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MANAGING PAPER COSTS

Jan 1, 1997 12:00 AM


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Is there anyone in the printing industry who is not painfully aware of the paper pricing fluctuations during the past few years? Since paper represents approximately 30 percent of the total cost of producing a job, hikes in paper pricing have made dents in printers' profits.

Today, paper prices have eased, however. Nevertheless, managing paper costs remains vitally important and requires consistent, well-thought-out policies related to purchasing and forecasting requirements, as well as close working relationships with paper suppliers and customers.

A major key, according to Jack Epstein, production manager of Corporate Press Inc. (Landover, MD), is controlling inventory. "It's a little like going to Las Vegas; you have to anticipate the paper market, whether it's going to rise or fall," he says. "Over the past couple of years, inventory management has become more difficult because the market has not been stable. Frankly, paper is a commodity. It's important to figure out whether or not you need to buy plenty and inventory it on the floor.

"Unfortunately, most printers have too much paper on the floor because they are afraid of shortages and not being able to produce rush jobs," he continues. "Printers often have too much money tied up in inventory. Now that paper prices have dropped, the value of their stock is actually working against them."

How does Epstein suggest getting a better handle on paper inventory? Invest in a computerized costing system. These can provide accurate inventory usage reports, allowing printers to monitor over a year's time exactly how much of any paper item has been used.

"These systems also allow printers to set reorder levels; the computer automatically indicates when it is time to purchase," he notes. "This way, printers know exactly how many sheets or rolls of paper they need on a regular basis, allowing them to get commitments from their paper merchants for x number of trucks a month for specific stocks.

"Unfortunately, although many printers have computerized systems in place, they don't use them to their fullest potential. Rather than just using estimating and job ticket features, printers need to pick up their systems' manuals and learn what they can do to help with inventory management."

In conjunction with monitoring paper inventory, printers also must control that inventory properly. Notes one major paper distributor, "Paper is an asset . . . a raw material. The most profitable printers are serious about buying it right and, if they keep inventory, handling it right and controlling it. The successful companies run a tight ship.

"For example, people in the print shop always are requisitioning paper. Management, therefore, has to know exactly what jobs are going out and who is using the stock," explains the distributor. "You would never let people play around in your cash drawer, taking money in and out without any accountability. Paper should be treated in the same way because it is just as valuable an asset."

In addition to tracking inventory levels, it's also important to maintain runnability records regarding specific rolls or sheets of paper so money isn't wasted on defective paper in the future. Eric Berke, manufacturing manager of Quebecor (Dallas), suggests running rolls according to log position (the position which a particular roll was cut in the paper mill. The paper company knows where each roll came from).

"If you track the roll with a bar code or any kind of information system, you will find that the problems often occur from the same position on the paper machine. For example, you may notice during your run that almost all of your problems or web breaks occur from paper that comes from the fifth position or the middle position. This is valuable information that should be passed on to the mill where something can be done about it.

"Keep records and measure everything you can. Document the kind of web breaks you have, where they occur, between which printing units, etc. Mills create and maintain extensive databases on the paper relative to moisture content, tensions, caliper, etc. Thus, they can marry the data you provide back to their own statistical data and draw conclusions on how to manufacture that paper differently. That's one of the best ways to keep the cost of waste in line."

Although sharing this data back and forth is vital, it is equally important for printers and paper suppliers to share an understanding of each other's businesses and challenges.

"Many misunderstandings have taken place over the years regarding how prices are developed for paper," notes a spokesperson for one prominent manufacturer. "The paper industry is very unhealthy right now, and the returns over the past six years have been woefully inadequate to encourage further growth in paper manufacturing. We also understand that printers are going through many of the same problems. The challenge is to figure out together how we can develop the returns that are satisfactory to both entities.

"It's tough, because both parties are taxed right now, trying to get out of the hole," he continues. "It's important for each side to recognize the financial condition of the other, working together to wring out costs that are not healthy for printers or manufacturers."

Indeed, to foster this type of cooperative relationship requires a rethinking of a sometimes adversarial atmosphere between printers and paper companies. It also means being able to count on paper suppliers during strong or weak markets. That means building a continuous relationship rather than relying on spot business or the cheapest price at the moment.

