Hiring Key People May be a Challenge as the Economy Recovers

The temptation to seek popularity should be overcome by holding people accountable. Says Lencioni, “The most effective accountability is posed by the team, rather than their boss.” Finally, the CEO must focus on results. Both the CEO and the organization should commit to measurable results and then evaluate their success based on those results instead of rationalizing shortfalls on uncontrollable circumstances.

Andrew Paparozzi, NAPL’s Vice President and Chief Economist, offered his State of the Industry. “While business is picking up, it is not enough to create any pricing relief,” commented Paparozzi. The litmus test of a recovering economy is hiring plans. NAPL’s printing business panel reported that over the next six months for every four firms expecting to hire, one firm is expecting to lay off. Over the past six months for every printer that hired there were two firms that laid employees off.

Paparozzi surmised that, “The most significant change in the printing industry isn’t digitization or any other technology, it’s the broad range of management skills from marketing to strategic planning to human resource development that is now a prerequisite for enduring success.”

NAPL’s Technical Consultant Howie Fenton reported that Adobe Acrobat 6 has built the printer standard, PDF/X-1a, into the preflight. The consistency of digital proofing devices is no longer in question for publications as many units are SWOP certified. Soon GRACoL certification will resolve these concerns for general commercial printers.

NAPL invited the Document Management Industries Association (DMIA) to host a panel discussion on the marketing opportunity of working with print distributors. Last year the panel was comprised of print distributors. This year the panelists were printers who have successfully developed this supply chain specialty. Lloyd Tucker, Senior Vice President of DMIA, reported that surveys of their distributor members confirm that 47% are looking to increase their offering of general commercial printing services over the next two years.

Jim Laurain, General Manager of Royal Oak Michigan’s Arbor Press, described how his firm has integrated the print distributor network among their direct sales efforts. It begins with a Distributor Protection Policy, which states that the firm will not knowingly produce a job for one distributor that should belong to another distributor. There is a six-month protection policy for identified accounts. Laurain emphasized repeatedly, “Be upfront and candid (with the distributor client) to build trust.” While there is normally no manufacturer identification on the packaging to allow the ultimate client to cut out the distributor and come straight to the printer, occasionally the client will find out and call the printer directly. “As a courtesy, call the distributor and tell them that the client called us direct,” remarked Laurain.

Roger Buck, National Sales Manager for Ward/Kraft, described his firm’s marketing efforts, which are exclusively through third party distributors. He says, “The two biggest challenges of working with distributors are education and pricing structure.” This is because Ward/Kraft offers numerous proprietary products that require systems selling. “Our prices are 15-40% over the low-priced competitor. Our distributor clients want partners and they need education.”

Ward/Kraft’s free education is provided in three formats: on site, via the Internet, and airport seminars. The firm conducts over a hundred hours of webinars a month. Called ‘W/K Live’, these sessions are held by appointment for one-on-one sessions or one-on-many. The webinars is a cost effective way to do joint selling to the distributor’s client for a particular upcoming project.

Press manufacturers and an investment banker comprised a panel discussing ‘Financing Capital Investments.’ Stephan Carter, Komori USA’s President, stated, “The current situation shows fewer financing sources, more desperate competitors, diminished fixed asset values and difficulty in upgrading platforms.” This is because debt often exceeds equipment residual value and faster upgrade cycles require focus on equity.

Niels Winther, President of Heidelberg USA, showed two examples of the impact of equity on future ability to re-invest. In the preferred healthy model for financing a new press there was a 15% down payment, a seven-year term period with no grace period for beginning quarterly payments. The result is that the printer begins building collateral in less than 40 months and could then re-invest if he wished. In the other instance there was no down payment, a one-year grace period before payments were made (with interest capitalized into principal), and a ten-year term. In this later example it takes 8 years before the printer can reinvest without a shortfall.

Eric Belcher, MAN Roland’s COO of Sheetfed Operations, emphasized that MAN Roland will no longer participate in creative financing such as propping up a printer who could not qualify for traditional financing. Invariably such printers discount their work below market values destroying healthy competition with this slash-and-burn price discounting.

All manufacturers except MAN Roland are still offering recourse financing. One manufacturer justified the policy by saying that a $3 million printer has the same right as a $30 million printer to stay in business through a difficult economic period. Belcher disagreed by stating that a $3 million sheetfed printer cannot, for example, justify the installation of a 40′ process color press.

NAPL Blue Books indicates that 40′ sheetfed process color presses list for $1.5-2.0 million depending upon the number of units and accoutrements. Scheduling turn around demands coupled with mature market level pricing indicates that this press normally operates on at least two shifts to be cost competitive. At a $275 hourly rate and 75% utilization on two shifts, this would show the press value-added revenue to approach $800,000 annually. Assuming a conventional mix of electronic prepress and post press value added, along with #3 grade stock, would put the total sales attributed to this press to be about 2.5 times the press value added or total sales of about $2.0 million. This is two-thirds more than he now has.

Considering that this $3 million printer needs to add 67% new volume to his operation asap, Belcher’s point is well taken. Even this printer will probably not win more than one out of three jobs he bids even though he has the cheapest price. This means that he will be directly discounting $15 million of printing ($3 $2 million times 3). The indirect ripple effect on price discounting in that regional market is typically 2-3 times the direct effect. This means that $30-40 million of printing in that regional market is experiencing artificial pricing.

Printers have traditionally expressed a good deal of loyalty to their suppliers, and particularly their press manufacturer. This loyalty will be tarnished if manufacturers continue to prop up unqualified competitors. MAN Roland is to be applauded for their realistic position on this difficult issue. Healthy printers in every market need to have candid conversations with their key suppliers about this destructive and worn out policy on creative financing.

The Top Management Conference invites excellent keynote speakers and industry practitioners participating on thought-provoking panel discussions. But the key benefit is often gleaning an idea from one of the Management Plus Award winners or other fellow attendees.

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