How should you purchase your paper?

Paper. The conveyer of every written word. The substrate of every printed picture. The conduit of our business. Yet how little attention we give to paper, especially compared to its importance. Sure, it's expensive. And sometimes it's in short supply. But we adjust our advertising and circulation rates to reflect our costs, and scramble and substitute when times are tight. Paper often caues problems, but somehow we manage from one season to the next.

Or do we? Have our magazines grown and changed without our support systems keeping pace? Is it time to look again at our mix of supply?

There are many choices to be made when e buy paper, but there are essentially only three types of suppliers from whom to make the purchase: printers, merchants and mills. Each has its pluses and its minuses, its benefits and its drawbacks. In future articles I will look at individual mills and individual merchants, highlighting specific strengths and warning you of certain weaknesses as you select paper vendors. For now, however, I will focus on the three groupings--printers, merchants and mills.

Buying from the printer

It is impractical for the publisher who uses small amounts of paper (below 60 tons per issue) to buy paper separately. Instead, he should spend his time carefully selecting a printer--and then let the printer supply the paper. If he can, the publisher should consider entering into a long-term relationship for maximum benefit.

If this is your situation, you should place separate emphasis on the paper portion of the proposal when you choose a printer. Require that paper be isolated by component, with body, insert, cover and even card stock each identified.

Remember, the larger your print order, the less paper required to produce each copy, since press make-ready ies required. Ask your printer to give you paper quantities at various print orders for comparison purposes. After all, it's possible that your title will grow--and these numbers will help you asses the printer's relative efficiency for the long haul.

When the individual grades of paper are selected, each should have its own price. Find out how long each price is guaranteed, how often and when the printer can change it, and if there are ways to lock in the lowest price. In many instances, quarterly price protection is not an unreasonable expectation. Or perhaps giving your printer information that will allow him to order paper sooner will enable him to enjoy a price benefit that can be passed on to you.

If there are any other paper-related charges, ask that the printer spell them out clearly. And then negotiate payment terms, perhaps having the paper billed at the same time as the rest of each issue.

In my experience, very few printers will refuse to break out the costs of paper from the rest of the production package. When paper is identified separately, you will be able to ask the questions and make the decisions that save money. In other words, even the buyer who purchases paper only from printers can have a substantial impact on this portion of his costs.

The larger publisher (who has other options also available) may decide to select printer-supplied paper for at least a portion of his requirements. The point is, in weighing the alternatives, don't take an "all or nothing" attitude. For some publishers it may make sense to buy the text stock but to require the printer to supply the cover and the card stock. Look at the components of your magazine separately for maximum savings.

Almost without exception, you will pay more for paper if it is printer supplied, rather than furnished by you. If the printer is large, however, it is pssible that his paper contracts are very favorable. Therefore, the marked-up price of his paper could still fall within the range you would pay separately to a mill or a merchant--but this is the exception and not the rule.

Furthermore, every printer has to recover his costs of supplying paper, and that includes both direct and indirect costs. His final paper price to you will also normally include a profit for this important function. Nonetheless, significant benefits exist for the publisher who buys everything from the printer:

* Unless there is a dramatic last minute change in your page or print order count, your printer has the responsibility for assuring that paper is on hand--the right amount at the right time in the right grades and sizes.

* If there are quality problems, the printer must resolve them. Paper that fails to perform up to expectations is his problem, not yours.

* You are never left with unbalanced sitting at the printer's plant. You do not own paper tied up in transit-damage claims. There are no storage or insurance charges, no odd lots to sell.

* Your cash flow is improved. You may pay more, but you will almost always pay later--not 20 or 30 days from the date paper was shipped from the mill or merchant, but a date tied to the paper usage itself.

What then are the drawbacks of printer-supplied paper? Essentially there are two.

