Insource Your Way To Success
Bringing in outside work is a challenge, but serious revenue is waiting for managers who know how to get it.
By Mike Llewellyn
JUST ABOUT 20 percent of Cameron University Printing Services' revenue comes from insourcing. According to Director Stanley Verser, that's a contentious number.
Like many in-plants looking to insource work to fatten their profit margins, Verser says his Laughton, Okla.-based shop has to walk a fine line between serving the needs of external customers, and making sure the school is always the first priority. But then, serving the school's printing needs was the impetus behind insourcing in the first place.
"The more business we get, the better our equipment will be," Verser says, explaining that his shop has to purchase all equipment with income earned from charging back for its services, not with budgetary funds. So more insourcing means better equipment, which directly benefits his core customers.
All across the country in-plants are learning this lesson: insourcing can strengthen their operations by making them a revenue source (instead of a cash drain) and by allowing them to upgrade their technology.
"We wouldn't be here without insourcing," proclaims Martin James, manager of Graphic Communications at Deer Valley Public Schools, in Phoenix, Ariz. He explains that a recent spate of state budget cuts dropped his shop's revenue by $300,000. But by insourcing from other districts, the in-plant generated $350,000, covering the loss.
Getting Into It
There's no set method for getting started in the insourcing game. Stanley Verser eased into it by sending letters to local schools describing the services offered by the in-plant and explaining that the shop was open for business. From there, word of the in-plant's quality and fast turnaround spread quickly to include agencies within the city of Laughton, Okla., and the municipal museum. In fact, word of mouth has been the in-plant's single strongest selling tool.
"We have employees who are involved in different groups in the community, and they say at their meetings that they've got this in-plant that can do their printing," he says.
Martin James went about it differently. He kicked off his insourcing program by presenting a business plan to the superintendent, showing the benefits of doing business with 14 other districts in the state.
"Under Arizona law, school districts can do business with each other without dealing with sealed bids or other paperwork," he says.
So with that, James had the in-plant put on a vendor list used by other school districts. Today, insourcing accounts for 50 percent of the in-plant's total revenue.
In Fergus Falls, Minn., Scott Nelson, director of Print and Mail Services at Otter Tail Power Co., says his eight-employee in-plant began insourcing in 2000. The program grew out of a recognition that the in-plant was the only printer in the area with a Xerox DocuTech.
"We had an excess capacity on our DocuTech," he says, "so we held an open house for local printers."
The in-plant sent out invitations asking the managers of the local commercial print shops to stop by for a lunch and a tour of the utility company's in-plant. Twelve printers showed up, says Nelson, and the in-plant ended up doing business with every one of them. Some of them have even become long-term partners. From there, word about in-plant's low cost and superior quality spread throughout the Fergus Falls area.
Keeping The Priorities Straight
One thing that all in-plants agree on is the need to always put the parent company's customers first.
"I had to show that we could do this without affecting our customers in the university," says Verser. It took a head-to-head meeting with Cameron University's provost to explain how insourcing would actually help the school.
A directive from the university's vice president for finance limits the sources of insourced work to government agencies or non-profit organizations. This helps squelch complaints from local commercial printers that the five-employee in-plant is taking away business. But there is plenty of non-profit work, and Verser is quick to note that this is tax-free business.
Nelson says his supervisors at Otter Tail Power Co. reacted very positively to the idea of insourcing, seeing it as one way to bring down the cost of operating the in-plant, which does not have a chargeback system.
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Finding The Time Stanley Verser, director of printing services at Cameron University, says the amount of insourcing an in-plant decides to take on should be based on the time available. "Look at the amount of downtime. For us, the printing fluctuates so much that we're either swamped or we're dead," he says. "This business helps fill in those gaps, and so far it's worked out very well." Russell Bartholow, assistant director of Printing Services at University of Nebraska, Lincoln, agrees. This university in-plant was already handling 98 percent of the school's printing needs, but it still had the capacity to do more. So, like many in-plants that insource, Printing Services decided to keep to the industry it knew and looked to other schools and state agencies for business. "We've always done a bit of insourcing, but a year ago the time had come to make it part of the business plan," he says. Bartholow says the shop found it important not to overlook outside business as a viable revenue stream to go after actively. "We're seeing a slow but steady decrease in the need for offset, so we're bringing in the insourcing to combat that," he says. "And it's just about getting on the phone and selling the services." But Bartholow says the in-plant only sells what the production schedule will allow. And luckily for the UNL in-plant, the schedule's still rather open. |
"And it's not too difficult to make sure Otter Tail always has priority," he says.
Handling Sales Tax
The sales tax issue is not as daunting as some managers fear, Nelson says. For those clients that are not commercial printers, the in-plant has had to charge sales tax, but simply uses the tax identification number that Otter Tail Power already possesses. For the other printers, the in-plant does not have to charge tax because the products are destined for an end user who will end up paying that tax.
"In our first year we generated revenues of about $50,000. Then about $60,000 in 2001," says Nelson. "In 2002 we were up to $125,000 and this year [as of August] we're already up to $98,000."
Nelson credits word-of-mouth advertising, as well as the acquisition of a new Xerox DocuColor 2045, with the dramatic increase in revenue.
"The business has grown, too, because we've begun taking on private clients, and as always we're very careful about stepping on toes," he says of the facility. "But word has just gotten around, and there are some things like inserting and high-speed copying that nobody else does."
The revenue that Nelson's in-plant at Otter Tail generates from insourcing is treated as a credit toward the in-plant's budget.
"So I now have a greater justification to update our equipment, and we are looking at the possibility of adding a four-color press," he says, adding, quietly, "There isn't another one of those for 50 miles around."
To market an in-plant's services, James, of Deer Valley Public Schools, says it's important to get out in the community and spread your message face-to-face.
"I joined several different associations, and I market to those. I give presentations, I meet people, the regular business stuff," he says. "You can't buy word-of-mouth advertising, but it's the best there is."
James says the Arizona Association of School Business Officials (AASBO) has turned out to be his main source of business, and adds that every state has such a group, each part of the national organization.
The Deer Valley School District in-plant began insourcing a little work from other districts in the Phoenix area five years ago. But for the past two and a half years, James says, the in-plant has focused very heavily on bringing in outside work, which now accounts for 50 percent of the in-plant's total revenue.
"We only deal with other school districts," he says. "Because we are a school district it makes it easier for us to understand what they need. Also, we don't have to worry about sales tax."
James says that what his well-equipped shop can't produce, he'll outsource. Using wholesale printers, he can still get a low price for his customers and make money for the in-plant at the same time.
"We really don't refuse anything," he says.
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