Why promised savings on Marketing Print Management contracts are rarely delivered and what procurement can do about it.
A view from the States
I spent an interesting few days last week with a US based client who were trying to understand the UK and European marketing services outsource market. They wanted to understand how marketing services or print management companies were making money (more on that next week) and how marketing procurement were measuring savings. The question front and centre was, if a marketing services or print management company promise savings, how are they held to it?
My simple answer is 9 times out of 10 they are not.
The savings myth
The common promise in the early days of print management was that they would save 20% of current print costs…regardless of what those current costs were. In reality we often saved a lot more, but twenty years how can that possibly be the case?
Many of the larger print management contracts are on 5th or more generation contracts. So every time they renewed were greater savings delivered? In simple terms does that mean the original promised savings were underestimated or underdelivered? Was the print manager incompetent in doing their basic job of buying print effectively for the client? Or was the deal made by the procurement manager a bad one?
In my experience, with a few notable exceptions like Trevor Janes at Tesco or Jeff Richards formally at Npower (who are both genuine experts in print procurement), the procurement team who did the deal are not expert in print and often move on. A new procurement person starts again with a remit to drive further savings. In many cases procurement managers are predisposed to believe savings claims made because they are being measured and rewarded on the savings delivered.
This is not an individual’s fault but a flaw in the system, a case of beware what you wish for.
The truth is you can’t keep delivering large savings on a mature print management account if it has been set up and run properly. Like the British Cycling team under Sir Dave Brailsford, once you get to a certain level there is gain but it is marginal, and it is achieved through a process of continuous improvement.
The push for savings has led to some bad practices, three of which are:
1. Savings paid up front.
I have seen millions of pounds paid upfront against future savings on marketing print. This practice is effectively buying a contract and giving the organisation concerned a cash injection. It limits who can participate to large players and encourages a poor ongoing measurement of savings, because the savings are already banked. The charges to the client in effect are not reduced so they have no visibility of the actual savings. In reality the marketing services provider will make the money back and more through specification changes, better-than-declared buying and supplier rebates during the contract.
2. Year on Year savings.
Simply: how can you save year on year over any length of time? The supplier would end up paying the client for the privilege of producing the print. What happens in reality is identified savings are held back and then released gradually over time. That only works on new contracts with genuine savings. On mature contracts the savings are ‘invented’ because if they were available then the print manager hasn’t been doing their job properly and buying effectively for the client.
3. Fixed price lists with savings built in.
What could be controversial about a price list? Simply their accuracy. Unless the items produced are commodity items there is always a reason why the specification doesn’t match the price list. Price lists are also often banded so pricing anomalies occur when buying 1001 of something is cheaper than buying 999 because a price band has been broken. And always beware the extras.
There are two other commonly used practices that aim to incentivise the managed services company to buy well and be innovative (although you could argue that is their job).
1. Shared savings.
The challenge here is measurement. The problem comes when trying to measure the savings against ‘Market Rate’. The market rate moves depending on time of year and capacity. So what many print managers do is get 3 or more quotes, take an average price and measure the saving against that. Where this fails is the print manager chooses the suppliers and measures the savings. If they choose an inappropriate supplier it can skew the results. More insidiously if they choose suppliers who give back large rebates and use overinflated material costs then the true potential saving is never seen by the client.
2. Gain Share.
Often disliked by procurement because of the difficulty in measuring a true saving and the dilemma of why should I reward a supplier for doing their job? Gain share can work if the projects are agreed upfront with the client, the saving is measurable in terms of pounds and pence and the project is outside the day to day responsibilities of the print manager
So what are the solutions, how do I measure savings?
Whatever I may think about the fallacy of judging the success of a print manager by the savings promised, I am a realist. Companies want savings and procurement are tasked to deliver them, so here is an alternative approach:
1. Establish a true baseline.
Use a system like Crystal from Blue Buffalo (others are available) to analyse a year’s print specifications and requirements. Make sure the baseline accurately reflects products you intend to produce in the future as well as ones you have produced in the past.
2. Measure against the baseline.
Once a baseline is established then savings can be agreed and measured going forward against that baseline. Just don’t expect those savings to increase year on year across the board.
3. Don’t just measure the savings.
The success of the relationship, especially a mature account, shouldn’t just be measured on savings. Measure the performance, how the serviced is perceived, how they buy, continuous improvement measures that take cost out or improve efficiency, Return on Investment for initiatives they have helped Marketing create and deliver, simplification, process improvements and automation, I could go on. There not easy measures but they will encourage collaboration.
From a baseline some of the methods of incentivising the print manager like shared savings or gain share can be used with confidence. Price lists can also be established from the baseline to make measurement easier.
Overall my recommendation is if you use a Marketing Service Provider or print manager to outsource your marketing print, contract with them well and let them to do their job, which should be buying and managing print effectively on your behalf.
Pay them fairly for the service and make sure they are tasked with delivering identified savings and making marginal gains ongoing. Always baseline the costs and use a system and expert auditors to make sure they are kept on their toes.
Help is at hand….
Naturally, we're boasting about how theSPC can assist you. Talk to us today if you'd like support on everything from your baseline to dispelling your savings myth.