We talked with Terry Frazier, a consultant who specializes in calculating ROI, about what businesses need to consider before deciding to handle serious printing operations on their own.

What conditions would make this a good move for a company to bring some serious printing operations in-house, as opposed to sending it out to an outside vendor?

Generally, the conditions you’re looking for are consistent volume, standardized work (all paper/print is the same or very similar) and low volatility — meaning there is nothing on the horizon that could change either of the above.

When considering whether or not to purchase technology and bring document manufacturing work in-house, a company should first consider the following five factors:

• type of work (marketing, statements, notifications, correspondence, etc.)
• complexity of work (collation, binding, insertion, etc.)
• volume of work (per week, month, quarter, year)
• frequency of work (hourly, daily, weekly, monthly, etc), and
• likelihood that any of the above parameters will change over the life of the technology investment.

The type of work and its complexity will determine the category of equipment you need, narrow your options and focus your search. Do you need color? Do you need post processing? Do you need variable-data software? The volume and frequency of work will allow you to figure what duty cycle you need for the manufacturing system. Based on these factors you can project your hardware cost-per-sheet. You still need to calculate in consumables (toner, maintenance), labor and overhead, but this base hardware figure will give you a good Go/No-Go gate for seeing if you need to investigate further.

What are the pitfalls of bringing work in-house?

The biggest problem is volatility. Once you bring production in-house you have made a substantial capital investment, plus likely hired specialized labor. You now have a significant piece of fixed cost on your balance sheet. If volume or requirements change significantly you may be stuck with costs you cannot easily drop or faced with having to add significant investment to meet the new requirements. Remember that you are getting into a manufacturing business. If you setup a manufacturing line for Widget A, you can expect to spend more money to switch to Widget B.

Less expensive, light-duty equipment tends to have a shorter life span than heavy-duty. The more complicated the equipment, the more maintenance it will require and the higher the probability of downtime.

What about hidden costs?

Fully loaded labor costs in corporations tend to be higher than the comparable costs in for-profit print providers, so this can be an issue. Corporate real estate also tends to be more expensive, so locating your facility inside your office may or may not be cost effective. Also, there is a need to budget for ongoing upgrades — especially to software and hardware used to drive the system, such as print spoolers, archive systems, etc.

If mail volumes are high there is also the issue of whether or not you will handle mail in-house or send completed packages out to a consolidator. Keeping it in-house may drive up your postal rates.

Are personnel and training issues important?

The more sophisticated the features of your system, the more likely you will need specialized labor added to your payroll. Many companies don’t have print manufacturing skills in-house, so they will also need to hire management to run the operation.

Management needs to be very process oriented, as well as have a good grasp of cost accounting. Print manufacturing IT may also have special requirements. It may be necessary to bring in specialists who are trained in dealing with the very large files that can be generated by printing systems. As for production personnel, very good training is usually provided by manufacturers, but it is important to budget both time and money to see that this happens.

How should a company set up the evaluation process for making a decision whether to bring work in-house?

It’s really a financial decision. Evaluating equipment is the easy part of the process. Whenever I work with a company to make this decision I make sure that we have a very good handle on total costs of running the operation, including real estate, labor, training, equipment, software, maintenance, upgrades, etc. Once we have this we calculate a true projected cost-per-sheet.

Next we do at least two alternate scenarios — usually one that has volume dropping by 10%/year, the other increasing by 10%/year. We test these scenarios against the known capacity of the total system and the fixed costs to see the impact of volatility. This gives the customer a range of costs that is much more realistic than any single number. Once you have a reasonable assessment of the best-case and worst-case scenarios you can then move forward with evaluating specific equipment with the confidence that you’ve made a sound business decision.

Terry Frazier, of Cognovis Group, is a document and content consultant, advising businesses that traditionally send a lot of paper to customers — like banks, insurers, utilities, and managed health care companies. He provides expertise, tools, and a game plan to help companies perform better with their paper-based communications and marketing. You can reach him at tfrazier@cognovis.com

Tags: Cognovis Group, hidden costs, in-house printing, Terry Frazier