Buying Paper the Right Way
Investigate your effectiveness to slash costs.
Magazine Publishing, like other industries, is facing unprecedented challenges. Finding ways to hold onto revenue or cut costs is more important than ever. With paper being a key cost component of a publication, it’s worth investigating whether you’re buying paper as effectively as possible. For some, this may mean buying their own paper instead of letting the printer handle it.
The Magic Number: 44,000 Pounds
If your publication is consistently using more that 44,000 pounds of paper at a time, you should almost certainly be buying your own paper, rather than having your printer furnish it. The mysterious 44,000 pound number is what comprises a full truck of paper. If you use less than that per printing, shipping charges would be prohibitive and a printer is then your best source for paper.
Is letting your printer handler it easier? Yes, but buying your own paper will eliminate printer mark-up, let you utilize leftover inventory for future printings, avail you of prompt-pay discounts, create long-term paper pricing, promote a relationship with the paper manufacturer and secure paper allocations when markets tighten. Generally, there’s no cost for the paper merchant’s services as they are compensated by the mills.
Save More Through Multiple Merchants
If you’re in the majority of magazine publishers, you’re probably already buying your paper, so what can you do to further cut costs? Again, volume is a starting point. If the annual usage of the magazine(s) is more than 4 million pounds of paper, it might behoove you to involve two merchants and let each handle a portion of your paper needs. This could be a 50-50 split, or even an 80-20 split, where one merchant handles the text and the other handles the cover paper.
Utilizing two merchants allows a keen awareness of market pricing, inquiring about the text price from your cover provider and vice versa to insure that pricing is competitive. Occasionally you may want to reward a better price given to one company by shifting more business to the other. Keep in mind that your goal is not to create a constant price war, but to let each know that you’re aware of market pricing.
It’s extremely important to assign distinct paper manufacturers to each merchant. This is key because it allows them to partner with the mills involved, and even more importantly, to not have access to each other’s paper price. This creates the all-important model of blind-competition and will guarantee that your costs will stay consistently competitive. There is a common misconception, even among experienced paper buyers, that allowing several merchants to quote any mill they want will ensure the lowest price. This is incorrect because it essentially allows competition to see what the going price is. In the first scenario, you often will receive a price for paper that is even cheaper, simply because the other merchant doesn’t know where “the bottom” is.
Options for Smaller Buyers
What if your publication’s volume is less than four million pounds (2,000 tons) annually? Are there still ways to cut your paper cost when dealing with one merchant? The answer is yes. One option is to negotiate long-term pricing commitments with the merchant. Although it can be anathema to mills, negotiating price caps for the remainder of the year and into the following year assures you of avoiding steep increases. It works in a mill’s favor as well, knowing that they have secured your business for a longer term. Another common misconception with buyers is that a contract is required for a long-term agreement. Some brokers push this but it is not necessary. You do, however, want to be certain that there is something in writing from the merchant which clarifies the pricing agreement. A respected merchant won’t give this until they have a corresponding written commitment from the manufacturer.
Even having your paper merchant bring in the manufacturing rep once or twice a year can yield savings. Knowing the rep for the paper manufacturer will add strength to your merchant’s negotiations. This will yield long-term savings, possibly at the price of a lunch.
As difficult as the economy is, there are ways to achieve cost reductions with your magazine’s paper. Take the time to examine them.