Are you Printing Away Profits?

This paper is for financial managers and executives tasked with looking at cost reduction within their organisation–particularly those who are active within the Government or B2C Sectors. This guide looks at the burden of document-related costs within such organisations and demonstrates a number of key steps that can be taken to significantly reduce those costs for many organisations:

"The volatility in the financial markets and resulting global economic crisis is causing most organizations to focus on cutting costs".¹

Whilst the paper focuses primarily on savings associated with high volume batch transactional documents (such as statements or billing), it also explores savings that can be found with marketing-related expenditure (without impacting your coverage, penetration levels or response rates). For this reason other business owners, specifically from marketing or operations, will also find the paper valuable.

"Similarly, organizations that print transaction and marketing documents in-house can find numerous productivity improvements, as well as postage and material savings. Production print and mail facilities can save 10% to 15% of their costs with minimal capital expenditures while ensuring document security and complying with regulatory requirements. Cost-saving initiatives are critically important as the volume and nature of high-volume print production shifts from generic long-run monochrome documents to personalized short-run color communications".¹

Introduction

The purpose of this paper is to offer you some ideas to reduce your organisation's costs in business operations – without jeopardising the quality of your work, the reputation of your branding or the effectiveness of your customer-care programmes. The paper focuses on the significant cost base that supports the way in which information is communicated to your customers through printed or published documents.

Its relevance is supported by key findings from Gartner in 2008, which states that "from an overall IT perspective, investments are prioritized by (1) reducing operational costs, (2) improving operational efficiency and (3) improving customer satisfaction".²

The paper shows how you can meet both priorities – reducing operating expenditure without impacting quality of service.

The Burden of Document-Related Cost

"Office printing remains an underexploited savings opportunity, and actively managing it will reduce your spending by 10% to 30%. Today's economic pressures as well as advances in the tools and services make now a better time than ever to take on this initiative".³

Document production technologies are changing faster than ever and variable costs of production are becoming more competitive, yet few organisations have the capability and/or the willingness to embrace the opportunities to drive costs down. There remains a huge amount of over-capacity in the market place – where print and mail can be 'sold' at very low prices. Whilst this should be welcomed, it is not fixing a longer-term problem of ensuring that your low costs can be maintained when capacity is taken up and price is driven back upwards.

The answers lie in not how to keep trying to buy cheaper – but to challenge whether you need to buy at all, and if you do, ensuring that you buy smarter.

Pressures on your Cost Base…

Before looking at some approaches to improving your cost base, there are some important considerations to take account of:

• Control over decentralised Document Production

An enormous amount of documentation is produced within the office environment each year. Typically these document types (such as responses to queries, re-issue of statements, quotations, etc) are printed on a desktop device, hand inserted and mailed locally. Whilst time and labour savings of turning these documents around quickly may provide some advantage, there is a significant cost associated: Typically producing and distributing a document in this manner is more than twice the cost processing through a centralised facility.

Whilst Gartner recognise, "Print is often overlooked, although organizations that manage their printer, copier and fax fleets can save up to 30% of their printing costs"¹ it is far more effective to remove overhead – by transferring cost onto more cost effective and advatageous platforms – than to reduce it by squeezing cents from your suppliers.

• Document Production and Distribution

Communication with your customers is critical – but it can also be costly and is getting costlier. Postage costs are often the biggest single cost in communicating with your customers. In the UK, since de-regulation of the Royal Mail in January 2003 the postal market has seen greater competition, yet the price of postage has increased by 25% in this time.

There has also been significant inflationary pressures on other items such as envelopes, infrastructure and logistics that contribute to your total cost base.

Whilst some costs have increased – technology advances have brought variable costs of printing down quite dramatically – particularly in the colour digital market. This means that adding colour or enhanced information to your statements and bills is becoming ever-more price accessible.

For organisations dependant on outsourced service providers, the increase in available capacity has seen the cost of print and mail services fall – however the durability of such pricing is directly linked to market forces and the economy recovers and demand rises, it is likely that prices will once again rise.

