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Printers in the UK are facing tough times, owing to the ‘perfect storm’ of rising raw material costs, overcapacity and the economic slowdown. With average margins firmly in the low single figures, the line between turning a profit and suffering a loss can be perilously thin.

With advertising one of the first budgets to be cut in the event of a downturn, print is one of the first sectors to feel the pinch. There have already been a number of high-profile closures this year and, unfortunately, the number of administrations and job losses is growing. Lean manufacturing and cost cutting is essential in times like these, but, as industry experts stress, this does not necessarily mean reducing staff or production levels.

Print has not gorged over the years of plenty and, unlike other sectors, there is little fat to cut from the bone; many companies have already completed cost-cutting exercises. The challenge is therefore even greater, but according to Vision in Print (ViP) managing director Richard Gray, there are always efficiencies to be found.
“Our most successful clients are the ones who know that they can always do better when it comes to cutting costs,” he says. “It sounds obvious, but the more you understand continuous improvement, the more you understand about how things can constantly get better.”

Effective cost cutting does not have to be about making redundancies or operating at lower capacity. Indeed, any scaling back during a downturn is likely to leave a company even more exposed, especially in the event of a momentary or sudden upturn, where the cost of hiring temporary staff will erode margins.

Action stations
Strong leadership is essential in any cost-saving programme. According to Gray, simply setting a goal of eliminating a certain amount of overhead isn’t enough; you need a sound plan of action as to how that saving is going to be achieved and the conviction and resources to back it up. In addition, any cost-saving strategy must be accepted company-wide. All staff members have a role to play and need to be aware of the programme. Every aspect of a business can be improved and small improvements in a number of different areas will lead to a large saving across the board.

Andrew Brown, corporate affairs director at the BPIF, says: “There are a number of strategies that printers can implement to save money without sacrificing quality or downsizing. Contracts with suppliers are a good place to start. Printers should be prepared to drive a hard bargain in renegotiating their contracts; paper and ink suppliers need a healthy industry after all.”

Buying commodities and supplies is probably the single biggest and most variable expenditure a printer will have on its balance sheet. Gray also believes that outside paper and substrate commodity purchasing, other supplies are often not tightly controlled. He says that purchasing for such supplies is commonly de-centralised and cites the example of one client who saved £300,000 on a turnover of £12m simply by regulating purchasing and renegotiating contracts.

Cutting costs is as much about getting the most out of what you buy as it is about the price you pay for it. Waste is print’s enemy within and in difficult times its impact can be devastating. Gray says that printers would be appalled if they knew the true cost of waste, which he estimates to be around 6-10% of turnover for most firms. He says a thorough waste-reduction programme can boost turnover by up to 1.5%.

Brown agrees that improving the efficiency of operations is paramount to cost savings. From modifying existing equipment to saving energy, there are various measures that printers can take to eek out expenditure, he says. One of the key areas of wastage is in energy and with oil prices rising by the day, this issue is more pertinent than ever.

“Smart metering and selecting the most cost-effective tariffs are the easiest steps that can be taken. Not only can printers cut expenditure, they can also boost their environmental credentials,” he says.
Aside from energy bills, the rising price of oil is also heavily impacting on the price of petrol leading to an increasing burden on the bottom line. However, by realigning delivery routes to leave early in the morning or later at night to avoid traffic, or via bulk deliveries as well as cutting down on unnecessary staff travel, the savings will be immediate.

Getting the most out of staff is as important as getting the most out of kit. ViP’s Gray says that flexibility and training are the key areas in which cost efficiencies can be harnessed. “In a quieter period, you will have more time to train staff,” he points out. “You will also need more from your supervisors so training them in good management is as important as practical training.”

Gray adds that absenteeism becomes a critical factor when a business is lean. He says that employing a strategy to tackle absenteeism, such as the Bradford Point System, can slash the number of sick days staff are taking and boost productivity as a result.

Adding value
Ultimately, any cost-cutting initiative is best coupled with rising revenues to boost margins. As obvious as this sounds, it is actually simpler than many printers would imagine. The BPIF’s Brown says that a printer should look at its client base and ask if it can offer any additional services beyond ink and paper to aid customer relationships and provide value-added services.

“Diversification of product offering and working with customers to add value is a great way to boost margins – look at what you can do with your resources and relationships with customers, whether it is design, fulfilment or data management, to name just a few areas,” he says.

Many printers are increasingly becoming service providers, interacting more with clients’ requirements rather than simply offering a static commodity. Margins on services are higher and churn is reduced as clients become more dependent and, ideally, push through more work.

Severe price pressure in any industry is a key indicator of the need for consolidation. A strategic alliance or merger can gain the economies of scale to accommodate increased pricing, investment in new equipment and win new business.

Brown believes that printers are waking up to this reality. “Businesses are appreciating that unless they talk to their rivals neither may survive, which was not the case five years ago. Companies now understand the benefits of a joint venture or merger which is one positive to take out of the current climate and may ultimately lead to a stronger industry,” he says.

Cost cutting for an industry that has already shed so much extra weight may seem like a big demand, but as Grey notes, there is always room for more savings. A thorough review of a business needs to be conducted to shave off the remaining excess spending as there are so many areas where costs can be cut. And in today’s uncertain economic climate, it’s worth doing that sooner rather than later – because it might just keep your business afloat.

TOP TIPS - COST SAVINGS

• There are always ways of increasing the efficiency of your business
• Making many small efficiencies will contribute to a big overall cost saving
• Formulate a clear plan of where the cost savings will be made
• Share the plan; make everyone know what they must do
• Renegotiate contracts across the board and drive a hard bargain
• Reduce production waste and miles travelled
• Train your staff; they will become more efficient
• Smart meters can significantly cut your energy use
• Consolidation can deliver economies of scale and aid price increases