Operations: R&D in Tight Times

By: Jim Rosenberg As raw materials costs continue to climb and newspaper demand declines, R&D interest and investment among ink and plate suppliers have by no means disappeared. But most report a focus on process improvement as much as or more than product development. They have to. They’re tracking their customers. For while new or better products are likely to eventually see demand, for now, seller and buyer are just trying to contain costs and stay in business. Those new or better products can expect a place among special wraps or covers, premium and niche products. But conventional products available to print most dailies or weeklies can do the job. Of course, necessity does drive invention — for example, the reasons behind the early push for newspaper flexo, as one executive recalls. But that was more than 25 years ago. Though concern over a major raw material’s supply and cost was as real then as it is now, circulation declines were slow and small, and newspapers were adding Sunday editions and new sections. So demand, too, was a powerful incentive for the inventive. But that’s all changed in this new century for newspapers, when they and suppliers can expect to see print production either outsourced or transformed into a business all its own. The very nature of newspapers’ business required fast presses to print a lot of copies in a little time. But as one consultant observes of big iron too often still run for only a few hours a day: “We really have the worst capital profile of any industry.” How, and how fast, that will change surely figures into every supplier’s strategy — just as surely as any new model for the newspaper business will benefit from R&D that can deliver further efficiencies in current practices and new technologies to replace them. But while newspapers cast about for operations-side support for whatever new model evolves, it’s worth remembering that beyond false starts and blind alleys, even winning ideas have their time — being dependent on interrelated technologies and changing market realities. After all, following attempts with earlier computer-to-plate output systems, when CTP finally was shown to be a practical prospect in the early 1990s, it was another decade before costs, speed, service life, laser/plate choice and mechanical automation options made it a practical industry-wide reality. Prospects for News Ink Manufacturers are faced with maintaining quality while containing costs “There’s really no pressure on the ink companies right now except to give the lowest prices,” says consultant and production veteran Chuck Blevins. From a supplier’s perspective, however, the combination of higher costs and lower demand “certainly places a lot of pressure on us,” says Flint Group News Ink Business Director Norm Harbin. But he and his competitors insist that hasn’t changed research and development investment. And whatever else it may accomplish, when newspapers are “looking for improved efficiencies,” he says, R&D’s job is to “come up with innovations to save money.” R&D, he adds, is “even more important today” as raw materials companies come and go, leaving the manufacturer to ensure “a dependable supply of materials to generate a dependable supply of ink for our customers.” While none denies that demand has fallen off, ink makers don’t divulge sales figures. US Ink Marketing Manager Todd Wheeler discreetly points to an obvious production parallel: last year’s acceleration of a 10-year decline in newsprint consumption. But he optimistically adds: “During the first five months of 2010 we are beginning to see newsprint consumption stabilize.” On the cost side, increases come with some history, starting with a little legume that lived up to its big promise. Providing food, feed and fuel, the soybean also is well suited to offset litho inks. And unlike petroleum, its oil is renewable, non-toxic and biodegradable. A domestic resource that’s also heavily cultivated in Brazil, it’s available year-round. Offering a little better quality at a little higher price, soy-based inks came along in time to drain much of the early interest in water-based flexography for newspapers — a reaction to the relatively short supply of naphthenic petroleum preferred for offset inks, recalls Harbin. The attractive vegetable’s versatility and virtues, however, came to make it just like petroleum in one crucial aspect: Several big industries wanted it, thinning its availability and bidding up price. Among the many ingredients in news ink, the carrier represents the largest volume. So whether from soybeans or petroleum, news inks have seen years of rising raw-materials costs. If prices haven’t quite kept pace, that’s because ink makers spent years wringing out operating costs. Efforts to contain inkmaking costs and ink prices have shown that “you really can’t do that with raw materials,” says Bradley Dahleen, sales and marketing vice president at West Chicago-based Central Ink Corp. Tire manufacturers are huge naphthenic oil customers, and turning those tires with alternative fuels drove up demand for soy-sourced biodiesel fuel while simultaneously driving down the beans’ supply when farmers favored planting feed corn to produce the ethanol going into gasoline. Product choices have long been available — low-rub, no-rub, high pigment-strength, heatset and UV inks. But newspapers’ and inkmakers’ shared aim today is holding down costs. And for at least one supplier, that’s always been the principal objective. “As far as R&D, we haven’t stopped,” says Dahleen. Central Ink’s work focuses internally, on process. “For us it has to. That’s just the way our company has been built,” continues. Citing continual addition of automation, he says 80-year-old owner Richard Breen insisted on $800,000 in new automation this year despite the economy. “We started in the depression. So we’re used to hard times,” Dahleen says. “You have to be very aggressive” when competing with bigger suppliers, he continues, noting that another process change was a switch some years ago to raw pigment ingredients, which have many suppliers, instead of buying flush (pigment dispersed in oil or resin) from its fewer suppliers, which include competing ink companies, the largest among them being Sun Chemical, parent of US Ink Corp. Dahleen says the approach works. “One of our fastest-growing product lines is news