Higher margins, greater efficiencies and a healthy payback. Can it be true?
Trade publications, other media, and printing associations are all talking about e-commerce. I don’t recall another industry development in the past decade that has generated such interest and controversy so quickly. Many questions have arisen, many claims have been made and many people remain skeptical. In this column, we will look at some of the economic benefits of e-commerce for print buyers and print sellers, and offer our observations.
The key benefits of implementing an e-commerce solution are saved time, improved processes and reduced cost. Some firms claim they can reduce the time required to buy printing by 50% to 75%. Other claims indicate that the turnaround time for the procurement cycle can be reduced by up to 75%. When all this is done, it can produce a 25% to 40% cost savings for the print buyer.
It has been estimated that the transaction cost to an organization for buying print can be two, three or even four times as high as the cost of the actual printing. This is often due to pre- and post-processes for procurement. Other claims indicate that while customers will see cost reductions, printers will earn higher margins with improved efficiencies and dot-coms will earn a healthy payback for their investors. Let’s see if this win-win-win situation has merit.
Objective 1 - Reducing labour
Printers and print buyers rarely recognize that the time and effort needed for organizations to procure print can be extensive. Many companies have professional buyers but few are dedicated solely to print purchasing. Many steps are executed before the print buyer becomes involved, including determining communication requirements, collecting the information, writing, editing, selecting the images, producing creative concepts, designing, and going through a complex approval process. Then, the purchaser picks up the ball and goes through the following steps:
- Specification writing
- Vendor pre-qualification and selection
- Request for quote (RFQ) process
- Clarification and consultation
- Bid comparison and selection
- Schedule confirmation
An experienced buyer is likely able to develop comprehensive specifications based on knowledge, or can pull the file of an earlier job and create new specs from it. E-commerce vendors claim that this process is more efficient using an electronic form with blanks that are filled in.
Some firms claim they can reduce the time required to buy printing by 50% to 75%
This could be a faster process if the form is created based on the type of work that the firm frequently requires. Other ways to speed up the process include the ability to easily search for, retrieve and modify previous specifications. This may reduce the amount of time needed to research specific details of the project.
Vendor pre-qualification and selection may not be a challenge in your mind, since we, as printers, often say “I’ll take care of it for you.” If it doesn’t fit your equipment, you can either do it on less economical devices or farm it out to someone with the right equipment, like a trade shop. From the customers’ perspective, they may have limited knowledge of who the suppliers are, what technology they have and what technology is required for the job. Once someone does the research on printing firms, it should be stored in a database that is accessible to all buyers. This could save a significant amount of time.
Automating the RFQ process can be done by automatically loading the specifications into a RFQ form, and inserting names of pre-qualified suppliers from a database. If the system can automatically e-mail the information, the process becomes faster than the phone, fax or visits. If the information is complete and accurate, clarifications and consultations are going to be reduced. Hopefully they won’t be fully eliminated, since professional print sales reps add value with suggestions and recommendations to improve a job.
Bid comparison does not need to be a complex process, unless there are a large number of prices requested. The key element is comparing apples to apples, and a computerized listing can automate the process.
If the process can be improved for the experienced print buyer, imagine how the “occasional” buyer could benefit. From printers’ perspective, we need to receive quality specs, in an electronic format that we can review and download into our estimating systems, with minimal adjustment. This will save considerable time for the sales rep, estimator and administrator, if we are so lucky as to have administrative assistance to prepare quotes.
Objective 2 - Improved turnaround time
The procurement process or “cycle time” can take days or weeks for specification writing and the RFQ process. Meetings, phone calls, faxes, e-mails, memos, vendor site visits and sales rep visits all take time and eat into the production schedule. The process can be streamlined by using a standard system, with a lot of the preliminary work done up-front, and all the buyers having easy access to the data. An e-commerce solution could improve this, however, implementing ISO 9000 also delivers the same improvements.
Objective 3 - Print cost savings
It’s interesting how most printers interpret “print cost savings” to mean that they will have to reduce costs. This may not necessarily be the case. Let’s review some of the claims that result in cost savings.
Better supplier selection Large organizations may have hundreds of people buying print from many locations. A database of pre-qualified suppliers, with details on each print vendor’s specialty and a system for customer feedback, would help ensure the right printer is selected for the right work. Let’s say a print buyer receives two quotes for the same job with a 20% price difference. The printer with the lower price receives the order without reducing prices at all. The buyer technically saves 20% by choosing the right supplier.
Contract pricing Establishing contract pricing with a client that incorporates lower rates for a significant amount of new business, can be a good strategy. You can actually reduce prices and increase margins provided there is enough new business to change your equipment and plant utilization. Considering that a new contract enables you to go from a one-shift operation to a two-shift operation, your hourly rates can be reduced.
Reduced rush charges Additional costs are frequently incurred when the project schedule is compressed. A faster quoting process and faster proof approval with digital transmission can take the pressure off by reducing typical rush charges for couriers, production overtime, material substitution and other related charges. Some of this is cost avoidance for both the printer and the customer, and some represents lost revenue opportunities for the printer. The concept may be great, however, whenever we introduce time-saving processes, like CTP and digital presses, my experience is that customers still want their projects faster.
This is not an endorsement of any e-commerce company, but it is important for printers to know their customers’ perspectives and the economics they are looking at when investigating e-commerce solutions. A 1999 study by Deloitte Consulting predicted a 300% return on investment from an end-to-end e-procurement solution. That would make any company seriously consider implementing e-commerce.