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Where is Your Money Going

Knowing your marketplace is a key component of a purchasing strategy.

October 2009 by Chris Mc Loone

Certain things are not going to change about printing. Printers will always be laying ink down on a substrate. The speeds at which printers perform this operation will change. The equipment will change. Even the inks will change in terms of what characteristics they possess. And, of course, what will never change is that package printers must purchase these consumables from their suppliers continuously, unless they start making their own substrates and inks.

Managing consumables, as well as other major capital expenditures, requires a sound purchasing strategy based on several factors, including strategic sourcing, internal rationalization, and understanding the marketplace.

Strategic sourcing

Philip Carter, D.B.A., a professor in Arizona State University's Supply Chain Management Department, provides a definition of the strategic sourcing process. "It starts with what you need, what do you need to support the plant, and then it's a question of saying is this the right thing," he says. After a printer answers the preceding questions, the internal work begins. "Then you start looking at possible suppliers. You might look very wide if you're a big company or look locally." Printers might consider who they purchased from in the past, the ones with which they may have the most negotiating power. "Then you have to decide how to approach them," Carter continues. "Is it going to be putting out a request for quotes, looking at bids? Are you going to sit down and negotiate with two or three companies? Do you need to try to expand the value proposition in some other way—getting more services, getting better service, and so on?"

Purchasers then move to the contract phase and buy against the contract. "If the contract says I'm going to buy these parts from this supplier at this price, then somebody's got to release orders to that supplier in a timely way," says Carter. "Make sure when you get the order that the bills get paid, the pricing is according to what you negotiated, that you're meeting your requirements, and that the suppliers meet their requirements according to the contract."

The real work begins

The preceding involves printers determining what they need, when they need it, and who they are getting it from.

Much of the preceding involves knowing the marketplace, which includes knowing what suppliers are out there, how many there are, and which one has the balance of power. Knowing if there is a lot of unused capacity or if it is a tight market will help printers figure out what kind of prices they'll get. "Most printers are not huge compared to a lot of their suppliers," claims Carter. "So what they need to do is really have a keen eye on some of these markets to see what happens." For example, if a printer is buying paper, it is not going to push around the big paper manufacturers. "So they need to understand what the supply and demand situation is," Carter says. "If the market is soft, they need to understand that and know that there is an opportunity for them to get some concessions in the negotiating process."

 

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