Printing in the Far East A Cost Benefit Analysis

1. Printing in the Far EastA Cost Benefit Analysis John Strange Group Production Director 12th July 2006

2. 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

3. 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)

4. Who are Blackwell Publishing? The world’s 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

5. 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.

6. Outsourcing (cont’d) 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

7. 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

8. 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

9. 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?

10. Evaluation process (cont’d) 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)?

11. Evaluation process (cont’d) 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

12. Evaluation process (cont’d) 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

13. The results…..!

14. 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)

15. 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?

16. Why was China not competitive (cont’d) 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’

17. 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 Don’t 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 KPI’s If you can’t measure it, you can’t expect to improve it

18. Strategies for success (cont’d) Don’t 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) Don’t make FedEx/DHL even richer! Share your strategies Regular supplier meetings You are all in this together

19. Strategies for success (cont’d) 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)

20. 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…?)