On track to win the race to the bottom

If you think you’re working more for less you’re not the only one. In blogs and bars around the country there’s an ongoing, and increasingly noisy, argument about print prices. In fact, it’s reached a point where the conversation isn’t just about price but the industry’s long-term viability if prices keeps sliding.

The price of print has suffered a downward trend for nearly 10 years, says Hagop Tchamkertenian, national manager for policy and government affairs at the Printing Industries Association of Australia (PIAA). “According to the preliminary results of the March 2010 Printing Industry Trends report, selling prices have now been reported to have declined for 37 consecutive quarters on
net balance basis (ie, more respondents reporting falling prices relative to those reporting increases).

“Speaking to printing companies, they constantly mention price pressures. It seems that each time a contract comes up for renewal the client’s chief interest and concern is price,” he says.

“We know that ongoing price falls is not a sustainable strategy. While efficiency and productivity gains associated with technological advancements have fostered a certain capacity to reduce prices, the printing industry should start pricing like a service industry, since it is one, and not fall in the commodity pricing trap.”

Why has print decreased in value when many other products and services have skyrocketed in the same timeframe? Industry participants are quick to blame Asian print “pirates”. Some says to print managers and brokers as culprits, and others say the fault rests with equipment manufacturers and vendors.

But before the cry goes out to draw up the bridge and man the parapets, printers should take a deep breath and look in the mirror. Print now competes with more communication platforms than ever before. Buyers have numerous ways to broadcast their message via different media. And – deep breath – some of those media are better suited than print at hitting the right audience. That takes some of the gloss off print as an effective communicator.

Accept it and move on, says print procurement professional Tony Di Stefano. “There are two key things that have happened. There’s been a divergence of technology and a diversification of communication channels, so as a result the need to communicate hasn’t diminished. It’s about the way people are communi­cating now. They are communi­cating more frequently, but less through mass market printing; they’re doing more through relevant personalised print. They’re using the other digital channels to be able to communicate with the broad demographic of their database.

Channel compeition
Printing Industries chief executive Philip Andersen agrees that print is competing against other channels that in many cases can offer a cheaper alternative. “This has been a pattern for nearly the past decade. There’s no question that other media are undoubtedly making some communica­tions cheaper for the major corporate.”

Andersen heard this firsthand at April’s CEO Forum, from keynote speaker NSW deputy premier Carmel Tebbutt. “She made the point that the government intends to use print to maintain major communications with the electorate, but they are very aware of what cost savings they need to try to achieve all the time. And it’s not just print buyers in the major corporates and government who have to find more with less these days; they’re all looking for the same or better quality at lower prices.”

A common complaint from printers is that more print jobs are heading overseas, mostly to Asia (read: China), because print is cheaper to produce there.The managing director of a mid-sized print company, who did not want to be named, told ProPrint: “The big print management companies are the ones who have done most of the damage, in the main. They’re sending print overseas. What good is that going to do our industry? It’s not going to help anyone. It is so disheartening to see what is happening.”

But Di Stefano considers Asia a minor irritant in the larger picture of print pricing. The bulk of Australian print work does not suit the typical Asian printer seeking work from these shores, he says.
“You’re not going to get over the fact that it takes four weeks at best to get print from Asia. If you look at the nature of print as it stands now, it’s usually short- to medium-run work that tends to dominate the majority of jobs that are produced.

“The time constraints alone lend themselves to production in the local market. I think maybe 20-25% of long-run work with long lead times could be justifiably produced offshore. Sweat work has always gone where sweat is cheap. It’s as simple as that.”

Di Stefano says a more important factor in current pricing models is capacity. “The problem is not really lower print prices, it’s lower print margins. Lower pricing happens as a result of natural laws; it comes from more efficiency, more efficient production methods, better technology and better cost management. All of that is good, and sustains lower prices.

“The issue is when you start to get lower margins. That’s when it’s not healthy. The root cause is when capacity fell out of alignment with demand. I have a feeling those making decisions about buying equipment and setting up facilities didn’t do their homework properly when it came down to reading the demand. The demand was diminishing. I also feel there was a lack of acknowledgment around the impact and uptake of digital forms of communication, especially in the last 18 months or two years. The attitude was ‘it didn’t really matter’.”