• Increasing Complexities of the Customer & Business

The increasing usage of the internet across the World – which has grown by some 340% since 2000 and sees over ¼ of the world's population on-line, with highest penetration in the developed markets in North America, Europe and Oceania.⁴

With information being readily available on the Internet and consumers more able and willing to access such information, your customers are expecting faster and more relevant accessibility to their account details and in different ways. More demands are being placed on you to implement different delivery channels for important documents.

Today if a company cannot supply the information requested in a timely manner then the customer is becoming more likely to choose a supplier that can supply that information directly to their inbox or their mobile phone.

Whilst the benefits from more timely and cheaper variable production costs through new channels are attractive, increasingly initial infrastructure and ongoing costs relating to security and version compatibility, together with a reluctance to move away from paper by many people, mean that the shift to a new paperless world is still beyond most organisations' grasp

• Integrity of Documents

Following recent high profile data losses and incidents of wrong documents being sent to the wrong recipient, there is increasing pressure on organisations to keep all information securely and responsibly. Costs associated with such errors are two-fold:

1. Financial – Since its inception in 2001, the UK's Financial Services Authority has issued millions of pounds each year in fines. Whilst many of the headline issues are focused on data loss – there are still cases of documents misrepresenting products or information being disclosed to the wrong recipient.



2. Loss of reputation – London-based Aon Ltd found that companies ranked loss of reputation as the greatest risk they face in a survey of the 1,000 largest companies in the UK. The financial cost of loss of reputation is reflected in the company's share price – and few would agree that all publicity is good publicity when it is their business that has just been revealed to have made an error.

"The larger the organisation, the higher the compliance costs tend to be. Across all firms, the main cost drivers are establishment of appropriate data collection and IT systems".⁵

Gartner first introduced the Automated Document Factory (ADF) concept in 1997 and have recognised that those companies who have not improved the security and integrity of their print and mail operations are at risk. "In 2006, Gartner predicted that print and document security would emerge as a key requirement among Fortune 1000 customers by the end of 2008 (0.8 probability). Not only has that prediction been realized, but print and document security has made its way into most requests for proposal as a standard 'checkoff' item. Security-conscious users have made securing information on output devices a sales differentiator, and Fortune 1000 enterprises and many small and midsize businesses are focused on securing information that passes through their printers and MFPs.⁶

• Adherence to Regulation

In line with increased pressure from shareholders and customers, there is also increased pressure coming from government and regulatory authorities to adhere to strict guidelines when it comes to handling information. The cost to organisations for adhering to these regulations include establishing the relevant policy, implementation of that policy through an internal infrastructure and, if in breach, potential fines associated with not adhering to that policy.

• M&A – Information Sharing Issues

When two organisations come together, it is rare that their back office infrastructure is as compatible as the apparent similarities in front office processes. Anticipated economies of scale, cross selling opportunities and streamlining of processes are often delayed through incompatabilities. Indeed, the necessity for investments in compromise solutions, mass migration or a 'start from scratch' technology may mean that anticipated financial benefits can be lost for some time – perhaps indefinitely.

The Opportunities

Communicating with current & potential customers is critical to your business's success – and most of that communication comes not from face-to-face encounters, nor over the telephone, not even from the television – but from documents that are transmitted or sent by you to your customers. With these documents being so critical to the stability and growth of your business, looking at measures to save costs needs to be done carefully.

Many organisations have already undertaken projects to look at document management and document production and may have already taken advantage of some of the ideas below:

1. Audit Your Production Costs

In order to do reduce costs you must look at how much the entire document production process is costing you. Much of the true cost may be "hidden" and cannot be readily quantified – often because of the complexities of budget provisions, but also because inefficiencies, ineffectiveness and wastage costs are very subjective.

