Will outsourcing the Washington State Department of Printing really reduce printing costs? Really?
Let’s think back to entry-level economic theory—Economics 101. Remember the Law of Supply and Demand? It’s a straightforward concept. According to the Web site Investopedia:
“Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.” Demand refers to how much (quantity) of a product or service buyers want/need. Supply represents how much the market can offer. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
In practice it’s really pretty simple. Let’s say that yesterday you could buy widgets for some price, but last night a good size chunk of widget-producing machines broke down and there are fewer widgets available today (supply drops). If consumers still need the same number of widgets, what happens? The folks that need widgets start offering more for the widgets that are available, and the price of widgets goes up.
Or, if the number of widgets that can be produced stays the same, but suddenly more people want more widgets, the same thing happens. The price goes up.
Think OPEC. What happens when OPEC cuts back on oil production but the demand for oil stays the same or grows? The price of oil goes up. Right?
Whether it means to or not, if Senate Bill 5523 (the bill seeking to close the Washington State Department of Printing) passes, the Legislature in the state of Washington will be in a position similar to that of OPEC. The bill will close the Department of Printing, a major component in the overall supply of printing in that market. If the Department closes, what happens to supply? It goes down. Supply will decrease by the amount of work printed at the Department of Printing, currently estimated at about $20 million per year.
Demand, however, is not likely to change. People still need printed stuff to do their jobs, and that includes employees of Washington agencies. And what happens when demand stays flat and supply decreases? If the Law of Supply has anything to say about it, prices for printing will go up.
They’ll go up for state agencies. They’ll go up for churches and charitable organizations. They’ll go up for colleges and universities that buy printing now. They’ll go up for schools. And they’ll go up for firms that depend on printed material do conduct business. The law of supply and demand cannot be selectively enforced. Everyone takes a hit.
One could argue that closing one or two commercial printers in the area would not have a big impact on supply. But the Department of Printing is not a “typical” commercial printer. The Department of Printing has about $30 million in annual sales, $20 million of which is produced internally. According to local news sources (which obtained their data from IPG), the Department of Printing is the third largest government printing plant in the country, trailing only the U.S. Government Printing Office and the California Office of State Printing. If we compare its size to commercial printers, it ranks in the top 200 or so commercial printers in the United States. Said differently, the Department of Printing is larger than about 30,000 commercial printers. Closing a plant of this size will cause a major reduction in print supply.
The department purchases about one-third of its annual sales from commercial vendors. That means that the remaining 66 percent, or about $20 million per year, would no longer be produced internally. It would have to be purchased.
The U.S. Department of Labor estimates that most (80 percent) of commercial printing firms have sales of $2 million or less and employ 15 or fewer employees. The Department of Printing produces about $20 million annually internally, and it employs approximately 100 people.
If the Department of Printing were to be closed, the impact would be comparable to closing 10 average-sized commercial printers. Print customers, including state employees, would be forced to compete on the open market for available supply. And what does ECON 101 tell us? When demand is flat and supply goes down, prices go up. It’s the OPEC model. Cha Ching!
The commercial printers in the area must be positively euphoric about this.
Closing a self-supporting in-plant print shop doesn’t make the demand for printing in the organization go away. People will still need pieces of paper to do their jobs, and in the absence of a central print facility, one focused on the mission and goals of the parent organization, print costs for the entire community will go up.
Why don’t our decision makers think of this stuff?
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- Business Management - In-plant Justification