A. OPERATIONAL &
FINANCIAL REVIEW:
1.
Resources:
The majority of equipment in the Printing and Finishing area is old and threatened with high maintenance and replacement cost.
There are no available figures, by which to analyse the performance of the separate divisions of the Unit.
2.
Changes since last
review:
Levels of chargeable hours have reduced
3.
Implementation of
2001 Recommendations:
Except for the recent implementation of the Printing Protocol, no attempt has been made to use the facilities available to create new cost rates, monitor the recharges for photocopying, or address the anomaly of the recharges for double-sided copies.
4.
Current
Performance:
4.a Financial:
The out-turn budget, prepared after the first half year’s results shows:-
A reduction in overall recharges from £265,000 to £232,754
A forecast deficit / under-recovery of £23,561.
Recharges made would have needed to be increased by 10%
Although this may not have an overall negative impact upon the authority’s overall cost structure, any adjustments made to reverse this situation will result in the Unit’s cost rates and recharges for individual jobs being less competitive.
An exercise to calculate cost rates, using the forecast out-turn figures, seems to indicate that current levels of chargeable hours, actually achieved in the Unit, are around the 65% level, rather than the industry norm of 75%.
No charge is being made for the costs incurred by the Unit in procuring print from external suppliers under the Printing Protocol.
4.b Operational:
Since the last review, the number of employees has reduced by one to five, and when taken with an increase in leave entitlements, chargeable hours have reduced by 26% from 3,949 to 2,928 for activities other than photocopying.
Volumes of Black & White (B&W) photocopying at 2.656 million are 24% below the level set for ‘free copies’ in the current Océ contract. Charges for B&W copies need to be increased by 28.7% to reflect these lower volumes.
To address this problem, either 824,000 copies need to be diverted from other copiers within the authority, or a revised contract negotiated for the remaining two years.
Volumes of colour photocopies are consistently higher than the minimum of 36,000 annual copies in that contract.
If levels of chargeable hours are set at the 65% level, as demonstrated by the cost rate model, rates for all areas, other than photocopying, will need to be increased by 15%, in order to reflect this reality.
4.c Other Issues:
The costs of replacing assets in Printing and Finishing could range for £100,000 to £250,000. There is a need to consider a significant replacement programme in the next three years.
A number of staff are approaching retirement age and will need to be replaced at some point in the next few years.
Interviews with the Unit’s main customer, showed positive support for their photocopying activities and the quality of service provided.
The employees felt that insufficient effort was being applied to marketing the Unit’s facilities and services, as a way of reversing the trend of declining volumes and activity.
A Market Testing exercise on a sample of jobs, extracted from the last quarter’s recharges was offered to 11 suppliers, currently selected under the Printing Protocol.
Prices for photocopying, received from the NHS Trust, were around 40% lower than the prices needed to be charged by the Unit, if recalculated using the low levels of copies currently being processed. The Trust has not been asked to quote for the production of all of the authority’s photo-copying requirements.
The Unit was competitive with external comparisons on orders for small quantities of commodity items such as letterheads and compliment slips, but could not compete so successfully for larger quantities, or one-off items.
B. PROCUREMENT
OPTIONS:
1.
External
Procurement:
An option to revert to departments procuring their own print, is not considered one which achieves best value as a corporate policy.
The recruitment of a specialist Print Buyer to procure all of the authority’s £750,000 worth of printing requirements, could save £55,800. But is it is recommended that this be deferred until the next option has been considered.
The report proposes, and outlines the principle elements for an option to secure initial Expressions of Interest from external suppliers requested to present their own proposals for supplying the Council’s printing requirements. This strategy has been successfully undertaken by several local authorities. In one case the photocopying unit has been re-equipped and maintained on-site, with all other print externally procured. The authority has achieved a 10% saving on its £400,000 printing budget. The essence of this option, is to encourage innovative and cost-effective solutions form suppliers, rather than setting inflexible parameters in a more normal Invitation to Tender. This option could be expected to save in excess of £85,800. Savings as high as £118,500 might be achieved if photocopying were available at the level indicated by the NHS Trust process in the Market Testing exercise.
2.
Internal
Procurement:
The Options considered were:-
1. To Reduce Current Overheads
2. To Terminate Other Production Activities – short of closure
The option to retain photocopying was selected as the preferred scenario.
It was estimated that savings of around £36,000 could be achieved, by reducing overheads, which would have the impact of reducing rates by around 7%. The net savings from terminating litho printing, and reverting to a three-employee operation, offering a design, photo-copying, some finishing operations and a print procurement service, would not show an overall saving. The optimum level to achieve a saving would be an impractical establishment of 2.6 employees.
C. CONCLUSIONS &
RECOMMENDATIONS:
The recurring theme in the analysis of the Print Unit is the impact on its competitiveness of low levels of activity in the Litho printing area, and from significant reductions in photo-copying volumes.
The Market Testing exercise, has shown that the local NHS Trust would be capable of under-cutting current prices for photocopying, and that some savings could result from larger print orders being produced externally.
The current Litho Printing operation will soon require quite substantial levels of investment to replace presses and finishing equipment, whose costs of maintenance are now increasing.
Recommendations:
These recommendations are arranged in order of priority rather than reflecting the arrangement and order of the following report.
A. OPERATIONAL &
FINANCIAL REVIEW:
1.
Resources:
The Print Unit can be divided into five main production units,
comprising:-
|
Operation |
Manpower (FTE) |
|
|
Design / Typesetting |
0.45 |
9% |
|
Pre-Press (Plate
making) |
0.26 |
5% |
|
Litho Printing |
1.03 |
21% |
|
Finishing
Operations |
0.68 |
14% |
|
Photocopying |
1.38 |
27% |
Production Total |
3.80 |
76% |
|
Admin. &
Customer Support |
1.20 |
24% |
|
Total |
5.00 |
100% |
The Unit has
up-to-date photocopying equipment, the latest of which was installed in 2002.
