row one from left to right, the cost is a nom-

inal 96 cents. You markup the cost 25 percent to determine

a selling price. A 25 percent markup is a 20 percent margin

(efer to the sidebar on this page for details). The absolute

margin is 25 cents on a selling price of $1.20. Markup is a

sensible way to estimate a price but be careful if you are

using percentages. A 10% markup on a contract print cost

and you may go broke but the same percentage on a high-

end fleece print including the garment and the profit is

many times higher. We suggest you look at both percentage

and absolute markup before you set a price.

2. Margin as a percentage is the portion of the price left over

once cost is removed, divided by the selling price. Just as in

the case of markup; there is no universal percentage, it

depends on the cost. A small percent margin on a low cost

and you will be poor. A small percent margin on a very high

cost and you may make a lot of profit. Custom printers

who supply the garment can deal with a lesser margin than

the high volume contract printer who has no shirt to rely

on for profitability. The same precautions apply to setting a

price with a percentage as with margins (above). We pro-

filed a thirteen percent margin and since it is lower, the sell-

ing prices dropped but look at what happened to the break

even units of the run length. This job will not reach break

even until 3,150 shirts are printed and the whole order is

Lets start with a dollar cost of our

print. The first step is to markup

the cost and we will arbitrarily

mark it up twenty-five percent.

The dollar value of a twenty-five

percent markup on a one-dollar

cost is twenty-five cents. So our

percentage markup set a selling

price of $1.25.

Now we want to know the margin

of that amount. Take the selling

price of $1.25 and subtract the

cost of $1.00 for a remainder of

$0.25. Now divide the remainder

by the cost. Twenty-five cents

divided by one-dollar equals twen-

ty percent and that is the margin.

The absolute margin in dollars is

$0.25 but the percentage margin is

20%.

Percent markup is what you do to

a cost to set a selling price.

Percent margin is the same

amount taken as a ratio of the

selling price.

Cost $1.00

Percent markup 25%

Absolute markup $0.25

Percent margin 20%

Absolute margin $0.25

Costing

Mar

up And Margin

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. 44

only 3600 pieces. Profit wont start until 3,151. If you are

using absolute margin to set a price, there is little risk but

test both before you set a price.

3. In row three we set a very low, twelve-cent absolute margin

on top of our ninety-six cent cost. This might occur if the

boss says I wont take this job for less than twelve cents

pre print. Note the changes in the markup and margin as a

percentage. But if you use absolute dollars there is a clearer

view of the value of the price. You dont take percentages

to the bank, only dollars.

4. Starting with a selling price is very risky but it happens

every day. Our price was a very appealing $1.55 but one

should never set a price without a firm grasp on the cost of

the work. You will see the invoice amount is better but look

at the year-end impact of such a robust opportunity. So if

you think that you are only dealing in pennies, think again,

the year-end impact is staggering. This fragile number that

you are dealing with must account for buy backs, days

receivables, commissions and the actual cost of the goods.

5. This row alters two variables at once, the cost and the price.

In our model the cost is reduced and the price is slightly

elevated. Note the break even of 2,177 pieces and the year-

end profit of over four hundred thousand dollars. The

point is that there are two ways to maintain a fair profit.

One is to raise the price and the other is to reduce your

conversion costs.

The customer comes in and says I have three thousand

dollars in my budget to have this job printed, are you inter-

ested? The $3000.00 sounds appealing but are you sure if

it is an opportunity or a threat? You will take a loss on this

job; the break even point would be longer than the run and

at year-end you would be in trouble.

7. The classic entrepreneur will set a goal for the company but

if it is used as a tool to establish pricing, the boss can get

into trouble. It will only be profitable on some of your

work but not on all of it. Should you take this approach for

If you look at figure 7.41, it is

apparent that most of the prices

did not wander too far from the

group. The deviation was minimal,

but yet the outcome of such sub-

tle swings can be enormous.

When you are dealing with pricing

you first want to be prepared with

the real cost, and a solid estimate

can be as valuable as precision to

a second decimal place. Some cus-

tomers want it simplejust the

bottom line. Some prefer a price

and then to dicker over the terms,

shipping responsibility, percent

allowable rejection and so on.

Either way, you want to have the

needed information to make a

measured decision (they wont all

be correct).

There are four options to the

negotiation: First, you establish

the price and have controlled the

conversion costs. Second, the cus-

tomer dictates the price, but you

have wisely controlled the conver-

sion costs. Third, you set the price

but have failed to identify the con-

version costs. And finally, the

fourth possibility is when the cus-

tomer dictates the price that he is

willing to pay and you still havent

looked at the conversion costs.

Of course the first has appeal,

two and three are risky, but the

fourth is a loser. A gamble at best

and you do not have the upper

hand. Be sure you have some level

of control before you enter into

the negotiation. It is your cus-

tomers job to get the best price,

but it is your responsibility to help

the customer identify just what

the best price is.

Chapter 6

Small Change

dds Up

PAGE

. 45

an extended period, your low priced work will be the bulk of your product

mix. Of course if you make the annual revenue number high enough you cant

lose but in the real world you may have few accounts left.

8. On the other hand, profit is an excellent driver of the selling price. This is a

backdoor approach but it will suffice. If you are confident that your gross

margin is in check for year-end, you will more than survive to try again next

year. If your customers cant allow you a profit, you need to find other

accounts, cut the costs or both.

Managing Production

Continuous improvement is one of the accurate buzz words of the manufactur-

ing community. The point is that quality is a path not a destination. There are

rudiments that you should apply to insure your success in this venture to improve

your garment printing.

1. Planwe will assume that since you are reading this manual and near the last

page, either you started at the end or you are interested in faster and better

manufacturing. Your plan if the latter applies must describe that goal in detail.

2. Organizeonce you have a plan in writing you can use this manual to help you

organize to support the plan. The organization includes staffing, systems and

procedures for higher quality and productivity.

3. Controlthe incoming and in-house variables and you will therefore control

the variance in your product. You will hold a greater market share with consis-

tency than sporadic excellence.

4. Measureto know the truth, not your perception of reality. If you are not

measuring your processes and interpreting the results then you are leaving a lot

of money on the table. Our impressions are trustworthy in the extremes but in

those subtle shades of most instances, humans dont see the flaws very well.

5. Recordthe results and evaluate their meaning with a SPC (statistical process

control) package or other database. This gives you multitudes of perspectives

on the data and speeds the decision making process.

6. Adaptto the normal variance and expect to see less of the special variance as

you continue. You are to tighten the spec but also to put the range where it

belongs.

Costing

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7. Repeatsteps 3, 4, and 5 to

see if there are anomalies

or skewness in the data as

reported. With statistics

more data is better.

8. Reviewsteps 1, 2 and 3.

Once you have sufficient

data you may want to

reconsider your plan and

then your organization.

Your evolution will no

doubt have created some

opportunities that an

improved plan could capi-

talize upon.

9. Returnto step 1 and

resume progress. This is a

path to continuous

improvement.

Chapter 6

1. Plan  faster and better

manufacturing.

2. Organize  herein this manual.

3. Control  variables and therefore

variance.

4. Measure - to know the truth, not

your perception of reality.

5. Record  with SPC or other

database.

6. Adapt  for variance.

7. Repeat - steps 3,4, and 5.

8. Review steps 1, 2 and 3.

9. Return - to step 1 and resume

progress.

Managing Production

How To

Instructions

Clarke Joe, Lynch Colleen C. M&amp;R Professional Screen Printing Series

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Clarke Joe, Lynch Colleen C. M&R Professional Screen Printing Series