Understanding The FM "Monster"

Our Great Debate series tackles the facilities management issue by pitting a respected in-plant manager against a leading FM.

No topic gets in-plant managers more agitated than facilities management. We all know of shops that were closed by FMs. Stories of their "shady" tactics spread like gossip. But how many of these stories are true?

In-Plant Graphics decided to dive right into the heart of the issue and talk directly to one of the larger FMs to find out what really is going on. But to address both sides of the issue, we wanted to have an in-plant manager on hand to comment on the FM's claims.

So, for the second edition of our Great Debate series, IPG tracked down Chuck LeClercq, vice president of Lanier Professional Services, the outsourcing subsidiary of Lanier Worldwide, and Ray Chambers, CIO at Juniata College and former assistant vice president of Information Technology at the University of Louisville. The resulting conversation revealed some interesting new perspectives on the issue. Surprisingly, there was more agreement that contention in the discussion.

The following discussion contains more information than we published in the printed version.

by Bob Neubauer

IPG: Ray, why is the University of Louisville better off having it's own in-plant rather than letting an outside company manage its printing?

Ray Chambers: Well, I can start with the reason why people started in-plants in the first place. It's cheaper, often we have a need for control, and in the university's case we've got some confidentiality issues in terms of the students' records, patient records and all those sorts of things.

But, we've got some other things going on, especially in higher education. We've moved past the notion that a document is a mark on a piece of paper. We look at documents as capsules of knowledge, if you will. Universities are in the knowledge business so we offer to our faculty, and to our staff to some extent, the ability to package knowledge in whatever the appropriate package is for the intended use. It might be overheads, it might be printing pieces, it might be CDs or Web sites. So we don't have any vested concern that the output has to be on a piece of paper. We offer flexibility and innovation that you might not find with an external provider.

Chuck LeClercq: Ray, I don't mean to disagree with any of the issues you say because everything you say is completely true—if it's managed correctly. The last statement that Ray was talking about, with the managing of the information, whether it's the records or whatever they're doing, it's not your typical in-plant facility because now you're talking about electronic files and data as opposed to what typically was printing and reprographics and other functions.

Now the idea that it's cheaper to stay in-house, I don't know if I necessarily agree with that. It would all depend on how many shifts you're running, the full utilization of the product and the equipment. When you do outsource, you have the capability of using second and third shift for their full capability by using a multitude of other customers, so we can get the economies of scale on the equipment.

If you've got [an in-plant] that's big enough and you're fully utilizing it, then I agree with Ray, it could be cheaper. But that is the one advantage outsourcing brings to the table is to be able to get a lower cost by fully utilizing labor and equipment.

The key to our business in outsourcing in the reprographic end is to do as much work as we can in the backup center, or in this case, the in-plant. That way you're fully utilizing...and it costs the least amount of money, and that's the whole savings that we can offer to people.

Now, the confidentiality of the student records is absolutely not a problem. We do a lot of highly classified litigation work that has confidentiality issues with it, so that can be built into any contract that you write, based on who you hire and what screening process you put them through.

Chambers: I think you have to qualify this discussion...around one point and that is: There are well-run in-plants and there are not-so-well-run in-plants, and there are well-run FMs and there are not-so-well-run FMs. It's wrong to categorize all of them in one pile or the other. I would be the first to admit that some of my colleagues are less than efficient—and that's a big problem. Certainly a facilities manager can offer something in that instance.

On the other hand, I think most people I know in this business work really hard to keep their skills up and provide good, efficient and cost-effective services. That's kind of where we're coming from.

LeClercq: I would definitely agree with what Ray is saying. The individual manager of the facility is the one that makes the difference.

IPG: Outsourcing is definitely a big trend, and you, Chuck, have said in past interviews that companies are asking Lanier to bring document management to their organizations. A lot of in-plants, though, say it's the FM that approaches their upper management first. What's really happening out there?

LeClercq: I don't know what's happening in the industry in general but something must be happening because...the outsourcing business is growing in excess of 20 percent per year.

From our standpoint, we work for the most part with Lanier's base of major national account healthcare customers, and they are asking us to come in and help with some of the document management solutions.

IPG: These are people that already have Lanier equipment installed?

LeClercq: Yes. We have a relationship with the customer currently as opposed to just going out and knocking on doors and trying to get them to switch from using Pitney Bowes or Xerox to using Lanier. Not to say we're not doing that, but there are plenty of Lanier customers that are our target market at this point in time.

IPG: What about a company that has some Lanier equipment but they want to keep their in-plant. Would you approach them and offer your services?

LeClercq: Sure. We'll go in. We do work hand-in-hand with a lot of businesses that still run their in-plants. We'll manage their convenience machines, we'll manage their mail services. It doesn't always mean we go on site and strictly go after the in-plants. As Ray said, some of them are doing a great job. So we'll look to add to it.

And it also depends on if the in-plants are using the electronic print-on-demand equipment or if they're still using typical offset. In that case we would bring the print-on-demand to them—and several of them still have the typical offset printers.

IPG: So, it would be a two-part operation? They would continue running their offset equipment and you would bring in new digital capabilities?

LeClercq: Absolutely. And then the other real advantage when we do that is if we can cross-train the operators from the offset onto the digital machines. Once you're able to do that, now you're starting to increase the efficiencies to lower that customer's cost.