The investment in Computer-to-Plate (CTP) technology in 2000 was a positive and
bold decision, since when most printers have needed to consider and make the
transfer to this new technology.
The more traditional Lithographic printing and Finishing operations have
not benefited from any recent investment; the three presses were installed in
1988, 1992 and 1999. The guillotine was acquired seven years ago in 1997, with
the rest of the equipment in the Finishing area pre-dates that acquisition by
around eight years (the average age of this equipment is around fifteen years
old).
There are no reliable, internal figures available, which analyse the activities and recharges of the Print Unit, into its main operations. An attempt has been made to analyse the overall totals into these headings, as shown in Table 1 in Appendix A. These totals will be used to assess the impact and savings from alternative procurement strategies, later in the report. It should be noted, that these figures, although accurate and justifiable in total, do not have the same reliability as departmental totals. Any detailed savings or cost changes set out elsewhere in this report will be undermined by the absence of an accurate analysis of the departmental cost and income base.
2.
Changes since last
review:
The combined impact of these changes is to reduce the overall cost of the Print Unit, but also to reduce the recovery base of chargeable hours for non-photocopying activities by 26% from 3,949 to 2,928.
3.
Implementation of the
2001 Recommendations:
4.
Current
Performance:
4.a Financial:
Following a review
of actual performance during the first half of the current year, a revised
out-turn budget has been produced, which is shown, in detail in Appendix B.
Overall recharges
for the year, at £232,754, are lower than the original target of £265,000 and
below the levels of £248,022 achieved in 2003-04. The anticipated deficit /
under-recovery has been estimated at £23,561, and would require that the rates
used for recovering costs this year be adjusted upwards by 10%, in order to
break-even and recover the actual costs of printing in the Print Unit.
Around 10% of
recharges are made to customers outside of the authority. These customers
include schools and other public bodies. The Local Government Act 2003 removes
some of the restrictions on inplants trading outside of the local authority,
and this could provide an additional opportunity for expanding the unit’s
customer and activity base.
This income has not
been treated separately, when considering the print unit’s trading performance,
and it has been assumed that should the deficit require a 10% uplift to
recharges, then this income would also be included. However, these recharges
are estimated at £23,000, and if it is assumed that the deficit cannot be
recouped by uplifting invoices already submitted, then other council recharges
would need to be increased by 11.25% to recover £23,561 on £209,754(£232,754
less £23,000). This small difference and subtlety does not deflect the main
trend of the analyses made or the conclusions reached.
The implications of
this deficit are mixed.
If it is assumed that the budgets for the Unit’s customers were
originally sufficient to accept the original level of recharges, then the
current lower levels of recharges will result in a compensating under-spending
in those budgets.
However, if current recharges need to be increased by 10%, or even 11.25% then the competitiveness of the Unit becomes a serious issue.
As a part of this review, the basic financial details set out in the out-turn budget has been translated into cost rates using the cost rate model, produced during the last project. The detailed cost rate calculations and reconciliations are set out in a separate set of technical data, available if required.
There is no information that shows the level of attendance hours that are recovered on individual jobs. This total for chargeable hours is an important ingredient for the completion of the cost rate calculations, once financial costs have been allocated and apportioned to the various cost centres. The rates shown in column C of Table 4 in Appendix A have been calculated with a utilisation factor of 75%, which is a basic and average level used by the commercial sector.
However, this assumption can be tested by applying the current rates to the total hours and numbers of photocopies used in the cost rate model. This will provide an estimate of the level of recharges that could be expected to be recovered from these levels of activity and output.
The introduction of the Printing Protocol has been demonstrated to show a positive reduction in the cost of printing procured by the Council, but has also increased the workload of the Print Unit. At present, the costs of the time incurred in procuring this external print is not being recovered, which results in these overheads needing to be recovered on the Unit’s other activities. A fixed handling charge, which represents the average time taken to procure these orders, should be introduced as a fair and equitable method of recovering these costs. Based upon an average of two hours for each job, a charge of £62 would recover these costs, and positively, but not significantly, reduce the Unit’s other recharge rates. This total recovery of £4,030, is well below the estimated average savings of £12,200 shown in the report on the Printing Protocol presented to the Resources Select Committee on 8th September 2004. Because these costs are already an element in the Council’s budget, the overall saving will still be generated for the benefit of the authority. I was surprised that only 38 orders had been handled since 1st April 2004.
4.b Operational:
Asset Utilisation:
Two main issues arise from this operational review, which are also confirmed by the data used for the recalculation of cost rates outlined above.
· Reduced volumes of photo-copying
· Levels of chargeable hours in the Unit’s other operations.
Photo-copying:
Table 2 in Appendix A shows the
trend in the volumes of copies used since April 2000. The current contract for the Black & White (B&W) machines, due
to expire in November 2006, includes a total of 3,480,000 copies within the
annual maintenance and rental contract of £39,653, before any marginal copy
charges are made for excess volumes over and above that figure. This year’s
estimated usage of 2,656,000 copies falls short of this target by 24% (824,000
copies), and increases, by 30%, the cost of recovering these annual charges
from 1.14p to 1.49p per processed copy. The impact of these low volumes on copy
charges is set out in Table 3 on page 2 of Appendix A.
At present, 824,000 clicks are being paid for but not used. There will need to be a 25% increase in current activity in order to overcome this shortfall.
If contract volumes are not achieved, the charge for a single-sided copy
will need to be increased by 28.7% from
3.14p to 4.04p. Should it be possible to transfer 824,000 clicks, from
elsewhere in the authority to these machines, then the adjustment to current
rates will only require an increase to 3.22p, an increase of only 2.5%.
