Weighing the Digital Outsourcing Decision
At this stage of digital printing’s emergence in the package printing industry, it would be unlikely to find a printer that isn’t aware of its potential advantages and benefits. Short-run efficiency, variable and versioned printing, minimal setup time, and seemingly countless other opportunities have been well established across the industry.
But with any emerging technology comes the question of investment and whether it makes sense for companies to bring digital printing in-house, or seek potential partners to take on their digital capacity.
According to Kevin Karstedt, CEO of industry research and consulting firm Karstedt Partners, the decision to outsource digital work may vary depending on the packaging format and volume of work required.
For example, he says that in packaging segments where digital printing is still in its emerging stages, outsourcing can serve as a platform for companies to get their feet wet in the digital realm, while assessing investment strategies and keeping customers satisfied.
“There’s a lot of it happening,” Karstedt says. “The reason and the rationale that people choose to do it on the corrugated and folding carton side where digital is pretty new … is to gain a foothold in the digital market. They don’t want to turn business away from customers that are regular customers.”
While digital printing provides several advantages to package printers and converters, the one that is perhaps the most important to the packaging industry is its ability to efficiently and cost effectively handle short run lengths. And with short run demand on the rise, the influx of digital technology in the industry is a logical result. However, Ron Gilboa, former group director for research firm Keypoint Intelligence-InfoTrends, explains that the quantity of short-run jobs varies by company and by market segment, and this can be a driving factor in the decision to outsource digital printing.
Gilboa explains recent research conducted by Keypoint Intelligence indicates the way run lengths are distributed can determine whether a printer chooses to outsource digital. For example, Gilboa explains that a recent survey of approximately 90 package printers from across all packaging segments asked participants to compare their digitally printed output to their conventional.
What was revealed was that on the conventional side, 35% of respondents stated their typical run lengths clock in at approximately 25,000 pieces. Meanwhile, run lengths of less than 500 pieces consisted of about 8% of their business. But when those that have embraced digital printing were polled, Gilboa says that 38% said much of their volume consists of runs of less than 500 pieces.
“What this illustrates is that producers with conventional print technology have a relatively low number of small jobs, and as a result may not deem it necessary to invest in digital technology,” he says.
To meet the need for short-run production, Gilboa explains, they outsource or relinquish the work to printers that have made the move into digital. These producers can provide a solution to getting these jobs turned around effectively.
However, he adds that through this same research, approximately 10% of respondents stated they would prefer to be able to print a job with 50 or more versions in a single run, indicating that the demand for versioning and short run jobs is increasing. As this trend continues, Gilboa adds, these growing needs will likely remain as the key factors driving increased digital adoption.
“Fundamentally, the need to address supply chain demand for fast time to market and short turnarounds are the biggest impetus for producers to invest in digital print capabilities,” he says.
A key component of the decision-making process, explains Marco Boer, VP of I.T. Strategies, a consulting firm with a specialty in digital printing, comes down to capabilities. For example, if a converter that has yet to invest in digital printing is tasked with completing a very short-run job — such as 50 folding cartons — the cost of completing that job on a conventional press may be prohibitive.
While turning the job away is one option, Boer explains that keeping that customer despite not having digital equipment can be achieved. One choice would be to produce such a short-run job conventionally, eating the cost in hopes of repeat business with longer run lengths. Or, that job can be outsourced.
Beyond internal capability however, another key factor in the decision to outsource is the current financial position of the company. If a conventional printing company is in strong financial standing, Boer says, they’d be a more likely candidate to produce a short-run job in-house, keeping the customer satisfied regardless of cost-effectiveness.
“Those that are in a financially strong position are less likely to outsource because they want to hold on to what they have,” Boer says. “Those that are in a weak position will be more likely to outsource. If I take an order but know I can’t do it, I can take the order and give it to the guy who’s going to produce it for me.”
Becoming a Digital Resource
While much of the packaging on shelves and in consumers’ homes is printed conventionally, with total digital output percentage typically estimated to be in the single digits, some companies across the packaging spectrum have emerged making digital printing central to their business models.
In the corrugated segment in particular, where an influx of single-pass inkjet presses have launched in recent years, outsourcing of preprinted sheets has provided an opportunity for companies to make the investment in digital, and serve as a provider of high-graphic digitally-printed corrugated sheets to conventional box plants.
