Paper companies: innocent victims of bad debt or perpetrators of print's downward spiral for selling to sub-prime printers? Whatever your stance, a healthy business relationship with merchants is vital
Few organisations can claim to have such a vested, and controlling, interest in the printing industry than paper companies. Sometimes it seems they can’t win – vilified if they continue to supply ‘sub-prime’ printing companies, pilloried for not being supportive enough when they withdraw credit. Rising paper prices, combined with a weak pound, are making life even more testing for the merchants in the middle. As one printer puts it: We have every sympathy with the merchants, and of course we need them as much as they need us. However, I wish I could send out a letter to all of my customers telling them my prices are going up by 5-8% in the knowledge that my competitor’s letter will arrive at the same time saying the same thing.
On the vexed issue of price rises, Robert Horne managing director Alistair Gough says: On the paper supply side, we have a lot of paper mills with disastrous financial results, and the currency is not helping at the moment because, as well as losing money, they are seeing a 20% reduction in returns from the UK market. It’s very challenging and communicating both sides of the argument is where merchants help to manage that situation.
Of course, nowadays there are far fewer merchants, as shown by this statistic from Tim Bowler, director at the National Association of Paper Merchants (NAPM): In the late 1990s, the NAPM had 57 members. Now it’s 20, and seven of those are specialist board merchants. The workforce in merchanting has halved.
This lack of choice makes things particularly difficult for those specifying niche products, such as fine stationery specialist Downey & Co. Business development manager Joe Turner says: We’ve noticed that some of the less common papers and boards are not being stocked as much because demand has gone down. For example, we wanted to order a premium product recently and it wasn’t in stock at the merchant or the mill. But they aren’t going to get any orders at all if it involves a two-to-three week wait, so it becomes a self-fulfilling prophecy and is quite a negative thing.
The credit crunch is also making it ever more difficult to trade in paper. Paper merchants have always been financiers of the industry in terms of credit, but will the current economic slowdown mean that situation is likely to change? Bowler thinks not. I don’t think it will change, but merchants will rein back printers that go outside of terms. If firms can’t pay to terms, that’s when it becomes difficult. He says that since 2000, NAPM members have lost about £120m in bad debt (an alarming figure whichever way you cut it) and the run rate of losses at some £15m a year is even more unacceptable given the current trading conditions.
The lesson from the bad debts of the past, combined with the stark reality of the present, means the message from merchants is clear: keep talking to us and don’t try to mask any issues you may have in your business. It’s a key issue, says Bruce Munro, national sales director at Antalis. A lot of printers think ‘I’ll cover it up. I won’t tell anybody and I’ll get new funding next week’. If there’s a lack of information then we will get more nervous, more quickly. Especially in the current climate, we are likely to stop supply immediately.
We are trading with sound businesses and avoiding the unsound. ‘Partnership’ is an overused word, but we do work to build strong relationships with people in order to understand their needs, he adds.
It’s an approach taken by Simon Moore, managing director at Kettering-based Eclipse Colour Print. Moore says the company has worked with a core set of paper suppliers since its inception, which has helped to develop the sort of strong partnerships the merchants espouse. Now more than ever, it’s important to have good relationships with our suppliers. We probably spend about £6m a year on paper, excluding paper supplied. We’re buying reels, because we have CutStar and web presses, so we have to think further ahead. In 2009, we are aiming to purchase paper more strategically in order to achieve stable pricing over a longer period of time.
According to Gough, credit is a key issue. Credit is being withdrawn from every element of our industry. The strength of any balance sheet is vital to sustainable business – we want to deal with a strong print industry and I’d like to see a strengthening of the industry’s balance sheet.
We’ve always scrutinised our customers very carefully, and it’s even more intense now, he states, noting that merchants have realised that the health of a print business can change rapidly, meaning constant vigilance is required in order to be aware of any changes in status. Someone might have been strong six months ago, but they aren’t now. Don’t be surprised if paper suppliers want more information from you. Be open, and provide early warning. Those that don’t provide adequate information may find that credit is cut off instantly.