There are two main options available to address this problem:-
·
Take steps to
divert 824,000 copies from elsewhere in the authority to these two machines
· Approach Océ to renegotiate the remaining two years of the current five-year agreement.
The Procurement Officer has responded to my enquiry on the practicalities of diverting these volumes from the other machines, for which he has recently negotiated a global contract. He informs me that the transfer of the volumes required is not achievable, since it exceeds the annual volume processed last year on the four main multi-functional, “corridor” machines.
The Unit’s digital photocopying machines are capable of being added to a corporate computer network, and used as a global printing resource. They should be available to any user, when high volumes of copies or when the specialised finishing options available in the unit, are required. It only makes sense to implement this sort of connection if it achieves the transfer of suitable work, currently output on other print machines. This sort of connection is often used to divert long printing runs from an IT department onto the faster inplant machines.
The contractual volumes, and levels of actual throughput do not create a
similar problem for Colour photocopying.
Within the scale of problems revealed by the substantial decline in copies processed, the unresolved issue of the practice of doubling the cost of a single-sided copy for a double-sided one, thereby duplicating the costs of paper used does not warrant immediate attention.
Other Printing & Design Activities:
The issue of low levels of asset utilisation, and lack of detailed evidence was raised during the last review, there are still no records or information available which quantify or summarise the levels of activity which are recharged to individual jobs, and which can be used to benchmark the utilisation rate of 75% used to calculate the Unit’s cost rates.
However, this key performance indicator can be extrapolated from other data available. Once employees’ costs have been allocated to individual cost centres and overheads, it is possible to estimate what recoveries would be expected to be generated from current recharge rates. This detailed calculation is included in the Technical Appendix, where the utilisation rate, required to achieve the annual level of recharges of £232,778 would appear to be around 65%. This is 10% lower than the industry norm of 75%.
The main implications of this shortfall are that:-
budgeted levels of recharges and recoveries are not being achieved.
Calculated cost rates are not correct and need to be increased by 15%
Table 4 on page 3 of Appendix A, sets out this range of rates, and the assumptions made. It is necessary to include this level of detail, in order to make appropriate comparisons elsewhere in the report. In summary there are four different cost rates that need to be considered.
The current rates in use which have been used for recharges this year (Column A)
The rates that should have been used in order to break-even, by applying a global increase to the rates in A. (Column B)
The cost rates that should have been calculated based upon the revised budget, using normal chargeable hour assumptions – 75% (Table C)
The cost rates that would have been calculated, using the revised budget, and the actual level of chargeable hours being achieved – 65% (Table D).
Comparisons with market rates should be made with the rates shown in Columns C & D. There are no justifiable analyses and calculations supporting the rates shown in Columns A & B.
On this basis, the current rates being charged are both inaccurate and non-competitive. Justifiable rates are towards the higher end of the market range, and would still need to be verified against output speeds. Two printers may both use a rate of £50 per hour, but if one achieves 4,000 copies per hour and the other 5,000, their rates are not the only arbiter of their competitiveness.
4.c Other Issues:
Asset Replacement:
Litho Printing:
The two oldest printing presses are now 16, and 8 years old, and will both need replacement in the near future. A downsizing to one press will require an investment of around £50,000, if there is no change in basic specification or technology. However, the current trend in this area is towards four-colour printing, using digital technology, to avoid the need for separate Platemaking (CTP) facilities. Investment in this area would require funds of between £150,000 and £200,000.
Finishing:
The Guillotine acquired in 1997 is the latest asset in this area, and the remainder of the assets are significantly beyond their normal replacement date. A budget of around £50,000 would be needed for the range of replacements that ought to be considered.
Future investment in these areas would range from £100,000 to £250,000 depending upon the options considered. These investments would still need to be competitive with the commercial sector, and need to overcome the problems inherent in a single-shift working environment.
Current Personnel:
A number of staff are approaching retirement age and will need to be replaced at some point in the next few years. Although the Isle of Wight has a unique economic climate, the pay scales, terms of employment and benefits should allow the authority to recruit suitable replacements.
Customer Comments:
The interview with C Matthews, from Democratic Services, offered a positive view of the Unit, from a user reliant upon their efficiency and flexibility in order to deliver the printed copies of agendas and minutes, where confidentiality and adherence to timetables and notice are critical. The service received in this area was adjudged to be excellent, and the B&W copier operator was singled out for praise.
His experience of using the Unit, as Electoral Registration Officer, was not so positive.
He was conscious of a trend that would reduce the volume of paper required in the future.
Employee Comments:
An A4 list of comments and queries was provided by one of the employees. At the meeting, there was general criticism of the lack of drive in the Unit, with an unwillingness to market the facilities and services available for customers, and no evidence of any enthusiasm for change. It was thought that this ignorance of the Unit’s capabilities in the Council’s departments meant that projects such as the transfer of documents to digital files were not utilising the facilities for this operation available on the Océ machine.
Competitiveness and
Best Value:
The financial review highlighted the need to amend current rates both to reduce the forecast deficit, and to reflect the level of utilisation of productive employees estimated from current recharges.
Inplant print units, usually find it difficult to compete with the commercial sector for output using traditional litho printing and finishing equipment. This market is substantially over-supplied; works two to three-shifts and has regular periods with low or no work. In these circumstances, the prospect of taking on local authority work, which offers no risk of late or non-payment of invoices, encourages the submission of very low, marginally costed quotations which substantially under-cut the internal print department.
Local authority rates for photocopying usually manage to be lower than their commercial equivalents, because of:-
· the specialised nature of the service and the volumes of copying required in the public sector – (wholesale commercial printers have not yet invested in this technology) and
· the market against which they compete; which is a specialised high-street, retail operation, still able to charge high unit prices for predominantly short-run requirements.
