11 Lessons Learned About Insourcing
The traditional distinction between an in-plant and a commercial printer is that commercial printers sell their products to external companies while in-plant printers only sell within their parent organization to internal customers. However, that distinction is changing.
For a host of different reasons, in-plants are now offering their products and services to external customers. Within the in-plant community this is referred to as “insourcing.” This article is an overview of the pros and cons, market research, as well as lessons learned from in-plant managers that offer insourcing.
The Pros and the Cons
There are pros and cons for in-plants offering insourcing services. The underlying theory for insourcing is simple: sell the time on machines that are sitting idle, and turn that idle time into a revenue stream. Furthermore, this increases the utilization rate, which may reduce the cost per page, because moving from lower page volumes to higher volumes often reduces the click rate. The challenges in offering services to outside companies include:
- Philosophical differences: the mission for some in-plants is to only support internal customers.
- Regulations: many are limited in the type of companies they can offer services to (e.g., non-profits).
- Priorities: the question is, will working for external customers result in late delivery for internal customers?
- Cash flow problems: within the parent company financial transfers are fast; external customers may not pay for months.
- Sales and marketing issues: who will find opportunities, and how.
A Long History
One thing that became very clear in our interviews is that insourcing is not a new idea. A few of the companies we interviewed have done it for two decades. However, it was not discussed much, presumably because it could be interpreted as a contradiction of the mission statement for the in-plants. We believe insourcing became more important during the Great Recession when printing volumes nationwide fell by 20% or more (according to NAPL’s 2014 State of the Industry Report). In-plants struggling to meet their financial objectives became more open to selling services externally.
While some in-plants are prohibited from doing that, today 63% of in-plants insource, according to IPG survey data. Of those, insourcing makes up an average of 13% of sales, and 59% say they provide revenue back to the parent organization.
To learn more about in-plants that successfully insource, we interviewed six in-plant managers with varying years of experience, in in-plants of different sizes and at different types of organizations. Here are some lessons learned:
1. Know the Rules and Regs
Leslie Blagg is the Central Service Manager for the County of Placer located in Auburn, Calif. After the Great Recession, volumes for the county declined from about 800,000 impressions/month when demand was highest to about 300,000 impressions. This prompted Blagg to seriously consider selling to other agencies.
“We have been approached many times by other local agencies such as school districts, fire districts and non-profit groups, but I was not sure about the rules and regulations. After the volume decline, I contacted the County Auditor’s office and learned that we could only offer services to other state agencies and other organizations categorized as 501-3C.
“In our first year the revenue from insourcing was about 1% of the total printing. Our success in the first year came from the agencies that approached us. Word-of-mouth recommendations helped us grow that first year. Since then we’ve taken a more proactive approach, printing flyers and making phone calls.
“When we talk to people, we stress the advantages of doing business with us, which include: the quality of our work, our ability to access digital files, billing directly, and a free delivery service. In the near future, we are planning to set up a digital storefront to allow these other organizations a streamlined method for placing orders. I am happy to say that our insourcing has grown to 6% of our total printing.”
2. Get Management’s Buy-in
Modern Woodmen of America is the third-largest fraternal benefit society, with more than 770,000 members. It is a membership organization that sells life insurance, annuity and investment products. The in-plant has 30 staff members that perform printing and mailing functions.
After a brief hiatus, John Oliger returned to Modern Woodman as the manager of Print Services. In between, he worked as the CFO of a company offering print brokering services and had approached Modern Woodman about selling services to outside companies. At the time, the management did not appreciate the benefits.
After returning in 2013, Oliger started to talk about the benefits of insourcing to anyone that would listen. During a tour of the facility by a new member of the board of directors, the topic of insourcing was brought up with genuine interest. The next year Oliger made a presentation to the board that included insourcing, which was well received. After a management change, the company agreed to try insourcing. For the first year, approximately 3% of the work came from insourcing.
3. Start Cautiously and Remain a Good Partner with Local Printers
“Our goal,” says Oliger, “is to bring on one new client a year. We want to start slowly to ensure that we meet the obligations for our parent organization. I have a list of companies in the area that I know need printing. Something that’s important to us, however, is not taking business away from the local printing community. We have to be a good partner with the local printers because we depend on them to do work we cannot.”
4. Use a Print Portal
Richard Beto is the director of Document Solutions at The University of Texas at Austin (UT Austin), and before that he was the director of Printing Services at West Virginia University. Unlike Leslie Blagg, Beto had permission to accept outside work.
