A New Source Of Business

Insourcing can bring in revenue to fund new equipment, while keeping your underutilized machines busy. But controversy surrounds the topic.

In June of 1997, Larry Sutherland was a little anxious. With outsourcing on the minds of so many business executives, the former manager of Eastman Chemical Creative Services worried that his Kingsport, Tenn.-based shop might be the next to fall in the name of cutting corporate costs. So he decided to take the offensive.

"We went to management and said, 'We think we can reduce our costs by bringing in income and offsetting our costs,' " Sutherland recalls. What he had in mind was insourcing—taking in work from outside organizations and producing it in the in-plant.

"Our management was open to us trying it out," he says. That initial effort yielded $280,000 in additional income for the company. In 1998, he adds, insourcing brought in $600,000. And next year he hopes to net more than $1 million—money that will offset the expense of maintaining the in-plant and help keep it alive.

Practical Move

In today's business world, insourcing makes good sense. In addition to bringing in new revenue to help fund the latest technology for your operation, it can help you keep underutilized equipment busy and fill up your slow periods. Additionally, managers say, working with external customers will improve your customer service and business skills.

Still, the concept of in-plants behaving like commercial printers bothers some in-plant managers, particularly at universities. At Muskegon Community College, in Muskegon, Mich., Graphics Manager Pete Hoekema insources a small amount of non-profit work, but refuses to go any farther.

"I think there's a place for commercial printers and a place for in-plant printers, and I hate to see either one invading the other's territory," he declares. "I don't believe that a true in-plant shop should do commercial work."

This point of view, shared by other in-plants, bothers Mark Krammer, Graphic Services manager at Ace Hardware. The Downers Grove, Ill.-based in-plant has been printing commercial work for over 10 years. Such work now accounts for more than 20 percent of Graphic Services' volume.

"They are stereotyping themselves to less than what they really are," he says of in-plants that don't want to take in commercial work. "If you're a consummate professional, you're every bit as good as any commercial shop, and that's the attitude you have to have. All the ingredients of managing your internal shop are no different if you're a good manager. It's an attitude."

In a way, Krammer adds, in-plants should feel obligated to take in commercial work because their overriding mission as in-plants—more important than providing convenience or confidentiality—is to save the parent organization money and generate revenue.

If they have the skills and the equipment, in-plants are basically doing a disservice to their organizations by not using them to bring in more money, Krammer says.

Treading Lightly Or Standing Still?

Many in-plants remain hesitant, though, chiefly because they don't want to anger local commercial printers by taking their work. Such criticism from the private sector, these in-plants say, will simply call attention to the in-plant, dragging it out of obscurity and exposing it to threats.

Managers that practice insourcing, however, have a different take on the situation.

"We have never felt that drawing attention to us was a negative," insists one in-plant manager, whose company did not want its name used. He feels that this extra attention is actually good for the company.

Naturally, commercial printers may be a bit concerned when in-plants enter into the commercial printing arena—just as they would be with any new competitor.

But those same printers, managers say, are more than happy to take in the millions of dollars in printing business that their in-plants outsource annually. For this reason, they manage to remain on good terms with commercial shops despite competing with them for a small amount of business.

An In-plant At The Core

Still, whether in-plants insource a large or small percentage of their work, their internal customers may perceive a conflict of interest. This fear keeps many in-plants from accepting outside work. But those that face this problem say they draw a hard line.

"Our main goal is still to serve our university," insists Mike Loyd, director of Louisiana State University Graphic Services. He and other managers make sure that outside clients know this up front. At times, though, internal customers complain that, if it weren't for the outside work, the in-plant would get to their jobs faster. When he gets such complaints, Loyd explains to the customers that those commercial jobs are helping to pay for the in-plant's new equipment, which will, in turn, give all customers better quality and faster turnaround.

LSU Graphic Services currently insources more than 30 percent of its total printing volume. All of this work either comes from state agencies or from other state universities. Through a partnership with the Louisiana State Printer, state government jobs are referred to the in-plant on a regular basis.

Marketing To The World

This isn't the only way the in-plant gets outside work, though. Loyd has hired a marketing coordinator to visit state agencies and give informational presentations about Graphic Services. He hopes this will increase the amount of outside work, which, in turn, will "bring in money to buy new equipment." Loyd is even prepared to add a third shift to accommodate a work increase.

LSU is not alone in hiring someone to market its in-plant's services. Eastman Chemical has two people on its staff who spend the bulk of their time trying to bring in more work. Though insourcing already accounts for 14 percent of the in-plant's volume, Sutherland wants to start doing pharmaceutical labels on the shop's six-color flexo press.

