Changing the In-plant Perspective: Part Two
In my previous article, we explored the value of elevating our in-plant perspectives from a production level to a corporate or institutional level. We discussed the benefits of showing the financial savings an in-plant brings to the organization and how to craft strategic value statements. This month's article focuses on an efficient way to accomplish this.
Financial savings can be calculated in a variety of ways. The most accurate is to get a quote for each and every job. The obvious drawback to this method is that it is incredibly labor intensive and probably not worth the effort.
Another avenue is to get quotes on a sampling of the most common jobs and calculate a percentage savings versus the cost of going outside. Unfortunately, a single savings value may not be sufficient to satisfy a discerning CFO. Estimating that jobs printed in-house cost 20 percent less, on average, than those printed outside is a very broad statement. Most likely there are different savings for different types of jobs, which makes a single savings estimate insufficient.
Here is a third approach that creates a more accurate estimate, based upon job types:
Step 1: Define Standard Job Types
Start by defining standard job types based upon the work you do. The goal is to keep this list as short as possible, while separating job types that are likely to have different savings percentages. With a little thought, you should be able to create standard job list with 50 to 100 jobs such as:
• Black-and-white print
• Office-quality color print
• Managed quality color unfinished print
• Managed quality color booklet
• Managed quality color perfect bound
• Wide-format color
• DVD duplication
Step 2: Map Each Incoming Job to a Standard Job Type
Take each job that comes into your shop and map it to the standard job type that most accurately matches it. Be sure to include the client department and the internal chargeback price as well.
Step 3: Calculate the Savings Percentages
At the end of a month, quarter or year, compile a list of all the jobs you produced, subtotaling by standard job type. (For example, 200 black-and-white print jobs, 89 managed quality color booklet jobs, etc.) Create sample jobs for the 10 most common jobs, and get outside quotes for them. Be careful to completely specify the sample jobs including quality, paper, delivery time, and so forth. Compare these quotes to what you would charge for the exact same job to generate a unique percentage of how much more (or less) each standard job type would cost going outside. Use what you've learned to create estimated percentages for the less common jobs.
Step 4: Calculate the Financial Savings Estimates
Now, multiply the internal price that you charged for each job you did by the outside uplift percentage for the associated standard job type. This will give you an estimated outside price for that job. You can total these across all jobs to create your true financial savings and can subtotal them by client to estimate savings by department.
This method will provide detailed and defensible estimates down to the departmental level. The financial impact to a department primarily doing static black-and-white work will be different than the impact to a group with a great deal of high-quality, variable data color work. Furthermore, the breakdowns can be fine-tuned over time as needed. For example, you might decide to split rush and non-rush jobs, or to separate offset jobs by run lengths. Just bear in mind that the goal is to group jobs with similar savings percentages—not with similar costs.
Be sure to add these savings to your profit (or loss) from your traditional revenues and expenses calculation to determine your true financial value to your corporation or institution. Doing this not only presents a true financial value—it alters your entire business strategy.
Traditional financial reporting typically causes in-plants to try to maintain a zero balance. In-plants can't operate at a loss, but high profits indicate overcharging of internal clients. Hence, there has been a historical struggle to keep in-plants' balance sheets positive but as close to zero as possible. This true value approach changes all that. With this approach, the true measure of an in-plant's value to an organization is how much it saves its parent organization.
The goal is now open-ended: How can an in-plant maximize savings for its organization? The actions to do this now include far more than minimizing costs. They can include maximizing productivity, increasing utilization, bringing high-margin work back in-house, and even outsourcing low-margin work. In fact, with this model, operating losses often don't have an impact on the total value calculation.
Imagine an in-plant that had $360,000 in chargebacks, $358,000 in operating expenses (for an operating profit of $2,000), and $70,000 in calculated savings. It would show a total value of $72,000 in overall savings (profit plus savings).
Now imagine that same in-plant had undercharged clients so that it only had $356,000 in chargebacks. It had the same operating expenses ($360,000) so it showed a loss of $2,000 on its balance sheet. In other words, everything was the same, but it charged clients $4,000 less than in the first example so it operated at a loss.
With the true value approach, since the outside price of its clients' work didn't change, that undercharge translates to $4,000 in additional savings to the in-plant's clients versus going outside. This means that its total true financial value didn't change at all. It is now $74,000 in savings less $2,000 in operating losses or $72,000 in overall savings.
As you can see, this approach changes your target. You are no longer trying to hit a single number (zero); instead you are aiming to make the savings as large as possible.
In-plant Strategic Relevance
In-plant production operations offer more than just financial value to their parent organizations. This needs to be shared and understood by senior management as well as by your customers. To do so requires ensuring you have the right strategic perspective.
Many in-plant managers consider themselves to be in the printing, mailing or fulfillment business. That perspective limits their strategic value perspective. In-plant production operations certainly provide printing, mailing and fulfillment functions—but they are, ultimately, in the business of their parent organization: healthcare, education, financial services, manufacturing, government, etc.
When you speak of your value, it needs to be in terms of how you are helping your business, school or agency meet its goals. This is a key differentiator between your in-plant and commercial printers, but it often requires changing your mindset.
Try creating some value statements for key customers:
• Pick a key client. (e.g. Group Retirement Services.)
• Choose one of their top jobs and note how many you produce per year. (e.g. 1.8 million member statements.)
• Think about how your client uses this job. (e.g. sends it to members.)
• Identify the business area this affects. (e.g. information and upselling.)
• Imagine how important this job is for them to accomplish this. (e.g. how important is this to Group Retirement Services' information and upselling business area? Answer: crucial.)
• List what your in-plant does on this job. –(e.g. analyze, manage, print and mail.)
• State why you are uniquely qualified to do this. (e.g. we provide exceptional client service.)
• Describe how you could further help your client meet their objective. (e.g. how can we help Group Retirement Services better handle information and upselling? Answer: by printing in color to improve response rates.)
Now combine your answers into a few sentences. For example: We deliver a crucial function for information and upselling with the 1.8 million member statements we analyze, manage, print and mail annually for Group Retirement Services to send to members. No other operation can do this better than us because we provide exceptional –client service. We are working with Group Retirement Services to –further improve information and upselling by printing them in color to improve response rates.
Meaningful Value Statements
Do this for your dozen top jobs and clients and you'll begin to think much differently about the value you provide to your university, hospital, corporation or other organization. You'll be able to craft meaningful strategic value statements that align with your organization's strategic objectives. You'll also be able to present your value to your clients' staff meetings in terms of financial savings and unique benefits that they will understand. Doing this will open the doors for discussing how else you can help your clients meet their objectives—not the objectives of a printer.
The techniques discussed in these two articles are meant to help you justify your in-plant operation. They can help change your mindset on how to set your strategic directions and grow your business in the right directions.
Related story: Changing the In-plant Perspective
Greg Cholmondeley is president of Cholmonco Inc. Cholmonco is a technology marketing consulting company that researches, analyzes and documents best practices and innovative solutions. Cholmondeley is especially interested in how industry leaders efficiently get work through digital printing and marketing services operations. He has also written two fictional novels. The first is titled “Nakiwulo and the Circle of Shiva” and the second is called “Princess.” You can learn more about his consulting practice and read more of his blogs at www.cholmonco.com. You can discover his books at http://books.cholmonco.com.