April 25 2007 11:44 AM

Production mail bureaus and mailing houses are in the business of manufacturing finished mailpieces and selling them for profit to their customers in a competitive and price-sensitive industry and in-house production mail centers, producing their envelopes to meet internal budgets.


Given this competitive and price sensitive nature of the mail processing industry, it is becoming vitally important to develop internal efficiencies and lower the cost of the finished mailpieces to increase profits, and for in-house environments, justifying their budgets.


To achieve the goals of increasing profits for mailing bureaus and mailing houses and meeting or bettering internal budgets for in-house mail centers, it becomes extremely important to better understand the various cost elements that contribute to the final cost of the manufactured finished mailpieces and how best to reduce and manage these costs.


Production Cost Element

Machinery Depreciation Cost A major cost for any production environment is the depreciation cost, generally 20% of capital equipment. Placing expensive/faster cycling machinery is not necessarily always the answer for being more cost-effective because it brings with it an increased depreciation cost and, therefore, contributes to increased annual production costs.


Speed at What Cost? Speed alone cannot be seen as the answer for saving labor and increasing profits or meeting internal budgets. Speed must be weighed with all the other elements that contribute/detract from the finished-envelope manufacturing costs.


Interest Calculated at an average of seven percent per year over five years, obviously the higher the cost of the machine, the higher this cost element and contribution to the annual cost of production.


Machinery Service Cost Annual machine service charge is another major cost of any production environment. Generally, service charges are rated as a percentage of the machine sales price; therefore, placing expensive/faster cycling machines also contributes to the increased annual cost of production. Also, by nature or design, some machines consume more parts and require more technical attention, thus further adding to the burden of service costs.


Machinery Operators' Cost Machine operators' costs are generally the highest cost in any production mail environment. While it is important to reduce this variable cost, can this necessarily be reduced by the more expensive/faster cycling machines? This is certainly not a given fact! It is important to understand the performance of each machine type and the necessary, increased associated costs for faster cycling/more expensive machines, before accurate cost justifications are made.


Management/Other Overhead Cost There are associated management and other overhead costs which every organization must obviously manage in the best way known to them for their specific environments. It must also be remembered that  there is a cost to each organization in having to continuously deal with suppliers and related machine issues. This is obviously a cost that must be measured and, accordingly, included in overall the cost of production.


Cost-Effectivity The decision for which type of machinery should be used ultimately must depend on cost-effectivity, and not cycling speed!


Formula: CpFMP = TCoP ÷ AP

            TCoP = Total Cost of Production

                        = Depreciation Cost + Interest                                         Cost + Service Cost +

                                    Operators' Cost +

                                    Other Variable Overheads


                 AP   = Annual Production

                        = Total number of mail produced

                                    by each machine


   CpFMP          = Cost per Finished Mailpiece

                        = Total Cost of Production ÷

                                    Total Annual Production


Given this formula, there are three ways to increase profits:

            1. Increase: Total Annual Production                    (at same cost of production)

            2. Reduce: Cost of Production

            (for same volume processed)

            3. Both: 1 and 2


To achieve higher annual production figures we obviously need to maximize up-time, run-time and throughput rates.


Increased Annual Production Up-Time Maximization

Preventative Maintenance Ensure timely preventative maintenance is carried out according to manufacturers' specifications and recommendations, so that the machine is always available in perfect order for operation.


Technical Support Ensure your supplier is capable of providing "quick-response" and efficient support, minimizing unscheduled machine down-times and, therefore, increasing production.


Choice of Machinery Your preferred choice of machinery must provide a history of maximized up-time and sustained throughput rates. Purchase decisions simply based on benchmark testing can often be misleading.


Increased Annual Production Run-Time Maximization

Mail processing machinery is expensive, and to make them more cost-effective, their use in each shift must be maximized.


Job Scheduling Utilizing appropriate scheduling tools ensures jobs are pre-assigned to each machine according to workloads and machine availability, thus avoiding machinery sitting idle.


Material Flow Management Timely flow of material to and from the machine at commencement and the end of each mail-run also ensures maximized machine run-time.


Job Reconciliation Management It is understood that jobs need to be reconciled immediately after completion, but procedures/systems should be established for the reconciliation to either be extremely quick or to take place elsewhere, ensuring maximized machine run-time.


Reprint/Recoveries Cost Management Cost of reprints/recoveries must also be considered in the overall cost-effectivity calculations as diverting suspect envelopes, while allowing machines to flow, certainly adds to the overall job handling costs.


Shift Management Procedure should be in place to ensure majority of the eight-hour shift is utilized for machine run-time (e.g., rolling breaks to ensure reduced machine idle-time).


Increased Annual Production Throughput Maximization

Throughput maximization depends on:

Operator Efficiency Ensure all operators are well-trained and certified by each manufacturer/supplier according to training manuals and schedules, with proper incentives for meeting or improving production targets. The more complex the machinery, the harder it is for all operators to be 100% efficient. Let us not forget that we are usually dealing with the lowest paid employees in a print/mail organization that have a high turnover, and yet we provide them with expensive, complicated machinery and ask them to perform at maximized efficiency:


Flexibility Flexibility of the machine to handle a variety of envelopes, enclosures and prime documents is one of the most important elements in maximizing the use of the machine and the throughput rates.


Materials Quality Management Poor material quality negatively impacts throughput rates of mail processing machines. It is important that "materials quality management" procedures are in place to ensure high standards are maintained for continued improvements and throughput maximization.


1. Database Controlled Processing/Integrity Management Software

Today, database processing and integrity management software solutions are offered by every machinery supplier; however, each will tell you theirs is better. While database controlled processing and integrity management software do indeed provide added and unique advantages, it is important to note that, ultimately, mailpiece integrity is best and (must be) provided by the machine itself.


2. The Industry Cycle

Given the dust has now settled on "zero-defect-mail," "error-free-processing" and other "must-have-solutions," the industry is now once again focused on machine flexibility and cost-effectivity. In other words, machinery that best suits each mail processing environment by being able to process all of the work (and not just the good bits)
efficiently and cost effectively to ensure the lowest cost per finished envelope across the entire production floor.


3. ROI/Cost Per Envelope Calculations

There are several formulas that determine the cost per envelope processed. While formulas don't lie, certain elements in it can, and do! It is, therefore, imperative not to just look at the cost per envelope calculation formula, but more importantly, the elements, the data used and the claims that they make.


Edvard Galostanian is General Manager at inTelmail PTY. Contact inTelmail USA, Inc. at 916-361-9300 or visit www.intelmail.com.au.