Paper – Back to Basics

By William Lufkin

Paper represents more than 30 percent of production costs at many catalog companies. Therefore production directors should have a well-defined strategy for purchasing this essential component of print catalogs. With the continuing firm paper market and high level of supplier consolidation being announced, your paper purchasing should not be left to chance.

Let’s assume you have already selected the grades and basis weights of paper desired. The following will outline a broad framework of issues that need to be addressed in the formation of a custom paper strategy. This strategy can assure long- term quality supply, and lead you to competitive prices, even throughout the ups and downs inherent to the paper market.

The three basic paper purchasing models are:

Printer-purchased: Your printer handles all aspects of paper buying and includes the cost in the print invoice, which is billed after production.
Publisher-purchased: The catalog publisher handles all decisions and administration of paper ordering and inventory. The printer defines roll width and pounds required.
Publisher-specified / printer-purchased: A hybrid approach that gives the publisher an element of control over supply and price and has the printer handle the purchasing administration.

The decision of which model is appropriate for your catalog operation depends on tonnage volume, whether you have in-house expertise, and a variety of financial and administrative issues. Once your requirements grow beyond approximately 3,000 tons, you should consider either the publisher-purchased or publisher-specified route.

Then you’ll need to decide which sales channel to buy through:

Mill direct: The catalog publisher deals directly with the mill in negotiating supply and price arrangements.
Merchant or broker: A mediary sells you paper after negotiating with various mill alternatives. The mill pays the mediary’s commission.

Many large catalogers prefer to deal direct, while many more modest-sized catalogers like the purchasing assistance provided by the merchant or broker. Some mills prefer to distribute their products through merchant channels, while other mills pursue the direct selling approach. In some cases, a production director can do well by blending both approaches.

In developing your strategy, keep in mind two essential procurement themes that have consistently been keys to success for others:

Centralization: Focus the purchasing authority for negotiating and supplier selection with a single high-level person in your organization. Fragmentation at various local levels is not conducive to effective paper purchasing.
Consolidation: Package your annual paper requirements into the largest volumes by each grade category. Likewise, consolidation to two or three suppliers is far more effective than spreading your purchase requirements over many players. However, relying on a single source is not recommended.

Allocating Paper Sources

A representative supply sourcing model that can be adapted to a variety of catalog producers might show an allocation of annual requirements roughly as follows:

Primary Supplier A	60 percent
Secondary Supplier B	25 percent
Unallocated	15 percent

While the percentages are only approximate, this type of approach can give you the supply assurance linked to a multi-year contract with Supplier A, combined with the backup and competitive challenges provided by Supplier B. Keeping 15 percent of your requirements unallocated or uncommitted gives you freedom to make some spot purchases in a soft market, or to allow Supplier A the incentive to grow to as much as 75 percent of your allocation, while Supplier B can compete for up to 40 percent.

With the broad framework outlined above, the catalog production director can approach the candidate suppliers either informally or through a more formal request for proposal (RFP). Ultimately, supplier selection should be based on these fundamental criteria: capability, quality, service, net price, and relationships.

The strategy formation process can have significant rewards. In addition to the obvious peace of mind you’ll get from knowing you have a solid supply plan in place, the potential for significant cost savings is obvious. Even a 2 percent or 3 percent savings on paper can generate huge bottom-line benefits to your catalog’s success.

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Lufkin Strategic Procurement