22 October 2009 | Paul Snell

Buyers are reaping the benefits of diminishing spend and intense competition in the print trade, but is it all good news? Paul Snell reports

Purchasers are having increased influence in print buying. A survey carried out by the World Federation of Advertisers (WFA) found 61 per cent of firms have a two to three-year category purchasing strategy in place. Increased involvement has resulted in improvements in quality and design, speed to market and improved relationships with marketing colleagues. Those surveyed tend to use a mix of direct contracting with printers, deals with print management companies, and to a lesser extent, buying print through advertising agencies.

"More and more procurement departments have responsibility for managing print," says Jean-Luc Charlier, head of the WFA's Global Communications Procurement Action Group and global supply manager, marketing and sales, at electronics giant Philips. Like marketing, he says, print has seen a division of its supply chain: "Buyers want separation between creation and production to maximise the value of the whole supply chain."

Print's predicament may seem like good news for buyers, but what is the long-term outlook, and what other developments have there been in this marketplace that should shape procurement's approach?

Pressing Issues

The recession has hit print hard. Billboards stand empty. Catalogues are slimmer. Newspapers and magazines have folded. And the downturn couldn't have come at a worse time for a sector already struggling to deal with the rise of new media, which is diminishing spend volumes and revenues.

The latest research from industry body the British Printing Industries Federation (BPIF) has seen a slight improvement over the summer, but the situation remains grave. According to the association's Printing Outlook, which surveys 114 companies across the UK, although conditions are at their healthiest for 18 months, 29 per cent of businesses still felt trading had got worse between June and August. And though 32 per cent of printers are confident trading conditions will improve, the BPIF says the survey's respondents have been "overly optimistic".

Andrew Brown, BPIF corporate affairs director says: "Although welcome, these early signs of recovery can only be considered tentative at this stage. Trade remains very depressed with weak levels of production and orders."

There are also fears the sector will not return to its pre-recession levels. "We are hearing a lot of people refer to it as the 'new normal'," says Tony Massey, group marketing and sales director at print management firm HH Associates.

The Market

The BPIF says printers have been forced to cut prices to stay competitive but, despite a succession of business failures, still report healthy competition.

"It is more than healthy. Cutthroat is probably how we would describe it," says James Fingland, print manager at procurement services provider buyingTeam. "Businesses are going under, but it hasn't led to a drop in capacity. There aren't enough jobs out there to fill that capacity, so pricing is still incredibly low."

Nic Porter, head of procurement at investment group Skandia, recently went to market for a print contract and had plenty of interest. "There was a very competitive market and we reduced our costs by about 20 per cent," he says. He also reports a significant reduction in the fee charged by print management firms. "Historically it was around 8 to 12 per cent; now it seems to be anywhere between 1 and 7 per cent."

"It has given an opportunity for print buyers to exploit desperate printers, without question," says Simon Taylor, commercial director at print management firm APS Group. "There would be an opportunity there, but it is short-lived because as soon as the market picks up those prices won't be available."

The latest BPIF figures show 17 per cent of printers are trading at a loss, a consequence of what Fingland describes as "ridiculously low" pricing. It means cheap prices could be unsustainable for buyers and have an impact on the supplier relationship. Buying on the cheap is one thing, he says, but you might be missing out on extras such as technology and advice. Although the recession has led to lower prices, other problems have emerged for purchasers. The disappearance of so many printers is a threat to continuity of supply.

Risk Management

"A key issue for purchasers has to be the long-term stability of the supplier they are looking to build a relationship with," says Matthew Parker, director at consultancy Print & Procurement. "As a buyer, if I am looking at a printer I can run a credit check on them. But that doesn't necessarily reflect changes in trading that may have happened in the past few months."

Finding another supplier is less problematic if print is not your core business, but for those where it is a significant spend area, such as publishers, it is a serious issue.

The BPIF says a fifth of printers have had to find other ways of raising finance, including identifying external investors and releasing equity on their machinery and plant - and, almost inevitably, delaying payments to their own vendors. Taylor says the sector has suffered from the withdrawal of credit insurance, forcing some printers into the embarrassing step of having to ask clients to buy paper on their behalf.

Size is not necessarily a guarantee of safety either. Taylor recalls one company that spent £4 million a year with a single printer, but was the firm's sole customer and accounted for all its revenue. And it is not only future work you need to worry about. If your printer holds your artwork and files, retrieving them from an administrator should the worst happen would be difficult, as buyers will join a queue of creditors, along with banks and employees.