"Printers should narrow their buying strategy instead of purchasing paper from 30 different suppliers," stresses Charles Quackenbush, paper manager for Henry Wurst, Inc. (Kansas City, MO). "Giving more opportunities with larger orders to fewer mills, makes suppliers more willing to do things for printers with regard to pricing. Your firm becomes more important in their eyes, and they want to keep your business."

However, one of the most irksome issues for printers is how they must purchase paper from suppliers in the first place. Unlike in Europe, paper companies in North America sell paper by the pound or kilogram rather than the foot or meter. Thus, it's up to printers to pressure their paper suppliers to rethink this issue.

"Buying paper by the pound is kind of bizarre when you think about it," points out Quebecor's Berke. "For example, people buy fruit by the pound because that's what they want--a pound of fruit. It would be ridiculous to buy fruit by the linear foot.

"However, we are forced to buy paper by the pound even though we are using it by the square inch," he continues. "It's simply a strange way of buying something. Thus, printers are either getting more or less value every time they buy paper--obviously, if the basis weight is too heavy, then the mill makes out and if it's light, the printer is ahead."

"Web printers need to ensure that paper is run to the lower side tolerance rather than the higher side tolerance of basis weight," offers George Trainor, senior vice president of Frank Parsons Paper Co. (Landover, MD). "Too often, the paper is on the heavy side of a tolerance, and the printer winds up paying the same for less lineal footage."

To answer this problem, Henry Wurst of Quackenbush insists on buying paper on a "not-to-exceed" basis weight. "When papermakers sell paper by the pound, you don't have any idea whether you are going to get the right number of signatures out of a roll of paper," he points out. "Thus, on your paper order you should designate that the basis weight must not exceed, for example, 38 lbs. That way, you'll ensure against getting overly heavy rolls."

In addition to these larger paper cost management techniques, a wealth of simpler steps can be taken. Some suggestions offered by various experts from both the printer and paper supplier sides include: * Purchase private branded or generic paper from job lot paper merchants. Not only does the paper cost less, these merchants often have their own converting equipment. Thus, they can cut paper to the exact size a printer needs, resulting in significant savings. * Read articles in newsletters and other paper and printing industry publications to stay on top of market prices. * Pay paper bills promptly. Mills are more willing to negotiate on price when they know they will be paid in a reasonable time. * Hold paper companies to their commitments. Printers should not have to absorb the costs of suppliers who constantly run behind schedule. * "Keep a blackboard by your press," advises William Koch of Champion Paper Co. (Los Angeles). "Every time a web press stops, it costs printers between $400 and $500. A blackboard kept by the press reduces the number of press stops, because you can record any ideas such as 'fix this,' 'tighten screws,' 'paint something,' or whatever." * "Establish long-term contracts with your customers," instructs Epstein. "For example, if you are producing a monthly magazine for someone, try to get a commitment from the customer with a purchase order good for the next two or three years. Then, you can buy the paper and control your costs. You'll never be short or have too much on the floor, and everyone is locked into a set price." * Try to convince your customers to have their printed pieces match a size that fits standardized paper, instead of the other way around. Just because a potential piece looks good in one size on a computer screen doesn't mean it's practical to get special size paper in time to meet that need. With so much just-in-time ordering today, customers must understand that most printers don't stockpile paper anymore and must use what's available.

Other experts suggest offering paper stock alternatives to customers. "We find that customers today are more open to changing papers than they were a few years ago," adds Epstein. "Mail costs have risen much more than paper has, so customers are looking for ways to save money. Thus, when a customer specifies a sheet in a quote, we sometimes will also bid an alternative house sheet.

"Catalogers especially are beginning to realize that they are not going to sell less if their piece is printed on a house stock that may not be quite as bright or opaque. The money we save them more than makes up for the quality difference, and we also make out well in the bargain."

Managing paper costs obviously involves more than simply shopping for the best price. Many factors must be taken into consideration, including how and what you buy and maintaining professional relationships with paper suppliers.

The past decade hasn't been easy for printers or paper suppliers. However, with a little cooperation and innovative paper-cost management, both parties stand to gain in the long run.