One Blog |August 21, 2017 | Point-of-Sale Marketing Management
POS Marketing Management — Outsourcing Your Print Shop, Or Not
Mark Fullerton and Denis Clark
The case for keeping your POS printing in-house vs. outsourcing.
Recently our printer service provider informed us that our older, but high quality, printer was entering a ‘limited service availability period.
Translation, if we ever need service that requires new parts, good luck.
After some research, we found a new printer that is faster, quieter, more efficient in its use of consumables, produces photo-grade printing and scanning, and is 40% lower in cost than our current printer. Good Deal!
As this relates to POS Marketing, please consider the following:
One: In-House vs. Outsourced Printing
Our printer “revelation” put me on the path of investigating a commonly held belief of beverage alcohol distributors about having their own in-house print shop vs. outsourcing their printing operations.
Of course, we are happy to support customers regardless of whether they have set up a full-service print shop within their facilities, or have chosen to outsource a considerable amount of their printing.
When we signed our first customer in 2005, there was a distinct trend. About 98% of beer distributors had their own print shops and about 33% of wine and spirits distributors had their own print shops. The remaining 2% and 67% respectively, chose to outsource their printed point-of-sale items, including menus, signs, shelf strips, table tents, to a third party.
Conventional wisdom seems to suggest in-house print shops are more expensive than outsourcing.
Over the past few years, we have researched this claim. We approached several of our beer, wine and spirits distributor customers, some of whom are very large companies. We also talk to printing companies — including local, regional and national printing houses.
We talked with many beer distributors, some ranging in size from $500 million to over $1billion in annual sales. They were intrigued about outsourcing and wanted to take a further look. For them, POS marketing, which is largely made up of printed signs, is their number two expense, after payroll — A very large income statement expense item. Not many of our beer customers outsource there POS printing but if there were significant savings in this area, they were motivated to evaluate this option.
Wine and Spirits Distributors
We also talked with wine and spirits distributors, some of whom were over a $1 billion in annual sales. As you saw from the above statistics many of the largest wine distributors have selected outsourcing. Our approach here was different. For those who had outsourced, we looked to see if were there economies they could tap into by setting up in-house printing departments. Or, if they had not yet outsourced (the 33%), would there be significant savings should they turn to outsourcing.
Full Service Printing Companies
And finally, we did approach a number of full-service printing companies who were eager to prove that they, as dedicated experts, would be able to demonstrate an economy-of-scale by outsourcing a distributor’s print operations. They felt it would be difficult, if not impossible, to for a single distributor, of any size, to replicate and manage their total printing environment. We actually did test this theory. The results were surprising.
Some Interesting Findings
There were a few consistent themes across the companies we talked to:
- Managing a print shop operation can be a big challenge to a beverage alcohol distributor. Distributors have a primary goal of selling beer, wine or spirits. Giving the job of managing this business function to a print expert made sense.
- Most of the companies who did outsource were not aware that there was software technology available to help them do a significantly better job of tracking, measuring and managing their print shop operations — from ordering, to producing and placing printed POS.
- Ten of the Top 20 US beer distributors, as well as many other size distributors (who are our customers), have adopted this type of software technology over the last ten years. This may be the primary reason for them not choosing outsourcing.
- Three of the Top 10 US wine distributors, and many others (who are our customers), feel that managing their POS Marketing operation themselves is a mission critical function. They want to maintain control and consistency of their message, so they wouldn’t think of outsourcing to a third party.
At the conclusion of this blog, we will discuss an opportunity we uncovered that might be the holy-grail of cost savings, at least for some beverage alcohol distributors in certain geographies.
Two: The Total Cost Of Producing A Sign
Let’s explore the cost of making or printing a sign in your own print shop vs. having the same sign printed at a dedicated printing company.
Although the details, such as paper type and thickness, lamination, grommets and other sign attributes, play a part in calculating a sign’s cost per square foot, we’ve determined that the cost of the consumables used in making a sign in-house range between $1.50 and $2.00 per square foot before labor costs are added in.
A typical sign will cost between $30.00 and $60.00 primarily based on the size of the sign and the attributes mentioned above. It is possible to determine the average costs associated with an in-house sign shop at a beer distributor by using the formula — Cases Sold x $.10.
So, if you’re a five-million case beer distributor, your sign shop is likely to cost at least $500,000 per year to provide the level of support for the brands you represent.