IPG: Ray, it seems to me that a company or a university has more important things to do than print. Why shouldn't you let a facilities management company take over the burden of printing?

Chambers: I guess in a sense we feel like we have. We're the facilities managers for the University of Louisville. Our core competency is document publishing and managing, multiple formats, different styles. We save the university 25 to 30 percent on every dollar it spends on offset printing. We instigated, initiated and manage an office copier contract that saves the university a couple of hundred thousand dollars a year in documented savings.

I guess part of our problem is that...it takes quite a bit of time to evaluate all these proposals when, in fact, you really don't need to anyway. I get about one of these a month.

We feel like we're doing a good job. We use facilities management proposals to benchmark what we're doing, and we feel like we are the facilities managers for the University.

LeClercq: That's exactly right. And if they provide all those functions and do it well, then what advantage would we have to go in?

Chambers: It goes back to what I said earlier: some facilities managers are well-run, some aren't. Some are very ethical, some are not so ethical. There is a group of facilities managers that are calling on people at my level and above with the message that they can do a lot better job than the organization, without even knowing how well the organization may or may not be doing it.

The issue is, without mentioning any names except to say that Lanier does not fall into this bracket for me, companies that sell us...very expensive digital duplicating equipment on the one side—telling us...how much more efficient we'll be if we buy this equipment—come around on the other side telling our bosses how inefficient we are because we spent this money on this big piece of equipment.

LeClercq: That's probably because they have two separate divisions; one is outsourcing, one is the hardware end, and they do not talk to each other.

IPG: Isn't that the case at Lanier, too? Lanier Professional is separate from the equipment sales division.

LeClercq: Well, we are different, but we work hand-in-hand with what I call our core business: the hardware sales people. So they make joint sales calls. We don't have two or three different reps calling on the same customer.

IPG: Chuck, what about costs? An outsourcing operation must make a profit. So, how can Lanier save a company money?

LeClercq: Let me give you an example: If Ray's equipment is running only one shift, we could take that workload and put it on equipment that's running three shifts. Now you've got no additional overhead costs, no depreciation on the equipment and your costs go down the more you use it. So that is one of the best ways I know of to fully utilize all of your equipment. Not that we can necessarily do it any cheaper or quicker than they are, but it's just that your overhead costs are reduced, therefore giving us a profit margin.

Chambers: On one hand, that's a good textbook argument, and I would agree with it. On the other hand, if I'm running the machine, even though it's 10 years old, if it's fully depreciated and fully paid for, I have no operating overhead on that machine. It's still pumping out pieces of paper. So I've always had a problem with that argument.

But I think there's something that's even more important here. A lot of the larger and more progressive shops are becoming profit centers as opposed to cost centers. We are driven to be as efficient as anybody. We have to be.

LeClercq: Outsourcing for facilities management is not for everybody but certainly there are a lot of companies that can save a lot of money by uncovering inefficiencies. One of the things that drives Ray nuts, I'm sure, is when people come in and talk to his boss about ways of doing this. It's terrible to make a statement that, "We're going to save you all these monies," because you can't really tell unless you do an in-depth survey, and you can't do that without full access to all of the records.

IPG: Ray, I'm sure it's tough to convince your management to give you money for new equipment. Wouldn't it be easier to let an FM buy the equipment and do your printing?

Chambers: It might be in some circumstances. My first recent reaction to that: It's just another business decision. What kind of analysis went with the request? What's the payback on it? If it's five years or less, that's a 20 percent return on investment. That's pretty darn good.

The reality in our case is that we don't buy equipment anyway. We lease/purchase it so we actually build the price into the operating cost. And I think that's really more of a trend now. People are developing ways to build technology costs and upgrade costs into the cost of doing business.

IPG: I've heard facilities management companies argue that, by signing up with them, a company will no longer have to pay for equipment upgrades. The FM supplies equipment.

LeClercq: Anybody that says that a company doesn't have to pay for the cost of equipment upgrades, that's a ridiculous statement. Even when we're using our own Lanier equipment, there's a cost associated with that that has to be depreciated.

IPG: So that gets passed along?

LeClercq: Sure, it has to. Otherwise, you've got an unrealistic picture of your profit and loss statement.

IPG: Ray, would a facilities management operation be able to provide any benefit for your university?

Chambers: Sure. A well-run facilities management company can come in and do what we're doing. The question I would ask is what business results are you looking for? If you're looking for lower costs then probably not. If you're looking for outsourcing because outsourcing is very trendy, then you'll gain what you want.

Outsourcing isn't a cure-all, it's one tool that some people can use to turn around a situation that's not optimal. But what tends to happen, and I think Chuck will probably agree with me, is that we tend to throw everything into this same pot and say the same answer is good for everybody. So my answer to you would be no. Outsourcing probably would not be an improvement for services here.

LeClercq: You're right, it's not for everybody. If you've got outstanding customer satisfaction, and you're doing it at a reasonable price, why would anybody want to make a change?

Chambers: I think that most of the successful in-plants, and by successful I mean the ones that are able to justify their existence on a continual basis, are the ones that...continuously try to add value. That's what distinguishes the people who should continue to provide their services from those who probably need to think hard about whether they're in the right business or not.

LeClercq: I agree with what Ray's saying. If you've got a well-managed shop and you can add value to the company—and of course keep up with the newest technology—that's wonderful. And that's what will make in-plants very successful. It's like anything else: You have to bring added value to your customer base.