Bar Code Labels: The Make or Buy Decision

Typically, comparisons of on-site versus off-site printing of bar code labels focus on cost calculations. In practice, deciding to print bar code labels in house or to outsource bar code symbol production is as dependent on your business practices, data needs, material requirements and internal resources as it is on cost.

The decision to make or buy bar code labels does not need to be made across the board for all of a company's needs. Many companies with in-house printing capabilities still outsource some labels simply because the requirements of some applications can be best met by off-site printers. As used here, the term "print" and "printer" refer to the production of a bar code, graphics or text whether the image is printed, imaged or etched. Further, since bar code symbols can be produced by a variety of means that do not require label stock, the term "label" will be used to mean both direct imaging and imaging onto a separate label.

It should be noted that, in large companies, with established photo-imaging or printing facilities, the make-or-buy decision is not necessarily pertinent. However, the decision criteria outlined in this article can help determine whether to use a "demand" printing technology or to use "commercial" capabilities.

This guideline will review all of these factors and attempt to put them in perspective.

Special Requirements
First and foremost, special requirements need to be evaluated. (Most evaluations start with the question of whether fixed or variable data is required on the label. However, applications requiring materials or processes not available for in-house printed, labels will have to be printed off site.)

A wide range of substrates, adhesives, overlaminates and even colored printing supplies are available for in-house printing. An even wider range of materials and processes are available through off-site vendors.

Holographic bar codes, ultra high density (e.g., .004 inch) symbols, fiberglass and simulated woodgrain metal labels, bar codes in specific PMS colors (sometimes desired for retail applications), extremely aggressive adhesives, and unusual label stocks are special requirements that can be met by off-site printers.

A "special process" that is often overlooked is the assistance provided by off-site label printers that may not appear to be directly related to the printed symbol.

Off-site printers frequently act as full-service bureaus for their customers: maintaining databases of sequential numbers, assistance with compliance labeling issues and guaranteeing customer acceptance. For short runs, for novice labelers, and for small companies with limited in-house resources, these additional services sometimes outweigh all other considerations in the make-or-buy decision process.

Data Requirements
Printing of variable data that has very short or no lead time (such as variable weight) needs to be done in house. If the data is known in advance (for example, sequential serial numbers) or is "standard" data (such as U.P.C. numbers), then out-sourcing may be indicated.

Lead Times
Next, lead times from various vendors need to be reviewed. Some vendors offer extremely short turnaround times once a program has been established. Some companies receive data from customers, print the symbols and courier the labels out within 12 to 24 hours. If even the fastest turnaround times are too long, in-house printing is indicated.

Quantities of Waste
So far, the decision criteria have been relatively simple. Things get a little more complicated from here on.

First, how may labels do you need? Five or 500,000? At both extremes outsourcing may be the best answer. Setting up a labeling system to produce five labels a month may not be cost-effective--unless they will be produced on a printer that has some spare capacity and can produce acceptable symbols. For example, a font cartridge for a laser printer may be a very cost-effective way to produce labels for some customer or internal uses. But, it may be inappropriate for production of AIAG-style labels.

Very large runs of known data are typically produced off site. Even this is not a hard and fast rule. If, for example, you will need to produce a shipping label with addressee information, or want to use generic cartoning, it may cost very little to add bar codes to the label or printed area. In this case, equipment, media and labor costs can be prorated according to the percentage of the label or image that will be devoted exclusively to bar codes and may prove to be more cost-effective than going off site.

A factor that's often overlooked, in both on-site and off-site printing, is waste. Waste may occur through obsolescence of the data on the labels, degradation during storage (for a variety of reasons), application problems and other factors. Some figures suggest that as much as 10% should be added to the cost of off-site printed labels for waste or obsolescence. This figure may be either high or low depending on quantities, training of personnel, type of data (e.g., serial number versus U.P.C. numbers) expected product life and many other factors.

To calculate the quantities/waste factor, you must determine where the optimal quantity price break occurs from outside label printers. How many labels will you use in a month, quarter or year? If the price break indicates you should order a year's worth of labels, you then have to calculate your possible waste. If you're applying non-significant serial numbers to items, it's possible that product and model changes won't cause obsolescence. On the other hand, U.P.C. product labels probably will be affected by product or packaging changes.

This calculation is difficult to perform exactly--except in cases where you are printing a U.P.C. symbol along with other product-specific package graphics. At that point, the cost of the cost of the bar code symbol becomes almost incidental.

So far we have only made rough determinations of when outside or in-house printing is required. In many instances, there will be applications where either off-site or in-house printing can be used. The next step may prove to be the deciding factor.

Cost Calculation
Performing cost calculations for off-site printed labels is a relatively simple task. Table 1 provides a worksheet for off-site calculations. In your calculations, you may end up with prices based on minimum orders of 5,000 labels. These costs need to be converted into the same basis as your on-site calculations, generally cost/thousand.

On-site costs are trickier to calculate. First, determine the type of label(s), bar code, text and graphics coverage and other factors. Determine anticipated number of labels needed per year, month or day (depending on your volume). Convert these quantities into convenient units of measure, generally labels per day, to determine printer speed requirements.