• Actively managing office printing can lead to a reduction of 10% to 30% in recurring spending on document output.
⁷
• A 1,000-person organization could cut up to 1.6 million pages and save $33,500 per year by eliminating banner page printing.
⁷
• Reducing the density of ink or toner by 10% to 20% can reduce per-page costs by 5% to 10%, or $6 to $10 per user per month.
⁷
• Organizations can potentially reduce annual paper costs by at least 30% by selecting duplex printing as the default setting across the output fleet.
⁷

The main areas of expenditure in the production and distribution of documents include:

• Material costs – paper, envelopes etc (often purchased in bulk to improve cost per item)
• Stock storage costs – warehousing, disposal,
• Facilities cost – for print, mail, warehousing, disposal & processing
• Equipment provision – including hardware, software, maintenance and consumables
• Human Resources – including administrative and management costs
• Postal costs – Stamps, Franking and PPI
• Supporting software – Including: print management software; accounting software; postal discount software; document composition software; print transformation software; etc

The cost of waste within all of the above areas. "Perfection is reached not when there is nothing left to add, but when there is nothing left to take away". Albert Einstein.

2. Review the Supply Chain Process

Audit your current processes and procedures relating to:

• Bulk Buying – Consolidate the stationery and envelope type to optimise economies of scale. Remember to balance any potential unit cost savings against the likelihood of increased wastage (rebranding, regulatory changes or quality deterioration can all mean much of your stock cannot be used).
• Waste – Ensure that all waste is recorded and measured. Recycle whatever can be and use this to offset against you carbon reduction commitment as part of the Carbon Trust Standard certification. (See www.carbontruststandard.com for more detail).


"Productivity improvements directly reduce production print and mail labor costs. The job mix and volumes vary, but the opportunity to cut costs immediately is present in every production print and mail operation. More importantly, these initiatives are under the direct control of operations management, which can implement them with little or no capital investment". ⁸


• Reprints – Operators can waste a vast amount of time on processing reprints manually. Simple software to automate this (and other parts of the production process) can save significantly on human resource costs and wastage.
• Postage and Packing – Not only has the de-regulation of the UK's postal system meant that the price of carriage is far more competitive and in need of review (see below), but also the principles behind the VAT rules applying to mail packets should be reviewed to ensure that gains from any zero-rated benefits are not offset by increased production costs.
• Labour Costs – most operations need to be equipped to meet the peaks that occur throughout the year, however staffing levels are more flexible. There is a fine balance to ensure that the cost of providing training and/or familiarity is not greater than the costs associated with the risk of not providing it.

3. Improve Production Techniques

"Productivity improvements reduce production print and mail labor costs by 10% to 15%". ⁸

There are a number of ways to improve productivity, many of which can be embraced by adopting the principles of Automated Document Factory techniques: "The consequences of not having an automated document factory (ADF) are high. High labor, material and postage costs, poor quality and document integrity, and low company growth and departmental value are the burdens that print and mail operations without an ADF bear… Depending on the nature of the toolset, we found savings ranging from 15% to 100%, where the latter meant elimination of capital, labor or material. The savings were also derived from qualitative improvements, such as piece-level tracking of their customers' transaction documents throughout printing and mailing, which reduced the cost of regulatory penalties from mismailings. Interestingly, some customers did not try to develop a monetary return on their investment, believing the high levels of document integrity that can be assured with an ADF 2.0 implementation were necessary for them to remain competitive".⁹

Amongst the improvements, are:

Group your documents

• You will have many customers who possess different products – each of which requires different information, provided in different documents at different times of the week or month. Ideally these documents should be put together in a single envelope. Whilst complexities around data sources, document formats and supporting technology can make this difficult, savings can be significant – particularly where this principle can then be is extended across multiple document types with the customer receiving a statement, letter and marketing material in the same envelope instead of separate envelopes.

BT were able to save over £1.2m per annum in additional postage costs by grouping multiple print runs together in order to maximise postal discounts.

Consolidate Your Communications

• Merging two documents of the same type into one document may allow you to have all relevant information on one sheet instead of multiple pages.

"Economic conditions dictate the use of cross-media campaigns that incorporate print advertising that is targeted, personalized and relevant".¹⁰

• This is most often seen where transaction documents are merged with promotional marketing material, known as Transpromo. The benefits of this concept are not only cost reduction but also increased response rates, increased customer retention rates and improved customer attrition rates.