A good way of evaluating supplier risk is by forging strong relationships with paper mills and merchants, Fingland says, because they are generally at the top of the list of creditors when printers do go under. They will have lists of flagged suppliers and may warn you of potential problems. Buyers can also pay to sign up to a BPIF "red flag alert" of late filing of accounts and county court judgments.

Visibility

The recession has created instability, but many of the challenges of buying print remain the same. When SM last looked at the topic (Features, Paper chase, 27 April 2006) transparency was a major issue, and continues to be.

"Our comment three years ago was that buyers didn't have visibility of information, and I still see that," says Neil Smith, partner at Blue Buffalo Consulting. "By having visibility you can identify the variance in what you are buying - multiple sizes, materials, colours," he adds. "The key issue we spot is the same things are bought at widely varying costs."

Porter, however, believes it is what buyers do with data that is more important. "Management information is probably more readily available than it ever has been. But what you do with it is the key. Any print management company can produce reams of information about what you have ordered, but I'm not sure how useful that is unless you are going to produce things differently as a result," he says.

And Taylor believes the real issue of transparency does not relate to information, but to how open print managers are about their commercial arrangements with their own suppliers - if they ask for rebates or charge vendors extra to win business. Some print management firms will be up-front about it, others will admit it but won't disclose specific details, and some will just be dishonest.

"There is some naivety in procurement about the transparency of print management, or lack thereof," he says. "A lot of companies aren't aware their print manager will operate 'pay-to-play' for suppliers. A lot of companies don't realise rebates still exist, and for some these can be substantial - 15 per cent is not unusual. You can be a customer thinking you are paying a print management firm 10 per cent markup, when, unbeknown to you, your print manager buying on your behalf is getting another 10-15 per cent from their supplier. I'm not saying it is wrong but you need to know about it, then you can decide if it is appropriate or not."

Smith is also critical of what he calls a "silo-buying" mentality, with lack of centralisation of print spend across companies, and even print management firms. Print managers refute this, arguing it is logical for them to aggregate their spend, and Porter says print management firms are using their purchasing power more intelligently than in the past, and have built a "critical mass" in the market to get better deals.

Sustained Challenge

A trend that was expected to develop over the past few years was the growth of global sourcing, as buyers take advantage of cheaper costs abroad. But investment by UK printing companies and the relative weakness of the pound has made domestic vendors more competitive, with foreign companies now sourcing print from the UK.

Sustainability is of increasing importance to both buyers and suppliers. "It's a given now," says Ian Allan, business unit director at printing company Polestar. "If you don't have that on a big tender, you don't get through."

Vendors have not seen a relaxation of sustainability's significance even in tougher times. But the rapid rise in popularity of sustainability in print has left some buyers struggling to understand a developing market. For example, the production of recycled paper creates a carbon footprint of its own, and some buyers believe paper from sustainable forests, with accreditation from the Forest Stewardship Council (FSC) or the Programme for the Endorsement of Forest Certification (PEFC), are better long-term choices.

Kate Fryer, formerly head of ethical print procurement at Ink Print Management and now a senior buyer at the Royal United Hospital Bath NHS Trust, says decisions over which paper to use are often made by other departments. And while there is no clear-cut answer as to which paper is better, it is a "good opportunity for procurement people to go and discuss it with internal stakeholders and marketers".

Perhaps the biggest challenge is the rise of new media. Companies are looking at e-mail, text messaging and printing marketing information on other items such as bills.

"The phrase is: 'It's not all about print - it's channel-agnostic'," says Porter. "It's about print to e-mail or print to SMS and how you engage your clients. The large print management companies are taking the lead in becoming the platforms for this."

This is leading to a change in buyer-vendor relationships. "There has to be much better relationship management, and I think you will see job titles such as 'strategic relationship manager' appearing," says Allan.

The shift has also been necessary for print management firms to reposition themselves as more than just vehicles to provide quick savings. "Strategic relationships are something print management companies are starting to focus on. We are also finding print management companies are beginning to expand their scope. They are recognising they are BPO specialists rather than just print specialists," Porter adds.

Repositioning

But this evolution may be creating a greater divide between buyers and providers. Smith says if companies choose to outsource they may be left without print-buying expertise in-house, which will make it more difficult for them to assess the value of their outsourced print deal.

So the choice of partner or supplier for buyers becomes ever more critical. "The time is perfect for further tactical savings, but it is key at the moment, especially if you are looking at outsourcing, to align yourself with a strategic partner who understands the future of print," says Porter. "If you are tying yourself into a five year contract, the print market in five years will be very different and the requirements of print will be very different. You have to align yourself with someone who understands it."

Charlier also believes buyers should be more daring. "Challenge yourself. Do you really need to have this printed? Procurement should be asking that question."