Today’s business environment requires organizations to review all aspects of their operations. For media companies that publish printed products, one area to review is printing and production. Outsourcing these operations is a very sensitive area for most organizations, especially considering many have printed their own newspapers and magazines for decades. However, to stay competitive and, in some instances survive, it is incumbent upon an organization to at least review the pros and cons of outsourcing their printing and production operations.
There are a number of benefits of outsourcing printing and production, including:
- Lower employee costs. There will be a future reduction of salary, benefits, and payroll taxes on individuals whose positions are eliminated. While it is always difficult for a company to eliminate positions, this is typically the area that generates the largest cost savings.
- Fewer equipment repairs and maintenance. Repairs and maintenance on a press, inserting equipment, and other production facility equipment can be significant. As the equipment ages, the need for additional repairs and maintenance increases. By outsourcing these functions, there is no longer a need to maintain in-house equipment, also eliminating costly repair bills.
- Reduced capital expenditures. No longer needing to reinvest or upgrade production equipment and production facilities can lead to significant savings.
- Higher print quality. Many organizations have seen an improvement in the quality of their printed publications in cases where the outsourced printer has more modern equipment.
On the other hand, there are several areas that may be considered hurdles to the decision to outsource, such as:
- Higher upfront costs. The decision to outsource usually results in employee layoffs. Costs associated with the elimination of employees include severance pay, health insurance, and outplacement fees.
- Greater legal costs. Organizations may need to consult with an attorney regarding a host of matters, particularly employment issues. There will also be legal costs related to contracts for outsourced service providers.
- Negotiations with collectively-bargained employee groups. If applicable, the company may need to work with one or more labor unions. Plus, if there is a multi-employer pension plan involved, the elimination of union positions may trigger a withdrawal and potential liability issues. Company-sponsored defined benefit pension plans may also require additional funding if they are currently under-funded.
Other key areas that organizations must consider include the reputation, capabilities, and logistics of a new printer. Will the outsourced printer be able to meet your deadlines for delivery? What is the timing of your publication(s)? If your vendor prints multiple publications, where do you stand in the pecking order of production? Are there any penalties for missed deadlines? These are a few of the questions that need to be answered and should be addressed in the contract with the outsourced printer.
Organizations also need to consider the accounting and tax consequences of outsourcing, including termination costs (i.e., severance) and the timing of its recognition in the financial statements. Additionally, equipment and facilities may become idle or impaired, and there are accounting standards that need to be followed if these circumstances apply. Organizations should discuss the financial statement impact with their professional advisors to ensure a clear understanding.
Ultimately, the decision to outsource production is a difficult one with significant consequences to the company and its employees. Organizations need to conduct a cost-benefit analysis that includes the short- and long-term economic and organizational impacts.
Richard Snyder can be reached at Email or 215.441.4600.
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