In-plants Face New Strategic Realities

PRINTERS ARE confronted with a double-edged sword of shifting volumes and hungry competition. As the Internet and alternative media have cannibalized conventional print volume, they have also presented startling opportunities to all printers. This article will discuss evolving trends and the strategic positioning that a number of insightful in-plant leaders appear to be pursuing.

Insourcing: Essential and Sobering

Numerous in-plants are insourcing print volume from the competitive print market to fill capacity on key equipment. In-Plant Graphics’ surveys have shown this practice to be increasing, with nearly 60 percent of in-plants engaged to some degree. While the objective of bringing in incremental volume is meeting with success, this tactic has been a sobering exercise in keeping the in-plant staff in touch with the dynamics of an increasingly competitive print market.

In-plants are learning that the old sibling relationships many employees had with their in-house customers are not satisfactory in the free enterprise market. Print buyers want exceptional customer service all the time. They want the finished job when they ask for it. If these outside clients feel slighted, you may never know about it; they simply won’t come back.

These tests in humility and tastes of reality, while often frustrating, are healthy for the in-plant, giving the staff a taste of the real world.

Escalating demands from outside customers are only the tip of the iceberg. In-plants are finding that some insourcing jobs are priced below what they charge their in-house clients. When those internal customers find out they are paying premium prices, they are rarely pleased.

But the fact is, some smart customers nearly always pay less for comparable product or service than others. These savvy buyers know that virtually any incremental contribution earned from their work will help cover the in-plant’s overhead expenses. And this contribution, in turn, helps keep the in-plants’ overall costs lower, benefiting all clients.

Most corporate financial officers understand the benefits of this contribution pricing. However, the in-house clients, after learning about the pricing disparity, almost always escalate their scheduling demands and their scrutiny of print quality. The screws get tightened.

Future of Outsourcing

While IPG surveys have shown full chargeback policy to be standard practice, corporate accounting allocation of overhead costs to the in-plant’s budget is becoming more conservative. Stated another way, several administrative service entities appear to be bearing a higher share of corporate overhead than ever before. This may be due to a philosophical accounting shift consistent with an underlying bent to outsourcing.

This is not to suggest that the move to outsourcing is increasing. Outsourcing has been a threat to in-plants for at least two decades. IPG has written about it (i.e. how to defend against it) and even offered case studies of reversed outsourcing most commonly due to exaggerated promises by an ill-prepared vendor.

The reality is that entire product lines within the in-plant structure must be considered as outsourcing candidates on an ongoing basis. And the one leading everybody’s list is lithographic printing.

New corporate comptrollers looking over administrative services budgets and particularly in-house print budgets have been known to sing a common chorus, “Where are these numbers coming from?” Only the corporate veterans who have worked the budgets for years can explain the inane logic often found behind some of the proprietary financial reporting for some institutions. This is not to suggest fraud on anyone’s part.

CPAs and professionals from corporate America are being hired “to shake things up” or “to turn this operation around.” Coming across financial budgets or year-ending statements that are unnecessarily difficult to understand seems to be raising their ire.

Labor costs are often higher than in the private sector. No surprise here. In-plants and corporate human resource departments have focused on the local industry labor statistics to assure that in-plant personnel are paid within the local print industry range. The longevity of in-plant print employees has traditionally exceeded that of private sector printing employees. Hence, while they are paid within the range, they are at the upper end of the range due to longevity.

The crux to the in-plant labor cost problem is that corporate fringe benefits for both the private and public corporate sectors are literally two to three times as high as the printing industry as a percent of total labor costs. No corporation can choose to give one element of their administrative services less than parity fringe benefits.

While in-plant employees are aware of the higher value fringe benefits they get, many corporations are not because of the definition of “fringe benefits.” The printing industry includes sick pay, holidays and vacation as fringe benefit items. Many corporations do not.

Corporations often do not include educational reimbursement in the cost of fringe benefits. Most of the printing industry simply does not use third party sources to educate employees; hence, no fringe benefit expense here either. The human resource department couldn’t care less about the printing industry’s differing definition of fringe benefits because there is no possibility of reducing them, certainly not disproportionately to other employees.