By taking this approach, Karstedt explains that corrugated providers can make their way into the digital realm via outsourcing, while not making a multi-million dollar equipment investment and maintaining the overhead costs.
“There’s a growing number of corrugated folks saying, ‘I can get into the digital business without having to invest $3 million,’” Karstedt says. “‘I can sell digital. I’m not making as much profit, but I don’t have the overhead and the learning curve.’”
On the flip side of that however, Karstedt explains that litho sheets are primarily what corrugated box producers are outsourcing. By bringing in one of these recently launched single-pass digital corrugated presses, such as the Barberán JetMaster, EFI Nozomi C18000, or HP PageWide C500, it can help bring some of the litho lam outsourcing work in-house.
Gilboa explains that in the packaging industry, one of the key components of success is helping brand owners to ensure agility within the supply chain. With an increased need for fast speed to market, and the ability to change packaging designs on the fly, digital printing solutions have provided an ideal platform to provide brands this increased flexibility.
This presents large converters that are reliant on conventional technology with a choice, Gilboa adds, stating that they can either maintain their large-volume runs and outsource digital work, or bring digital in-house to provide this sought after agility. He points to the flexible packaging segment as an example, and how ePac Flexible Packaging has emerged as an innovative player in this space. With 16 locations worldwide and a fleet of HP Indigo digital presses, ePac Flexible Packaging has become a provider of choice for small and medium sized brands that tend to be in the most need of packaging flexibility.
“When it comes to packaging, I always look at the impact digital printing solutions can address for the supply chain’s requirements to become nimble,” Gilboa says. “How brands can turn ideas into finished product, and if a brand needs changes, they can be achieved rapidly.”
Finding the Right Partner
While it may seem counterintuitive to send work away in the highly-competitive packaging industry, there are approaches that can be taken to reduce the risk of losing out on a customer. Boer explains that outsourcing partners can be found through multiple approaches.
The first, and more prevalent approach, is finding a partner through a common affiliation between the two companies, such as membership to an association, user group, or other industry network.
Through these affiliations, companies can connect with peers that may be located far away geographically, and would be unlikely to compete for the same business.
Another approach meanwhile, is to leverage local networks, which provides a proximity advantage, but is more likely to result in working with a competitor.
Another potential concern in sending work to an external partner is the loss of the internal color and quality controls that a package printer maintains over their work. However, Boer explains that from a color matching perspective, brands tend to be a bit more forgiving than may be expected.
This is largely due to the urgency at which a short-run digital job is needed, Boer says. In this scenario, a brand will likely sacrifice a precise color match, especially considering just how close digital presses can come to matching conventional color anyway.
For example, Boer says that if a conventional printer produces a long-run job for a customer, and the customer later realizes he or she urgently needs 50 more pieces, it’s likely that digital job will be a close enough match to the conventional, while providing cost savings, and a quick delivery.
“Because you’re doing short runs digitally printed, it’s a different way of creating colors so it will never match exactly to conventional,” Boer says. “More and more brands are willing to accept the difference.”
In many cases, Boer explains, outsourcing the printing is actually the easy part of the equation and the finishing and converting is where the challenge lies, particularly when considering that approximately 60% to 80% of the value of a package stems from finishing.
Gilboa explains that in addition to quality digital output, digital finishing solutions are also evolving across packaging applications. In the case of label production, there are devices that can produce ready to apply rolls. However, other segments such as folding cartons or flexible packaging pose challenges including diecutting, folding and gluing in cartons, and laminating and pouch manufacturing in flexible packaging.
Addressing these needs for some time are companies including KAMA in the folding carton segment, while solutions like HP Indigo PackReady can provide much faster finishing in flexible packaging, Gilboa adds.
Another advantage that outsourcing digital work can provide from a customer perspective, is that oftentimes the customer may not even realize that the finished product was printed elsewhere. Karstedt explains that in most instances, the finished work will appear as if it is coming from the original supplier in its packaging, delivery, and customer service.
“A lot of the time for all intents and purposes it looks like it’s coming from that regular supplier,” he says. “It doesn’t have somebody else’s logo on it and [the customer] doesn’t work with another company’s CSR. They’re getting it done through their normal supplier.”