The Hidden Cost of Rebates: Understanding Plate Pricing

　　Printers have long used rebates on consumables purchases as a way to provide a relatively predictable cash flow and some additional money in the bank at the end of the year or quarter. The system of rebates may pose a problem for manufacturers and resellers, but, for printers, what's so terrible?

　　Why should printers take a closer look? Simply put, the industry environment has changed. Focusing entirely on cash flow ignores the impact of specific costs. We need to have a finer granularity in order to stay functional-let alone competitive-in today's market. Growth has slowed, at best. Margin pressure is absolutely relentless. As a result, printers must understand and know all of their costs, regardless of where they are incurred within the operation. You should never assume that a given cost is unavoidable or cannot be improved. It is an absolute requirement-especially in today's competitive environment-to have all production processes under control.

　　Perhaps nothing in the current market for products in the printing industry is more complicated than the pricing for plates. As one would expect, the prices of plates varied widely from plant to plant, with a range of 200 or 300 percent. There are a number of reasons for this extreme variation, including such things as volume of plates purchased; plate contracts that leverage preferred customer status (particularly for large printers and national accounts); and plate size.

Now, the nominal prices shown on the invoice often bear no resemblance to the real price. Indeed, plate pricing is particularly opaque, with a number of hidden influences and adjustments, special deals and incentives. As one owner commented, "Plate pricing is extremely complicated. We're on all sorts of different contracts. We don't pay for service at all; on some devices, plates are tied up with the lease agreement, on others not."

　　This is where rebates come in. A majority of printers receive some type of "rebate" directly from the manufacturer, from their dealer, or both. Rebates can be provided on specific products (e.g., plates only) or on all purchases. These rebates can be substantial, as much as 30 percent or more. They are paid periodically, at varying intervals, with quarterly being the most common, and are "earned" based on meeting an agreed-upon volume commitment. For various reasons, the printer may elect to receive a rebate rather than a lower price at the time of purchase.

　　Plate pricing can also be used to subsidize equipment, either directly or indirectly. In a "direct" subsidy, the price of the platesetter, for example, can be tied to a plate contract, with the platesetter price lowered as the plate price and contract length increases. Less directly, the plate processor is provided at "no charge," but, of course, it is in fact paid for by the use of plates and chemistry.

　　Alternatively, a rebate on plates can be applied toward loan or lease payments on the equipment. These payments can be made by the printer (in which case the rebate provides a more predictable cash flow with which to make the payments) or by the plate supplier, who may finance the purchase.

　　While the plate price and/or rebate is most typically and obviously tied to the relevant associated equipment (plates and processor or platesetter), this is not always the case. One printer told me, "Our consumables finance all kinds of equipment, but we don't receive a rebate." In another more complicated example, the printer has a CTP system from one manufacturer, workflow from a second, and is using plates from yet a third vendor. In this instance, the plate supplier purchased the workflow software for the printer and is applying the higher plate price toward the software purchase.

　　While there are many perfectly legitimate reasons for these arrangements (and others somewhat less so), one major drawback is that it makes it more difficult to understand actual manufacturing costs by artificially raising apparent plate prices and associated expenses or by lowering the overhead allocation of some equipment. Hiding the true cost affects specific bids, job profitability, customer relations, plant profits, productivity and labor evaluation, and potential capital expenditures. By artificially inflating some expenses, bids may be too high and therefore jobs may be lost. Some work will appear to be less profitable, affecting decisions everywhere in the plant. Or allocated equipment and software expense may be too low, thus leading to misallocation of overhead or appropriate budgeted hourly rates and thus to the acceptance and cultivation of unprofitable work.