Market Testing
Exercise:
The only real test of the competitiveness of the Unit is to undertake a Market Testing exercise. From a list of jobs selected from the Unit’s recharges over the three months ending on 30th September, Bob Streets and his department circulated, by email, the current list of suppliers used for external printing under the Printing Protocol. The results of that exercise are attached on three pages as Appendix D.
Responses were received from 11 suppliers. The results and general credibility of this sort of exercise are always subject to debate, but the exercise is able to rely on positive responses from suppliers who made an effort to gain this sort of work.
The prices received from the NHS Trust were predominantly lower for photocopying, and for some of the Other Printing. For this reason a separate comparison has been included, which excludes their quotations. The summary has been formatted to show in bold type those quotations which were lower than the recharge made by the Print Unit.
There are some trends which can be deduced from the results:-
General:
The comparisons made, are not with the Print Unit’s actual charge but with the charge that should have been made to achieve break-even . These are the rates set out in Column B of Table 4 on page 3 of Appendix A. It would have been more justifiable to rework the Print Unit’s recharges using the rates in Column D, but, since there are no detailed records kept for individual recharges, this sort of comparison cannot be made.
Photocopying:
Commercial quotations were only received from four suppliers, three of whom only quoted for Black & White copying. The Isle of Wight Healthcare NHS Trust was not the cheapest in every cases, but significantly under-cut the adjusted internal price. Their prices for double-sided copying reflects the correct treatment of this issue (100 single-sided B & W - £3.50, 100 double-sided £4.50)
However, it is possible to rework the Unit’s photocopying charges using the rates calculated using current levels of cost and activities. These rates are shown in Table 3 on page 2 of Appendix A, and treat double-sided copying correctly.
These adjusted comparisons are shown on page 3 of Appendix D. In this case, the NHS Trust is significantly more competitive, with a 40% lower price. Based upon estimated copying costs of £128,500, this could result in savings as high as £51,000. However, it should be noted that the market testing asked suppliers to quote for illustrative quantities, not for the whole of the authority’s print requirements.
Other Printing:
These comparisons are skewed by some extraordinary low prices for some items quoted by the NHS Trust. If these are ignored, the top block of ‘commodity’ items (Letterheads, Business Cards, Compliment Slips) shows that the Unit is predominantly competitive but cannot compete on large quantities (see 7,500 to 10,000 Letterheads).
The preponderance of bold and bracketed figures in the area shown as “Other Printing” reflects those one-off items where the commercial market would expect to be competitive.
Conclusions:
The exercise has produced the prospect of significantly savings on the costs of photo-copying if this work could be transferred to the NHS Trust, with standards of flexibility and service maintained at current levels. The results for Other Printing show that savings could be made, especially on higher volumes.
B. PROCUREMENT
OPTIONS:
1.
EXTERNAL
PROCUREMENT:
These options begin with an assumption that the Council has no
production facilities, and that all of its printing requirements are produced
externally. For the calculation of any savings it is assumed that the premises
costs of the current print unit, can be absorbed into a new use, with any
overall saving of £10,845.
Option 1. Departments procure their own print:
This option is usually regarded as a retrograde step, since the
specific expertise, and
control available from a single and central procurement source will be
lost, and the authority will be hard pressed to maintain either corporate
quality standards, or achieve the potential savings arising from the
aggregation of overall volumes. It would also need to be assumed that staff
resources are available in departments, such as democratic services, to manage
more directly the requisition and supply of their printing requirements.
Option 2.
Central Print Procurement – Print Buyer:
This option would achieve a consistent and cost-effective method of
print procurement. Based upon a total spend of £757k, savings of 4% would be
required to cover an employee’s costs of £30k. I would suggest that these
duties might not occupy all of the time of this post, but that it should be
integrated into the existing or modified structure of any central procurement
operation.
This is a practical and cost effective option, which if it achieved
savings of 10% on current print costs, would still show a net saving of £45K
after salary costs of £30k were taken into account, increasing to £55.8k if
premises costs are also included.
However, this option should be deferred until the outcome of Option 3
is determined.
I would anticipate that a specialised print procurement company would
be capable of out-performing a single purchasing officer with only a £750k
spending total.
Option 3.
External Print Procurement:
Within the commercial printing market, the growth and success of
facilities management companies, who take on responsibility for the competitive
supply of printing and stationery to commercial companies, banks, insurance
companies and some public authorities, has been a noticeable feature of the
summaries of performance in the industry as set out in the Print Week Top 500
companies, produced annually at the end of November. These companies have been
able to capitalise upon their purchasing skills and bulk-buying muscle to secure
very competitive prices from an over-supplied trade. Even with the addition of
their own handling charges they are still able to show their clients significant
savings on their printing budgets.
The privatisation of Her Majesty’s Stationery Office, as Tactica, has
led to considerable savings in costs for the MOD and other large central
government departments.
A base of experience has now been established for the impact of
externalising the print procurement requirements in local authorities. There
are quite a wide a range of options available, with no single option having yet
established itself as a predominant trend. Individual circumstances and
priorities will always affect the outcome of these out-sourcing exercises.
The authority’s printing requirements could be taken over by:-
A contractor with their own production
facilities
A contractor with no production facilities but
sophisticated procurement facilities.
A contractor who takes over the provision of
these services and continues to operate all or part of them from within the authority.
In order to achieve a practical and cost-effective outcome from this
wide range of options, there is now an established route for requesting
responses and solutions from external suppliers. But the key to these exercises
is to invite ‘Expressions of Interest’ from external suppliers, who are
required to submit innovative solutions to the supply of an authority’s
printing requirements.
No attempt is made to prescribe or dictate a preferred option, and the
retention of all or part of the in-house facility will form part of the
discussions. But what can be established is a broad framework of Aims, as well
as a set of key issues on which potential suppliers are required to produce a
specific Method Statement.
A formal evaluation system is also required for ‘scoring’ these
submissions, with adjustments made to rank specific priorities such as the
significance of quality or price.
