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Coping with Contractors

(August 2000) posted on Sun Sep 17, 2000

Combs explores contracting options, price, and methods.


By Terry Combs

It's convenient to have enough equipment and personnel to deal with your maximum production levels in peak times. But it makes little financial sense in the real world when those workers and machines would be sitting idle during average or slow periods. Typically, shops have enough manpower to handle the average production level. However, when production peaks occur, offering overtime and using part-time help may not be the most workable solutions for meeting customer deadlines. Typically, the peaks shoot up rapidly, remain consistent at high production levels, then drop off sharply at the other end. Overtime pay to maintain the desired productivity is gobbled up by employees during the first four to six weeks. But after that, the additional hours are accepted begrudgingly. Ten weeks into the process, no amount of money seems enough to make the extra work worthwhile to your employees. Even if you use seasonal employees to help out during the peak, their skills are still undeveloped at this point and their contribution to productivity is marginal. In the end, productivity suffers, morale suffers, and quality suffers. Enter the outside overflow operators, contract printers who take on the extra work your shop can't handle alone. Two contracting options You have two options when looking for other printers to handle your overflow. The first is to look for companies that specialize in overflow production. The second is to find other printers who are experiencing slowdowns that correspond to your peak production periods. The first option, the professional overflow printer, makes the most sense from the standpoint of having the tools and the "mindset" to accomplish the task. If overflow work is a company's specialty, then the company's production floor and staff are set up to service the eccentricities of accounts like your own. However, finding professional shops that specialize in overflow work, have production time available corresponding to your needs, and are close enough for you to monitor the work can be a difficult proposition. Consequently, most of us are forced to turn to the second type of printer: The screen printer with available production time who is willing to take on temporary work to keep his presses cycling and his employees on the job. One of the first concerns when considering such contractors is whether this outside printer is a competitor. You don't want to worry that this printer will steal your accounts from under you. Just as with any business relationship, you have to discuss this concern with your potential short-term partner and form an arrangement that you both are comfortable with. Depending on your level of concern, it may be helpful to establish some guidelines in a formal contract with the outside printer. Contractor pricing Price is the starting point of most discussions that printers have with overflow contractors. You want to know how the contractor's pricing compares to your own internal costs. You also must consider the costs you will and will not incur with the use of a contractor. In pricing, the key is to determine and compare production costs per unit for the job produced in house and for the same job produced by the contractor. Make sure to include overtime rates for your in-house estimate if you'll use it to satisfy the order. Generally, the order will be jobbed out in the first place because overtime was the only alternative for producing it in house. Prices for contract production are commonly based on an established volume level over a period of time. While gathering contractor quotes, it's important to find out how many pieces you'll have to commit to in order to receive a certain price or discount. Also find out what happens if you fail to give the contractor the volume of work you had expected. When discussing order volume with a contractor, take the time to roughly calculate your vendor's capabilities--just in case the production volume promised by the contractor is based on good intentions rather than reality. Create your own production-time calculations based on the contractor's equipment, staffing, etc., then compare your numbers to those the contractor is quoting. If you're doing production that requires specific color matches, you may be asked to supply custom ink colors from your own ink department. This should be reflected in the price you pay. Such an arrangement does guarantee a level of "sameness" between the goods you produce and those printed by the contractor, and it can ensure consistency in jobs that will come up for reorders, whether they're printed in your facility or at the contractor's. Some printers even supply contractors with screens that have been produced to their own exacting standards. Since contractors often work with tighter profit margins and do not have the cushion of garment markup, their payment terms may be shorter than what you've come to expect. If the contractor is producing your work as "fill in" to keep presses running, that company's cash flow may be tight, so don't assume net-30 payment due dates. A cash-flow crunch can be a great motivator in price negotiations, and you might be able to get a better price if you commit to short-term payment arrangements. One mistake made by printers who are new to the process of working with contractors is to deduct labor costs from the pricing comparison since production occurs off premises. But labor is involved in this process, whether your staff pulls the squeegee or someone across town has this task. You still need to coordinate the job for production and inspect the order after production. In addition, you need to package the order for delivery to the contractor, prepare art and positives, possibly deliver and pick it up, and track the order in progress just as if it were being printed on your production floor. When calculating costs, consider intangibles, such as satisfying an important customer so that you can earn more business from that client in the future. You certainly wouldn't have the job produced outside your shop for a loss, but you should seriously consider accepting a smaller profit margin if it means retaining a good customer. Also consider any contractual arrangements you have with specific customers. I have had customers in the past with written policies that forbid me to use outside contractors when producing their products. Quality assurance Maintaining quality has always been my greatest concern when considering outsourcing overflow work. By quality, I mean a finished product that matches well with the product we would produce ourselves, one that would pass as our own. This is especially important where reorders are involved. It's important to find a contractor who has the ability to look at your products and perfectly match your production style. Supplying your contractor with sample printed garments, ideally with similar prints to those the contractor will be producing for you, is essential to the process. At the end of production, your contractor should return the finished goods, as well as production orders showing mesh counts used, print order for each job, etc. This will allow you (or another contractor) to duplicate the work more easily at a later date. If you produce a "line" of products, such as designs for resorts, schools, or other graphics that involve a repeated style with a customized element, you should attempt to use a specific contractor only for jobs that fall into this particular group or category of graphic styles. This way, you'll need to follow up less with the contractor once the shop understands what you want to achieve with color, location, hand, etc. Sending a hodge-podge of products and graphic styles can cost you enough time and effort that you might have been better off producing the jobs yourself. Unless the shop you select is new to the contract-printing world, the company should be able to offer you references from satisfied customers with needs similar to your own. In a sense, you're offering this contractor credit. You're entrusting your product and your reputation to this outside vendor. So check the company out just as if it were a customer requesting terms from you. Allow for reasonable spoilage from your contractor as well. Generally, 3% spoilage is considered acceptable before a contractor is responsible financially for replacing goods. You and the contractor must also form an understanding about your expectations and what you can do to determine if they're being met. You absolutely must have the option to inspect your product on the contractor's production floor any time you feel it necessary. And, you should make such inspections regularly, especially early in the process. Someone in your operation must be given the responsibility for checking on the quality of the goods the contractor is producing for you. That person must be available to answer the contractor's questions as they arise and should expect to visit the contractor's operation more than once or twice during the production run. This person must have a clear understanding of what you are trying to achieve and the absolute authority to stop or change production in progress. Care in contracting Using contractors can be an effective way to relieve the burden of peak-season production. But I don't think anyone is ever quite comfortable with the concept, which makes it a "necessary evil" of sorts. Still, by developing good communication with your contractor, establishing clear expectations, and closely monitoring the contractors production of your goods, you can make outsourcing jobs a more pleasant and profitable experience.


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