“I had permission at West Virginia University to sell to state agencies, and when I joined UT Austin, it was set up here too,” he says. “We have always been successful insourcing offset work, but we did not insource much digital at first. Over time we learned about new opportunities such as independent school districts (ISDs). Now we sell to three ISDs.”
Beto believes that the early success in selling digital printing can be attributed to an online print portal. “In September 2010, the Council on Competitive Government in Texas created a print portal and allowed six state entities to bid on work,” explains Beto. “Other agencies included: Health and Human Services, Department of Highways and Department of Transportation, State Police, the prison, and the Workforce Commission. We have done pretty well on the portal. We don’t bid on everything, but with the work we bid on, we get about 55%.”
5. Take a Multifaceted Sales Approach
After the initial success with the print portal, Beto took a shotgun approach to marketing and sales.
“The print portal helped us develop relationships and today our customer service reps have relationships with the print buyers and they make sales calls. In addition, we have the email addresses of everyone that requests bids on the portal, and I have sent emails to them describing our other services.
“But perhaps the most effective new tool we use is the demonstration showcases we offer on campus. Every other month we go to a building on campus and set up different tables that we call stations. Each is staffed by an expert who talks about each service. We talk about print, mail, pop-ups, wide-format and promotional products. In our last class, we had 50 customers — which we consider a huge success.”
Beto could not share specifics about the revenue from insourcing, but said it was in the multimillion dollar range. He discussed two main advantages of insourcing.
- It helped the department achieve its financial goals.
- It allowed UT Austin to invest in new equipment that could help better serve the university.
“I’m not sure if I would’ve been able to cost justify some of our latest equipment purchases if we did not have the revenue from insourcing,” concludes Beto.
6. Manage Like a Commercial Business
HealthSouth is located in Birmingham, Ala., and is the largest owner and operator of in-patient rehabilitative hospitals in the United States. Danny Kirkland is the director of the in-plant, which sold $8.4 million last year with a staff of 31, which includes a full time salesperson. Similar to the decline in the volume of forms described earlier by Leslie Blagg at the County of Placer, HealthSouth also struggled with declining forms.
“Five years ago, forms were 60% of the printing business and 15% of the fulfillment of business,” Kirkland notes. “Today it is 7% of the printing business and 9% of the fulfillment business.”
After HealthSouth performed an internal audit of the in-plant management, the company began talking about closing down the in-plant because there were no metrics demonstrating its effectiveness.
“We were unaware,” Kirkland admits. “When you’re immersed in day-to-day activities, you don’t realize you have a problem, and if you do, you rationalize it to justify. It got to the point where [the option of closing the in-plant] was on someone’s desk. That was a real wake-up call.”
Kirkland decided he had to run the in-plant like a commercial business, and measure and report the results if he wanted to prove the in-plant’s value. In an effort to avoid any potential conflicts, HealthSouth created an LLC called the Print Promotions Group for the external work. Investments were made in hardware and software automation (Web-to-print and Print MIS), and new products were introduced such as wide-format printing and promotional products. Finally, Kirkland hired a salesperson and a customer service representative (CSR) dedicated to outside sales.
7. Measure Your Performance
Unfortunately, HealthSouth did not have a system in place to measure performance. Therefore, Kirkland worked with the internal staff to build a Print MIS. Working with FileMaker Pro, the staff built a system called Elements. The system measures and tracks sales, turnaround time and the cost to manufacture.
Similar to the success at UT Austin, HealthSouth also needed a print portal. Two years after the implementation of Web-to-print software, the total number of jobs increased 83% (29,000 to 53,000) and revenue more than doubled ($3.6 to $7.5 million). The increase in productivity helped HealthSouth grow 80%, and today the in-plant fulfills 95% of the parent organization’s printing needs. In the first two years, insourcing grew from $500,000 and is expected to hit $750,000 by the end of this year.
8. To Insource Well, Increase Productivity
John Sarantakos is the director of Printing, Mail and Document Services at the University of Oklahoma (OU). The in-plant topped IPG’s list of the largest university in-plants according to sales, with $16.5 million in 2015. Sarantakos attributes some of that success to insourcing.
When he started with OU 19 years ago, the in-plant was already insourcing. Sarantakos asked his boss about increasing the amount of insourcing and was told, “Any new money coming into the university is good money.”
“The additional revenue helped us buy better equipment and provide better service to the university,” he notes. When asked how the decline in printing affected the volume of his work, Sarantakos replied, “Ironically, the decline in the printing business creates more opportunities for in-plants offering insourcing. We have gotten more work over the years, as local commercial printers and in-plants have closed their doors.”
