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Aug 1, 2003 12:00 AM
As the single biggest recurring expense, paper represents about 23 percent of printers' cost of sales, according to industry estimates — more for printers specializing in long runs, less for those producing mainly short runs.
A number of printers have already seen paper-price increases of about five percent in recent months, and many are bracing for more to come. Increases in pulp costs; the effect of the recent, widespread merger and acquisition activity in the paper industry; and rapidly rising energy prices triggered by the war may potentially drive further paper-price increases.
At the same time, a still-ailing economy and overcapacity in the industry is hurting sales levels and forcing print prices down to alarmingly low levels. Any increases in paper prices will make it even more difficult for printers to maintain a competitive price advantage.
As one printer told NAPL (Paramus, NJ), “The price competition in the industry is the worst it's been in more than a year. That makes it more important than ever to watch what you buy and how you buy it.” Another printer notes, “Sales are down. It kills us when material costs go up.” And yet another says: “For a major printing job, half or more of our total price is going to be paper. At a time when price competition is so intense, it's absolutely essential to get the best paper price you can. If you don't, you'll be less competitive and you'll lose jobs.”
The silver lining in this darkening cloud is that many printers — and the merchants and mills that supply them — have developed strategies that enhance efficiencies and keep paper costs as low as possible. Here's a look at what some of these companies shared with NAPL.
Develop relationships with one or a few key suppliers. Choosing one, two or perhaps three key paper suppliers can help printers leverage their buying power to negotiate better prices and, in some cases, delay price increases as long as possible. Most printers view this approach as much more effective than shopping around and bidding out every order. Small and midsize printers can multiply their buying power by forming purchasing co-ops or joining buying groups. (See NAPL's “Better Buying is High Priority,” Print Profit, Fall 2002, Vol. 3, No. 3.)
Suppliers will take more time with key customers to point out cost-effective alternatives, such as offshore papers, which gained favor among some printers recently. Developing a relationship with key suppliers can also put your company near the front of the line for deliveries during times of tight supplies — an enviable position that a printer who has been “playing the field” of suppliers has much less chance of securing.
Use your supplier relationship as a strategic partnership to increase delivery efficiencies. In return for a printer giving most of its business to them, many paper suppliers will work with the printer to develop efficient delivery initiatives, such as on-demand or just-in-time delivery, and/or stocking orders in the supplier's warehouse until needed.
These arrangements can reduce a printer's inventory requirements, freeing up needed cash. Several printers — both small and large — have such arrangements. For instance, by switching to a single supplier, one printer with about $1.8 million in yearly sales was able to cut paper inventory from $80,000 to $25,000, while a much larger company reduced stock on-hand from $1 million to less than $100,000.
Investigate other ways your supplier can add value. In return for winning status as a preferred supplier, most vendors are eager to work with their customers to find ways to bring value to the relationship. Depending on a printer's specific requirements and the supplier's capabilities, these value-added services can range from cutting paper to size to helping manage waste. Thus, if there is something you need, ask for it. If your supplier values your business, it will likely accommodate the request or come up with a viable alternative.
Regularly re-evaluate your supplier relationship. Selecting one or two preferred suppliers should not be a one-time effort, but rather an ongoing process. One printer recommends periodically test-marketing your current suppliers and investigating other suppliers “to make sure your present arrangement or contract is delivering everything it should.”
A number of printers have one or two suppliers “in the wings” that they can turn to if their main suppliers fall short of expectations — a strategy they say keeps their main suppliers on their toes.
Tap into your suppliers' expertise about the paper market. Paper suppliers are a good source of information about what's happening in the paper market, and both paper merchants and mills have a wealth of information on their websites. They can also provide advice on cost-saving measures you can implement internally, such as how to plan your paper use most effectively.
One printer regularly has its paper merchants speak directly with its customers about paper issues. This came in particularly handy during a recent paper-price upswing. “We wanted our customers to know we were just passing along the price increase — not generating it ourselves,” the printer explains. “By having our merchant talk with them, we were seen as an educator, and weren't painted with the brush of responsibility for the price increases.”The informed consumer
Keep up with innovations in paper technology. New kinds of paper are coming on stream all the time. To buy most effectively, it's important that someone in your organization be charged with staying in the know about what's available.
“A printer that stays abreast of all the alternatives out there and how each one performs can put itself in a stronger competitive position by moving that knowledge through the supply chain to its customers,” notes one paper merchant. Indeed, many printers make it a practice to help their key customers find the most cost-effective paper solution possible and still obtain the desired results.
“For instance,” says one printer, “The customer might request a No. 1 paper, not realizing what that will add to the cost of the job. When price is an issue — and today, it virtually always is — we'll help them keep costs down by offering them a No. 2 or No. 3 paper and putting an aqueous coating on it.”
Have a dedicated paper buyer. A capable and savvy paper buyer is a tremendous asset to a printing organization — but he or she should be charged only with buying paper, according to most of the sources with whom we spoke. Not only can a dedicated buyer stay on top of market trends, he or she can consolidate orders in ways that increase efficiencies — and therefore save money — for both the printer and its supplier.
Even as printers move away from buying paper for the shelf and toward ordering paper daily for incoming jobs, a good paper buyer will, as one printer says, “be smart enough to see opportunities to consolidate, so we can save money by ordering a certain kind of paper by the skid rather than requiring the supplier to break it apart.” Suppliers agree that working together toward process enhancements is critical in keeping costs down.
Implement thorough production procedures. Keeping paper costs down involves controlling more than just the purchase price. To avoid unnecessary waste, many printers have internal processes in place that help track paper through the production process. A number of printers have or are in the process of integrating paper inventory with their management information systems to keep a record of where in the plant paper is at all times.
One printer points out that, while paper prices are a key concern, it's “vital not to trade performance for price — you can more than eat up any price saving with poor paper performance because of the high amount of waste you'll have.” This printer makes a practice of involving his production personnel in paper-purchasing decisions.
“We know we can always get a better price by lowering our standards,” he explains, “but the production people suffer, and it impacts the jobs. To make the most cost-effective purchase, you have to have cooperation between the financial executive making the purchase decision and your production staff.”
Go online. The Internet can help printers keep paper costs down in a number of ways. Many paper suppliers offer electronic ordering to reduce their order-entry costs, and often pass these savings to users.
One exec works with his key suppliers to pre-establish pricing for designated periods of time on certain paper products. He has those suppliers integrate their price lists with his estimating system over the Internet (or provide a CD that will interface with the system). When he puts a search for the lowest price on a specific paper, it is generated electronically through his estimating system.
As we've seen, developing good supplier relationships and working continually toward putting supply-chain efficiencies in place can help keep paper costs as low as possible.
This article was reprinted by permission of the National Assn. for Printing Leadership (NAPL) (Paramus, NJ) from the association's Print Profit newsletter (©2003 NAPL).
For membership information, call NAPL at (800) 642-6275, option 4.