Changing the In-plant Perspective
In-plant production facilities face a host of challenges to survive: there is the threat of facilities management or outright closure; senior management may perceive the in-plant as not being strategically relevant; and then there are the nearly impossible profitability targets that trap in-plants between the rock of being profitable and the hard place of not overcharging internal clients.
All too often, the result is a no-win management review situation. There are ways to avoid all of these challenges — but implementing them requires fresh thinking and some alternative in-plant management approaches.
Well-run in-plants save companies, schools and agencies money while producing critical materials. Yet even some of the best have given way to facilities management or outright closure. Interestingly enough, reviews of recent in-plant closings show that some were closed because they were bleeding money, others closed even though they had significant money in reserves, and others closed with little regard to future costs or inconvenience to their internal clients.
In all cases, it is apparent that the value and contributions to their parent organizations brought by these in-plant production operations were just not understood or appreciated by their management. Perceptions like these have to change for any in-plant to be successful and to grow.
Changing the landscape
There are two value perceptions that are critical for in-plants to address with their management in order to be successful:
• True financial value.
• True strategic value.
Affecting your management’s perception of both of these values starts with changing your own perception of your in-plant and your business strategy.
For years, industry pundits have encouraged in-plant managers to consider themselves printers. In-plants that view themselves as printers will develop print-centric strategies to justify their existence. They will strive to make their expenses and revenues balance to zero—which is a very difficult balancing act. They will view insourcing as a strategic value rather than as a funding aid. They will be setting their priorities on print production rather than on the priorities of their parent organization.
On the surface, this seems to make sense, since in-plants provide the same services as commercial and quick printers, utilize the same equipment, software and workflows, and compete head-to-head with each other for jobs. However, I disagree.
The difference is that while in-plants provide the same service as their commercial counterparts—they are not in the same industry. A hospital in-plant is in the health care industry. A school copy center is in the education industry. Your in-plant is really in the industry of your parent organization. This distinction may sound like simple wordsmithing, but it is a critically important difference in management thinking.
In-plants that view themselves as being in their parent organization’s business will develop strategies to assist their school, company or agency to better educate students, improve sales, deliver more effective government, or meet whatever their organization’s goals may be. They will strive to maximize their parent organization’s savings. They will view insourcing as an effective way to help fund projects—but not as a strategy. Their priorities will align with those of their parent organization and their goals will be focused on achieving as much savings and on adding as much value as possible rather than on trying to zero balance their P&L statements.
Let’s consider how this perspective would affect a management review with an example. We’ll consider management reviews of two made-up in-plant scenarios that are identical—except for their value perception.
Traditional in-plant value measurement
Our fictitious six-person in-plant printing operation is presenting a budget review to the chief financial officer, who has budgetary challenges and is looking to save money. They did due diligence and can document $686,000 in total expenses and $690,000 in revenue from internal clients and $10,000 in insourcing revenue from outside clients. This amounts to $700,000 in total revenue and $14,000 in profit.
They’re feeling pretty good heading into this meeting but get an unpleasant reaction. The first thing the CFO calculates is the return on investment (ROI). A $14,000 profit on a $690,000 is a 2% ROI. Both the profit and ROI are very small numbers and the CFO’s likely reaction is that this operation is just not worth the time and effort in terms of human resources management and other headaches when professional printers could just do all the work outside.
Unfortunately, these numbers are small because the in-plant tried to be profitable without overcharging its clients. What if it had employed a different strategy?
If the in-plant presents a large profit, primarily due to internal revenues, the CFO could complain that, despite nice profit and ROI numbers, they were overcharging internal clients.
If they present a large profit, primarily due to insourcing, the CFO will gladly take the money, but may point out that entering the commercial print market is not one of the organization’s strategic directions. Public sector operations might view this as competing with their constituencies. Private sector companies could look at profitability trends in commercial printing and question why a hospital, financial services or manufacturing company would want to invest in entering into this industry.
If they present negative profits, closure is imminent.
So they’re really in a no-win situation, regardless of the profitability numbers. Even if they survive this review, the CFO will want to change something and, since charging internal clients more is out of the question and growing outside printing business is not a strategic direction, the only solution is to cut costs.
At this point the in-plant manager might explain that while profitability is a viable measure of efficiency, the in-plant operation provides valuable services beyond savings. She could certainly list print volumes and capabilities like UV coating, binding, shipping, CASS certification, postal sorting, VDP with QR codes, PMS matching, and so forth.
It is likely that the CFO (who probably has an accounting or sales background) probably doesn’t know what most of those terms mean—but he does know that none of them are mentioned in the corporate mission statement. It is clear that this in-plant isn’t working on the same corporate priorities as everyone else. Furthermore, small print volumes raise doubts about the need for its existence, while large ones seem wasteful and “not in line with green initiatives.”
No matter which way you look at it, this in-plant is in trouble. Its “value” does not align with the “core business.” The only solution available to improve financial results involves reduction. Next year they’ll be in the same situation—or worse. And the sad truth is, they only presented a part of the picture.
Total Value Model
Let’s look at this same situation again with a little more information. This time our in-plant manager presents the exact same financials, but adds that her clients have saved the company $110,000 versus going outside for their work. Adding this to the profit picture shows $124,000 in financial value delivered to the organization.
This changes the ROI calculation to an 18.1 percent return on investment. The CFO is very impressed—but will want to be shown how these numbers were determined. Bringing him through this analysis is powerful because it not only demonstrates validity of the numbers, it drives the conversation away from cutting budgets and towards increasing savings.
Our in-plant manager presents the savings by individual departments. Drilling down to the savings at this detail level provides several benefits:
- It indicates a better understanding of the numbers.
- It demonstrates that the in-plant is impacting core business areas.
- It shows a good understanding of clients and business.
She finishes by describing the value the in-plant brings to the company in terms that align with the overall organization’s strategic mission and objectives.
The CFO is probably in a very different mindset than at the beginning of the presentation. He will likely feel the in-plant is aligned with his key strategic initiatives. He may now think of the production operation in a whole new light. And he will be drawn to the big numbers (total savings) more than the smaller numbers (internal profitability) with his primary focus being how to maximize overall internal client savings rather than how to have zero internal profits or how to cut costs.
The value of shifting perspectives becomes apparent. Strategic relevance is understood and in line with corporate missions. Financial impact is greater and more accurately represented. And the in-plant has an open-ended goal of maximizing corporate or institutional savings instead of trying to achieve a zero-balance profit/loss statement.
Related story: Changing the In-plant Perspective: Part Two
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.