Expressing Your In-plant’s Value

I read Bob Neubauer's editorial in the September issue of IPG, titled "Beware the Backstab." He emphasized in-plants must be proactive in communicating with their parent organizations. An in-plant manager must take the initiative when defining the in-plant's purpose and contribution to upper management. It is still a numbers game, and the in-plant manager is responsible for calculating the in-plant's financial contribution and articulating that contribution to upper management.

To state it another way, look at your in-plant as an independent business. What would the in-plant's value be as an independent business on the open market? Many of you have self-directed 401Ks and IRAs through which you invest in the stock of certain companies. As an investor, what are the criteria you look at in determining which company you invest in? Think of these criteria in terms of your in-plant. For example:

• Profitability: this is the in-plant's financial contribution.

• Market Share: the percentage of business the in-plant produces, versus what is being sent out.

• Competitive Advantage or Niche: do you perform specialized services that are not commodities? Do you provide customized applications and programs for customers?

• Reputation or Brand: does the in-plant enjoy preferred status in the organization? Is it viewed as holding a unique or special position?

• Marketing Proficiency: does the in-plant communicate in a consistent, precise manner?

• Linkage to Core Business: does the in-plant contribute to the corporate mission as opposed to just printing and copying?

When this analysis is completed, you can then place a valuation or rating to the in-plant just as professional analysts will place on a company.

Where Do You Stand?

From management's perspective, is your in-plant a:

Buy: the future looks good. The in-plant is making a very strong contribution, with specialized products and an excellent marketing program. The in-plant is growing. It invests in new equipment and technology (like a strong Web-to-print solution) to increase productivity. It is not a commodity. The in-plant has the total support of senior management.

Hold: not sure which direction the in-plant is going. It is doing many things well but the contribution is not well defined. Management may be inclined to solicit proposals from FMs. Volume may be decreasing at a greater rate than the parent organization. Hold off on investing more in the in-plant until further valuation is completed.

Sell: close the in-plant. It is bleeding and continues to require funding to support its budget shortfall. Departments are complaining about price and service levels. The in-plant is using outdated production and workflow systems. Management does not know its contribution. FMs can make a valid case for outsourcing. The floor space is needed by other departments.

The first and most important part of the valuation is calculating your financial contribution. A tool you may use to do this calculation is on the Helpful Tools tab at inhouseservices.xpedx.com. The indicators-for-success tool is a calculator that uses current print-for-pay costs and compares it to your costs on a selected output device. The result is a comparison that will permit you to evaluate how your use and costs compare. Ultimately, it will prepare a high level report on what your financial contribution is.

Using a Budget Spreadsheet

Another way of gaining an insight into the value you contribute is to create a budget spreadsheet. The spreadsheet allows you to calculate your financial contribution and evaluate changes from the previous year.

Using this method will enable you to identify changes, and permits an operation to reassess how to make the appropriate adjustments to get back to the equilibrium enjoyed in prior years. In order to put your in-plant's house in order or to set the stage for future growth, a manager needs to do this analysis. It is the foundation for all future decisions.

Two areas to rigorously review are revenue and costs. The cost side is clearly the aspect of the printing over which you have the most immediate control, so look at all ways to reduce the fixed costs. These are the costs that keep eating away at your budget even though the volume has changed. While head count is often seen as the easiest way to reduce costs, it is possible to look at alternative areas such as reducing the space allocated to your operations and other general overhead areas. Perhaps this space could be used by other parts of the organization and not be charged to the in-plant.

Determine if equipment or maintenance contracts can be reduced or replaced. We have found many production devices can be replaced or renegotiated, improving efficiency and reducing costs. I recently visited an in-plant that replaced two offset presses and one press operator with a new full-color digital press. The pressman who was replaced was eager to learn new technology in other parts of the company and was absorbed by another business unit. The cost savings resulted in greater efficiency and a lower maintenance contract. This also became a major step in adding valuable new products and services for the parent organization.

In other situations, my team found production devices can be replaced or re-negotiated, which improves efficiency and costs at the same time. One example was an insurance company that had two-color digital printers that were not only underutilized, but limited in the quality they could produce. Trading these in for a slightly faster and significantly higher-quality printer resulted in recapturing outsourced work and reducing costs overall by 65 percent.

Another factor to consider that may not be on management's radar is implementing or improving print-on-demand strategies. The reduced warehouse costs fall directly to the bottom line. Again, it can be win-win for everyone.

One such example was a small pharmaceutical company that utilized pick-and-pack operations at six locations. By producing most of the collateral materials in-house via digital color, total savings was estimated at 67 percent for both printing and warehouse/distribution.

Until you have quantified and articulated your financial contribution, by definition your operation is a "HOLD" or potential candidate for "SELL." In part II of this article, I'll address specific steps you can take to improve your chances of getting that "BUY" rating. This will inevitably result in in-plant growth. IPG