ink,” which is adding customers “almost weekly” and accounts for half of Central’s business, he says. “Four years ago it was about 20%.” Newspaper executives unable to lift their attention from sinking circulation and stagnant advertising may be happy to hear Dahleen describe newspapers as “more stable than heatset-offset printers,” who may give up as much as 20% revenue in a year, compared with maybe 3% for a newspaper. “I think newspapers are probably the soundest part of the graphic arts industry right now,” he says, while allowing that outside of offset, flexo packaging remains big business. At US Ink, where news inks have always been a mainstay, R&D “even in the current business climate” covers new products, improvements, and process and formulating efficiencies, according to Wheeler. Now, however, “we are just more sharply focused on specific activities within each category,” he says. Through its technical services, US Ink brings what it learns to customers, helping them make the most of expenditures on ink in live webinars aimed at improving print quality and consistency. Development in curing technology and subsequent field testing, says Wheeler, led to the recent launch of RealColor UV web-offset inks. Also citing “a mix of everything” in processes and products, Harbin points to Flint’s own Arrowlith UV inks, sales volume for which “keeps on growing,” he says. Yet another useful area for R&D is product interaction. Flint supplies other consumables, including, since last fall, Day blankets and Varn washes and fountain solutions. R&D’s job here, says Harbin, is to “marry sets of products” into compatible packages that best exploit the capabilities of each product. R&D doesn’t really end until those field tests, Wheeler mentions. Fortunately, willing customers remain. Calling them “an immense help, both in providing the best possible feedback on development progress and in demonstrating a clear commitment,” he says it “helps justify our own investment of resources.” “It happens frequently,” says Harbin. Noting the long absence of test facilities at the Newspaper Association of America, he acknowledges some cost to Flint and a newspaper. “But it’s a good investment,” he says. Newspapers cooperate if you’re working on something that provides advantages, and it affords Flint “the best proving ground for new technologies, because it’s the real world.” Some newspapers volunteer to try a requested product or formula change, but “most don’t,” says Dahleen. The Grand Rapids Press is one that does, and this year won its second membership in the International Newspaper Color Quality Club for work at its Walker, Mich., plant, which also prints a sister paper, The Muskegon Chronicle. “We work with them extensively” to come up with ink having superior printing and operating characteristics, Dahleen says. “They pull us into that,” he adds, noting that the Walker plant does the same with all its suppliers. “We’re still a custom ink manufacturer. We do that a lot.” That’s good news for R&D, and perhaps a good longer-term niche position for the company and customers. Dahleen supplied an unusual example from an overseas market: When a company representative traced a pressroom’s laydown problems to a supply of newsprint pulped from the wood of trees grown in a years-long drought area, Central formulated an ink compatible with the sheet’s unusual characteristics. US Ink’s longer-term approach to an industry that’s changing as it sees diminishing demand for its core product will still require R&D, because after quality and service, according to Wheeler, innovation is the third leg supporting the strategy. For obvious reasons, no one offers specifics about strategy or products in development. Harbin says Flint follows newspaper companies as they map their future, participating in relevant discussions where possible. “We like to go wherever our customers are going,” he says, even if their direction’s still not clear. Harbin does mention one area under study — new printing technologies, in which Flint has competitors outside the news ink business but in which it also may one day find itself serving newspaper companies to some extent. It’s already an area of increasing focus and investment by two of newspapers’ biggest plate suppliers. Plate price pressure Plate producers hope efficiencies, more printed products can offset higher plate prices in an era of lower newspaper revenue. While ink makers wrestle with high prices for oils, offset plate producers have seen the cost of aluminum — the base of their product — surge 46% in 15 months by one supplier’s estimate. And unless newspapers print more zoned editions, fatter editions or other products with their lower volumes of newsprint, demand for increasingly costly plates may suffer. Unlike ink and paper consumption, plate use is determined almost solely by the number of products and pages rather than their circulations. Exceptions might be replates for errors, edition updates and very large press runs, as well as runs on multiple presses, perhaps in multiple markets. To court cost-sensitive newspapers, plate manufacturers not only must manage their own costs, but also help customers with theirs. Whatever else may be in research and development, plate producers are all looking to improve their own and their customers’ efficiency. Suppliers can work on quick clean-up to reduce print waste and on improved runnability for more impressions per plate, but beyond that, and with no control over commodity prices, “there’s not a lot you can do if you want to stay in the market,” says consultant and longtime production executive Chuck Blevins. Suppliers, he says, are “trying to absorb all the costs they can to stay competitive.” A research report released earlier this year by the Association for Suppliers of Printing, Publishing and Converting Technologies (NPES) and the Print Industries Market Information and Research (PRIMIR) organization forecasts a 40% reduction in newspaper pages over the next 10 years — directly affecting plate purchases. For analog plates alone, NPES Global Programs Vice President William K. Smythe sees the number of pages printed falling 5-6% annually over the next five years, with newspapers contributing by converting to digital platesetting and simply by printing fewer pages. Even when page film is removed from comparisons, the trend seems grim, according to one