Today’s CEOs, CIOs, and other senior executives of enterprises of all sizes are facing extremely trying times. Consumer confidence is weakening, stocks have dropped to their lowest levels since 2004, oil prices have hit all-time highs, the financial system is in question, and global Fortune 2000 companies are announcing huge layoffs. The economy is in a slowdown, and many signs indicate that a full-blown recession is looming.
In preparation for the upcoming Graph Expo, I interviewed several senior printing industry executives to gain insight into how they are dealing with these difficult economic conditions. For the short term, it appears that the impact will be negative, as some industries are taking drastic steps to survive. Companies ranging from major financial services firms to online retailers such as e-Bay have announced layoffs. In fact, nonfarm payroll employment declined by 159,000 in September and employment continued to fall in the construction, manufacturing, and retail trades. Nevertheless, industries such as mining and healthcare continued to add jobs.
In addition, CEOs and other business leaders are no longer allowing aggressive business investments without more rational strategies, more solid metrics on return on investment, and a direct, positive impact on customer value. Economic challenges are forcing enterprises to return to a sound economic review process for potential new investments.
The implications for the printing industry are significant. From 1998 to 2006 the total number of printing establishments fell by 6,901 (18.3% decline) and the number of employees dropped by 170,000 (22.4% decline). The only segment of the printing industry showing an increase is digital printing, which is up nearly 300% in terms of establishments and 250% in regard to employees. This growth has been catalyzed by savvy graphic communications service providers that have developed the right value-added services portfolios and business models that have and will continue to enable them to survive in good times and bad. These service providers are demonstrating to corporate executives that the effective use of digital technology and streamlined workflow is allowing them to fulfill their customers’ needs to reduce overhead, manage costs, and maintain effective business communications with clients.
There are five critical strategies that graphic communications firms have deployed that have enabled them to thrive and grow, even in these challenging economic times:
1. The use of Internet-enabled strategic sourcing customer programs that serve small and large businesses. These programs cover digital asset management, Web-to-print collateral and support material management, distribution, and fulfillment.
2. Leveraging multi-channel communications programs with demonstrable ROI
3. Emphasizing online, automated ordering processes for print products (B2B and B2C)
4. Focusing on somewhat recession proof markets
5. An emphasis on lean manufacturing and automation
Internet-Enabled Strategic Sourcing
Successful graphic communication service providers are focused on leveraging the Internet in an effort to become strategic sourcing partners with their clients. They are positioning themselves as a trusted outside provider that can cost-effectively and efficiently manage document processes while offering the ability to use new technologies to make overall service levels more robust. In difficult economic times, corporations will look for partners that can cost effectively take over non-core processes like print production, document management, warehousing, kitting and fulfillment (print and electronic). Successful service providers have created a Web-to-print infrastructure to manage these processes.
The benefits of these strategic sourcing relationships have not gone unnoticed by print buyers. In InfoTrends’ recently completed study “e-Enablement: The Future of Graphic Communications,” print buyers reported a mean savings of 14.4% as a result of the implementation of Web-to-print services. Respondents also cited the added benefits of reduced turnaround time, improved tracking, fewer errors, and better corporate brand management. Print service providers that have made the investment in a Web-to-print solution are able to offer print buyers a cost-effective way to manage print, which is extremely significant given the present economic situation.
This same study also revealed clear economic benefits resulting from the implementation of print e-business services. More than 60% of respondents indicated that these services improved their business, and another 54% reported achieving margin improvements from implementing print e-business solutions, with average margins up over 7%. In addition, print service providers attributed an 8% increase in print volumes and an 8.1% increase in revenues to the implementation of print e-business services. Nearly a quarter of respondents reported revenue increases in excess of 10% directly attributable to their print e-business offerings—this is well above industry growth levels.
Multi-Channel Communications with Demonstrable ROI
Typically, one of the first line items cut in difficult times is the marketing budget…unless, of course, the programs are delivering a clear return on investment. To learn more about the importance of integration into the marketing value chain, I contacted Frank Defino, Jr., Vice President and Managing Director of Franklin Park, Illinois-based Tukaiz. Tukaiz is a family-owned and operated supplier of quality marketing communication products and services that started in prepress manufacturing. Defino stated that when the economy is down, marketers strive to spend dollars wisely and they demand a clear ROI. Defino commented, “We have been lucky that the vision of Frank Defino, Sr., our founder, provided Tukaiz with a culture of forward thinking when it comes to marketing services. We were an early investor in digital technology (equipment and software) and this has always put us ahead of the curve when it comes to market demand. This has put our business in a good place, despite the current economic conditions. We have the technology in place to offer the creative, interactive services; data applications programming; and high-quality print production capabilities that are necessary to deploy the kind of marketing activities that can positively impact a variety of industries.” Since 2004, Tukaiz’ business has doubled in size. In addition, the company projects double-digit growth for 2008.
