Overcoming Outsourcing Threats

Things were going well for Larry Mills. Volumes were way up at his in-plant at Regional Health, in Rapid City, S.D.; company executives had toured his shop and were very impressed; and Printing Services was scheduled to move into a nice new facility—once all the paperwork was signed.

“When it came down to the actual, final approval…it came up: ‘Should we be spending nearly $2 million on printing when everything’s going paperless?’ ” recounts Mills.

That’s when the inquisition started. The vice president of finance at western South Dakota’s largest health care provider embarked on an in-depth study of the in-plant’s finances, forcing Mills to snap to attention, collect his cost data and begin the laborious process of justifying his in-plant.

That’s how it happens. One day your in-plant is sitting pretty, and the next day you’re fighting for your life. Usually it has nothing to do with your performance, but instead it comes as a surprise, knocking you off your comfortable perch.

In this article, we talk with four in-plants that recently faced challenges to their existence. The threats came from four different sources:

• The decision to move the in-plant was followed by questions about why the organization needed a print shop.
• The organization’s desire to reallocate resources to its most crucial programs led to a decision to outsource printing.
• An outside vendor approached a new executive with a tempting, “cost saving” offer.
• A new purchasing agent, eager to look like a hero, invited a vendor to give a sales presentation to upper management.

These scenarios are some of the most common ones in-plants face. In every case cited in this story, the in-plant was retained, after proving that its finances were sound and showing the benefit it provided for the organization. The in-plants did nothing to bring about the challenge; rather it sprang from ignorance of the in-plants’ benefits and savings or because of hungry outside suppliers hunting for business.

The Shell Game

Many challenges to in-plants stem from the false belief that an organization can make printing costs disappear by eliminating the in-plant. As NAPL Consultant Howie Fenton points out, it’s a bit like the classic shell game, where a ball is deftly moved from one shell to another, and seems to disappear from under its original shell.

“Closing the in-plant printing facility creates the illusion that the cost of printing disappeared,” notes Fenton. “It doesn’t really disappear, of course, it simply moves from one budget to many budgets.”

When each department has to buy its own printing, Fenton continues, it becomes harder—sometimes impossible—to track exactly how much money is spent for printing.

“Therein lies the illusion,” he says. “The sleight-of-hand magician appears to make the print spend disappear because you can’t see it any more.”

‘It Came Down to Cost’

Despite how logical this seems, in-plants are continually required to prove their worth. At Regional Health Printing Services, the VP of finance questioned the in-plant’s very pricing structure, which uses hourly rates to calculate internal costs, including expenses and labor, then adds consumables and paper to determine a cost per impression. To show his shop’s savings, Mills obtained outside quotes (local and national) and broke those jobs down into cost per impressions to compare with his own cost per impression.

“It just strictly came down to cost,” Mills says. “I showed about a $1.3 million savings annually, and so in a year we’ll more than recoup the cost of the new building, plus the new equipment that I want.”

During the justification process, he also stressed the confidentiality benefits of keeping health care information in-house. In a small community like Rapid City, information could spread quickly if it got into the wrong hands.

Plus, he emphasized the in-plant’s ability to drop everything and accommodate the needs of executives.

“If the CEO needs something right away….we’re able to meet that [demand],” he says.

In the end, his data and specifics on the shop’s benefits convinced the board to keep the in-plant. Mills expects to move Printing Services into its new quarters in the fall. Though stressful, this challenge had some positive results too, he says.

“It did open the eyes of some of the execs who were thinking of the whole ‘paperless’ issue,” he says.

Outside Threats

Internal threats are frightening enough, but when outside companies make a play for your in-plant’s business, they do it on the sly, approaching your boss’ boss, and you often don’t find out until their fantasies of cost savings have captured an executive’s imagination. At the University of Maine, OfficeMax approached the director of purchasing with its pitch to take over printing.

“The part that was really scary was, it came up at a time when we had a new boss over our area and there was also a brand new director of purchasing,” relates Tammy Young, director of Printing & Mailing Services at the Orono, Maine, university. Newcomers aren’t always aware of the benefits and savings the in-plant provides, and may be looking for ways to change things and make their mark. So when OfficeMax regaled the director of purchasing with tales of costs savings and collaboration, he took the bait and set up a meeting. Young only found out about it by chance.

“I heard talk of it and I called up and asked, and the purchasing director told me he’d invited them in to meet,” she says. Young asked to attend the meeting.

Four OfficeMax reps in suits showed up, presenting an intimidating front.

“They brought big guns,” remarks Young. They thought it would be an easy win. They didn’t know that Young was also armed for bear.

The reps began by presenting numbers, which Young says they pulled out of thin air, representing what they thought the university was spending on printing, and then attaching a savings amount to them. This is where administrators who don’t know printing might easily get hooked, but Young saw through the trickery and wasn’t shy about pointing it out.

“If the figures aren’t good to begin with, it just increases the size of the lie,” she says. Because she knew the university’s actual volumes, she was able to poke holes in their logic.

They pleaded, “Let us in for a year and then we’ll reassess,” knowing full well that once the in-plant was gone, there would be no turning back. They noted their experience, their equipment and their desire to collaborate.

Young countered by stressing the decades of experience her staff had, how they understood the university’s specific needs, and the fact that they already owned their equipment. She pointed out that by outsourcing, the university would lose control of quality, fast response time and most importantly brand ID. One of the university president’s major initiatives is branding, Young says.