When he created the infrastructure for insourcing, Sarantakos involved staff in the process.
“It is my staff that makes everything work,” he says. “If you don’t involve your staff, you end up with a disinterested workforce, which makes it really hard to keep the doors open.”
Involving staff helped create additional capacity by running with multiple shifts.
“One decision that made insourcing more feasible was increasing the number of shifts,” reports Sarantakos. In 1997 when he joined the university, the shop was using several offset presses but only printing one shift.
“Once I saw the increase in productivity after moving from one shift to two, I knew we would most likely be shifting into three shifts soon,” he says. “It wasn’t long after offering services to state agencies, nonprofits and other universities that we had to add a third shift.”
9. Dedicate Staff to Sales, Grow Slowly and Keep Internal Customers
As at UT Austin and HealthSouth, OU found that achieving significant benefits from insourcing required dedicated sales efforts.
“I have two of my most experienced people responsible for insourcing,” Sarantakos notes. “The commercial work is handled by Sherri Isbell who is my assistant director and CSR manager. State agency work is handled by Bob Goodwin who is another assistant director and production manager.
“I have to credit my staff with the growth of insourcing. The first year I was here, the department billed about $5 million with about 20% of that work for insourcing; today our sales are $16 million with about 30% insourced.
“My advice to anyone embarking on insourcing,” offers Sarantakos, “start slowly and involve your staff. Staff need to know why outside sales are important but also have to remain dedicated to satisfying internal customers. Nothing will jeopardize the in-plant faster than not fulfilling your obligations to your internal customers.”
10. Always be Closing
Messiah College is a private Christian college of the liberal arts and applied arts and sciences located in Mechanicsburg, Pa. Dwayne Magee is the director of Messiah College Press & Postal Services, as well as the president elect of the In-plant Printing and Mailing Association.
According to Magee, the evolution of insourcing was very organic. “We often have constituents that are donors, or friends of the president, who ask us to print an invitation, poster or a thank you card,” he says. “At first, the president or some other senior level executive pays for it out of their budget, and over time this became a service we offer. Through word-of-mouth, more people started asking us to do more work.”
With 13 people working in print, mail, design and the post office, Magee has to assume responsibility for sales, but he says it’s not difficult.
“It’s not really that hard for me to find new opportunities; I just keep my eyes open,” he says. “For example if I’m walking in town and I see a sign hand written with a magic marker, I make a mental note of it, go back to campus, talk to one of the designers, and create a small poster that I give to that business owner. I tell them I won’t charge them for this one but if they’re interested in more to contact me.”
It must be working because the revenue from insourcing in 2006 was $40,000 and at the end of 2016 it increased to $142,000.
11. Increase Your Alignment
Increasing strategic alignment is often considered one of the most difficult tasks for in-plant printers. The first step in this process is to think of the mission of the parent organization and then think of specific tactics the in-plant can provide that are consistent with those goals. For many colleges and universities, the mission is to support education, increase student enrollment and help fundraising efforts. In-plants that print course packs and use variable data printing to increase enrollment and fundraising would be considered strategically aligned.
One challenge remaining is that the mission of the parent organization can change. Monitoring that change is the first step in figuring out how to better align. Fortunately Magee is involved at the director level and learned that the latest strategic plan at his college was to find alternative revenue streams. The first attempt is the catering office offering catering services to the community. Understanding this, Magee can make the business case that insourcing is strategically aligned with the mission of the college.
IPG data shows that 63% of in-plants insource and the average revenue is 13% of sales. Almost everyone interviewed talked about the importance of sales. Three different strategies were discussed: using the internal staff such as customer service reps, dedicating sales staff for outside work, and managers accepting the responsibilities themselves.
For those that want to pursue insourcing, remember the first three lessons learned: get management’s buy-in; know the rules and regulations governing the in-plant; and retain good relationships with local printers who you need to work with.
The importance of building the infrastructure was evident at UT Austin, HealthSouth and OU. Each noted that Web-to-print software made it easier for customers to order work. At UT Austin, the print portal helped the in-plant identify new customers and offered a tool to bid on work. At HealthSouth, customers could order or reorder work, which increased jobs submitted by 83% and revenue doubled.
A Print MIS system was another part of the infrastructure required at HealthSouth, because it helped the in-plant measure and report the value that it provided. When OU’s Sarantakos created the infrastructure for insourcing, he involved staff in the process, which led to the addition of shifts, creating more capacity.
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 firstname.lastname@example.org