Margie Dana

In this third and final Print Tip on Directed Buy Programs, I asked for the insights of Jack Miller, aka the Paper Guru. Jack is one of the most knowledgeable paper experts I know. He will be presenting “The Mystery of Paper Prices Explained” at our 5th Annual Print & Media Conference on November 3rd.

The two previous Print Tips on this topic are listed on our Print Tips Archives page for 2010. The first one ran on May 10th; the second, on June 28th.

A Simple Definition

First, let’s define “directed buy.” To simplify, there are directed buys that relate to some sort of price program, and there are directed buys that relate to specification. Specifications are really a different topic.

Mills, merchants and end users or print buyers all use directed buy programs for different reasons. Mills and merchants use them to lock in the business: the mill wants the printer to buy its brand or brands, while the merchant wants the printer to buy from them. Sometimes, the mill and the merchant will develop a program together. Benefits to the print buyer can involve a preferred price or rebate, but may also involve elements of service such as inventory programs. Some of the large merchants will offer a national program to large customers, citing their information systems, efficiency, logistics and service as providing cost reductions that are shared with the customer. Some of the mills will offer a program, citing service and consistent branding, consistent quality and press performance, environmental benefits, as well as competitive price or rebates. One mill told me that the volume threshold for programs like this is 500 to 1,000 tons per year.

Sometimes it is the print buyer who drives the program. Here the objective is usually cost reduction, and this can be a variation on the idea that the print buyers can save money by buying the paper, but in this case, the print buyer doesn’t have to actually buy the paper. Printers mark up the paper, so if you can avoid that mark up by either buying the paper, or negotiating that mark up away, you save money. Sounds like an idea that can’t miss, but is it?

It’s important to remember a few things. First, mills, merchants and printers, as well as print buyers, are all dealing with challenging economics and cost pressures. You can only gain so much buy squeezing others in the supply chain; you gain more by working with the supply chain to take cost out: communication, forecasting, inventory planning. All businesses have overhead: salaries; energy; and the cost of buying, maintaining, and operating equipment. Any business needs to cover these costs, plus their raw materials costs. I think it’s unfortunate that the print industry has gotten into a business model where they “mark up” the paper.

Customer-supplied paper is really another topic, but I advise the end user, or print buyer, to look at their own business – what is the ratio between raw material cost and selling price? How much do you “mark up” your raw material costs? Consider that retailers mark up their costs by 100% or more. The paper mark up is really quite small, but if you still think you can gain by buying the paper, or using a directed buy to negotiate the mark up away, be sure to get quotes both ways – the printer still needs to cover his costs, regardless of who buys the paper.

Remember that it costs the printer money to handle paper procurement. The printer has the infrastructure to order paper, follow up deliveries, and find solutions if mill problems arise. If you can negotiate the paper purchase better than the printer can, and you have the infrastructure to do it effectively, then you might consider buying the paper. A small- or medium-sized printer will buy at least $5 million of paper per year, roughly 5,000 tons depending on the grade mix. If you use less than that, chances are the printer can buy better than you can.

Rebates

Many approaches involve rebates. Buy enough volume from a specific merchant or a specific mill, and you get a rebate. The paper seller may like this idea because they can give you a discount in return for getting your big volume, without that discount becoming the norm in the market. But experience shows that these programs do not provide guarantees. Paper prices are very volatile. In a soft market, spot prices may still be lower than program prices, even after rebates. Unless you shop every job, you can’t be sure you have the best price on every job.

Printers generally do not like these programs. For them it can add cost and complexity. The grades they are forced to run may not run well. They may be forced to buy from a merchant that they do not know well and may not provide the service they need. Inventory management can become a problem. On-time delivery can also become a problem. These problems can become your problems, too. You can rely on your printer to deal with these issues, but if you supply the paper, or direct the buy without “buy-in” from the printer, then you may need to be prepared to deal with them yourself.

Thinking It Through

Is your objective to have the lowest price on every job? Or are you better off having a relationship with the mill, the merchant and the printer where all work together and you have a consistent, competitive price, and good service, with no surprises and no problems? Certainly, when there is a problem, you want to be working with people who want to help you solve it.

Directed buy programs can and do work, but be sure you clearly understand your objectives, and be sure that you are able to know if you are meeting them. Complex and confusing programs that add cost may be less effective than simply negotiating a good price for the printing. Rebates may appear to be a quantifiable cost saving, but do you really know for sure? If your program adds cost to the supply chain, it is not likely to be good in the long run. The best solutions will be those that take cost out of the supply chain, and not those that add complexity.

You may contact Jack at or . Visit his site to subscribe to his newsletter, “MarketIntellibits.” Be sure to register for his session on paper at our November Conference, too.