Print Solutions Magazine

The printing industry’s supply chain is like a mountain—end users spread across expansive foothills, distributors and manufacturers jostling on the slopes, and ink, paper and equipment suppliers perched at the summit. From their vantage point, suppliers see a vast landscape that their customers do not. It includes challenges and threats that affect the rest of the supply chain.

Take the ink industry, for instance. In 2000, Firestone Tire & Rubber Company, Chicago, recalled 6.5 million tires after the U.S. National Highway Traffic Safety Administration (NHTSA) announced it would conduct an investigation into the tires’ safety. In their race to make replacements, tire manufacturers ordered extraordinary volumes of carbon black, a chemical reinforcing agent also used to manufacture inks and coatings. “It wasn’t completely unavailable, but our suppliers were on an allotment basis with their customers, so you could only get so much,” says Jeff Koppelman, president of Gans Ink & Supply Company, Los Angeles. “It was short term, but something like that—an incident unrelated to the printing industry—might ultimately affect printers.”

A more pressing concern these days is the cost of oil. The worldwide demand for oil has resulted in price pressures on the ink industry. “We’re always concerned about world shortages of certain products,” Koppelman says. “And all of us who put pigment on some sort of substrate, anyone who puts color on something—we’ve all been faced with increased prices on the raw material side.”

Compounding the situation is that the industry’s capacity exceeds its customers’ demands. “Printers are in a very competitive position and not able to raise their prices to their customers, so they’re putting pressure on us to hold our prices,” says Rita Conrad, vice president of Corporate Communications at Flint Group, Ann Arbor, Mich. In the past, ink manufacturers could ask the same of their raw material suppliers, but not anymore. “Raw material suppliers are able to force price increases on us. It’s still very difficult for us to pass increases to our customer because of the overcapacity,” Conrad says. “To a large degree, the ink industry as a whole has been squeezed.”

But in the past year, ink manufacturers across the board could no longer hold the line and raised prices. The industry, in an attempt to regain pricing power, also has begun to consolidate. Flint Ink Corporation, for example, recently merged with Luxembourg-based XSYS Print Solutions to become Flint Group.

Printers and distributors have absorbed these price increases to the best of their ability, sometimes by sacrificing profitability. The printing industry is so competitive that this practice is unsustainable over the long term. The least successful businesses may be forced to close or merge with stronger companies.

Printers and distributors can situate themselves for the future by knowing what to expect from ink suppliers: consolidation, price increases and an emphasis on adding value to their offerings.

One challenge for ink suppliers is to overcome the perception that their product is a commodity. Ink is an essential part of the printing process, but often it gets undervalued. “You’re not ordering bags of rice when you order ink,” Koppelman says. “Ink is a specialized chemical product. With so many variables in today’s marketplace, with CTP systems and changes in paper stocks and chemicals, ink is one of the most important components to find its way through the print system.”

Two approaches that suppliers have taken to counter ink’s commoditization are specialization and diversification. For example, SICPA Securink Corporation, Springfield, Va., specializes in making inks for secure documents, including checks, passports and drivers’ licenses. The company experiences double-digit growth each year, marketing its products primarily to forms printers and brand-protection label printers. “The big thing when we talk to forms printers who have been successful in the security market is the amount of additional profit that security printing brings to their bottom line,” says Tom Jay, vice president of sales and marketing at SICPA. “It’s certainly something value-added in a very commodity-driven market. But a forms company needs to develop a security program using specialty security designs, security substrates and security ink.” In other words, printers and distributors who benefit from specialization only do so after making a substantial investment to change their business model.

Other ink suppliers have begun to diversify their offerings and broaden the scope of their business. A focus on improving color management offers ink suppliers an entrée into new services. Ink suppliers used to be consulted as the experts in color management, but the introduction of digital workflows in prepress departments has caused printers to shift their reliance to front-end systems’ suppliers. “We think we’re a better option for the printer,” Koppelman says. “We are deeply engaged in color management solutions and provide more comprehensive, ink-focused services than have been provided by the manufacturers of RIP systems, ink jet systems or platemaking systems.”

Ink suppliers are reluctant to say when prices will increase or by how much, but they acknowledge that increases are inevitable. “I think price increases are going to be the biggest issue in 2006,” Jay says. “I think ink companies have held the line on pricing for many years, and it’s finally caught up with them.” Oil and petroleum costs are responsible for pushing suppliers over the edge. “What’s happening with your heating oil and at the gas pump is also hitting our raw material suppliers,” Conrad says. “There comes a point where you can’t absorb that kind of hit.”

The cost of ink accounts for a small percentage of any print job, but many printers’ margins are so tight that they’ve resisted price increases. At this point, they’ll have to decide how to best absorb the increases or pass them on to their customers. “At times,
I’ll lose a customer, because they’ll shop around and find somebody cheaper,” Koppelman says. “However, there certainly is more value in our can of ink than just the cost of the ink. There’s technical support and service, strong and time-tested relationships and knowledge. In the end, it’s up to my customer whether or not they can afford those costs and whether or not they’re getting true value from our product.”

Koppelman’s distinction between companies that compete on price and those that offer value is one that the entire printing industry grapples with. As their own competitive landscape alters, some printers and distributors have adjusted business models to succeed as service-oriented firms, refusing to cater to customers whose only concern is price. Not every customer will accept price increases, but the ones who demand value over cost are more likely to concede. “I’ve been here more than 25 years, and I don’t remember losing very many customers over price increases,” Koppelman says.

Printers and distributors who look to the ink industry for lessons on adding value and deterring commoditization of their products also could learn something about competing in a global environment. Ink suppliers aren’t fazed by competition from international companies, because they’re almost uniformly global themselves. They own and operate plants around the world, and they compete for raw materials not only with other manufacturers, but with entirely different industries. Globalization is a condition for doing business, something the rest of the supply chain doesn’t always understand or appreciate. For instance, “The majority of the largest ink companies operating in the United States are part of multinational corporations that are foreign-owned,” Koppelman says.

Imagining your company as part of a global printing industry will become a necessary part of successful business plans in the future. That means capitalizing on your company’s strengths and choosing not to be all things to all customers. The ink industry is one example: “There’s more specialization in the ink-making community,” Koppelman says. “Each company is picking its spot and becoming more proficient within that spot and acquiring more market share either through acquisition, merger or just clear focus to that market.”

As the printing industry’s competitiveness grows, more printers and distributors must define their businesses and target their ideal customers. The best will also be aware of changes in the overall supply chain.

Andrew Brown is assistant editor at Print Solutions magazine. Email him at abrown@PSDA.org.