In Depth: Spending wisely

For many years, overcapacity in the paper industry has made it a buyer's market, and printers benefited. But in the present economic climate, paper mills, like printers, are having a tough time of it, mainly due to rising raw materials and energy costs. In the past year, things have come to a head, with a succession of mills closing. This has led to a reduction in capacity, which has pushed prices up. Paper typically represents 20-50% of the total cost of a print job, depending on the type of work and run length and, in light of the current circumstances, that percentage may well go up.
We’ve been through a round of price increases in a year that is unlike anything seen before, says PaperCo marketing director Bob Ide. There were rises in February, June, July and September covering all grades and amounting to around 14-15%. Underlying that has been an unprecedented rise in costs.Unfortunately for printers, it isn’t the best time to be attempting to pass these price rises onto customers.A lot of the products we make are for retailers and they’re having a really torrid time – we find it nearly impossible to go to those customers and say ‘prices are going up’, says Sherwood Press commercial director Richard Bacon.While it may feel like they’re stuck between a rock and a hard place, there are ways for printers to cut their paper prices and relieve some of the pressure; ways that don’t require elaborate financial strategies and the use of a crystal ball – it isn’t necessary to think about hedging or relentlessly following commodity prices.Part of Bacon’s solution at Sherwood Press has been to buy smarter. For several years, the firm has used professional procurement processes to save money by buying in a more intelligent way. He used the Vision in Print (ViP) Materials, Consumables and Services Purchasing Best Practice Guide (see box), which was published back in 2005, as his model and has reaped six-figure annual savings as a result.

Change in purpose

When Bacon first adopted professional procurement, it reduced the prices he was paying. Subsequently, it has become a tool to prevent prices rises and now he uses different buying approaches for different products. We buy 70% of our paper on long-term contract, 20% from preferred suppliers and 10% spot buying, says Bacon. We have paper contracts for contract print work, where we know the volumes and the grade. It’s really helped us, as the rest of the industry has had three or four rises in the region of 10-16%. Bacon admits that contracts don’t work for jobbing print, but he says that he has gained savings through a preferred supplier arrangement with two companies for board and two companies for paper. Bacon tends to buy his remaining spot purchases from these firms too, as they offer the best deals. You may think that these sorts of savings achieved through smarter procurement were only available to larger firms, but that’s not the case, according to James McNaughton Group marketing director Tony Porter. Not a great deal of printers work in this way, most work on a job-by-job basis, but the level of saving could be up to 10%. Northamptonshire-based The Direct Printing Company (TDPC) is an example of a smaller firm reaping the benefits. The £1.1m-turnover outfit started employing the ViP techniques this year, putting contracts in place in October. Commercial manager Rachel Tait says that it has resulted in a saving of 10% in the prices it pays for paper.While Antalis marketing manager James Jarvis cautions that the cost savings may not be as high for everyone, they are still significant. In commodity grades, you’d be lucky to get a couple of percent, he says. If you get 5% off, you’re doing well. But bearing in mind that paper is typically 30% of a job’s cost, it’s still worth it.Anyone tempted to go down this route should be aware that it can be a time-consuming process. It took time to tender and it took a long time to analyse the results and test the suggested stocks, says TDPC’s Tait. It takes four months, estimates Bacon. You need to get the tenders out and to do your homework. However, Tait believes that, in the long term, it ends up saving time and delivering other benefits. It’s simplified internal procedures, as now people know what to buy, she says. We’ve also switched to online ordering. Our purchasers save a couple of hours each day now that they’re no longer constantly searching for the best price. It also speeds up estimating.

Online deals

Antalis’s Jarvis points out that constantly calling to check prices or make orders costs the merchant too, which will affect paper prices. Although we love talking to our customers, if you’re on the phone to us three or four times per day, that all costs money, he says. Look at online trading. If you do a price review, we could let you buy electronically.Another tip to save both sides administration costs is to opt for consolidated monthly invoices. Merchants emphasise the importance of being more open with them to gain better pricing and other benefits.The most success we have in reducing prices is when the customer lets us into their business, says McNaughton’s Porter. It helps if we can come in and do a paper audit. We can show the customer what they buy most frequently and consolidate that.Jarvis concurs, adding: Many firms don’t even know how much they buy month-by-month. Once you have a handle on your requirements, it’s possible to get a saving through looking at logistics and taking bigger deliveries less often. Most of our costs are in logistics, so the more we can put on a vehicle the better, says Jarvis.Bacon agrees this approach is key: You need to be able to give something back. Look at your business and see if you can consolidate deliveries to save your supplier’s transport costs.Beyond better buying, there are further ways to save. For instance, most merchants offer smaller sheet sizes or custom sizes and, even if custom sheeting adds a small premium, they argue it’s more than covered by the reduced tonnage bought. There are also bulkier stocks, which are thicker – that is, have a bigger caliper than standard for a given grammage, which means you get more sheets for a given weight.One customer, after ordering stock for a 20pp booklet, wanted to add 4pp without upping the cost, we supplied a bulkier grade, Claro, that delivered the additional pages for the same price, says Porter.

Best match needed

Sherwood’s Bacon has used this approach, but urges caution. If a grade’s price goes up, we spend a lot of time sourcing an alternative, he says. It needs to be as close as possible in physical properties. You have to be careful, as it could be 2,000-3,000 sheets per hour slower and not just on press, we test materials through finishing too. My advice would be to get a free pallet in from potential suppliers as part of the tendering process.While there are many things that can help identify better suppliers, being a better customer can also save you money.Many printers can be a bit slack on administration and cashflow, says Jarvis. Tighten up in those areas and you make yourself more attractive to merchants. Set payment terms and stick to them. It’s a good way to get price leverage. With paper and print facing tough times, both sectors stand to benefit from a move by printers to more professional paper purchasing.Printers use historic practices. They believe that it’s best to apply the most pressure they can. It’s macho purchasing, says Jarvis. However, he believes there are savings for both sides by taking a softer approach: It’s better to have a long-term partnership, rather than being aggressive and promiscuous.

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TOP TIPS: VIP PROCUREMENT

For firms looking to benefit from a professional procurement policy, Vision in Print (ViP) published its Materials, Consumables and Services Purchasing Best Practice Guide back in June 2005. The guide outlines a four-level purchasing strategy, moving from level one, which covers basic buying processes through good discipline and supplier relationships, up to level four, which deals with integrated alliances. The guide includes a basic toolkit that firms can use to implement best practice using levels one and two and an advanced-level toolkit for the more sophisticated purchasing procedures of level three and four, which can produce greater savings.The basic toolkit covers preparation of supplier information, tenders and contracts, supplier selection, operational process and general purchasing rules. The advanced level toolkit adds additional elements for more advanced purchasing procedures including developing closer working relationships with suppliers, integrating MIS and e-commerce to streamline processes and working with suppliers to jointly identify opportunities to lower costs.The ViP Purchasing Best Practice Guide can be downloaded free from the ViP website. Although ViP doesn’t offer a specific purchasing training course, it can be chosen as the focus for its five-day Office and Pre-press Change Cycle courses.