It is possible that your suppliers will help offset some of these costs, but even so, the offset will generally be a maximum of 50% of your documented POS signage costs.
But the truth is that beer distributors often leave money on the table since more and more suppliers are requiring documentation for bill-back or marketing co-op recovery. This has been difficult for distributor since such reporting systems are not in wide-spread use.
For wine and spirits distributors, there are often generous marketing cost recovery programs offered by suppliers, but they too require documentation that many distributors find onerous — especially if they must compile the supplier required recovery reports by manual methods.
Apparently, for the 67% that outsource their printing, they believe their print vendors are able to recover the maximum amount of the available recovery allowances available, and that they simply can’t afford to do this using their own resources.
Let’s stipulate that what follows may not be applicable to every beverage alcohol distributor.
What we’ve learned is that the conventional wisdom for outsourcing may not be standing the test of time.
Like our own printer cost revelation, we do believe that there are challenges to the notion that outsourcing printing universally makes financial sense. Based on very recent print hardware technology improvements, as well as our software technology, we believe there may now be a business case for bringing printing back in-house, or keeping it there.
Three: Large Quantity Requirement vs. Unique Messaging
No matter who pays for it, printing is expensive. Print costs do tend to drop as the quantities of identical signs increase. If you’re printing fifty copies, your costs, per-sign could be significantly more than if your quantity was over 1,000.
For beverage alcohol distributors, a good number of the signs produced are “one-offs”. That means that one (or a few) unique signs are produced for a given retail customer. Producing 1,000 signs is impractical when personalization or very-small-scale customization is the norm.
Consider when outsourcing to a dedicated printing company:
If hundreds of identical signs need to be produced for a given market, even that quantity is unlikely to be sufficient to drive the per-sign cost down. Unless mass quantities of signs can be produced, the efficiencies of a dedicated printing company are quite difficult to achieve.
One of the reasons distributors give for keeping their printing in-house is that they believe they would lose control over the sign’s content or message. And, losing control of the sign’s message means losing control over the sign’s effectiveness in producing increased sales.
Beer distributors tailor their signs to their retail customers based on attributes like ethnicity, holiday or even a zip code at times. Two-thousand identical generic message signs simply don’t produce the same effect and don’t have the same impact on sales as more customized, personalized sign messages.
Four: Turn-Around Time and Recovery Reporting
What we’ve learned, too, is that in addition to providing an overall lower cost of sign production, in-house sign shops are usually more responsive to the distributor’s reps in terms of turn-around. In other words, the signs get to the trade sooner and require less lead time when the print shop is in-house.
Next, when it is time to produce the POS supplier recovery reports, distributors who use a POS tracking and management system can reduce their recovery report production costs and time by 90%.
More beverage alcohol suppliers now require these reports for reimbursement. If you want to be completely and promptly reimbursed for the charge-backs you’ve earned, an in-house system wins all the time.
Here is something we’ve heard more than once, from a large, multi-state wine and spirits distributors with thousands of sales reps:
“Recovery reporting took us over 40 hours to produce; it now takes about 4 hours,”
Five: Conclusions — Today’s Conventional Wisdom
Lower costs, improved messaging capabilities, quicker time to market and push-of-a-button recovery reporting has become the new “conventional wisdom” in terms of operating an in-house print shop for many distributors’ printed POS.
We can analyze your individual situation and see if keeping or bringing back your printed POS production in-house makes sense for your distributorship.
Six: A Distributor’s Common-Sense Suggestion
Lastly, we talked to a distributor who told us their macro-supplier, in this case A-B/Inbev, has always encouraged knowledge and resource sharing whenever it made good financial or business sense.
The distributor noted that in Ohio there are two-dozen A-B distributors, each one with their own dedicated print shop, most of them running but one-shift per day, sitting idle two-shifts per day. The distributor commented that with the OnTrak system, SignTrak:
“It seems like it would be possible to perhaps reduce the number of sign shops by 50% or even 75%. This would leave between 6 and 12 shops running two or three shifts per day; fulfilling all of the POS signage primarily requests made by all twenty-four distributors.”
“We A-B beer distributors all waste a lot of resources; but if we shared the sign shop infrastructures, we could probably improve our output and quality, and would certainly lower each individual distributor’s POS costs significantly.”
Not a bad idea?