Chris DeSantis, President of New York City-based RI Communications Group, stated, “In a challenging economy, marketers can’t afford to spray and pray. They need ROI-driven programs that deliver results.” DeSantis rebranded and, more importantly, retooled Royal Impressions this year as a true marketing services company that delivers one-to-one multi-channel communications. DeSantis has the infrastructure in place to provide strategic and creative campaign development, data analytics and management, multi-channel-delivery (print, e-mail, mobile, Web, and Web-based on demand marketing. DeSantis said, “The integration of these disciplines enables us to develop more targeted and relevant communications for our clients that generate increased response and ROI. It also increases marketing efficiency. The availability to obtain these services from a single source eliminates the need to coordinate and manage multiple vendors.” While DeSantis acknowledges that he is not sure that his business has felt the full impact of the economy, revenues are up more than 10% this year.
An Emphasis on Print Products (B2B or B2C)
While not totally recession proof, there are firms that have focused on print products that can be made to order via Web-based interface and delivered to the end customer. Rochester, NY-based ColorCentric serves the self publishing market and produces books on demand with average run lengths of less than 2 for Web-based services such as Lulu.com. Products like Photobooks have proven to be powerful print applications. In 2007, market leader Shutterfly had total net revenues of $186 million, marking an increase of 51% over 2006. Its Personalized Products & Services revenues were $105 million, up 69% over 2006 and accounting for more than half of total revenues. Print revenues totaled $81 million, for an increase of 34% over 2006. At Christmas time this year, consumers have indicated plans to spend $29.95 sharing memories, while the electronics may sit on the shelf in the department store. According to Doyle Mortimer, VP of Operations at Alexander’s Printing (a Salt Lake City firm with a B2B focus), “We are seeing good increases in our automation programs in regard to products that we develop and print for our customers that they in turn sell to their customers. These are one-off, personalized products that we automate to contain costs while significantly increasing the value add.” For example, Alexander's provides the FranklinCovey customer a simple, hassle-free way to order and customize their own FranklinCovey planner.
A Focus on Somewhat Recession Proof Markets
Franklin, Tennessee-based TAG is a family-owned business that was started in 1999 through the acquisition of a small printer, S&W Printing. Co-founder Adam Bishop has a much bigger vision for the company’s future. At the inception of the business, Bishop knew that the health care market was and would continue to be a safe haven for marketing service providers. According to Vice President of Business Development, Rob Seaver, “Today, we are a marketing company with a full production facility (offset and digital). We focus on developing multi-channel marketing programs for the healthcare market.” Seaver indicated that TAG’s success is linked to a deep understanding of the market and the ability to deliver measurable marketing programs that resonate not only with the health care provider, but also with the end consumer. Seaver stated, “We deliver messages linked to the motivations that drive their customers to make specific health care decisions.”
TAG’s success proves that having a strong focus in a growing vertical market yields results. 2008 is the second consecutive year that TAG has made Inc. Magazine’s list of the top 5,000 fastest growing companies. In 2007, revenues were $4.7 million and this year they will top $7 million. The company installed its second HP Indigo 5500 this past summer, and impression volume climbed from 900,000 to more than 2 million impressions per month during September 2008.
Lean Manufacturing and Automation
As run lengths get shorter and shorter and margin pressures increase, graphic communications service providers are increasingly focusing on lean manufacturing and automation, beginning with a customer driven Internet order and extending through fulfillment. Service providers are implementing operational strategies that provide a new dimension to competing: they are quickly introducing new, customerized high-quality products and delivering them with short lead times and unprecedented turnaround times, making swift decisions about appropriate production technology. Chicago-based RT Associates re-engineered its production operations in alignment with lean manufacturing principles. According to Radzis, “We have divided our operations into two cells: offset and digital. Work moves through the shop much more quickly, the quality of the work is better, and, most importantly, profits are up by 4%.”
So What’s the Bottom Line?
As we walk around the floor at Graph Expo, people are a little on edge. We are navigating through uncharted economic waters and none of us are in our comfort zone. What I learned from my discussions with these industry leaders is that now more than ever is the time to assess your investment in infrastructure to ensure profitable solutions delivery for both your business and your customers. Economic pressure will cause your customers to change the way they do business and they are looking for partners that will help them become more efficient. In the end, the winner will be the Internet driven, multi-channel, market-focused, automated services provider - not the commodity printer. Companies that respond to these tough economic times by showing their customers a better way to manage their supply chain, streamline marketing programs, and deliver a clear ROI will come out on top.
Let Barb know what you think! She can be reached via email at [email protected].