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The advantages of outsourcing
paper describes major trends in print production management, technical
developments in the graphic arts industry, and purchasing strategies
among major print consuming companies. Discussed are the overall
benefits of outsourcing print production as well as specific reasons
why outsourcing makes sense in today’s digital work place.
Corporate America discovers that outsourcing
print production can reduce marketing expenses by 5% to 30% or
Today's most successful companies are moving away
from the vertically integrated supply chain model, focusing more
and more strictly on core-competencies, and aggressively pursuing
outsourcing arrangements with specialists in many areas.
As this wave hits the print production arena, it is
strengthening corporate profits, and propelling the rapid growth
of a brand new service firm, the print production specialist.
According to the National Association of Purchasing
Managers, print procurement is the second biggest opportunity for
corporations to reduce costs and improve shareholder value. That
should come as no surprise when you consider the amount of money
spent on printing.
annually purchase over $150 Billion dollars worth of brochures,
catalogs, direct mail, annual reports and sales collateral materials,
not to mention business forms, letterhead, packaging and point-of-sale
"Printing services are needed by practically
every company in America and Global 2000 companies spend close
to 3% of annual revenues on printing,"
says Ray Roper, President and CEO of Printing Industries of America
With all this potential for savings, why aren't
more companies pursuing outsourcing partners for print production?
Despite the fact that forward thinking companies are
aggressively outsourcing everything from Human Resources to Manufacturing,
the print buying process inside many American corporations is largely
being done the old fashioned way.
One possible reason for this is that there are too
many people inside the corporation who are authorized to buy printing.
One team buys forms and letterhead. Another buys packaging. Two
or three departments, plus a handful of agencies, are authorized
to buy custom collateral pieces, and on and on.
The print buying process can be so decentralized,
some corporations may not even realize how much money is being spent
on printing in the aggregate, or that there is a way to effectively
outsource this function on a corporate basis.
The desire to improve
market valuation will drive more and more corporations toward outsourcing
back-office functions - especially print procurement.
Print procurement is not a core-competency for most
corporations. It is a large, back-office expense and thus a perfect
outsourcing opportunity. Outsourcing the print procurement process
has the potential to save billions of dollars for corporations around
the globe. As the Internet economy continues to unfold, more and
more corporations will seek to seize this opportunity.
Here come the printing info-mediaries
Emerging to serve this growing need is a new breed
of print production firm. Characterized by small staffs, vast production
knowledge and deep vendor relationships, these fast-moving, independent
firms make investments in people and technology and make print production
into a science.
By specializing in one discipline, print production
outsource companies help reduce search costs, contracting costs
and coordination costs (not to mention printing costs) for their
It's important to note that outsourcing is more than
just contracting with one or more companies to print corporate materials.
That's been done for years. Outsourcing involves re-inventing the
entire print procurement and production process. It's a shift from
a vertically integrated supply chain to a horizontal one. It's a
total shift in the corporate structure, and hence can be scary to
the people who are currently in charge of print buying.
At the purchasing level
Another reason why outsourcing print production has
been slow to catch on is that purchasing managers sometimes perceive
the outsource supplier as a threat. They might say things like,
"What do I say when management asks why we couldn't find
these cost saving suppliers on our own? Why did you have to use
an outside agency?"
The answer is fairly simple when you recognize one
Every other department
in the company uses consultants with the blessing of management:
- Top management uses consultants to help define
strategy and identify opportunities
- Manufacturing uses manufacturing and engineering
- Information technology uses computer consultants
- Sales organizations use sales training consultants,
and on and on.
According to a the Center for Advanced Purchasing
Studies (CAPS), the purchasing manager would gain the same benefits
that other groups in the company do who use experts in selected
areas. In fact, it's possible that by utilizing experts to research
and locate sources of supply, the supply management function would
become the largest contributor to profits of all the organizations
in the company.
The CAPS goes on the say that corporations will
find savings from 10% to 30% when they begin to outsource supplier
research and production to "best-in-field" specialists.
Where outsourcing print production might have once
been viewed as a sign of weakness, it is increasingly seen as a
strategy for empowerment.
The typical purchasing manager is understandably wary
of using outside help. But, instead of rendering her job obsolete,
the enlightened purchasing manager will outsource print production
and will be afforded more time to focus on the core needs of her
company. This will save money and deliver value to the bottom line.
At the Brand management / marketing level
Printing is a major expense for most brands. In fact,
the marketing department is often the largest consumer of commercial
printing inside American corporations.
While the typical brand manager is consumed with market
share, unit sales and other core business issues, she can be distracted
from the opportunities that outsourcing print production can deliver.