Multi-shift In-plants are Rare

Private sector printers typically move to a skeletal second shift when their total employee count approaches 18. The motivation is two-fold:

1. Better utilization of an expensive press.

2. Improved turnaround times compared to a single-shift operation.

Though many in-plants never get that big, there are others with twice as many employees on a single shift. Their human resource departments, which dictate work hours, do not have a manufacturing mentality nor the requisite sense of urgency.

Virtually all in-plants have budgets and receive periodic actual versus budgeted results. Even though many are supposed to be 100 percent chargeback, these financial results are now summarized on a surplus/loss or profit and loss. This is a very clear trend across in-house administrative services throughout the private and public sectors.

Growing numbers of in-plants are finding it difficult to show results on the positive side of break even. Costs are climbing and volume is stagnating. Even colleges and universities, the bastions of information creation and publishing, are finding less need for ink on paper.

Right of First Refusal Winked At

For decades the strategic plan for in-plants was to get and enforce the corporate policy of “right of first refusal” on anything to be printed. Increasingly, institutions are either not making this policy or, if it has been tradition, it is not being enforced. This is because clients feel they can get faster service or better “value” down the street, or because the accounting records are difficult to chase down until months after the buy.

Additionally lithographic volume is seriously drying up for in-plants as printing shifts to clients’ desktop printers, remote printers and small private general commercial printers offering same-day or second-day turnaround. Multi-part forms have moved to electronic forms.

Copy volumes are stagnating for most in-plants. Electronic transmission of document files to the in-plant server has not helped volume grow but has slowed the decent, providing the in-plant can turn the project around in four hours or less.

Successful In-plant Marketing Tactics

Thriving in-plants employ formal, ongoing marketing efforts to stay in touch with and in front of their clients. Here are some classic marketing examples.

One in-plant has two annual open houses to show appreciation for all its clients (one for the in-house group and a second on a different day for their outside clients). A quarterly open house tour is held specifically for new employees of in-house customers to show them the full breadth of capabilities.

The in-plant publishes a quarterly newsletter to all in-house clients featuring its own employees, technical tips about print design or mail regulation compatibility, and featuring the successful case study of a demanding job for a client.

The in-plant uses regular client surveys to gauge the effectiveness of its communications and overall customer service. Third parties do all of these surveys; some are done by graduate students in the college’s marketing or MBA programs and others by consultants.

What Services are High Value?

With costs escalating, traditional volumes cascading and in-house clients becoming more demanding, what are the best in-plants doing to not only survive but also thrive? Simply stated, they are looking at the various services that continue to demand premium prices from the private sector, plus a few others that even they don’t see. Examples include:

• Electronic design

• Digital asset management, including image capture

• Digital camera photo prints from remote kiosks

• Graphics support services for meetings and conferences

• Information fulfillment services

• Mailing services

• Variable data printing

• Wide-format digital printing

While many of these high-value and premium-priced services are “analog,” most clearly require digital workflows and digital expertise.

Though cost savings and improved service opportunities have existed in these ancillary services for many years, the aggressive shift to adopt them has been initiated by severe problems with traditional in-plant service offerings.

One final thought on strategic planning. It always seems amazing how the carrot rarely seems to encourage change but the stick gets the masses moving. The carrot motivation is client driven. The stick motivation is based upon self-preservation.

The carrot always has some degree of financial risk though many clients praise their vendors for trying new things. The stick is proof positive that clients’ needs have been ignored, marginalized and politicized. To gain clients back after strategic shifts due to riding the lame horse to its death often requires the departure of the in-plants’ general management team who ignored their client base. IPG

A printing consultant for the past 25 years, C. Clint Bolte specializes in strategic technology assessment, product development planning, in-plant printing studies and operations assessments. He has written over 1,000 articles for graphic arts trade publications and authored the book, “How Fulfillment Services Drive Print Volume.” Bolte gives printing seminars and was a faculty member for PIA’s Executive Development Program for 17 years. He has organized educational programs for trade shows, conferences and for NAPL and NPES. Bolte received NAPL’s Technical Leadership Award in 1999. He was elected to NAPL’s Soderstrom Society and to PIA/GATF’s Ben Franklin Society. He holds a BIE degree from the Georgia Institute of Technology and an MBA from the University of Virginia’s Colgate Darden Graduate School of Business. Contact him at (717) 263-5768 or at: clint@clintbolte.com