This exercise should commence with the issue, in the European Journal,
of a request for expressions of interest in a contract for the provision of the
Councils printed materials.
The aim of the process would be:-
To establish a contract with a single provider
(unless the responses are judged to be better with two or more suppliers), that
will manage all of the authority’s print requirements and will:
Provide a single point of contract for
managers
Achieve economies of scale over the length of
the contract
Develop partnerships with customers to
increase efficiency, and reduce waste and costs
Provide for continuous improvement, including
access to the latest printing technologies (at no extra cost to the authority)
The Authority will be required to produce an Outline Specification
which will define, among other things:-
The Authority’s General Requirements:
Definitions of the Print Required:-
Commodity Items (Letterheads, forms etc.)
Specialised Print (Magazines, leaflets,
newspapers etc.)
Quality Standards
Marketing
Added Value
Customer Support & Advice
Sub Contractors
Performance Measurement
Price Adjustments
Transition Arrangements
Termination
The submissions will be required to produce a series of Method
Statements which will show their approach to fulfilling a list of key issues
that could include:-
Marketing policies to achieve maximum take up
of the service
Maintenance of corporate style and quality,
including confidentiality
Continuous improvement strategies and
reductions in paper based activities
Meeting timescales for delivery, and handling
‘emergencies’ including use of on-site space
ICT and electronic transfer of data
Management of subcontractors
General advice and guidance to users on
graphic input and alternative products
Distribution and storage strategies
Ordering, invoicing and payment arrangements
Implementation plan.
The Evaluation Criteria will need to score and weight the responses
made to the issues set out in the Method Statements.
The information pack could also include a selection of Sample Jobs,
which would specify their frequency, quantity and price. To this could be added
specific illustrative scenarios, which require a response to dealing with such
historic ‘problems’ as arise during the
rate making and billing cycle, the issue of newsletters, magazines, or other
large mailings to ratepayers and tenants.
This methodology was undertaken in an authority with a total print
spend of just over £400,000. Initial interest was received from 82 suppliers:
43 submitted pre-tender questionnaires, from which a short-list of 11 companies
were invited to tender. 5 tender bids were received, and the contract was
awarded to Astron, a major player in this field, which retained and upgraded
the internal photocopying element of the previous inplant, and has produced
savings of around 10% , after the first year of the initial three year contract
(with an additional two year option). If this were achieved in the Isle of
Wight the saving would amount to £75k and rise to £85.8k if premises costs were
added.
The advantage of this method is that the authority does not precisely
define a detailed structure for its future requirements but is able to benefit
from the ingenuity and innovation of those who have the background experience
of addressing these issues.
The outcome of this sort of review cannot be predicted, or quantified,
and it will require quite high levels of resource input from the council’s
officers or external consultancy support in order to be implemented. But the
authority can probably use its contacts in other local authorities to establish
their experience, reactions and advice on a topic which has needed to be
addressed in other councils. I am also able to offer details of cases within my
own or the Printing Federation’s experience. Subject to the availability of
internal resources, a four month timetable should be sufficient to achieve a
positive outcome.
External Options – Summary:
An Expression of Interest Exercise might show a saving of £85.8k, but is also likely to achieve a positive solution, the exact structure and dynamics of which need not have been considered by the authority in advance.
As a second option an Internal Print Procurement Officer could expect to make savings of £55.8k.
A reversion to separate departmental print procurement is not a realistic option
2.
INTERNAL
PROCUREMENT: (Retaining an in-house printing service)
In order to consider the range of options available, the Unit has been
broken down into five main areas,:-
Design & Pre-Press Data Preparation:
Litho Printing & Plate Making (incl. CTP)
Finishing (a service to both Printing &
Photocopying)
Photo-copying
Print Procurement
The numbers of employees allocated to these
services are shown on page 1 at the head of this report.
General Comments
& Issues:
Because an inplant printing operation is required to act as a Trading
account, which recovers the full costs of work undertaken by individual
recharges for individual jobs. One of the simplest ways of reducing costs and
rates is to increase levels of activity, thereby defraying the fixed costs of
overheads over a broader recovery base.
The underlying trend of under-utilising assets, outlined earlier, would
rule out this lateral but positive approach to achieving a cost effective and
competitive operation.
The option to close the unit completely has basically been considered
in the previous section. For the purposes of this part of the report, a minimum
level of activity has been set as the retention of one of the current services.
The following basic options are proposed for evaluation:-
Reduce the costs of Overheads
Terminate or modify current production
activities.
All of the options considered below are undermined by the low number of
staff employed in the Unit, Although a range of adjustments can be made to
improve efficiency or reorganise individual sections, these changes will usually
require the reduction or retention of single employees, whereas more
sophisticated amendments may only require the removal of 75% or 80% of a
current post.
Option 1: Reduce Current Overheads:
A restructuring of the department that
included the removal of the post of Unit Manager, would save around £36,500 in
salary and other costs. This would only have a very small impact upon the
Unit’s overall productive hours, since only 30% of his time (363 hours) are
allocated to chargeable work. This reduction would also bring closer together
the current levels of output achieved and resources available.
This adjustment will require a redeployment of
labour to cover administration duties, and procurement, but could still be
feasible, if supported by the co-operation of the remaining staff and the
positive role taken by the current Designer / Receptionist. The current
allocation of staff time includes 0.5 (FTE) to cover the administration duties
not carried out by the Manager. One of the three remaining operatives would
need to become involved in administrative duties, but if a 65% utilisation rate
is taken as a norm then the equivalent of 0.3(FTE) could be made available,
giving a total of 0.8 (29.6 Hours per week), compared with a current allocation
of 1.2 (FTE - 44.4 hours per week).
