United Screen Printers (USP) produces a wide range of decals for displaying promotional messages on fleet vehicles (including delivery vans, eighteen-wheelers, and aircraft). Its decals range from flat-color designs to fullcolor photographic reproductions. Although it is one of the oldest forms of printing, screen printing is superior to most of the more modern approaches because it permits making heavier deposits of ink onto a surface, resulting in more vibrant and longer-lasting finishes. Screen printing works by blocking out areas on a silk screen so that ink passes through only the unblocked areas to make an impression on the vinyl decal. Many in the industry believe that the economics of fleet graphics makes them an extremely attractive form of advertising and should lead to their continued penetration of a largely untapped market. One industry source estimated that the cost of fleet graphics works out to be $2.84 per 1 million visual impressions. Given the highly cost-effective nature of using fleet graphics as a form of advertising, it is speculated that organizations will increasingly exploit this form of advertising. In addition, as organizations become better aware of this advertising medium, it is likely they will want to change their message more frequently. According to managers at USP, this could be one of the major factors apparently driving the competition to focus more on short lead times and prices, and less on decal durability. USP is about to begin its annual evaluation of proposed projects. Six top projects have been defined as follows.
1. Purchase a new large press There is currently a three-and-a-half to four-week backlog in the screen printing department. The result of this is that USPs total lead time is 4 to 6 weeks in comparison to an industry average lead time of 3.5 to 4 weeks. In a typical month, USP ships 13 percent of its orders early, 38 percent on-time, and 49 percent late. It has been estimated that 75 percent of the backlog is waiting for press 6, the largest press in the shop. Furthermore, press 6 is in dire need of replacement parts, but USP has been unable thus far to locate a source for these parts. Given the problem of finding replacement parts and the fact that the press is somewhat outdated, this project calls for purchasing a new large press for $160,000. Based on estimates that a new large press could process jobs 50 percent to 100 percent faster than press 6, it is calculated that the payback period for a new large press would be one year.
2. Build new headquarters USPs CEO fervently believes that the company needs to have a strong corporate identity. He therefore purchased land and had plans drawn up for the construction of a new corporate headquarters. Analysis of the new headquarters indicated that although it would improve operating efficiencies, the savings generated would not pay for the new building (estimated to cost $4 million). Many of the board members viewed the project as too risky since it increases the company’s debt as a percent of capital from almost zero to 50 percent.
3. Pursue ISO 9000 certification This proposal also comes from USPs CEO. ISO 9000 is a set of standards that provides customers with some assurance that a supplier follows accepted business practices. In some industries obtaining ISO 9000 certification is essential, such as in industries that export to Europe and the domestic automobile industry. It was less clear what competitive advantage pursuing ISO 9000 would provide USP at this time. On the other hand, the process alone would help it document and perhaps improve its processes. The cost of this initiative was estimated to be $250,000 to $300,000 and would take one year to complete.
4. Develop formal procedure for mixing inks This proposal comes from USPs plant manager. At present, mixing inks is a highly specialized skill that consumes 2 to 3 hours of the team leader’s time each day. This project would focus on developing ink formulas to make the task of mixing inks more routine, and less specialized and subjective. The team leader is paid $25,000 annually. The cost of pursuing this project is estimated to be $10,000.
5. Purchase and install equipment to produce four-color positives in-house The lead time to have positives made by an outside supplier is typically one week and costs $1500 to $6000. According to this proposal, the cost of purchasing the equipment to produce four-color positives in-house would be approximately $150,000, plus $25,000 for installation and training. The variable costs of producing positives in-house are estimated to be $375 per job. If produced in-house, the lead time for the four-color positives would be approximately an hour-and-a-half.
6. Purchase ink-jet printers An alternative to purchasing a new screen printing press is to add capacity based on newer technology. Given the ink-jets production rate, six ink-jet printers at a cost of $140,000 would be needed to provide the equivalent capacity of a new large screen printing press. The major disadvantage of the ink-jet printers is that, compared to the screen printing process, the outdoor durability is more limited. In general, ink-jet printers are more economical for small orders, while screen printing presses are more economical for large orders. USP currently has annual sales of approximately $7 million. It typically allocates up to 10 percent of sales to the preceding types of projects.
1. What criteria would you recommend USP use in selecting its projects this year?
2. What projects would you recommend USP fund this year? Are there any types of projects you would recommend USP pursue that were not proposed?
3. What are the boundaries and limitations associated with each project?
4. What additional information would you still need to write Statements of Work for each project?
5. Where might you seek out this information?