Sometimes the brand manager or marketing director gets lulled into
a false sense that her ad agency is a true print-production outsource.
It is true that many companies defer print buying
to advertising agencies, graphic designers or internal staff instead
of to production specialists. However, it's important to acknowledge
in most cases that neither the agency nor the designer is a print
production specialist. Advertising agencies are typically hired
for creative input, and pick up the print production by default.
A true outsourcing partner is a "best-in-class" specialist
in a very specific area.
There are several reasons
why brand managers ought to consider pursuing outsourcing the print
production to a specialist.
The first is financial.
When print production is outsourced, then the brand manager no longer
has to subsidize building an administrative infrastructure, nor
do they have to incur any of the related recruiting, training, and
overhead expenses. This frees up investment capital that can be
used to better advantage.
According to the Printing Industry of America, an
experienced print production person costs $45,000 to $60,000 annually,
and these professionals are in limited supply. Annual compensation
for entry level marketing communications personnel is $25,000 to
$30,000. These are individuals who know little or nothing about
print production. Many of these salaries can be re-purposed through
Aside from reduction in head-count, the print-production
outsource saves money in other ways. For example, working with a
production outsource allows the corporation to remain anonymous
in the sourcing process. It's a fact that name brand corporations
(and even big name agencies) are charged higher prices just because
of who they are. Vendors know that larger companies have larger
budgets, and they mark up their services accordingly.
On the other hand, vendors tend to sharpen their pencils
a bit more when bidding to win jobs with true production outsources.
Vendors recognize that print production outsources are very nimble.
Production outsources have the data and experience to measure value
market wide. They know an inflated price when they see one. Corporations
benefit from the anonymity gained through outsourcing.
The second benefit of outsourcing to a print production
specialist is a competitive edge.
The money saved in labor, training and recruiting allows more investment
in critical strategy. This increased activity in the "core"
areas will lead to finding competitive advantages over other firms,
and a head start in a world moving at Web speed.
So why do corporations continue to buy printing
themselves, or through ad agencies and designers?
Some corporations are held back from outsourcing print
production because of deeply engrained methods. Agencies have always
bought the printing. It's easier that way, right?
Yes. In many ways it is easier to allow the advertising
agency to manage print production. After all, the agency is the
first to know the specifications; the agency already has a relationship
with the corporation; and agencies usually have production personnel
with some knowledge of print production.
However, it's also true that advertising agencies
can turn over frequently as creative strategies and market opportunities
shift. Furthermore, agencies will charge corporate clients by the
hour for time spent in production, plus they will typically mark-up
the amount spent on the production itself. That's great for the
agency, but not necessarily for the end-user corporation!
We're living in the era of co-opetition
While most agencies have some skills in print production,
it is not a core competency. Oftentimes ad agencies would be better
off outsourcing print production. In some cases, agencies are handling
so much printing for their clients that they do hire outside help
to manage production.
In such a scenario, the agency and the outsource,
two organizations that are typically in competition for the production
dollars, work together to serve the client. The only problem with
this situation is that the client pays two mark ups instead of one.
Furthermore, since ad agencies traditionally won't allow the print-production
outsource to truly reform the buying process, the process remains
inefficient, and client spends more money than necessary.
Finally, it's important to
recognize the fact that switching ad agencies costs the company.
Given the highly competitive
marketplace, it's not unusual for companies to switch agencies or
designers in attempts to improve results. Furthermore, in-house
buyers and marketing communications personnel turn over frequently.
Whenever a new person or new agency comes on the scene, there is
a ramping up period that is required before the new entrants can
operate at full strength.
A production outsource is a neutral third party. There's
no need to change when you change agencies, and often it's the production
specialist that will train the new corporate marketing personnel.
The outsource becomes a valuable constant in a constantly changing
sea of people and partners. Relying on the production outsource
will help the brand manager keep production costs down and quality
at a high level no matter who comes or who goes.
Technology makes all things possible.
The Internet, when combined with an outsourcing strategy,
is allowing small and mid sized companies to leverage buying power
and critical mass just like their larger competitors. So larger
companies are beginning to recognize that they have to change what
they're doing. Outsourcing is a management tool that revolutionizes
a company and allows it to really accelerate its ability to compete
in the market.
Outsourcing takes the print production process and
completely re-engineers it. A "best-in-class" outsource
will become a pro-active and value producing partner. In most cases,
the re-engineering process will include technology.
But technology is not a panacea. When you consider
the fact that the average printer employs 19 people and operates
with $2 million in sales, it must pass additional overhead expenses
on the end user customer.
