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Spring 2014: Strategic Planning by Mark R Hahn

T’S A BIRD… IT’S A PLANE…IT’S A SUPER BROKER?
WHAT PRINT MANAGEMENT FIRMS DO AND HOW YOU CAN MAINTAIN YOUR COMPETITIVE EDGE

BY MARK R. HAHN

My first experience with a print management (PM) firm was not a good one. It was 1998, and my business partner and I were enjoying the success of owning a commercial printing company when he received a call from one of our major clients, a regional bank. They informed him that he should expect to hear from a consulting group with expertise in “strategic sourcing.” We were about to meet the first iteration of the now familiar trend in which large corporate clients hand off responsibility for purchasing print to a business outsourcing specialist. We were accustomed to working with advertising agencies that bought print on behalf of corporate clients; we were even adept at answering complex corporate RFIs and RFQs for corporate purchasing departments. But this was different—we were told in advance that the consulting group had promised our client that they would cut print procurement costs by 20% or more!

A NO-WIN SCENARIO?

If you have been in this position, providing high-quality promotional collateral at a fair price, how do you win? If you cut the price 20% to keep the work, you’re printing at a loss, and as this is effectively a de facto admission that your pricing was high to begin with, your most valuable asset, the trust of your client, is brought into question. Hold the line on pricing, or give a modest price decrease, and you lose the work. For many midsize commercial printers whose business depends on two or three major corporate accounts, the sudden loss of one or two of these accounts is devastating.

WHERE IT BEGAN

Fast forward to the year 2000—Williams Lea, a printing company in the UK, invented the current print management (or “PM”) model, landing a “groundbreaking” contract for AXA insurance in which the company assumed all responsibility for managing AXA’s print production activities in the UK. According to their online history, “this radical solution involved a substantial number of staff transfers” (from AXA to Williams Lea). By 2009, the company was signing significant new deals in the US.

The other major player in the PM business, InnerWorkings, got off the ground in 2001 and is now closing in on $1 billion in annual revenues. Pitney Bowes jumped into the game, and RR Donnelley now offers PM services that compete directly in the “total outsourcing” space.

THE COPORATE ALLURE

The lure of the PM concept for large corporations is not difficult to understand. These firms do not sell “printing,” they sell their “process as a solution.” They offer to cut costs, yes, but they also assume responsibility for the entire process of specifying, estimating, purchasing, storing and distributing printed matter. In addition, the PM firm can promise access to many specialized vendors that produce other print-related products, such as retail displays, packaging and fulfillment. The corporate client saves the cost and trouble of understanding all the little niches that make up the printing industry. In effect, the PM firm is a “super broker” that promises to lower the total cost of ownership. WorkflowOne calls this their “battle-tested” approach. No kidding—this is a war for control of your client’s print spend.

The PM strategy is more than just external cost reduction achieved through aggressive buying practices. As Williams Lea discovered, hiring a client’s print purchasing personnel enabled them to promise and deliver cost reductions that most printers simply can’t match. Only large, sophisticated companies have the financial strength and organization to absorb multiple personnel who may be geographically distributed and accustomed to working within a large corporate structure.

TARGETING THE EXECUTIVE SUITE

Finally, this “total cost” sales pitch is not directed at the lower levels within the client’s organization. Commercial printers most often sell to the print specialists, purchasing department or marketing staff at their large corporate clients, possibly reaching up to the VP of marketing. PM companies address their propositions to the CEO or CFO, outlining the total cost of managing the procurement, storage and distribution of their printed materials. By the time the typical commercial printer learns that their treasured account is at risk, the game is effectively over.

The unique selling proposition of the large PM firms is not print centric:

  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Williams Lea offers “Corporate Information Solutions.”
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">InnerWorkings calls itself a “Global Marketing Supply Chain,” offering brand quality, brand consistency, and brand efficiency (cost).
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Novitex Enterprise Solutions (formerly Pitney Bowes Management Services) touts the “Integrated Document Lifecycle” concept.
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">RR Donnelley, understandably, admits to being a printer and offers “Managed Print Services” with a focus on minimizing the “TOC—Total Cost of Ownership.”

WHAT YOU CAN DO

How do you compete when one of these PM firms comes knocking? Printing companies that rely on a couple of large corporate accounts and that compete on a job-by-job basis are probably most at risk for disruption by one of these players. Get to work now on your strategic plan and identify specific and unique services that your company can provide to a well-defined customer base. Avoid, if you can, too much concentration on one or two large corporate accounts, as these are the favorite targets of the PM companies.

Be proactive and discuss total cost of ownership concepts with your clients. Is your company able to manage clearly defined data inputs that help reduce run lengths? Will offering additional services, such as fulfillment, variable-data printing or mobile-interactive services, differentiate your company and insulate you from attack? Can long offset printing runs be replaced with on-demand printed products that are ordered through customized customer-facing online storefronts?

JOIN ’EM?

Consider that the same PM company that is attacking you may be a prospect for new and additional revenue, as they aggregate print purchasing from your existing client and introduce your company to new opportunities. In its purest form, the PM model relies on a stable of pre-qualified vendors that can consistently produce printed products at the best price and on time. If your company is highly efficient and you believe you can compete at the lower price points, look carefully at your cost structure and determine whether you can remove costs that are now effectively managed by the PM company. Some printing companies have prospered by forming a direct channel between the PM company and their estimating department, removing the selling overhead costs involved with that prime customer. The PM company, in essence, becomes a “house account” that requires less external hand holding. These printing companies have effectively become trade printers, with the PM companies providing the sales function.

AFTER OVERCAPACITY…

This phenomenon grew up and matured during a time of significant excess capacity and technological transformation in the printing industry. Those dynamics left the door wide open for the “super brokers” to drive very hard bargains with mid-size printing companies that simply could not afford to lose the sales volume from major corporate accounts. However, as excess capacity gets soaked up, it becomes harder and harder for the PM companies to beat up suppliers and obtain the promised savings. In response to these changes, the PM firms are expanding their service offerings and morphing into printing companies themselves. For example, WorkflowOne was acquired by and is now part of Standard Register. Williams Lea acquired Tag Worldwide, providing creative, prepress and production services, working with and also competing with advertising agencies. In 2013, Innerworkings acquired EyeLevel, which designs and produces retail displays. They also acquired Professional Packaging Systems in the UK, which not only brokers but also designs high-end packaging.

BE PROACTIVE

I expect that as the overcapacity gets wrung out of the printing industry and as their own margins get squeezed, the PM firms will head upstream to design and content creation, where margins may be greater, and downstream in combination with printing companies. Independent commercial printers that have laid out a solid forward-looking strategic plan will have room to fight back and regain lost market share.

Speak to Mark: Key B2Me.me/DC9

Mark R. Hahn is a senior vice president of the NAPL and a member of its Business Advisory Team. He has more than 30 years of graphic communications experience in finance, operations, sales, mergers and acquisitions and general management. Hahn has served as chief financial officer and chief operating officer and has held other senior positions with several commercial printers, as well as founding and eventually selling his own printing company.

HOW IT WORKS

Here are some typical elements of the PM Business Process Outsourcing (BPO) model:

  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Certification process to qualify vendors
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Wider array of vendors, ensuring competitive pricing and best-fit equipment
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Customer-facing software to manage metadata about current and past purchases
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Archiving services
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Personnel reduction in non-core functions, with attendant long-term cost savings
  • http://americanprinter.com/site/templates/images/ld_kranglist.gif); background-position: 0px 4px; background-repeat: no-repeat no-repeat;">Aggressive, experienced buying staff, often hired from the customer, maintaining client-specific knowledge during the transition.

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