The first one is price. Let's say that an analysis shows that it costs you 8 percent more to buy paper from your printer than to supply it to him. You have to put together your numbers carefully, factoring in cash flow and even allowing a small amount for unanticipated problems. Your next issue will use about 100 tons of paper. At $900 per ton from the printer, you will spend about $90,000. But by purchasing the paper and then supplying it to the printer, you spend less than $83,000. That is more than $7,000 saved--for just one issue!

Multiply ths by the number of issues and you will quickly see the yearly benefit. If you bought the paper yourself, you could bank the difference or you could take the money right to the bottom line.

The second drawback is loss of flexiblity. If you furnish the paper, you have identity with that mill or merchant from whom you bought the paper. If allocation systems are implemented in times of tight supply, your past performance is crucial: If you have customer identity, you presumably have paper. And with paper goes flexibility. This means that if your printer has a shortfall in paper supply and has to choose between customers, you are not affected. And you can even change printers, knowning that you may take your allocation with you.

Many times have I seen printers, in tight markets, unable to bid on a magazine because they could not get the paper. Conversely, I have seen most attractive printing prices quoted because the customer could furnish the paper separately.

Buying from a merchant

If you have reached a certain level of paper usage, perhaps passing 60 tons per issue, it is time to look beyond printer-supplied paper. Unless you are wedded to a specific grade that dictates direct purchase, you next logical step is the paper merchant.

In terms of volume, merchants sell almost half of all printing and writing paper in the United States. There are small merchants and there are huge merchants. There are merchants that specialize in certain markets, such as magazine paper, and there are merchants that pursue many areas. Some merchants stock paper; others do not.

There are independent merchants, and there are merchant chains. Different merchants sell the offerings from various mills--with varying strengths in both depth and breadth of selection. Nonetheless, all merchants have several characteristics in common:

* Merchants take title to the paper. That is, they buy it from the mill and then they sell it to you. Perhaps your order is "mill-direct," meaning that the paper is made to your requirements and shipped directly to your printer. Or perhaps you buy a special item from the merchant's warehouse. Or, in a few instances, perhaps you take advantage of a merchant's "consignment program," where by special arrangement he keeps a few items on the printer's floor. Whatever the case, the merchant is the mill's customer and is your supplies.

* Because the merchant is your supplier, he is also a middleman to work on your behalf if there are paper problems of any kind--for example, quality, quantity, timeliness. A good merchant will even help you with transit-damage claims, although technically that is your responsibility. Your business is his lifeblood, and he will work to earn it and to keep it.

* The merchant should know more about paper than you do--unless your company is a buyer of vast quantities of paper or your merchant is inept. His business is paper, just as yo ur business is publishing and your printer's business is printing. It is his job to offer advice and alternatives. Do you want to consider reducing basis weight to cut distribution costs? Do you want to explore the use of matte paper for a special insert? Does a unique gatefold require a strange roll size or different paper grade? Having the right merchant just a phone call away can be invaluable.

* A merchant can usually protect you in the case of an unexpected or uncontrollable event. "Force majeure," that exotic phrase in many a contract--which, when translated, means trouble--has less chance of hurting you if you buy through a merchant. When a paper mill goes on strike, for example, your merchant should have two or three suitable alternatives ready to fill your needs. Remember, however, that even the best merchant may have severely limited alternatives in a tight market.

* A merchant allows you to share his clout with a mill; indeed, you contribute to it. The more customers a merchant has, the greater his importance to an individual mill, and the more he can therefore accomplish for each customer.

If you order a certain roll size that does not trim the paper machine, for example, your merchant can often solve that problem by finding another customer to run with you. If you have a small shipment to round out an order, your merchant can sometimes save you freight costs and time by combining your paper with another order to the same destination. If your print order increases at the last minute, your merchant can often provide the little extra tonnage needed by borrowing from one of his less critical orders. And if you need proofing stock or dummies, he should be able to arrange for it quickly.

