Many organizations fail to optimize their purchasing of print and supply-chain management services. They don't realize it, of course--if they did, they would change. But a combination of temptation and tradition holds them back. If only they knew it, they could play the market more effectively.
Businesses now have the tendency to place their print demands with print management companies in return for up-front payment. The payment might make the businesses' bottom lines look good in the short term, but the strategy is fraught with long-term disadvantages. "Tendering," a written or formal offer to supply goods or perform a job for an agreed price, has run its course for companies with significant print demands that are revised continuously. Firms have much better ways of obtaining consistent, cost-effective, reliable products.
Arbitraging in the Print Business
However sophisticated the business environment becomes, print and print management remain areas where real opportunity exists. I call it "arbitraging," a term the financial market uses when a continual focus on trends and opportunities provides the scope to purchase a product or service at a lower-than-market price. In effect, buying distressed manufacturing time is a process that needs skill, knowledge and the ability to react literally within hours or minutes to take advantage.
The print business comprises a vast number of companies ranging in size, each with its own specialization, mix of machinery, ability to respond and business profile. At any time, some print suppliers have a full order book, and others desperately need work to fill capacity.
Arbitraging means understanding who can do the work, and who will offer the best price and delivery at any given time. It means seeing windows that may have just opened--and may close quickly. If a company buys its own printing, it needs purchasing architecture that enables it to seize the opportunity; if it outsources print buying, it needs a relationship with its provider that ensures it gets the advantage of short-term changes in market conditions.
Let's consider how current practices work against this arbitraging principle:
* The nice, big check. "Let me look after your print requirements, and here's a check that will cover the savings we'll make for you." For the majority of end users, the attraction of a payment that also removes the hassle of in-house print buying and logistics must be irresistible. It makes an immediate difference to the bottom line. Indeed, some of these deals are so substantial, they actually affect firms' share value and all-important share options. The deals also provide the opportunity to rationalize purchasing departments, reduce staff costs and, on the face of it, enhance productivity.
But it removes control. Yes, end users have savings manifest in that initial payment, but how do they know whether it represents the total savings they could make? They have replaced a business model with complete dependence on their print management providers, but they need data to monitor the providers' performance. What happens if their print circumstances change so they require more or fewer products, or different material that reflects the latest changes in print and logistics technology? What happens if they acquire a new site, eliminate an operation or buy into a new product range, and your print and distribution requirements demand radical change?
The business environment evolves constantly. Any company that relinquishes its ability to react leaves itself open to risk, especially if it reduces or eliminates internal expertise. That's exactly the risk many companies run by placing themselves in the hands of print service providers.
* The tender trap. To many senior executives, tendering is the only way to find the right supply answer. I suppose one can see the logic: Establish clear requirements on volumes, delivery and product specifications; define service and support standards; build in penalty clauses; consider the responses; then opt for the supplier that gives the best overall solution. It seems foolproof. They think they've secured the best deal for their companies, and they know exactly what they're going to pay.
In the printing industry, that procedure misses a lot of tricks. The trouble with the industry is that it "dates." For example, etrinsic plc has customers who change significantly (or at least freshen) their literature every few weeks. Legislation might change, prices certainly change, and advertising themes and corporate styles change. The capacity for obsolescence is massive, and obsolescence rapidly can affect a firm's daily operation. New, updated supplies usually are needed the day before yesterday.
In these contexts, tendering is too cumbersome. Its limitations work against the ready supply of the product. It sets parameters that restrict the chances of finding optimum solutions, especially when immediate supply-chain reaction is essential. First, the tender document itself can't reflect fast-moving supply situations--in our experience, it's normal that the volume requirement defined in a tender will be outdated before the tender period matures. Second, tendering places limitations on the number of suppliers that can be consulted. Printing is a diverse trade, with an increasing degree of specialization as suppliers identify niches created by new technologies. No print operation supplies the whole of the infinitely varied print requirements a firm has. Yet purchasing people rarely have the time, experience or knowledge to understand the gamut of the print business. To know how to get the best deal and optimize the sources of supply, you have to know the exact capabilities of hundreds of suppliers and thousands of machines, and then how to combine them. It's an impossible job for anyone but a print management specialist. Third, an inaccurate tender document can give room for a supplier to "move" prices over a period. Tracking actual costs within the print business is effectively impossible for all but those intimately involved. If volumes fluctuate to further obscure true costs, the door is open for price creeping.
So what's the best way forward? Whether companies want to outsource or retain day-to-day control of print buying, the answer is understanding that print management is a fast-moving, fast-response business. Companies must develop the right business model and the expertise to run it.
Only the largest organizations can do this for themselves. For most, the solution is accessing a print management provider. With the right safeguards, firms can vest their print requirements with confidence in an experienced provider and still gain the benefits of supplier competition.
Right System Can Optimize Service
You need a system that takes advantage of the industry's progress, one that accepts fluctuations and variations and, when possible, passes the benefits to you. For example, we developed a system called OASIS (Obtain a Source in Seconds) that's based on a core of more than 250 print suppliers. It maintains a comprehensive, continuously updated record of exactly what each company offers, a record the suppliers are required to keep current. What's more, we grade them according to the quality of service they have given in the past.
It's the purchasing agent of the future, a fast-track way to locate the ideal source for customers' specific needs. Most importantly for our customers, it gives us total flexibility to respond to short-term fluctuations. This is because the best source for a specification or quantity change isn't necessarily the existing supplier.
End users might think that placing their print management with a single provider requires more trust than they're prepared to give. But the right provider will give them an open-book agreement so they can check regularly on the current prices quoted by suppliers. Our customers have privileged internet access to our database through unique access codes. They can study all the data supporting our levels of performance, see how our expenditures are broken down and validate it all quickly at any time.
When awarded a sole-source role for printing, a print management company acquires enormous leverage on behalf of the client, and that enhances the scope to save. Keeping this in mind, establish the minimum level of saving instead of accepting up-front payment. We commit to savings on a client's print bill in the first full year of a contract. That's what we're doing for one of the country's best-known and respected names in food retailing. The firm initially invited us to complete a thorough audit of its current print requirements, then to establish processes for eliminating waste, anticipating change and streamlining the entire printed material process.
There are other major advantages of putting print supply into the hands of a single specialist. Brand changes, so complex and time-consuming to implement if a company deals with a range of print material suppliers, can be made in seconds, with a single instruction. The management process also is streamlined. A good print management provider will alert companies when stocks of individual items are running low and they'll identify and eliminate obsolete stocks. If the client needs them, they will ensure the provider builds in mechanisms to control the ownership of intellectual property rights and to maximize the scope of digital asset management.
Phil Schmidt is president of distributorship Advanced Systems & Forms Inc., Livonia, Mich., and president of DMIA.