Supply out of kilter
Harry Banga, another procurement professional, sees a similar picture in a free market where supply and demand are out of kilter. “It’s not whether the buyer or seller is to blame for low prices, it’s more about the supply and demand balance, the maturity of the market to deal with this imbalance, and the buyers’ ‘thirst’ to take advantage of this imbalance,” he says.

“In an environment where prices are in a rapid decline then obviously supply is in abundance compared to the demand. The maturity and sophistication of the industry has a significant influence on how this imbalance is managed, and with a very small number of suppliers holding a small market share and a large number of suppliers holding the remainder of the market, an environment is created where short-term tactical decisions are being made by the market to cope with the imbalance,” adds Banga.

“The buyer is almost inadvertently caught up in this market equilibrium process and is taking advantage of this dynamic. The buyer has to be cautious about not actively fuelling this natural correction in the market.”

Look Print managing director David Leach sees the whole supply chain as culprits in the downward trend of print prices. He says: “There are four parties responsible: print machinery vendors, print brokers, printers and the internet.

“The manufacturers were selling machinery into the marketplace seven or eight years ago and suddenly found that there was an oversupply of machinery, and there was no demand for the equipment. They were selling on the pitch that if you buy this equipment you will be more competitive because your production costs will be lower than your competitors’.

“So then everyone [printers] started lowering their prices Then to stay competitive, everyone had to buy the equipment until people could no longer afford to buy new equipment. Now what is happening is manufacturers are actually funding the purchase of new equipment, and… are not really worried about whether the printer can really afford the machinery in the longer term,” he says.
“Is it all their fault? No, because we the printers buy the machinery. So I don’t blame the manufacturers entirely for it. If printers buy into the argument, printers also have to carry the consequences. It’s very simple. There’s two to three times the capacity there was 10 or 12 years ago, but the demand for print has not increased that much. There’s probably a 60% oversupply in the market now.”

Andrew Bartlett is the founder of a trade association for print buyers, the International Print Purchasing Standards Association (iPPSA), based in the UK. He tells ProPrint that downward pressure on print prices started with print managers, and printers took up the challenge. Unfortunately, the desired result was not forthcoming.

“Print management companies were successful because printers never worked together and most buyers didn’t know how to buy print effectively. Before the creation of the large print management companies, design agencies were buying most print and were adding massive mark-ups. They were found out and print management evolved. The difference was that print managers were solely motivated by the difference between their buying and selling prices. Agencies never bought print well; [print managers] just abused their mark-ups. This was the start of the downward pressure on prices.

“The printers had to find a way to sell print at lower prices, so they invested in the largest, fastest equipment. This equipment could turn out twice as much work. If printers could fill their capacity then they could sell for less and still make a profit. A sound plan, but every printer took the same path and we ended up with even more overcapacity and a market even better for print management companies.”

Enter the brokers
While Leach is largely in agreement with the sentiment, he couches it in more moderate terms. “After the machinery manufacturers, you have print brokers. You have printers who are not doing a marvellous job of servicing their clients, in many cases. Brokers come along between the printer and customer with a business model that adds value to the customer where the printer hasn’t added value. Their whole premise for coming in to the market was that they could save their customers money. That was their war cry. They did a very good job of selling their business model to the printers too. The print broker’s model was to get in between the customer and the printer,” adds Leach.

Procurement professional Banga has a different view of print managers. “Print managers are an extension of the buyer, and bring a level of science and savviness to the supply-demand dynamic. They are in a unique position to maximise the objectives of the buyer. If print managers are performing their role well, they are analysing and amending the end-to-end print process, resulting in overall efficiencies that reduce the total cost.”

Bartlett agrees. “Ironically, print management companies showed corporate print buyers how to pay less for print. To be fair to print buyers, they’ve been given no choice but to chase the lowest market rate, not to understand the effect the price is having on the suppliers. In a seller’s market, printers would make a good profit but overcapacity, encouraged by print managers, has made it a buyer’s market. Most printers can’t say no to work when they have to fill their capacity any way they can. What printer can afford to say no to work when they need the contribution?