supplier. Asking not to be named, the executive described erosion of plate sales from 1.25 billion square feet in 2008 to about 800,000 square feet today. The NPES/PRIMIR report did show expenditure on plates per million dollars of ad revenue had returned by 2007 to its level of 15 years earlier, following the 1990-91 recession. At the same time, however, the industry was consuming only about two-thirds of the earlier high point’s square footage. The report suggests the upward trend will continue as long as publishers can print more color, versions and editions. It says plate manufacturers should not assume demand will decline. For now, Southern Lithoplate claims an additional 100 newspaper sites through mid-2010, among them all Freedom Communications operations, and Agfa reports greater-than-anticipated plate demand over the same period — during which time newspapers’ print output may have begun recovering from an accelerated decline. Whether the available information is seen to support falling, rising or unchanging demand, even accepting the report’s optimism about more color and on-the-fly plate changers and automatic transport promoting greater plate consumption, upward price pressure printing plates seems likely. “We need to be more efficient than ever,” Agfa Graphics Business Development Director Sheila Nysko concedes. Southern Lithoplate Sales and Marketing Vice President Steve Mattingly says his company responded to marketplace pressures with a workforce reduction early last year, and that it continues to automate and streamline processes “to ensure the leanest operating structure possible.” At Southern Lithoplate — which over 15 years has acquired assets of three other suppliers — Mattingly believes more niche product printing may offset the effect of thinner newspapers. Moreover, those papers could see a rebound, he adds, citing McKinsey & Co.’s April report, “A Glimmer of Hope for Newspapers,” which found increased interest among 16- to 34-year-olds. Though it partners with several prepress equipment suppliers, the company remains a plate-only business that sells to web-offset printers without market-segment distinction. “We strive to provide commercial-quality printing products to our newspaper partners,” says Mattingly. For R&D, Mattingly says Southern Lithoplate invests in XXXXX facilities themselves and in improving existing lines and developing new products. He cites enhanced R&D in Wake Forest, N.C., where it is integrated with manufacturing, and in Jackson, Tenn., where a press handles alpha and beta testing before field trials. Improvements, he says, have raised plate mileage and quality. New is a Triliner Prepress program to support Goss Metro users who pursue three-around press conversion. Besides “working with Dainippon Screen USA on a platesetter” of suitable dimensions, he says, “we finished in April the investment in manufacturing” to supply Triliner plates with the same ease and precision as the company’s other plates. Among the “big-three” with Agfa and Fuji, Kodak did not respond to requests for on-the-record comment. An employee not authorized to speak for the company but familiar with its newspaper products, however, confirms that most R&D has been more product refinement than development. The source points to modernization and standardization of Trendsestter platesetters “to be more efficient” as one example and work on a faster no-process plate as another. The latter seemed to have been suspended in favor of developing the next thermal plate, he adds. The resulting Trillian plate, introduced in June at the IPEX trade show, in Birmingham, England, features neutral chemistry, no pre-heating and substantially reduced chemistry consumption (Kodak says up to 70% less) — which should lower users’ costs. The source said newspapers can expect to see a version their equipment next year. Agfa pursues R&D across a range of plates that includes its chem-free violet, workflow enhancements and equipment. It develops solutions to enable its traditional market of large metros “to be more automated, efficient and save money, Nysko says. Several new products, such as Arkitex Portal, “enable them to be more efficient taking in commercial work, to gain new business while maximizing their press investments,” she continues, while with Vantage, very large or multi-site operations can monitor and control workflow across the entire enterprise from a single point. At the same time, development took aim at other coldset printers, including comparatively stable regional and smaller papers — a portfolio diversification that “helped us weather last year’s economic downturn,” says Nysko, citing the Advantage N platesetters that began shipping this year. In all cases, insists Nysko, product development arises from input from or partnership with customers and ends with customer testing prior to release. She says R&D partnerships are under way worldwide, with two software projects in progress now in North America. For all its R&D related to plates and prepress in general, the company that will still sell a newspaper film (“We always said we’d be the last film manufacturer,” Nysko says) also has been “heavily involved” in inkjet technology R&D for at least 10 years. So is big competitor Kodak. Because it’s recognized as the future of much printing, this story’s source remarks, “we’re certainly doing R&D on digital presses.” It’s an area of long involvement by Kodak, and it includes inkjet, which has only begun making inroads among newspaper printers in recent years — and only in rather specialized market contexts. Inkjet’s role and that of the broader range of digital presses in newspaper production remains tentative, its future unclear; but to the extent that digital and other technologies merge prepress and printing functions, both companies are investing and preparing to become press vendors of sorts. Agfa’s experience in imaging and emulsion technology, says Nysko, “provided the expertise required for making an assortment of high-quality UV and solvent-based inks” for non-publication inkjet printing. This year the company increased its stake in its Korean manufacturing partner and acquired Toronto-based Gandi Innovations, maker of large-format inkjet systems, giving it systems suited to many requirements. “We intend to continue to expand our portfolio,” says Nysko, to serve “additional segments in the future.”