State of the In-plant Industry

The state of the in-plant industry is healthy, but not without challenges. Losses in print volumes can turn a healthy in-plant into a financially unhealthy one, opening the door to outsourcing or facilities management changes.

In this article, we will talk about how to help avoid losses, provide a better understanding of your application mix, and discuss how to consider offering products and services with a greater growth potential.

The in-plant service provider market is larger than most people expect. According to InfoTrends’ 2014 study titled U.S. Printing, Publishing and Packaging Market Size and Outlook: 2012-2017, in-plants account for approximately 18 percent of overall print shipments—almost $23 billion.

In addition, new in-plants continue to open. As reported in the May issue of In-plant Graphics, Valparaiso University has opened a new in-plant in Indiana. Dave Woodard reported that poor service from a facility management company prompted his Keuka Park, New York, college to dismiss that company and start running its own in-plant. In a similar vein, Urban Lending Solutions decided to stop using outside print vendors, brought all printing in-house, and built a 25,000-square-foot production facility near the Denver International Airport.

According to InfoTrends’ research, there are more than 40,000 in-plant printers (if you include one-person, one-machine operations). Based on the circulation of IPG, it is likely that there are about 20,000 in-plants with production equipment. We believe there are more than 3,000 sites with multiple production machines.

The Down Side

Nevertheless, there is bad news as well. There is an undeniable trend in management today to consider outsourcing. According to InfoTrends’ study, U.S. Document Outsourcing Market Forecast: 2011-2016, that five-year period will see a 4.5 percent increase in outsourced printing and a 4.8 percent decline in in-plant printing.

Three reasons often cited for considering outsourcing are:

1. Departments falling short of meeting their financial objectives.
2. Criticisms that print and related services are not core competencies.
3.  A lack of strategic alignment with the mission of the parent organization.

This outsourcing trend is discussed by administrators and executives at shows and in management magazines. For many companies, these ideas remain dormant until there are problems, such as customer complaints, price concerns or an inability to meet financial obligations.

Unfortunately, since the recessions in 2000 and 2008, sales volume has declined from the peak of around $100 billion to about $75 billion. A 25 percent loss in volume often results in a financial shortfall at the end of the year and thoughts of raising prices.

The impact has been less for certain types of in-plants (such as transactional printers in the healthcare and insurance industries), but more pronounced in other verticals (such as higher-education and government). One of the main reasons some in-plants are more affected than others is based on the mix of applications and the decline of some applications.

Application Analysis

All companies have some printed products that they produce more than others. Understanding this mix is useful in determining which equipment should be purchased and which services are better to buy (e.g., inserting, finishing or mailing). Often referred to as an application analysis, this requires grouping similar kinds of work together based on page sizes, run lengths, finishing requirements, as well as quality and color needs. The objective is to group similar products together to quantify the overall demand.On a recent assignment, we discovered approximately 50 percent of all the work at one operation was stationery products, such as business cards, letterhead, stationery and envelopes. This is not an unusual application mix. We work with many in-plants that print mostly stationery products, and there are two concerns:

1. Stationery products are in serious decline, according to InfoTrends’ study U.S. Digital Production Printing Application Forecast, 2011-2016.
2. Stationery products are often considered commodities, which means they must be priced low to remain competitive, otherwise customers may complain about pricing.

As you can see in the chart below, letterhead and other office documents are expected to decline from 31 billion impressions in 2014 to 27.9 billion impressions in 2019. If you are already struggling with declining print volumes, consider this a red flag.

On the other hand, here are three growth opportunities.

Large-format Printing

One of the key advantages of selling large-format signage and posters is the higher perceived value. In other words, you can charge more for wide-format and still remain competitive. InfoTrends published the first edition of its Wide Format Printing: A Critical Element in the Communications Mix study in 2013, and recently published the third update.

According to the most recent research, the retail value of digital wide-format printing will surpass $22 billion by 2017, with a compound annual growth rate (CAGR) of 6.7 percent. Across the board, all of the in-plant vertical markets are expected to grow, including the most popular: retail (45 percent), financial services (40 percent), education (35 percent), healthcare (34 percent) and manufacturing (27 percent).

Variable Data Printing

In the 2014 InfoTrends study Production Print Services in North America: Understanding Industry Transformation, we noted a direct relationship between in-plants reporting growth of variable data pages and those recording increased sales. One of the interesting ironies is that, while many in-plants report owning variable data printing software, a large portion do not use it often. According to a 2013 InfoTrends’ in-plant survey, 71 percent of in-plants own VDP software, but only 23 percent of their work is variable data printing.

Cross-media

In InfoTrends’ 2012 study Understanding Vertical Markets: Enterprise Communication Requirements, we estimate that enterprises spend an average of $26 million annually on all communication—with each company spending $8 million on print. While many companies are experiencing slow growth in print demand, the overall projection for the next two years is a 6.2 percent decline. The two communication channels projected to have the highest growth are the online/Web channel (growing at almost 5 percent) and the mobile channel (growing at nearly 9 percent).

For in-plants not offering multiple channels, combining print with other communication channels may be the most significant change for the near future. About 37 percent of respondents are already combining print with digital media channels. Of those reporting that they used a blend of print and digital media, 47 percent of their printed materials were linked to digital channels.

Except for the healthcare industry, the decline in print demand will cross all other vertical markets. InfoTrends predicts that the use of print will remain around 34 percent of all communication of the total spend in the healthcare vertical, but decline to about to 30 percent in other vertical markets (e.g., insurance, manufacturing, education, finance and utilities).

InfoTrends’ Opinion

As mentioned earlier, the state of the in-plant industry is healthy—but not without challenges. The good news is there are new in-plants being created that help support the thousands of in-plants offering print, mail and other communication services—but it would be naïve not to discuss the growing management trend to outsource services.

One way to avoid scrutiny is by meeting financial obligations. If you are seeing print volumes decline for certain products, do some research to discover which products and services are growth opportunities. This could help you better align with the mission of the enterprise, while allowing you to offer higher value.