The impact of this change is to reduce the
break-even turnover from current levels of £259,466 to £217,953, and reduce the
overall cost of printing to the authority by £36k. Average rates reduce by
around 7%. No account has been taken of the costs of implementing this
proposal, the potential for reduced premise costs, or of the salary adjustments,
which may be required to cover the duties of the Unit Manager, which will need
to be maintained.
Option 2: Terminate Another Production Activity:
Once overheads have been reduced, the
remaining areas available for change have some common and over-lapping
features.
Design & Typesetting:
Is a separate operation, but as well as the
separate Design service, supplies an essential keyboard / typesetting service
to:-
Printing (Creation of digital input for
Platemaking)
Photocopying (Creation, and amendment of
digital files output on the copiers)
Finishing:
This area includes processes such as:-
|
Cutting (Guillotine) |
Collating |
|
Folding |
Booklet Making |
|
Booklet Making |
Comb & Wiro Binding |
|
Stitching (Stapling) |
Drilling (File holes etc) |
It provides these services to printed products
both from the Litho presses and from the photo-copiers. These finishing
processes are the unique selling point which separates the facilities and
services available from the Print Unit, from the basic page-printing processes
available for walk-up copiers.
Because of these inter-connections, it is more
important to consider which service should be retained as the final single
service rather than considering which service to remove. On this basis, I have
assumed that the photocopying service is the most essential service, short of
total closure. The justification for this decision includes:-
The need for a reliable confidential service
to satisfy the Council’s Democratic Services.
The lower levels of operator skills required.
The lower level of investment costs and
processes, compared with litho printing.
Reinvestment costs of £100k to £250k for litho
(see above)
However, the data available from the Market
Testing exercise for copying charges by the local NHS Trust, might undermine
the confidence with which this bottom-line scenario can be justified.
Option Considered: To terminate Litho Printing
As has been explained elsewhere, this is the area
most at risk from commercial competition. This is an established market,
regularly working two shifts, and willing to take marginally priced work from
financially reliable customers, where that activity will fill currently
under-utilised equipment. The current trend is towards full colour
(four-colour) printing. The Unit is equipped with two-colour presses as its
most sophisticated process, and needs to process the sheet twice for any
additional colours required.
Although 1.29 employees are allocated to this
area, this option will require the loss of one whole employee, and can only be
justified if the removal of the Unit Manager’s post is maintained as a fixed
option, thereby keeping overheads in a sensible ratio to production activities.
The remaining litho operator will be retained
to operate the Finishing equipment , in support of the remaining photocopying
and Design / Pre-Press activities.
The direct savings will amount to:-
|
Item |
Saving |
|
Employee |
£23,670 |
|
Depreciation (incl. CTP) |
£10,000 |
|
Repairs & Mtnce Contracts |
£5,000 |
|
Premises Charges 30% |
£3,250 |
|
Total
Production Savings |
£41,920 |
|
Paper |
£15,500 |
|
Total Saving |
£66,420 |
However, this saving will be off-set by the
need to purchase current litho requirements in the commercial market. If it is
assumed that this work, produced internally amounts to £110,500 (See Table 1
Appendix A), then a 10% saving through external purchase would reduce costs to
£99,450. This would produce a net increase in costs of around £33,000, caused
by the retention of .3 employees and the unreduced costs of overheads.
In this scenario, the maintenance of Central
recharges at around £18,442 (£21,692 less premises charges of £3,250), would
result in a cost per employee for these recharges of £6,147, compared with the
current £4,338. This level of overhead could not be justified. If the budget
costs for this scenario are retained at a per capita charge of £4,338, then the
revised charge of £13,015, will increase the saving to £71,847, and narrow the
gap on the replacement costs of purchasing these requirements from the external
market.
The remaining Unit will comprise 3 (FTE)
employees, offering a design and typesetting service (0.5 FTE), a photocopying
service, manned by 1.25 (FTE), and a range of Finishing services (0.5 FTE),
with admin duties taking up the remaining 0.75 employee. The retention of a
Design facility is not strictly essential, but there will be some requirement
for file creation and amendment facilities, which could not be divorced from
the Design function. At this level of costs, photocopying charges would not
increase from the calculated rates, but would still remain uncompetitive,
compared with the NHS prices included in the Market Testing data. The optimum
manpower base would be an impractical 2.6 employees (Design .4, Finishing .3.
Admin .7, Copying 1.2). A two man operation would not be able to cope with
holidays, sickness and admin duties.
The costs of implementing this option, could
be partially funded by the capital receipts generated from the disposal of the
current three litho machine (£50-60k). The CTP Platemaking equipment might not
generate any significant proceeds, because of obsolescence and recent
developments in this field, leading to substantially lower initial investment
costs.
The reason for the failure to achieve an
overall saving, is partially due to the need to transfer the costs of around
half an employee (.03 FTE from Litho, and .34) from the Finishing applied to
Litho printing to the remaining design and photocopying service, which probably
could not function with only two employees, but, which would be overmanned at
three full-time employees.
Option Considered: To terminate Photo-copying:
This option would leave the inplant as a Litho
printing operation, that required substantial investment in replacement
equipment (presses - £100k) or new technology (four-colour digital printing -
£200k), and was most exposed to the current commercial; market. This has never
been a practical option in other public-sector inplants.
C. CONCLUSIONS & RECOMMENDATIONS:
The recurring theme in the analysis of the Print Unit, set out in Section A of this report, is the impact on its competitiveness of low levels of activity in the Litho printing area, and from significant reductions in photo-copying volumes. It is also unlikely that activity will increase given the pressure to reduce the use of paper, through the use of email and other screen-based information systems.
The Market Testing exercise has shown that the local NHS Trust would be capable of under-cutting current prices for photocopying, and that some savings could result from larger print orders being produced externally. Based on a target saving of 10% on all other printing and 40% on photocopying, savings as large as £110,000 could result from current base costs of £628,500 and £128,500 respectively.