“And here we sit, perfectly poised to be the implementation arm of that branding,” she notes.

Her points were all backed up by reports from an outside consultant the in-plant had twice hired to assess the operation. Ray Chambers, of the Chambers Management Group, had visited in 2008 and 2010, and his assessments supported the in-plant’s case.

Young’s strong response to the OfficeMax pitch, pointing out the in-plant’s intangible benefits and strong economic position, resulted in a victory for the operation, and for the university. As noted by Mills at Regional Health, Young saw a positive side to this challenge.

“It was a good chance to acquaint them with what we do and what our strengths are,” she says.

Inviting the Wolf Into Your Lair

External print vendors can be ruthless in their efforts to get inside your organization. Sometimes, though, they’re handed the key to the door by one of your coworkers.

That’s what happened at Pueblo City Schools, in Pueblo, Colo., recently. The school district’s warehouse had a contract with Office Depot to provide next-day delivery of office supplies. The purchasing agent overseeing this area thought she could bring further savings to the district (and make a name for herself) by arranging for Office Depot to print workbooks and textbooks, which make up a big chunk of the in-plant’s work.

“She went directly to one of the associate superintendents and wanted her to meet with them,” relates Mary Bocchietti, supervisor of the district’s Document Services Center. “Luckily the assistant superintendent forwarded this e-mail to me and said, ‘hey, attend this meeting for me.’ ”

At the meeting, the Office Depot representative presented the company’s standard price sheet.

“Very few of their prices were actually lower than mine,” Bocchietti says, and those that were, were clearly loss leaders. She knew this because, after a flood closed down the in-plant in 2009, forcing it to outsource to FedEx Office, job costs went up. Not only that, FedEx Office couldn’t handle all the work, but had to parcel it out to its other facilities.

The Office Depot representative showed samples of the company’s work and offered examples of other school districts that it was printing for. But to no avail.

“I pretty much shut down every angle they tried,” Bocchietti says.

The fact that her in-plant was already offering the district a wide array of services made it clear that Office Depot had nothing new to offer. She reported all this back to the assistant superintendent, and the threat died away. But Bocchietti feels that, had upper management not been aware of how happy customers are with the in-plant’s services, the assistant superintendent might not have had the confidence to ask her to attend the meeting in her place.

Reallocation of Resources

Some internal threats can feel like backstabs; other times they result from legitimate, even admirable, efforts to strengthen the parent organization.

When the University of Hartford embarked on its “Foundation of the Future” initiative to prioritize programs and reallocate resources in support of priority programs, the in-plant came under the microscope. The task force of academics and administrators that was scrutinizing university resources determined that the university would save money on printing by outsourcing the in-plant and using its space for classrooms. Even though this was another example of the shell game illusion, it didn’t look good for the three-employee shop, called Howie’s Printery, which is part of the purchasing department.

Fortunately, Lynne Rizzi, assistant director of purchasing and Howie’s Printery, and Mario Maselli, graphic design print production manager, were given a chance to appeal the decision. So they set to work gathering data. Factoring in salaries, benefits and even rent costs (which they don’t pay), they calculated job costs and compared them with quotes from outside printers. This enabled the in-plant to show the savings it brings to the Connecticut university—something the panel had not considered in its quest to eliminate expenses.

The director of purchasing hired a consultant, who collected feedback from customers and reported both the in-plant’s strengths and areas where it could improve. Big clients like athletics noted they would have to spend more on printing if they were forced to buy it off campus.

The in-plant used this customer feedback to stress the convenience it offers and the value it adds.

“We have a mission here on campus. We’re committed to the community,” notes Maselli. “We’re definitely looking out for our fellow coworkers.”

Also, thanks to a new university brand initiative, he was able to stress the crucial role the in-plant plays in ensuring consistency of the brand, something that could not be as easily controlled if the school was using a variety of printers.

Not only did Maselli and Rizzi manage to change the board’s mind about outsourcing the in-plant, they used this as an opportunity to demonstrate how the university could benefit from letting purchasing control all printing; in other words, give it the right of first refusal. This would let Rizzi consolidate the large list of print vendors departments were using and negotiate better deals. University President Walter Harrison is on board with the idea, and the in-plant hopes to see this policy put into place soon.

Advice from the Trenches

The experience of having to justify their in-plants has understandably made these managers cautious. Their advice to other managers:

“Always be prepared,” says Bocchietti, of Pueblo City Schools. Never forget there are companies out there looking for your business.

“Know what you offer that makes you an exceptional value to your customer,” she advises.

And market this value, adds Maselli, of the University of Hartford. Promote what you do for the organization. Also, listen to your customers and be open to new ideas so you can increase your value, he says.

“Track everything. You never know what you’re going to be asked for,” advises Mills, of Regional Health. “You can’t let down your guard.”

“Be prepared with facts and figures,” agrees Young, from the University of Maine. She advises in-plants to hire a consultant to do an independent assessment so you’re aware of your strengths and weaknesses. Also, she adds, partner with academics. Organize workshops for students, or let them output poster projects on your equipment.

“Ingrain yourself into the very lifeblood of the school you represent,” she says. But most of all, she stresses, “Have ‘ears’ in administration. If I hadn’t seen that coming…God only knows what could happen.”