Weighing the negatives

However, just as there are drawbacks to buying your paper from your printer, there are drawbacks to buying from merchants:

* The price you pay is normally greater than what you would pay if you bought directly from the mill. Some mills, though, pay a selling commission to merchants which, if you bought directly from the mill, you might not save. So there are occasions, few in number, when the merchant and the mill price to you are the same. For your "mill-direct" purchases from a merchant, a price differential of from 2 percent to 7 percent is not unusual depending on the grade and the quantity involved. For purchases from a merchant's warehouse stock, the increment is, of course, much higher--but few publishers require warehouse stocks.

* When you buy from a merchant, your identity with the mill is still fairly fuzzy--again, because the merchant is the mill's customer. When times are tight, the merchant's ultimate control of the tonnage could work to the benefit of his most important customers, those with the longest history or the greater profitability or the rosiest future.

* As your business grows, you may want to switch to buying directly from a certain mill. The merchant who has developed the businss and controlled it will never be happy with such a decision, and he may attempt to block it. If that merchant is important to the mill, the tonnage may be denied to you on a direct basis.

Purchasing from the mill

Just as you will buy from both printers and merchants when you reach a certain size, there may come a time when your paper use takes on major proportions. Then that final options--purchasing from mills on a direct basis--becomes feasible.

When you buy paper directly from paper mills, you obtain two major advantages. The first is price. In the majority of cases, buying from the mill means you will pay less than if you buy the same paper from a merchant; and you will certainly pay the mill less for that paper than you would pay your printer.

The second is control. Just as buying from a merchant gives you more control than buying from a printer, buying from a mill gives you more control than buying from a merchant. Your line of communication is direct to the manufacturer. There can be no confusion about who said what to whom. Your tonnage cannot be diverted by a middleman to another customer. And your contract or agreement is direct between two business partners. In terms of what you do with your tonnage, you have ultimate control--it is your allocation, giving you maximum flexibility in moving between printers or titles.

But there's the rub: Don't expect to be successful with a mill unless you are important to it--and that means a significant amount of tonnage on an on-going basis. Furthermore, if you place a significant amount of tonnage with one mill, be sure you have enough tonnage remaining to maintain important relationships elsewhere--or else that bugaboo, "force majeure," could knock you off the block.

Balancing rewards and risks

There are other drawbacks too. Your administrative costs will rise because you will have to staff up to handle those chores that otherwise would have been borne by the merchant or printer. Be prepared to manage an inventory, just as you would have to do if you bought from a merchant. And be prepared to adjudicate disputes about quality, to trim paper machines, and to file freight claims--naming just a few.

Most mills are very unforgiving about late payments, as more most merchants, so your cash flow must support on-time payments--which are earlier than would be the case with printer-supplied paper.

Also, recognize the fact that your producton management and even your top management must learn about paper. This commitment includes visits to mills--and you've seen one, you've seen 'em all."

For the magazine publisher, both the rewards and the risks are big in purchasing paper directly from mills. Depending on the merchants and printers you use and the mix that is involved, savings in paper can be anywhere from 3 percent 3 10 percent. And when you look at the cost of paper in relation to your total manufacturing costs, that's mighty big bucks indeed!

Growth and change are inevitable

Companies grow and companies change--not just publishing companies, but also paper companies, merchants and printers. No relationship is good forever. The dynamics change. The complexity changes. The partners change. No supplier should treat you as though it has an annuity; service is one aspect, but growth and change is another.

If you are the publisher of a small magazine, work hard to maximize your paper dollar, even if your sole supplier is a printer.

If you are growing, use the expertise necessary to make sure your policies keep up with your requirements. Spend some time and talent examining your paper purchasing patterns. Are they habits that now cost you money, or do they stand the economic test of time?

And if you are a huge and established magazine publisher, with perhaps even other printed products in your company, a thorough, objective analysis of your buying patterns can bring the biggest benefits of all. Even 1 percent in paper savings can equal tremendous dollars for your shareholders.

You should use all the tools in your arsenal, combining a mix of mill, merchant, and printer-supplied paper to meet your requirements in the most efficient and economical way, for both soft and tight markets.

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