Current print markets
Michael Makin said manufacturing industries are struggling to avoid contraction. He mentioned that 11 out of 18 manufacturing sectors (including print) reported a decline in production in November. One positive was: print saw its prices for raw materials drop while other sectors saw prices, rise.
In this sense, he pointed out a few trends.
- Printers have adjusted their business models to take account of new industry trends and realities.
- Even the print sector most impacted by digital media, informational and editorial print (books, newspapers, and magazines) have been doing relatively well
- Most of the severe displacement of print by digital media is now behind us
- Labels, wrappers and packaging print, serves as an anchor on print sales as it generally tracks very closely with the overall economy
Makin felt that print still dominates and recent data suggests that print is still responsible for 86% of a news publisher's revenue. Makin said the top ten verticals are: packaged foods (USD 19bn); medical pharma (USD 16bn); publishing (USD 11.4bn); telecom (USD 11bn); banking/insurance (USD 10.9bn); real estate (USD 10.5bn); travel/hospitality (USD 9.3bn); automotive (USD 8.2bn); food service (USD 8.2bn) and home improvement (USD 7.2bn).
Opportunities and challenges
Michael Makin told the delegates to be as strategic as possible. He requested them to have a thorough look under the hood and examine the assets, equipment base, talent, customers, margins, verticals. He asked for all CEOs to re-check the plans against the scope of actions. Always plan for the worst and be ready to capitalise.
The key is: formal strategic planning with goal setting along with measurable metrics.
Makin said it is imperative to have analytics on the best customers plus create internal case studies as to why they are the best. The team should discuss if this can be replicated into identifiable verticals with identifiable business plans.
Herein Makin requested all CEOs and heads to ask which customers are elastic and which are inelastic. This mean look at credit policies, and if need be, revise it. When asked how to achieve it, Makin said, "Clearer client expectations as well as improved workflows as well as demanding customers." He requested documentation to ensure annual customer reviews.
Cost considerations in pricing
Michael Makin said, practice the 3 Cs of pricing as pricing is one of the most challenging decisions managers have to make. "Too low and we leave money on the table. Too high and we lose the business." Makin said, there is no cookie-cutter solution for print.
In this sense, he said, start with the right MIS system so you can cost and track your jobs. He spoke about the PIA ratio chart of accounts which has been an effective cost-tracking system. Makin said the ratios provide detailed cost metrics (% of sales) for more than 100 line items. Also, he advised, focus on profit leaders and not challengers.
Once you lower your cost relative to your competitors, the higher price flexibility you have. Also, he advocated lean manufacturing (TQM, 5S, I-Learning Centre) referencing the Ishikawa diagram, which depicts the steps in any process that line up to produce a product or service, and the flow of information that triggers the process into action. He felt lean thinking should be practised in: saddle stitching, digital printing, die-cutting, foil stamping.
Customer considerations in pricing
Michael Makin said many printers price their work the same no matter who the customer is, not taking into consideration that different customers have different price elasticities (a fancy economist's terms for price sensitivity) of demand.
Makin said, "The formula for price elasticity of demand is the 0% change in quantity demanded that results from a given price change. If the percentage change in quantity demanded is greater than the percentage change in price, the demand is elastic. If the reverse applies, it is inelastic."
Makin explained three key factors of price elasticity. These are: quantity and quality of available substitutes; customer perception of whether product or service is a necessity or luxury; and the relative budget impact on the customer from a price change.
Makin then proceeded to offer suggestions on how to make your service inelastic.
- More services you provide the better
- Control the data
- Work with the sales team to classify customers (elastic/inelastic)
- Start small and evaluate pushbacks
Michael Makin says minimise waste and spoilage. Identify eight categories of waste which one needs to review and address. This will help the company increase value within your business. The simple thumb rule is: increasing value will result in increased profits… and reducing waste translates into an increase in value!
Auditing waste and spoilage can cut waste, improve schedules, make better use of staff and facilities and improve quality and consistency.
Many firms are working in digital islands which result in inefficiency. File transfer, proofing and data delivery for CTP are unforgiving with unhealthy workflows. This leads to duplication of effort, extended lead times and spoilage. Therefore, proper service is required since it helps reinforce strengths and focus on specific actions. The upgrades or improvements cannot be ad hoc. It has to be part of an overall strategy.
Makin said, 75% of printers track spoilage. The average spoilage rate is 2.3% of sales.
Having said that, small printers have higher spoilage rates than larger firms.
Makin stated that profit leaders and those with spoilage rates less than 2% are more likely to: track the causes of spoilage based on cost centre; more likely to track every incident of spoilage, no matter how small.
The 2020 economic scenario
Prepared by the Printing Industries of America's in-house experts each year, the report consists of an overview from the Center for Print Economics and Management as well as Government Affairs and Advocacy along with a potential forecast of what to expect. Michael Makin said, "PIA's Center for Print Economics and Management expects the economy to continue growing at a modest pace, although the risk of recession has increased as we enter the 10th year of the economic recovery."
He added, "It forecasts that it will be yet another favourable year for print and printers, with total print revenues increasing around 1% to 2% and printers' profits holding at their historic levels. Print will continue to evolve as a media and printers will continue to transition with a diverse mix of processes, products, and ancillary services for their customers." In his presentation, Makin suggested that advanced estimates indicate that the GDP grew by 1.9% in the third quarter while "consumer sentiment continues to rise and is seen as one of the driving forces behind continued economic growth." He added, stock prices have had a healthy 2019 and the S&P 500 is already up more than 25% midway through December, which is typically its best performing month."
Makin provided a glimpse of the employment picture with the addition of 2,66,000 jobs in November. The monthly jobs total was boosted by 50,000 returning workers from General Motors who had been on strike in October. Maikin stated that the labour participation rate is up to 63.2%. Meanwhile, unemployment ticked back down to a historic 3.5% — the lowest rate since 1969 — and wage growth rose to an average hourly rate of 3.1%, according to data released by the Bureau of Labour Statistics.
Makin spoke about the 2020 economic scenario and the upward driving forces. He pointed to the size and scope of the US economy. According to the latest data on global GDP released by the World Bank in 2019, the US still is the world's biggest economy – by far. The United States (24.3%) generates almost a quarter of global GDP and is nearly ten percentage points ahead of China (14.8%), in second place, and more than 18 percentage points ahead of Japan (4.5%) on three. In this sense, he spoke about modern logistics preventing some of the destabilising factors that were once present in the inventory cycles. Also, he mentioned, the US economy produces more services than goods; thereby reducing the impact of the inventory cycle.