"By 2012, 75% of all printed bills and statements in the U.S. will have advertisements for related products or services, generating more than $2.8 billion in advertising revenue for the billers".¹⁰

Save Paper

• Many companies still print high volume applications in simplex (single sided). Moving from simplex to duplex (double-siding) can reduce costs in a variety of ways, including:
• Potentially 50% less pieces of paper are used to deliver exactly the same information.
• Reduction in the postal cost for the envelope in conjunction with Royal Mail rules.
• When used in conjunction with document grouping and consolidation, cost savings are exponential.
• Printing duplex will allow you to "use" the back of every sheet (possibly for terms and conditions or marketing messages) to save on costs of pre-printed paper or bespoke marketing inserts.

"Digitized workflows enable print technology buyers to reduce paper and consumables consumption while also improving business processes".¹⁰

Split Jobs

• Splitting up larger jobs, by document type, or number of pages, etc allows operations to better balance the workload between printers and inserters and maximises overall production throughput.

RSA were able to cut costs by splitting jobs by route to market. A print run was created and then jobs were split according to whether the delivery method was going to be electronic or physical print.

Evaluate your print technology –
Move From Cut-Sheet to Continuous Feed.

• Volume growth and advancements in high speed printers have prompted many organisations to move from cut-sheet printing to continuous, or "roll-feed", printing environments. As a result, companies can save money on variable costs and more quickly leverage their investments in new hardware and technology. This is particularly true as such savings will be needed to offset any increases in ciosts from the demand for colour capability.
  
  After years of gradual advances in speed and image quality, color production printers are rapidly evolving, with more products focused on light-production speeds, a wider range of purchase and operating costs and the development of inkjet systems with image quality approaching that of traditional offset printing.

4. Don't Post It, Publish It

"Environmental and financial pressures will drive an increasing number of documents from paper to strictly digital formats".¹⁰

Why post a document if you can deliver it for free? Advancing technologies, increasing consumer acceptance and a 'need' for information to be accessible immediately has meant that organisations have to provide information across a multitude of channels:

• Fax – An old favourite especially with international operators
• Email – Often for notification purposes only
• Email attachment – Allows full-colour, personalised, delivery of documents
• Email web link – "Your statement is ready to view online – click here"
• SMS – Via cell phones (hospitals & dentists use it to remind patients of their appointments)
• XML & EDI – Why spend time inputting invoices when these can be sent and received directly into your accounting system?

"Customers will demand more applications and a more seamless integration with their other corporate systems and workflows. End users will accelerate the migration to nonprint communications for cost savings, environmental considerations and convenience".¹⁰

5. Transfer Responsibility for Document Content to the Business Owner

Traditionally document composition capability has sat within the remit of IT – Because the process of developing composed applications is typically complex, time consuming and in need of highly trained (and highly expensive) specialists, document composition capability has sat within the remit of IT. New composition systems allow easier and simplified document creation that enable huge cost reductions – as well as a far faster time to market for new, or altered document types.

6. Review your Postal Carrier

With the de-regulation of the mail markets in Europe, the postal market has opened up to competition and, using specialist software, you can optimise postage costs by ensuring that documents are printed in the correct order and to the correct weights.

7. Market More Efficiently and Effectively

A number of cost savings can be achieved by using documents as a vehicle for marketing information – combining marketing messages with existing mail to save on the postage as well as production costs. The further benefits – around greater segmentation of the market and/or true personalised messaging to drive revenue potential can be significant.

Many organisations are now using their existing methods of communication to transmit special tactical offers, to influence buying decisions or to simply raise awareness of the latest products. With all of the additional costs associated with producing marketing documents separately, why continue to send out separate messages to customers when they will pay more attention to it if it comes with or on something that they actually read and retain – such as a bill or a statement?

Orange were able to add marketing messages to their bills and use them as marketing tools for offers such as Orange Wednesday cinema offers and Orange Broadband.

