The Issue

A $17 billion grocery store chain prints and ships pricing signage for more than 1,000 grocery stores each week. With the senior management about to retire and millions of dollars required to update equipment, the company decided to compare internal versus outsourcing options.

The Approach

The internal manufacturing cost per piece was unknown, requiring a budgeted hourly rate (BHR) analysis. Anyone who has ever outsourced work knows that the invoice per month is rarely the negotiated price. The reason is that while a portion of work fits within the service level agreement (SLA) from the outsourcer, another portion of work does not and it's called an exception. Penalties are paid for exceptions. Therefore, to more accurately predict costs of outsourcing, you need to analyze the number of SLA exceptions over the course of a year and estimate those that are minor vs. those that are serious. In this project, 279 exceptions (the vast majority) were identified as serious exceptions.

The Findings

After completing the BHR analysis, the cost per piece was estimated and compared to outside prices and found to be competitive. However, when calculating the penalties associated with the SLA exceptions, the price increased $488,000/year. In addition, the amount of paper waste discovered internally was considered high, costing $444,000 a year. Lastly, companies were asked to bid on delivery to the individual grocery stores. Five bids were submitted and costs averaged $1.5 million/year.

The Recommendation

Because the in-plant was located at one of the chain’s distribution centers, the signs could be placed on the grocery store trucks and delivered along with the groceries at no charge. The shipping charges along with SLA exceptions would cost an additional $2 million per year. Much of the paper waste was due to an inefficient process of overprinting offset shells on cut-sheet toner based devices. A recommendation to replace the offset presses with a web fed toner solution would eliminate the two-step process and much of the associated waste.

The Result

The combined cost savings of continuing to operate the in-plant is $2.5 million per year when compared to outsourcing costs.

The Issue

An in-plant printer and mailing facility within a $3 billion insurance company was considering renewing leases on its existing equipment but was unsure how to proceed after the manager left the company. Howie Fenton recommended a clean sheet approach, throwing out all preconceived notions and starting from scratch on a blank piece of paper.

The Approach

All the work performed over the course of the year was analyzed based on the volume of work, the quality required, and the service level agreements (SLAs). Using a budgeted hourly rate analysis, manufacturing costs were determined for each step in the workflow including printing, mailing, storage, and fulfilment.

The Findings

Based on the clean sheet approach, several issues and opportunities were identified. Printing bills and statements require a fast turnaround time. In this business, turnaround times are referred to as SLAs. These SLAs can be one day or less, which is very fast considering the volume requirements. In the current state, that required a dozen or more cut sheet, toner-based machines and staff working multiple shifts.

The Recommendation

Side-by-side comparisons of old and new equipment showed that fewer roll fed inkjet production presses would be required, resulting in significant reductions in staffing. In addition, this would eliminate the two-step process (overprinting shells) and a host of extra costs (including warehouse storage).

The Result

The clean sheet approach reduced storage and fulfilment costs by 75% and, when combined with the reduction in the equipment and staffing, saved the company $1 million over five years.

The Issue

The administration of a Big Ten university in the Midwest was considering closing down its in-plant printing department because of customer complaints. Howie Fenton was called in to conduct an assessment of the operation.

 
The Approach

In an effort to identify the root causes of the customer complaints, the in-plant was assessed from several perspectives, using a variety of measurement tools. Time and motion studies were conducted to benchmark the in-plant’s manufacturing productivity. A proprietary survey tool was used to determine customer satisfaction and in-plant competitiveness compared to its customers’ best alternative print services providers. We also combed through internal operational documents and performed a Pareto analysis to identify the in-plant’s top products and used a competitive price analysis and make vs. buy analysis to compare the costs to manufacture those products vs. the cost to buy the same products elsewhere.

The survey tool identified the root causes of customer complaints as slow turnaround times and uncompetitive costs of core products such as business cards, letterhead, and envelopes. A three-year analysis of plant output showed the print volumes were steadily declining while internal manufacturing costs were increasing, primarily as a result of staffing. The time and motion studies also determined that the use of a traditional order entry method and offset printing process were contributing to both the slow turnaround and higher manufacturing costs.

The Recommendation

We recommended that the in-plant remain open, but make greater use of automation software, adjust staffing levels commensurate with work volume, and install digital printing equipment to reduce the waste associated with start-up and reduce makeready times. 

The Results

The initial three-month analysis led to an additional six-month project to implement the recommendations. During that time, the administration and university staff worked diligently and successfully lowered manufacturing costs, automating production of the in-plant’s core products. This resulted in faster turnaround times, lower internal manufacturing costs, more competitive pricing, and a significant improvement in customer satisfaction. The facility remains open, successfully meeting university needs.