The current Litho Printing operation will soon require quite substantial levels of investment to replace presses and finishing equipment, whose costs of maintenance are now increasing.
Recommendations:
These recommendations are arranged in order of priority rather than reflecting the arrangement and order of the preceding report.
D.R. Butler
Associate Consultant
British Printing Industries Federation
IOW BPIFrep Nov 04v2.doc
Table 1.
Estimated Analysis of Recharges by Department:
Total Expenditure on Printing:
|
|
A |
B |
|
|
Operation |
£ |
£ |
% |
|
Design &
Typesetting |
18,640 |
20,500 |
8% |
|
Litho Printing
& Finishing |
96,444 |
110,500 |
42% |
|
Photocopying &
Finishing |
114,611 |
128,500 |
50% |
|
Other Recoveries |
3,083 |
- |
|
|
Total |
232,778 |
259,500 |
100% |
|
Other Printing
Costs * |
|
497,500 |
|
|
Authority Total Printing Spend |
|
757,000 |
|
Notes:
A. Notional breakdown
of budgeted out-turn for recharges to March 2005
B. Extrapolated to
level of recharges required to break even and recover all costs
* Based upon data in
Printing Protocol Report 6th September 2004
Table 2.
Photocopying:
Copy Volumes – Océ
copiers in Print Unit:
|
Year |
Black & White |
Colour |
|
2000-01 |
4,187,600 |
30,802 |
|
2001-02 |
3,521,927 |
37,304 |
|
2002-03 |
2,877,318 |
59,104 |
|
26 weeks to Sept 03* |
1,533,365 |
23,324 |
|
2003-04 |
2,676,856 |
41,653 |
|
26 weeks to Sept 04 |
1,460,478 |
24,253 |
|
2004-05 Forecast + |
2,656,000 |
44,000 |
* B & W - 57.28% of eventual annual total.
+ based on half-year being 55%
of annual total (rounded to 000’s)
The cost of an annual total of 3,480,000 copies is included in the
contract for maintenance of the B&W machines. The figure for Colour copying
is 36,000.
Table 3.
Detailed Copy
Rates – Black & White copies:
|
|
Rates (p) |
|||
|
|
2001 |
Current |
Calculated Nov 04 |
At Contract Volumes |
|
Labour |
0.99 |
2.56 |
1.82 |
1.39 |
|
Rentals etc |
1.11 |
|
1.64 |
1.25 |
|
Paper |
0.49 |
0.58 |
0.58 |
0.58 |
|
Total – (One sided) |
2.59 |
3.14 |
4.04 |
3.22 |
|
Second Side |
2.10 |
3.14 |
3.46 |
2.64 |
|
Total |
4.69 |
6.28 |
7.50 |
5.86 |
|
Volumes Assumed |
|
|
2.656 million |
3.48 million |
Table 4.
Cost Rates:
|
Note: |
A |
B |
C |
D |
E |
|
|
Current
|
Adjusted |
Nov 04 |
Adjusted |
|
|
|
Cost |
Current |
Calculated |
Calculated |
Market |
|
|
Rate |
Rate |
Rate |
Rate |
Rates |
|
Design / Typesetting |
£39.50 |
£43.45 |
£34.99 |
£40.21 |
£30 - £50 |
|
Computer Plate making |
£45.00 |
£49.50 |
£52.74 |
£60.70 |
£45 - £60 |
|
Other Plate making |
£45.00 |
£49.50 |
£44.21 |
£50.85 |
£45 - £60 |
|
|
|
|
|
|
|
|
2 Colour Press (GTO) |
£55.00 |
£60.50 |
£43.29 |
£49.79 |
£45 - £55 |
|
2 Colour Press (Itek) |
£51.00 |
£56.10 |
£35.52 |
£40.83 |
£45 - £55 |
|
I Colour (Numb & Perf) |
£47.00 |
£51.70 |
£45.32 |
£52.13 |
£30 - £40 |
|
|
|
|
|
|
|
|
Guillotine |
£39.00 |
£42.90 |
£36.97 |
£42.49 |
£25 - £30 |
|
Stitch / Fold Line |
£51.00 |
£56.10 |
£78.37 |
£90.27 |
£55 - £65 |
|
Other Finishing |
£32.00 |
£35.20 |
£39.73 |
£45.68 |
£25 - £35 |
|
|
|
|
|
|
|
|
Photo-copying: |
|
|
|
|
|
|
Black & White |
3.14p |
3.54p |
4.04p |
4.03p |
4p – 6p |
|
Colour |
50.00p |
55.00p |
35.41p |
35.38p |
40p – 60p |
|
|
|
|
|
|
|
|
Other Recoveries |
|
|
|
|
|
|
Admin Charge |
£5.00 |
£5.00 |
£5.00 |
£5.00 |
£5.00 |
|
Handling Charge |
15.00% |
15% |
15.00% |
15.00% |
10% |
|
Procurement Charge |
£0.00 |
£0.00 |
£62.00 |
£62.00 |
7.5% |
Notes:
A. Cost rates used for recharges in current
financial year
B. The adjusted rates required in the current year to remove the currently forecast deficit of £23,561.
C. Cost rates that could be expected from the revised budget for costs, and staff utilisation set at 75% of attended hours. Copier charges based upon current levels of activity
D. Cost rates that could be expected from the revised budget for costs, and staff utilisation set at 65% of attended hours. Copier charges based upon current levels of activity
E. Market rate comparisons
|
PRINT UNIT - COSTS /
BUDGETS |
|
|
|
|
|
|||||||
|
Budget 2000-01 |
|
|
|
|
|
Budget 2004-05 |
||||||
|
Ph/ Copy |
Print |
Total |
|
Code |
421A |
|
Base |
Revised |
||||
|
4210 |
Unit |
|
|
|
|
|
Budget |
Budget |
||||
|
£ |
£ |
£ |
|
|
|
|
£ |
£ |
||||
|
29,079 |
217,000 |
246,079 |
Recharges to Other
Departments |
265,000 |
232,754 |
|||||||
|
|
|
|
Savings Target |
|
|
6,221 |
|
|||||
|
|
38,000 |
38,000 |
Recharges to non IWC A/cs |
|
|
24 |
||||||
|
29,079 |
255,000 |
284,079 |
Sales / Recharges to
Customers |
271,221 |
232,778 |
|||||||
|
|
|
- |
Direct Costs: |
|
|
|
|
|||||
|
4,589 |
|
4,589 |
Photocopier Supplies |
|
|
|
||||||
|
|
36,000 |
36,000 |
Print Room -Paper Supplies |
|
39,272 |
27,268 |
||||||
|
4,589 |
36,000 |
40,589 |
|
|
|
|
39,272 |
27,268 |
||||
|
24,490 |
219,000 |
243,490 |
Contribution / Value
Added |
231,949 |
205,511 |
|||||||
|
84.22% |
85.88% |
85.71% |
Gross Margin % |
|
|
85.52% |
88.29% |
|||||
|
|
|
|
Costs: |
|
|
|
|
|
||||
|
5,334 |
98,277 |
103,611 |
Employees - Salaries |
|
104,753 |
104,753 |
||||||
|
|
6,936 |
6,936 |
Employees - NI |
|
|
7,360 |
7,360 |
|||||
|
|
9,225 |
9,225 |
Employees - Pension |
|
14,572 |
14,572 |
||||||
|
98 |
2,108 |
2,206 |
Employees - Insurance |
|
1,930 |
1,949 |
||||||
|
|
25 |
25 |
Essential Users Mileage |
|
28 |
63 |
||||||
|
5,432 |
116,571 |
122,003 |
Total Employee Costs |
|
128,643 |
128,697 |
||||||
|
|
5,000 |
5,000 |
Print Machine Maintenance |
|
5,464 |
987 |
||||||
|
9,321 |
|
9,321 |
General Equipment Hire /
Rental |
|
|
|||||||
|
|
42,000 |
42,000 |
Print Room Supplies - Other |
|
45,895 |
57,466 |
||||||
|
|
67 |
67 |
Public Transport |
|
|
50 |
76 |
|||||
|
|
140 |
140 |
Insurances - General |
|
193 |
635 |
||||||
|
|
130 |
130 |
Data Line Recharge |
|
268 |
274 |
||||||
|
|
401 |
401 |
Telephone Line Recharge |
|
372 |
456 |
||||||
|
667 |
30,346 |
31,013 |
Depreciation - Contrib. to
Reserves |
23,305 |
18,789 |
|||||||
|
15,420 |
194,655 |
210,075 |
Cost Total |
|
|
204,190 |
207,380 |
|||||
|
9,070 |
24,345 |
33,415 |
Surplus / (Deficit)
before Central O/hds |
27,759 |
(1,869) |
|||||||
|
|
|
|
Central Recharges |
0431 |
|
|
||||||
|
|
|
- |
All Services &
Departments |
|
|
|
||||||
|
|
12,137 |
|
Admin Buildings |
|
|
12,137 |
9,805 |
|||||
|
|
1,548 |
|
Property Services |
|
|
1,548 |
1,040 |
|||||
|
|
8,450 |
|
Corporate Services
Management |
8,450 |
1,246 |
|||||||
|
1,682 |
7,168 |
|
All other Services &
Departments |
(658) |
9,601 |
|||||||
|
1,682 |
29,303 |
30,985 |
Central Cost Total |
|
21,477 |
21,692 |
||||||
|
7,388 |
(4,958) |
2,430 |
Net Surplus / ( Deficit)
before |
6,282 |
(23,561) |
|||||||
|
|
|
|
Adjustments to Balances |
|
|
|
||||||
|
|
|
- |
Carried over to next year |
|
- |
- |
||||||
|
7,388 |
(4,958) |
2,430 |
NET SURPLUS / (DEFICIT) |
6,282 |
(23,561) |
|||||||
|
|
223,958 |
|
Cost Rate Base |
|
|
225,667 |
229,072 |
|||||
|
|
|
|
(Cost Total + Central
Costs) |
|
|
|
||||||
|
|
Target for Recoveries at
Break-even |
|
|
|
259,466 |
|||||||
|
|
Increase over current
Forecast |
+11.48% |
|
|
|
|||||||
|
|
|
|
|
Revised Materials |
|
30,394 |
|
|||||
|
|
|
|
|
Costs |
|
|
229,072 |
259,466 |
||||
1.
Contacts made:
As an initial part of the first visit to the authority, interviews were arranged with the following officers.
|
Name |
Title |
Issue |
|
J Bentley |
Head of Corporate Policy |
Chief Officer responsible for Unit – update |
|
D Bryan |
Unit Manager |
Current position and changes since last review |
|
All + Unison Rep. |
Print Unit Employees |
Comments on the Unit and its ongoing role in the authority |
|
Bob Streets |
Compliance & Risk Manager |
Impact of Printing Protocol |
|
R Wood |
Central Accountancy Services |
Current financial results and likely budget out-turn |
|
C Matthews |
Democratic Services |
Significant user of the Unit’s facilities |
|
J Spencer |
Procurement Officer |
Experience of negotiating new contract for photo-copiers elsewhere in the authority. |
|
Cllr R Barry |
Portfolio Holder for Resources |
Mid-project update on progress and issues |
|
D Siegal |
Print Officer - NHS Trust |
Broad telephone discussion of facilities available, financial targets and operational constraints. |
|
R Brown |
ICT Officer |
Information on the practicalities and past experience of inclusion of B&W copiers as a network resource. |
2.
Information
supplied:
A separate file was provided, which included a wide range of reports and information relevant to the Print Unit. (Not listed separately here).