Printing in the Far East A Cost Benefit Analysis

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Printing in the Far EastA Cost Benefit Analysis

• John Strange
• Group Production Director
• 12th July 2006

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Overview of Presentation

• My experience
• Who are Blackwell Publishing Ltd?
• Outsourcing
• The reasons for moving Journal manufacturing east
  
• Benefits
• Risks
• Success criteria
• The evaluation process
• What did we learn (i.e. why China may not always
  be the best option)?
• Strategies for success
• Conclusions

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My experience.!

• Blackwell Publishing (1993 - ) Academic,
  Scientific and Medical Publishing
• Responsible for global production strategy
• Books, journals and electronic products
• Outsourced composition, manufacturing and
  distribution
• Pearson Longman (1978 1992) Educational
  Publishing
• Responsible for Schools Division production
  strategy
• Administration and systems for Group as a whole
• Special focus on composition and pre-press
• Books
• Outsourced composition, reproduction and
  manufacturing
• Prior to 1978
• 8 years in a small holiday guide publisher
• 3 years in sales (printing company)
• 3 years in works/factory management (printing
  company)

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Who are Blackwell Publishing?

• The worlds leading society publisher and is over
  75 years old.
• Publish over 805 journals and 650 new books each
  year
• Academic, Medical and Professional subjects
• Partner with 665 academic and professional
  societies
• 990 staff with offices in US, UK, Australia,
  China, Denmark, Germany, Singapore and Japan
• Production facilities in US, UK, Australia and
  Japan
• Outsource 100 composition and manufacturing
• Overall sales revenue in excess of 200 million
  per annum

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Outsourcing

• What does it mean?
• The delegation of one or more business functions
  (or processes) to a third party, who in turn
  delivers services to agreed criteria
• Some other associated terminology
• Offshoring the utilisation of a third party
  that is offshore (i.e. not domestic), normally
  to a region where labour costs are lower
• Why is it important?
• As domestic costs rise (especially labour costs),
  one is forced to try and locate parts of the
  world where you can buy services at a lower cost
  and, sometimes better quality with reduced lead
  times.

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Outsourcing (contd)

• Identify what is really core business and, thus
  core competence then focus internal resources
  on this which can then deliver-
• Cost savings
• Reduced lead times
• Similar (or better quality)
• Consistency
• Scaleability
• Areas that can be outsourced
• Copy editing
• Composition
• Manufacturing
• Distribution
• Customer Services
• Technology (support and development)
• Some aspects of Finance (e.g. Purchase Ledger)
• Rights and permissions
• 24 x 7 help desks
• Etc

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Trends in outsourcing

• Offshore outsourcing becoming very common (? the
  norm)
• Europe far more experienced than US!!
• Concerns about loss of jobs domestically but.?
• Increasing breadth of outsourcing offerings
• Vendors beginning to offer end-to-end solutions

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Reasons for moving Journal manufacturing east?

• Not just about manufacturing
• Must consider distribution
• Costs
• Lead times to client subscriber
• Looking to identify-
• Existing cost savings within increasingly
  automated processes
• Maintain (at worst) - quality
• Within acceptable overall lead times
• Ensure appropriate levels of communication etc

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Evaluation process

• Process initiated in 2002 with cost comparisons
  between UK, China (mainland), Malaysia, Singapore
• Created RFP (request for prices)
• Sent to several suppliers (I had known most for
  around 30 years and visited all of them)
• Key here is to try and identify appropriate
  suppliers (not too large, family owned etc)
• Prepare cost comparisons (currency?)
• Evaluate the short list of suppliers carefully
• Visit them
• Ask tough questions
• What is their management team (and experience)?
• What are their human resource policies?
• Ask them to complete human resources practices
  profile
• Is there likely synergy between us?

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Evaluation process (contd)

• Do they have the appropriate technology
  environment/expertise
• Take up references
• Do they work for any of your competitors (if yes,
  who?)
• What is their turnover/revenue
• What is the value of their largest account (not
  who, but how much)
• Do they make a profit (and, will they from your
  work)?

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Evaluation process (contd)

• Paper
• We wished to buy centrally
• Supply to printers
• Hold stock locally
• Why?
• Better control
• Easier to move suppliers (if necessary)
• Can change paper grades more simply
• 100 added value at printers
• Lower costs
• But - cash flow implications
• - some overhead

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Evaluation process (contd)

• Manufacturing
• We to supply print PDFs (from any/all of 6
  vendors in India/China)
• Very thorough process for training suppliers and,
  checking
• Receipt of files
• Cover proofs
• Print quality
• Inspection copies (initially to UK by courier
  2-3 days)
• Finished printed journals delivered to
  distributor
• SLA

local
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The results..!
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Distribution

• Similar exercise/process more complex
• Supplier(s) must
• Receive subscriber electronic files
• Output carrier sheets (with addresses on)
• Receive printed journals
• Include inserts
• Collate and polywrap the journals
• Despatch globally
• Thorough web based tracking systems
• Monitor lead times to end subscribers etc etc
• Did not test this process in China (because
  manufacturing costs did not warrant it)

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Why was China not competitive?

• Approached suppliers in the Dongguan region (in
  the middle part of Guangdong Province in South
  China)
• Mainly suppliers from Hong Kong set up prior to
  1997
• Their mindset (2001/02) was mainly geared to long
  run 4 colour work and, books
• Not 128pp mainly mono (although increasing
  colour) limp bound (notch) STM/HSS Journals
• No experience of journals
• ? Associated overheads would be too high?

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Why was China not competitive (contd)

• No doubt quality and lead times would be fine
• Importing of paper would be OK
• Distribution may have been a challenge!
• So all about specification related purchasing
• Almost exclusively 4 colour (or more) presses
• square pegs round holes

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Strategies for success?

• Manage the expectations carefully
• Need support from Senior Management (CEO
  downwards)
• Will not be a smooth ride (things will/do go
  wrong)
• Not pain free
• All about risk management to optimise benefits
• Choose carefully what you decide to outsource
• Dont be too optimistic/aggressive
• Identify some small/safe wins (then use these
  successes as ambassadors within your organisation
  for further expansion)
• Manage change (or workflows, culture etc) very
  carefully
• Measure performance agreed KPIs
• If you cant measure it, you cant expect to
  improve it

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Strategies for success (contd)

• Dont allow yourself to be rushed (whatever the
  CEO says!)
• Will need additional overhead costs (travel,
  training etc)
• From the savings!
• Visits go and see for yourself
• Once satisfied, share with colleagues
• Ensure you have a clear idea of HR policies for
  all your vendors (proactively share with internal
  customers)
• Documents that you want (Service Level Criteria)
• Ensure crystal clear instructions
• Holy Grail true electronic workflows (work
  aggressively towards this)
• Dont make FedEx/DHL even richer!
• Share your strategies
• Regular supplier meetings
• You are all in this together

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Strategies for success (contd)

• But there are huge benefits
• Improved process
• Increased productivity
• Lower cost-of-sale
• Excellent innovation
• Scaleability
• Can also get
• Reduced lead times (on average)
• Improved service levels (which are sustained)

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Conclusions

• Our choice of Singapore has been a spectacular
  success, however you measure it
• After a pilot project (40 titles), we scaled up
  to over 430 UK titles, 40 US and 80 Australia
  titles in 2 years
• Strategically Singapore is in an excellent
  geographical location
• Malaysia up the road
• Vietnam, Korea, Indonesia all nearby
• China also in the region
• We continue to evaluate alternatives which will
  include China
• They have the capacity, the resources (people,
  equipment etc) but do they have the desire
  (i.e. have they identified this market etc etc
  as one they wish to attack?)