Larger printing concerns are sticking to the Industrial
Age business mode. They're buying plants and attempting to use the
"Hub and spoke" model to aggregate demand and increase
sales. This is an unnecessarily expensive strategy and one that
does not serve the corporate buyer well.
There are over 51,000 printing plants besides pre-press,
finishing and other vendors related to print production. Among
all these plants exist experts in every imaginable printing application.
When you are really looking for printed material that sets you apart
from your competition, it pays to find exactly the right printer
to produce your piece.
The Internet, combined with outsourcing, will insure
the survival of the best of these artisans. It will allow them to
retain their independence, and thus remain most valuable to the
end user corporations.
print production outsource will invest in people and technology
that will allow both the corporate end user and the manufacturing
vendor higher levels of profit
Many pundits have predicted that the Internet will
kill the printing business as the Web replaces paper and ink. So
far, however, the opposite has been true. Demand for commercial
printing services is at an all time high. Still, the industry is
consolidating and it must re-invent itself to cope with the challenges
and opportunities created by this new technology.
As the printing business moves to an on-line business
model, information about printing will become more important than
printing itself. Since the print-production outsource manages printing
information, it will rise in power.
The print production outsource is not a threat to
commercial printers. On the contrary, the print production outsource
will make it possible for printers to continue doing what they do
- The printer stays focused on what it does best
and doesn't have to change its system.
- The printer benefits from lower marketing expenses
as the outsource brings in new business.
- The printer can make the outsource into a "house"
account and may not have to pay an outside sales representative.
Furthermore, the outsource partner saves the printer
time by only sending the right business to each vendor. All these
things allow it to focus services on the outsource vendor, which
in turn assures the end user corporation of better and more efficient
Some printers are holding onto an old view that depicts
the outsource as a "broker." The broker has a bad reputation.
Printers used to be jealous and distrustful of these "middle
The "best-in-class" outsource, however,
is appreciated by the printer and corporation alike. Some printers
have already eliminated their sales staffs and are set up to deal
exclusively with outsource companies.
"We like dealing with these guys," admits
one printer. "They understand
what our presses can do and what they can't do, and they help to
manage the end user's expectations. This makes our job a lot easier."
A new era in print production
is under way.
Many experts believe that outsourcing is the business
model of the future. "Although I don’t think that
people necessarily recognize it quite this way, what is unique about
outsourcing is that it is a win all the way around,"
says Charles Gibbons of PriceWaterhouse Coopers PwC in a recent
interview published at OutsourcingJournal.com.
Gibbons, a nationally recognized expert on outsourcing
and non-core operations, is responsible for developing the business
for PwC's North American operations. He says he is absolutely
convinced that the integration of people, business process and technology
reengineered through and outsourcing approach is the way of the
Gibbons describes the unique win/win result of outsourcing
as a situation where a supplier's aim isn't just to take over a
business process for a buyer but, rather, to take it over and add
strategic value and also invest in the people.
"To me, this is what the enlightened executives
today are starting to recognize. If I have a dollar to invest
and can manage not to spend any portion of that investment dollar
on my back office and put it instead in my real core business, that
gives me tenfold return. If my supplier partner will make investments
in my back office, then I have that advantage as well. Then I
have increased shareholder value."
Increasing shareholder value is the bottom line
Outsourcing will make the difference, Gibbons says,
between the leaders and the followers because outsourcing increases
bottom line profits. CEOs are beginning to realize that shareholder
value is in cost structure and overhead for non-core functions as
much as it is in stock price, products and competitiveness.
Outsourcing makes companies and their brands stronger.
Organizations outsource because they want to leverage
the unique skills and resources of the other organization to the
benefit of the company and their company’s customers. Across
the U.S., 91% of the executives with active outsourcing programs
are satisfied with the results of the outsourcing initiatives.
"In the new millenium, business process
outsourcing will pave the way…to key strategic benefits that will
increase performance, profitability, and global competitiveness
leading to improvements in shareholder value (Yankelovich Partners
This is pretty heady stuff for a bunch of guys who
put ink on paper. But when we realize that print production includes
design consultation, database management, relationship management,
reporting, distribution, storage and more, it’s easy to see that
now is the time to embrace the print production specialist. He is
the context provider, the catalyst that turns potential opportunities
About the author: Sean Coyle is
President of Coyle Print Group, Inc, one of the fastest growing
print-production companies in the U.S. He can be reached by phone:
847-784-1080 x208 or through E-mail: firstname.lastname@example.org.
Visit our web site: http://www.coyleprint.com
© 2001 Coyle Print Group, Inc.