“Printers generally don’t understand enough about their own costs to work in this type of buyer’s market. Printers are in a last-man-standing mode, hoping they will be one of those who survive.”
Which points neatly at the real culprit of the print price malaise – the printer. Leach asks: “Who’s responsible? The print brokers and the printers. The printers decided to play the game. They keep blaming the brokers but why play the game? I keep saying to printers, why lower your prices? Why don’t you just improve your value-add to both your customers and your brokers?

“A lot of printers don’t really know their true cost of production. A lot of people say: ‘If I’m making X per cent on my raw materials and I’m achieving Y dollars an hour per machine then I’m happy’. Ten or 20 years ago that was okay, but not anymore. Nowadays it’s not enough. They’re using old models. Printers have to stop blaming everyone else and start taking responsibility for their
actions and products,” says Leach.

Proactive printers
John Bright, managing director of 100-staff, Sydney-based Bright Print, says printers need to find their own solution. “Clearly there are a lot of printers out there who really don’t know their cost of manufacture, and they’re more interested in the actual sale than in the margin. They really don’t have a handle on what they should and shouldn’t be doing.

“Print pricing is an issue for those who don’t really know how to market their business and don’t know how to support their customers. I just don’t see it as as big a problem as some people make it out to be,” adds Bright.

“There are a lot of things that printers can do to create a margin. It’s not all about buying paper, putting ink on it and shipping it out the back door. In any business, and certainly in ones of our size with 100 employees, there are costs everywhere. To run your business well, you can save money in every area of those 100 people you employ,” he says.

“I think people focus too much on price and not enough on getting the business to run as efficiently as they can and maximise every dollar out of every sheet they sell. There are a lot of things you can do to build margin. Things like adding your own cello-glazer or box-gluer. Instead of outsourcing that work keep it in-house, and make a margin on those parts of the job too,” adds Bright.

Philip Andersen sees a strong future for those print companies with real business acumen and a vision. “Good print companies are still making money. It’s true that the average level of return is lower than it used to be, but for every average you’ve got a lot that are making well in excess of the average. It’s up to companies to find where they can add the value, to demonstrate the effectiveness of print. It’s up to printers to ensure that buyers understand that.”


Fair Trade: Responsible Procurement
Andrew Bartlett is the founder of the International Print Purchasing Association, a UK-based trade body for print buyers. The organisation’s remit is to encourage responsible print buying from responsible, viable printers.

“I started IPPSA to create a new purchasing standard for print that would bring all elements of the production cycle together and change the industry’s priorities. Everyone was too busy surviving to look up and short-term goals had become the only priority,” he says.

“We created a collaborative model that would motivate printers to implement long-term goals by giving them the answers to their short-term ones, basically more work now if they achieve milestone long-term targets. Collaboration meant our printers could achieve a match.

“IPPSA has developed processes and software to give corporate businesses the ability to apply their CSR policies to their purchasing strategies for print. Now that a corporate can do this, they have no excuse to keep paying lip service to the way they treat their suppliers. They can give their buyers clear direction for the first time. The standard is all about creating the lowest cost of production and a profitable, sustainable supply chain and a right-first-time production environment. The world needs profitable businesses if we want them to implement environmentally sustainable measures,” says Bartlett.

IPPSA’s new sustainable purchasing initiative was launched last year, but has just been re-launched at Ipex.

“The plan was to create a working model in the UK this year and then to expand globally to help other countries. If anyone is interested in becoming our representative in Australia, please contact me.”

Andrew Bartlett can be reached at andrew.bartlett@ippsagroup.com.


Top tips: Profitable print
• Stop working for unprofitable clients and stop doing unprofitable jobs. If your competitor wants to do it for less, let them make the loss.
• Add value for every customer.
• Have a unique product or service.
• Apply ethics and create a totally transparent environment.
• Stop focusing on the invoice value of print and look at the total cost of producing print.
• Ensure that paper companies don’t give PMCs unfair advantages on paper prices.
• It’s not better to deal with the devil you know, it’s better to deal with the devil with an ethical, sustainable, long-term vision.

 

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