8. Ensure that Regulatory Requirements are met

Automated Document Factory (ADF) technology ensures that all documentation produced is secure, cost effective and relevant. Issues around sending the wrong communication to the wrong recipient are greatly diminished – and with it the risk of financial penalties and cost to your reputation. An ADF manages the entire production process of your documents from data composition to finishing and inserting, with security measures throughout to ensure a consistent and seamless production process that eliminates costly errors.

9. Outsource the Entire Document Production Process

As an alternative to internal production of documents, many organisations, who do not consider document management to be a core activity, look to outsource some or all of their document production process.

This has added complexity as the two worlds of Direct Mail and Transactional printing merge under the umbrella of TransPromo publishing, each with a different perspective of using outsourcing strategically:

"Printed marketing communications in particular historically have been sent to a specialist provider that used offset presses to produce high volumes of material or digital presses for shorter and more-personalized pieces. Transactional documents such as policies, invoices, statements and checks have either been produced by a different specialist provider or the organization's own in-plant printing operation. Thus, while certain kinds of marketing materials have long been outsourced and to produce them in-house would be an anomaly, business communications have been outsourced only when management felt potential issues of control, confidentiality, tight deadlines and the mission-critical nature of the work would be assured".¹¹

The benefits of outsourcing the entire print and mail function are well documented and include: avoiding market fluctuations for commodity prices; leveraging economies of scale; rebalance of assets; head-count reduction; risk mitigation and access to expertise.

However, the financial benefits may be challenged in the future, so careful consideration will need to be given. Gartner predicts that twenty-five percent of the top 20 BPO providers will not exist as separate entities by 2012 and that this consolidation will give buyers less choice.¹²

Summary

In the current economy the main objective for many organisations is to survive to thrive once again.

This is best achieved by attracting the right investors and ensuring that your existing shareholders are confident in the business and its future. In turn this focuses you on gaining even greater control of your business – though achieving revenue expectations, and by looking to reduce costs in all areas of your business.

Managing your document output helps you to meet both of these criteria – efficient and effective documents add significantly to your customer retention and acquisition results, whilst document-related costs offer a compelling opportunity for savings on document production.

The entire document production process from start to finish within an organisation can be a very expensive process. By implementing some of the strategies above you can help with the streamlining of the entire document process. Not all of the ideas above will work for every organisation; however they will all ensure that you are producing your documents in the leanest and most effective way.

References
¹Gartner, Key Issues for Printing Markets and Management, 2009, Cecile Drew, 23 March 2009
²Gartner, Survey Finds Print Operations Maintain Steady Course During Economic Uncertainty, Pete Basiliere, 27 June 2008
³Gartner, The Golden Opportunity to Slash Your Printing Costs: Seize it Now, Ken Weilerstein, 26 May 2009
⁴Internetstats.com, 2009
⁵FSA UK Country Report for the fourth Quantitative Impact Study (QIS4) for Solvency II, December 2008
⁶Gartner, Securing your MFP and Printer is More Relevant Than Ever, Don Dixon, 12 June 2009
⁷Gartner, Cost Cutting Initiatives for Office Printing, Sharon McNee & Ken Weilerstein, 19 March 2009
⁸Gartner, Cost Cutting in Production Print and Mail Operations, Pete Basiliere, 3 March 2008
⁹Gartner, MarketScope for Automated Document Factory 2.0 Software, Pete Basiliere, Ken Weilerstein, 2 December 2008
¹⁰Gartner, Predicts 2009: Print Technologies Enable Cost Savings and Revenue Growth, Pete Basiliere, Don Dixon, Sharon McNee, Tosh Prabhakar, Cecile Drew, Malcolm John Hancock, 13 January 2009
¹¹Gartner, Strategic Document Outsourcing Improves Customer Communications, Pete Basiliere, 6 April 2009
¹²Gartner, Gartner's Top Predictions for IT Organizations and Users, 2009 and Beyond: Where Is the Money?, Daryl C. Plummer, Bob Hafner, Janelle B. Hill, Phillip Redman, Robert H. Brown, Ken Dulaney, William Clark, David A. Willis, C.G. Lee, Charles Smulders, Alan Dayley, Bill Rosser, 4 February 2009