Benchmarks, Old and New
One of the take-home messages from the Great Debate on Outsourcing at the recent In-plant Printing and Mailing Association (IPMA) conference was that measuring performance, benchmarking and reporting improvements are some of the most powerful weapons in your arsenal to fight the threats of outsourcing.
One of the challenges, however, is that you can’t just flip a switch and have your performance measured, compared and reported. In addition, many of the benchmarks are based on chargebacks and sales figures that are not tracked by all in-plants. In this article we will discuss the traditional benchmarks, which are based on sales, and discuss some potential next-generation benchmarks.
Benchmarking is a strategy of measuring and comparing your operations and processes against other organizations. The most common benchmarks focus on time, quality, cost and customer satisfaction. Three categories of benchmarks are internal, world class and competitive.
- Internal benchmarks compare individuals in the same department to find the best.
- World class benchmarks compare performance to all other companies for universal attributes such as rework and customer satisfaction.
- Competitive benchmarks compare to others in the same industry, which is the focus of this article.
The results of benchmarks fall into three categories: industry average, leader or laggard. Once you benchmark performance, the most important action is changing what you are doing to improve performance. The ability to measure something, make a change and observe how the measurement changes (either improves or gets worse) is what we call “actionable data.” If you are measuring something and the data is not actionable, you are wasting resources.
The first priority is to move any performance from laggard status to industry average. If an outsourcing company evaluates your performance and identifies laggard performance, it will have the ammunition it needs to make a strong case for outsourcing. The second priority is to move from industry average into leader status.
Some benchmarks in the printing industry have been around for a long time and could be considered traditional benchmarks. Two of the best-known traditional benchmarks are sales per employee (SPE) and payroll as a percentage of revenue, also known as Factory Payroll Cost. Both are measures of overall productivity and/or appropriate staffing levels.
The problem, however, is that both require sales figures, and some in-plants (i.e., fully funded ones) may not track sales. Some try to substitute budget figures for sales, but if equipment, maintenance, space, utilities or materials are included in the budget, the calculation is not comparable.
Most of the benchmarks quoted in articles are based on smaller in-plants with less than 10 people and typical sales of $1.5-2.9 million — about 75% of in-plants. For the same size commercial printers, factory payroll cost or payroll as a percentage of revenue, leaders are 25% or less, the industry average is 33% and laggards are above 38%. This could be considered a world-class benchmark, but not a competitive benchmark because this is not comparing against other in-plants.
Since in-plants typically offer more expensive perks and benefits packages, the competitive benchmarks for the average in-plant are slightly higher: the industry average is 36%, leaders are less than 28% and laggards are more than 40%.
Interestingly, these benchmarks change with size and are consistent with a bell-shaped curve. These small companies are at the beginning of the curve; in the middle are $3-6 million companies and the ratios increase by 1%. In $6-10 million companies, the ratio is the same as small companies. For companies with more than $18 million in sales, the ratios fall by 1%.
Sales Per Employee
The other traditional benchmark is sales per employee (SPE). Like the previous benchmark this is calculated for largest market segment or smaller size in-plants. The last published numbers I know of are from the 2015 “In-plant Benchmarking Study: Operational and Financial Performance” that I worked on during my tenure with InfoTrends (now Keypoint Intelligence/InfoTrends). We found that the industry average was $129,000 per employee, leaders were $180,000 per employee, and laggards were below $98,000 per employee.
These ratios change based on company size too but are linear, meaning the ratios increase as company size increases. For the larger $3-6 million sized companies, the ratio increases $20,000; for $6-10 million companies it increases another $10,000; for companies in the $10-18 million range the ratio increases another $10,000; and for companies with sales of more than $18 million it increases another $30,000.
For more than a decade, we have been testing several alternative benchmarks that we hope someday will become next-generation benchmarks. The three that look the most promising are: percentage of staff cross-trained, printing equipment utilization and price competitiveness.
Cross-training is critically important because it not only helps when staff go on vacation, it also allows you to move people throughout the day when bottlenecks move from one department to another. An old study from Keypoint Intelligence/InfoTrends (“U.S. Production Software Investments,” 2013), found that cross-training was cited as the most important workflow initiative. When possible, we use percentage of staff cross-trained as a benchmark, but not all companies embrace cross-training.
Years ago, when we were forced to choose one metric to evaluate more than a dozen state in-plants, we chose equipment utilization. We still use utilization rates because they are a good indication of how much equipment is used. It’s calculated by measuring use over availability (4 hours/8 hours=50%). The problem, however, is that it does not consider the need for fast turnaround.
Many in-plants require very fast turnaround. The only way to achieve fast turnaround is to have equipment that has excess capacity (capacity that exceeds average demand). If you’re an in-plant performing transactional printing, you may need “burst speeds” to meet your service level agreements (SLAs). Utilization rates are a poor measurement if the goal is fast turnaround.
Price Competitiveness Benchmark
The price competitiveness benchmark is one we have been using with great success. Although early in the process, the good news is that every in-plant that we have analyzed that has increased its price competitiveness is still in business. The reason is simple: price competitiveness is the most important reason companies outsource.
That means if your prices are not competitive for a significant number of jobs, you are at greater risk from outsourcing threats. We are still refining the price competitiveness benchmarks for industry average, leader and laggard. If you’re interested to learn how you compare you can call us to be included in this groundbreaking research and be part of this next-generation benchmark.
Related story: The Outsourcing Debate
Howie Fenton is an independent consultant who focuses on analyzing/benchmarking the performance of printing operations. Fenton helps companies use metrics, best practices and workflow strategies to streamline operations. Call (720) 872-6339 or email email@example.com