The withdrawal of credit insurance doesn’t necessarily mean that merchants will automatically reduce credit limits to match. Such decisions will depend upon the level of communication and trust between the parties. By having a good dialogue with our customers, we are able to view every case on its own merits. The more open and transparent printers are, the better decisions we’re likely to come to, adds Gough, who unsurprisingly reports increased interest in the Paper-Plus confidential receivables finance service that has been developed in partnership with Eurofactor.
Independent merchant EBB has gone on record to blame credit insurance for creating a lax culture that has contributed to some of the industry’s woes. The merchant must surely welcome the fact that some of its rivals will now effectively be forced into taking a more EBB-style approach in light of the withdrawal of cover. This in turn leads onto the thorny issue of pre-packs and phoenix companies. The NAPM’s Bowler says that members are often put under pressure by other printers – sometimes collectively – not to support such companies. It’s an area where decisions are not always black and white. Munro notes: If a company is reborn with the same failed directors, then we will not trade. If the new owners have no connection, and have a business plan and a level of support, then it’s a different matter.
Gough adds: There are legitimate pre-packs that are well-financed, and where everything is done in a legitimate way. And providing stringent criteria are met, we will supply those companies. We have very clear policies on this, because it’s not in the interests of well-managed businesses for us to offer support to those that are not.
The environment and corporate social responsibility remain high on the end user’s agenda. It’s ironic, then, that a printer’s typical purchasing patterns can all-too-often result in inefficiencies for themselves and their paper suppliers. Merchants have done a lot to take out costs in their back operations through bringing together facilities such as stocking and warehousing, and in the case of some merchant groups, deliveries. We’re now seeing more of a concerted push to get printers to do their bit too. Last month, Antalis introduced a surcharge for orders under £50 that are effectively too small to be economically viable, as Munro explains: I can’t think of any other industry that provides free next-day delivery for a £30 order. It’s madness – we should all be shot really.
A lot of printers that really focus on the environment don’t think about optimising their overall cost of supply, he adds. Talk to your merchant about the size of your business, the volumes and the products required. If you need one tonne a day, we can deliver every day. Or we can deliver 20 tonnes once a month.
This drive to encourage greater ordering efficiency is backed up by Gough. A lot of printers purchase on an ad-hoc basis, even though they are effectively buying the same items day in, day out. They could probably optimise and consolidate those purchases in a way that would reduce their administration costs and our delivery costs. We can provide a lot of management information on their purchasing patterns to help them consolidate.
Moves to reduce the cost of purchase wherever possible also extends to electronically traded orders. Munro says this method of ordering has grown considerably in the office environment, but is still at a relatively low level in print. The use of bespoke sheet sizes to reduce trim waste is another trend Gough believes could be developed further, and that also requires printers to plan ahead more strategically. Planning jobs to minimise sheet use can have quite an impact. For example, using a sheet size of 630x880mm instead of automatically ordering 640x900mm. We are using our sheeting capabilities to produce more bespoke sizes.
Ultimately merchants want printers to be successful, hence the NAPM’s push to debunk misinformation through its Two Sides campaign. Gough says: Paper and print has a good story to tell. We as an industry should be selling that value to customers and we don’t convey those benefits enough. It’s up to us all to really communicate that value.
Achieving best value from paper purchasing
- Review what your company is ordering, and the frequency of orders being placed. Avoid purchasing on an ad-hoc basis.
- By planning ahead, you may be able to consolidate your requirements into fewer, larger orders that would yield efficiency gains for you and your merchants
- Do you really need a delivery every day, or is it just a habit? Your paper merchant can help you with strategic forward planning by providing detailed management information on your ordering history and buying patterns
- Consider the use of bespoke sheet sizes to save on trim waste
- Can you reduce manual administration tasks by placing orders for paper electronically?
- Maintain an open and honest dialogue with your paper suppliers so they are aware of your financial position and future business plans. Don’t be surprised if they want information from you more frequently this year
- Make sure you keep to agreed payment terms and flag up any likely issues before, not after, the event
For advice on best practice or to brush up your existing purchasing methods visit the Vision in Print (ViP) Materials, Consumables and Services Purchasing Best Practice Guide from www.visioninprint.co.uk