Ace Hardware employs one salesperson now and will soon hire two more. In addition to selling the in-plant's printing, finishing and fulfillment capabilities, they will begin to aggressively sell its desktop and prepress services, including wide-format printing. Over the next three years, Krammer hopes to double commercial sales.

Insourcing Improves Service

More than just adding a revenue stream, however, insourcing has improved the overall service and skills at the in-plants that have tried it, according to managers.

"The more commercial work that I do, the more my desktop people get some varied look at other people's designs," Krammer says. "It enhances their skill level."

Other managers say that because commercial customers are not as flexible as in-house clients, their in-plants have had to work harder to meet customer requirements. The resulting improvements in service have benefited internal customers, as well.

At Eastman Chemical's in-plant, insourcing has increased the workload without increasing the staff. As a result, employees have had to work "smarter" and alter their set procedures to accommodate these new customers.

"It has helped us in our efficiency," notes Sutherland. "It's helped us tighten our process."

--by Bob Neubauer

Ten Tips From Insourcing Vets

n Understand your production capacities. If your equipment is underutilized, and you're a good manager, you must find a way to increase your production. Accepting commercial work is a valid solution.

Don't forget the political aspects. Make sure all the decision-makers are involved in the process.

Don't bite off more than you can chew. If you don't have the personnel, don't accept the work.

You can't do everything. Take time to identify the best niches for you.

Remember that the work you're going to receive will be different from the work you're used to receiving.

Outside files will come to you in formats you've never seen before. Be prepared to deal with them.

Remind concerned commercial printers that you aren't trying to take over the market, and that you will continue to outsource printing work to them.

Use the skills of your organization's legal and accounting departments to deal with new business issues, such as the collection of sales tax.

Develop and test an estimating process.

Always deliver on your promises.

Insourcing At Universities?

Though plenty of insourcing takes place at college and university in-plants, these operations face a lot of restrictions, particularly if they are taxpayer-funded. Generally, the only work they are allowed to insource is non-profit work and jobs from government agencies or other schools—not work from private businesses.

For one thing, many universities don't want to use taxpayer-funded facilities to print jobs that normally would have been printed by commercial printers. Otherwise, "we're using the dollars that the commercial printers pay in taxes against them," points out Paul Molfino, director of imaging, printing, mailing and temporary support services at the University of California, Santa Cruz.

Though one university in-plant manager admits to taking in any job that comes his way, most universities worry that if they target the turf of local commercial printers, they will stir up resentment in their communities.

"We have a lot of commercial printers on our advisory board, and I don't think they'd be quite so willing to be supportive of us if we were taking their daily bread away," notes Peter Hoekema, graphics manager at Muskegon Community College, in Muskegon, Mich.

At the University of Vermont, Steve Chant agrees:

"We have good relations with local commercial printers, and I wouldn't want to upset that applecart," notes Chant, manager of university graphics and printing. "They give us good prices knowing that we're going to treat them fairly and professionally."

Commercial printers seem to tolerate in-plants that go after non-profit and governmental work, managers say, because of the large amount of work that the in-plants still outsource to them. Here's how some university in-plants handle insourcing:

The Muskegon Community College in-plant does not solicit outside work, but through "word of mouth" it gets jobs from local fire companies, the Muskegon Children's Home and the Boy Scouts, among others. Insourced work accounts for approximately 1.5 percent of its annual budget, according to Peter Hoekema, graphics manager. The in-plant's prices are about half of what outside printers charge, so customers are willing to accept flexible turnaround times, since the college's work must always come first.

Insourced work accounts for more than 30 percent of the workload at Louisiana State University Graphic Services. This translates to nearly $1.5 million. This work comes from state government agencies and other state universities. The in-plant has a partnership with the State Printer whereby state work—notably four-color jobs—is referred to the in-plant. The in-plant has hired a marketing coordinator to promote its services.

Less than 5 percent of the work at University of Vermont Graphics and Printing comes from insourcing, but that's still up to $50,000 of additional income for the in-plant. In addition to non-profit work, the shop runs jobs for groups that are affiliated with the university or for professors who run side businesses. Labor unions are another potential source of business, since the press operators are union members. The in-plant has to pay an "unrelated business income tax" on its profits from outside work.

In North Carolina, state law prevents state universities from competing with the private sector, but if outside work is being paid for with state funds then it's fair game for the University of North Carolina, Wilmington, which brought in $24,800 from these sources last year. Because the in-plant has bookletmaking equipment, it insources a lot of bindery work. It also does mailing for outside agencies.

The University of California, Santa Cruz, insources about $80,000 a year, getting all jobs through through word of mouth. Not only does the in-plant do work for government agencies and non-profit groups, it has assumed responsibility—FM style—for all printing and copying for the County of Santa Cruz.