Start Charging Back

By implementing a chargeback system, in-plants can save money, justify new equipment and prove their worth.

By Mike Llewellyn

IF YOU THINK balancing your checkbook is a chore, try managing the budget at the 52-employee Houston Independent School District in-plant. Steve Blakely, director of administrative services, says watching over the cash is a lot less difficult than it could be, though.

That's because the in-plant charges back for every service it offers. Blakely says it's tough to imagine doing business without a fee-for-service system in place. It might come as a bit of a surprise, then, to learn that Administrative Services is relatively new to charging back.

"We've done it in stages," explains Blakely. "The first operation we converted to chargeback was the printing operation [which includes the offset facility and the copy center]. We recommended to convert it back in 1993, but the administration didn't want to go in that direction."

Five years later, though, in 1998, the Texas state controller's office did a random audit of the school district and recommended the in-plant initiate an "internal service fund"—a chargeback system by a different name.

"It often takes a third party to convince your management to see your point of view," says Blakely, laughing.

Selling a chargeback system to a parent organization is the first and biggest hurdle to overcome. But once that system is in place, in-plants benefit from increased cost savings and a more knowledgeable client base. Plus, it's the best way to show a parent organization the importance of having an in-plant.

'We Couldn't Operate Without One'

At the 14-employee North Dakota Central Services Division, Director Linda Belisle says that without a chargeback system, the 40-year old in-plant would not be in business.

"We couldn't operate without one," she says. "As a government agency, we have to generate our own revenue."

Whether customers pay by check or by an interagency transfer of funds, Belisle explains that a chargeback system shows exactly how much the in-plant is saving its customers because she can always compare the shop's prices to the commercial market. And because state employees are not mandated to use Central Services, that information is essential.

"We also use the data we collect to determine our most profitable run lengths, and it helps to determine what our costs should be for everything from labor to equipment," she explains, noting that the state in-plant grossed nearly $1.2 million in fiscal year 2003.

Luckily for Blakely's Houston in-plant, switching over to the new system was a breeze because he had been operating the shop under a blind chargeback system all along.

"We didn't have to change much," he says. "We were already notifying our customers of the value of their jobs."

The only thing left to do was educate customers about the new way of doing business with the in-plant. And because Blakely kept his customers informed all along, the change went over very easily. Administrative Services saw the benefits of a chargeback system almost immediately.

"We were able to convert the copy center to a fully digital operation," he says, "and we've added CD burning, fulfillment services and we're going to a CTP system."

Blakely says any profits the in-plant earns are kept in a retained earnings account for the in-plant to use toward its business expenses. However, he points out that the money is also available to the school district at any time for its own purposes.

The Educated Customer

"One of the biggest benefits of running a chargeback system is that, for an effectively run in-plant, it involves accountability controls both for the service provider and for the customer," Blakely says.

He explains that once his customers began seeing a dollar amount subtracted from their own bank accounts, they became far less likely to order jobs wastefully, and they have paid extra attention to the in-plant's advice regarding how to run a job as inexpensively as possible.

"The way it used to be, a customer would come in and have no idea how much their order would cost," says Blakely. But now, both the in-plant and the school district are saving money on printing, and that's a benefit he says everyone appreciates.

"There is always some resistance to change, but the chargeback system was very well received," he contends, adding that it also gives his customers increased control over their own departmental budgets as they are no longer told exactly how much they may spend on printing.

"Once those dollars were decentralized back to the customers [from the central purchasing budget], if something came up and they needed to downsize their printing priorities, they had the flexibility to do that," he says.

For Gary Anderson, associate director of business services at the University of Iowa, a chargeback system has become essential as revenue from the school's general fund has been fading yearly.

"A chargeback system forces you to look at your budget more closely," he says, explaining that each department under his jurisdiction is referred to as a "recharge center."

Breaking Even

With 61 employees to oversee in the printing area alone (Anderson is responsible for a total of 10 departments), he says accounting for every dollar is very important. A mandate to break even compels the in-plant to use data collected through the recharge centers to decide what prices ought to be.

"We set our rates at the beginning of the fiscal year, and we take into consideration any increases in our costs," he says. "At the end of the year we have to do a report to the central administration, and we sometimes find that we'll have to adjust our rates [for the following year] to make sure we're not charging too much or too little."

In addition to increasing labor costs, Anderson says new equipment also affects those final prices. When breaking even is the name of the game, he says, operating under a chargeback system makes an in-plant very good at it.

The Cost Of Doing Business

The in-plant at Progressive Insurance Co. has been operating a chargeback system for as long as Jan Grega, manager of Corporate and Creative Services, can remember—and she's been working there for 25 years.

"Pretty much every department gets a cost center code, and each cost center code gets a budget," she explains. "When we do their work, we get their code, and we use that for the billing systems in each area."

"Our goal is to charge back 100 percent of our expenses," she adds.

Grega says that when the in-plant is working out the cost of a job, she makes sure it's a "fully loaded cost," which means that much more than labor and supplies are accounted for.

Grega says one of the most important benefits of a chargeback system is that it allows her in-plant to know almost exactly how long it will take to get a return on investment for a new piece of equipment. For the management at Progressive, that's essential information.

"We have to develop a cost-benefit analysis based on a company template, and we're limited to a two-year payback," she says. "If we want to get a piece of equipment that will take four years to pay back, we can't do it."

A similar system is in place for new hires, although Grega points out that new employees are almost always replacements.

The 24-month plan may be a hassle sometimes when Grega sees a piece of equipment just out of the in-plant's reach, but she says the chargeback system has been very helpful in justifying some large purchases to the company, including two Xerox DocuTechs and a Xerox DocuColor 60. Most recently, the in-plant purchased a Pitney Bowes MailCode mail sorter, and added a full-time position to operate it. The in-plant had been outsourcing mail sorting.

"We use the chargeback system to do our reporting. Any time we buy something we can show the rate of payback," she says.

Without a chargeback system in place, Grega says, running her 80-employee operation—which spans three shifts and covers print, mail and warehousing—would be impossible.

"Overall, charging back helps in justifying why you're here," says Grega. "We can honestly show that we zero out [the budget] and that we're saving the company money."