Determine the number and type of printers you need to achieve this volume. (This is not a trivial task.) Remember, even if he doesn't show up on the payroll, Murphy works for everyone. Never schedule 100% capacity for any in-house printing system.

Calculate consumables cost. For most thermal-transfer printers, this is simply equal to one roll of ribbon to one roll of labels. Multi-pass ribbons and ribbon saver technologies change this simple ratio. When making your initial calculations, it may be better to ignore these cost-savings options. If it's clear you can make use of demand printing technologies, the cost saving options can be factored in later. Since actual savings and performance will vary, systems that rely on these enhancements to achieve a satisfactory ROI may be too marginal to implement safely (see the "If you need to punt" section below).

A useful rule of thumb in calculating toner-based cost is that average text, on which most toner costs are based, provide for only about 10% black coverage. Bar codes need to be calculated at about 30% coverage. A typical AIAG label will be between 13% to 20% black--a significant difference if you're running high volumes of labels.

Calculations of media costs, printer speed and other variables aren't standard. The speed at which a printer can feed label stock and the speed at which it prints bar codes may be significantly different. Also, the time to format and print the first label, or variable-data label, is generally much different from the speed with which it prints subsequent labels.

Off-Site Calculations

Operating Costs
Shelf Space for Labels __________
Handling (labor) __________
Verification __________
Capital (Cost of Money) __________
Other Costs __________
Subtotal __________

Label Costs (per thousand)
Labels __________
Freight __________
Subtotal __________
(add variable waste)
Subtotal __________
Total __________
Additional Costs
Setup __________
Other Costs __________
Total (setup) ________

All these variables need to be taken into account before selecting an on-site printer. Then, recognize that some creative financing may be available that minimizes the hardware costs in exchange for increased consumables costs for a specified period. This may swing the balance from a capital to a consumable expense item that some companies find useful.

Once all these variables are accounted for, the second worksheet can be filled in to determine on-site printing costs.

On-Site Calculations

Operating Costs
Prorated labor (fully burdened) __________
Facilities Overhead __________
Shelf Space for Media __________
Maintenance Contracts __________
Verification __________
Printer (depreciated) __________
Other Hardware (depreciated) __________
Capital (cost of money) __________
Other Costs
Subtotal __________

Label Costs (per thousand)
Label Stock __________
Ribbon/Imaging Media (if any) __________
Laminate (if any) __________
Freight Charges (if any) __________
Subtotal __________
(add 10% waste) __________
Subtotal __________
(add variable waste)
Subtotal __________
Total __________
Additional Costs
Employee Training __________
Software __________
System Set-Up Labor __________
Programming __________
Consulting Fees (if any) __________
Total (setup) __________

In-house Resources
In Figure 1, even if all indications show that labels should be printed in house, there's an additional consideration: the availability of in-house resources. What are those resources? Trained personnel, computer equipment, printers, software, verification equipment and quality control procedures are all part of required in-house resources. Without adequate resources, poor quality or unreadable symbols may result. The cost of non-readable symbols can mean loss of major customer contracts, manufacturing line shut downs, significant fines from some retailers, or a very sophisticated data collection system brought to its knees by a little slip of poorly printed paper. Measuring the costs of these potential problems is very difficult.
It's not the size of the commitment that matters. The key is whether good quality symbols can be consistently produced in house. If sufficient resources cannot be dedicated to ensure consistent symbol quality, bar code symbols should not be printed in house.

If you Need to Punt
Okay, you've gotten to here. Maybe you need specialty materials and variable data. Maybe you don't have in-house resources. What do you do?

First, test all your assumptions. Are the specialty materials really necessary or will a substitute do? Are there ways to share in-house resources to develop adequate support for demand printing? Is management aware of the consequences of poor quality symbols?

Next, test your business practices. Is variable data "unknowable," or could better planning permit longer lead times? If labels are for in-house use, can data be restructured such that it is non-significant? Are there other improvements you could provide with bar code printers that could increase ROI or improve justifications for proper resources (e.g., printing shipping information)? Finally, test your luck. Find ways to make upper management (or who ever has the strangle hold on resource allocation) aware of the benefits and/or needs for bar coding. Make them aware of the consequences of doing it badly. If you have a letter from a major customer saying, "Thou Shalt Bar Code," try to get in writing what will happen if it's not done right. If internal programs will suffer, try to find the next level up where the quality problems will manifest themselves and motivate the people who are impacted to go to bat for you. Bar code vendors may be able to help provide ammunition here. If you can't solve these problems, suggest going off-site and limiting your bar code applications to those which can be supported with adequate turnaround times. It's better to have good quality symbols with fewer applications than it is to have poor quality symbols for all of them.

This document is reprinted by AIM Inc., the world-wide trade association for manufacturers and providers of Automatic Data Collection products, services and supplies. The document is intended as a guide to aid the manufacturer, the consumer, and the general public. AIM USA, its member companies, or individual officers assume no liability for the use of this document. All rights reserved.

Reprinted with permission from AIM, Inc.
www.aimglobal.org

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