A Distribution Center for Print Service Providers

The concept of print service providers offering services beyond print is not a new one. An increasing number of these companies have remodeled their business strategies and have adopted value added services to enhance growth and profitability. The need to differentiate one print service provider from another is not only based on products or technology, but also on the unique value of the provider as perceived by the customer (Gorelick, 2004). Further, many value added services (VAS) are a natural extension to the company’s distribution function, making it easy to integrate them in a single organizational structure. Examples of these services include fulfillment, warehouse management, and facilities management (Cummings & LeMaire, 2008).

The primary goal of this month's research study, Evaluating the Viability and Usefulness of a Distribution Center for Print Service Providers (PICRM-2010-01), by Twyla J. Cummings, Ph.D., was to understand the perceived value of distribution services within a print service organization. Thus, the study focused on the following objectives:

1. Introduction of the distribution center concept as a way to promote a company’s VAS.
    
2. To determine if print service providers are offering any, all, or different services than those outlined in the proposed distribution center model.
    
3. To find out how these services are structured within a specific organization.
    
4. To assess the viability of the model in today’s printing industry.

Overview
The current decline in print sales highlights the urgency for printers to make drastic changes in their business model and to realize that they can no longer rely solely on printing to achieve revenue goals. Additionally, they must re-evaluate the profitability of their core businesses. To quote Niels Winther, Chairman of the Board for Think Patented, “printing is not going away, but printing-only companies are” (personal communication, June 22, 2009).

An increasing number of companies have remodeled their strategies and adopted value added services to address the growth and profitability crisis in the industry. The focus on this type of service diversification increased significantly while the U.S. endured its worst recession in over two decades (Cummings & LeMaire, 2008). As the industry consolidates further and continues to shrink, only those companies that are able to distinguish themselves and satisfy unique customer needs will be able to succeed.

Research Findings
The following sections present data from the research interviews as it relates to the study objectives. (The complete data set from the interviews can be found in Appendix C in the full monograph.) Five companies were interviewed for this research study: Complemar Packaging & Fulfillment (Rochester, NY), Hammer Packaging (Rochester, NY), Merlin International (Rochester, NY), “The Newspaper Company” (location undisclosed) and Think Patented (Dayton, OH).

Value Added Service Offerings
Table 1 shows the percentage of sales and profits for the VAS offered by each company.

Table 1. Sales and profitability of VAS
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The participants were given a list of services to review and asked to indicate if these were value added services that their company offered. Companies were asked to include any additional services that were not listed. (For the purposes of this research, “packaging” refers to the preparation of the product for shipping unless otherwise specified.)

Table 2 presents a listing of all VAS identified by the research participants. Storage and shipping are the only services offered by all of the participating companies. Eleven of the remaining services are offered by at least 4 of the companies.

Table 2. VAS service offerings
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The participants were asked if their company charged for the VAS offered (Table 3). In some cases, the VAS are considered complimentary or a routine part of doing business. In most cases, however, the company does charge for their VAS offerings.

Table 3. Charges Assessed for VAS
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Table 4 summarizes the total VAS that each company offers, the number of VAS that the company charges for, and which services are handled in-house or outsourced. In all cases the majority of the services are offered at a charge and performed in-house. In-house means that the company provides the service and it is performed at one of their facilities. Outsourced means that the company arranges the service, but does not perform the associated tasks. In-house/outsourced means that sometimes the service is done by the company and other times it is outsourced.
 
Table 4. Location of VAS Offerings
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Organizational Structures
The following organizational structures (Figures 1-5) illustrate the area in the participant’s organization where the value added services offered by their company are located and the reporting structure. These structures were developed based on the information provided during the interviews. None of the participating companies had any pre-existing structures for their value added services. It is important to note that these structures may not necessarily reflect the companies’ overall organizational chart.

Figure 1. Complemar Packaging & Fulfillment VAS Organizational Structure
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Figure 2. Hammer Packaging VAS Organizational Structure
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Figure 3. Merlin International VAS Organizational Structure
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Figure 4. The Newspaper Company VAS Organizational Structure
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Figure 5. Think Patented VAS Organizational Structure
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Benefits of a Distribution Center Structure
Figure 6 represents a proposed distribution center model. The participants were shown a similar model prior to being asked the questions in this section. The focus of the questions was to get their perception on the viability and value of a model like this one.

Figure 6. Proposed Structure for a Distribution Center Organizational Model
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The next questions for the participants related to whether they perceived any value in structuring distribution related VAS under a single organization (Table 5) and what type of company was best suited for this model (Table 6).

Table 5. Value of a Distribution Center Model
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Table 6. Best Company for Distribution Center Model
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Participants were asked if they would consider this type of distribution center structure for their company. Four of the five participants indicated “no” and the fifth company (CP&F) noted that they already use a similar structure.

The last question in this section focused on the challenges associated with structuring these types of value added services into one organization. Participants were asked to note the challenges that they envisioned. A selection of their responses is listed in Table 7.

Table 7. Challenges with Establishing a Distribution Center Model
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Discussion of Findings
Of the five companies interviewed, only Complemar Packaging & Fulfillment saw the potential benefit of a distribution center model in their company, mainly because they have an organizational structure that is similar to the one proposed. With the exception of Think Patented, all of the participants felt that this model would be best utilized by a large company that had the infrastructure to support the number of services that could be offered under the umbrella of a distribution center. Their rationale was that being able to advertise and offer this model might give a smaller “printer-only” company a competitive advantage and/or help to revive a failing business.

A couple of the participants suggested a different name would be more appropriate. For example “job integration center” or “value added services center” were noted. However, Stan Olevnik, Vice President of Complemar, commented, “…[T]he name ‘distribution center’ works because it [distribution] is not just connected to print, but adds value at all levels” (personal communication, June 16, 2009).

The overriding theme that came out of the interviews regarding the distribution center model is that it would be difficult to have a standardized organization for all VAS. However, having a model for VAS that was closely tied to the distribution function may be appropriate. Ultimately, from these discussions there does not appear to be a high level of interest and there was minimal perceived value associated with advertising this type of model to current and prospective customers.

Structure of Value Added Services
Due to the structure of the each company’s VAS organization, it was difficult to identify any common themes or make any generalizations among these five companies. However, all of the companies interviewed offer multiple (9-21) value added services. The input for the development of these structures was provided by senior management personnel, which suggests a high level of visibility for these services within each company.

Although not an objective of the research, it appears that all of the VAS indicated by the participants fall into three distinct categories as identified from the data by the researcher. These categories are listed below.

1. Traditional Value Added Services: Long standing services such as shipping, packaging and storage; these services may be difficult to charge for because they are viewed as part of the production process.
    
2. First-Generation Value Added Services: Services that were initially recognized as “other” services beyond print that printing companies began offering in order to capitalize on a customer’s business needs and to establish a competitive advantage. These include services such as mailing, digital printing, fulfillment, kitting and inventory management.
    
3. Second-Generation Value Added Services: These are more technology driven services that give companies an even stronger competitive advantage and includes services such as IT management, website development, graphic design, call center support, and promotional and integrated services.

All of the participating companies market these services in some way.

Implications
Although traditional print distribution is a critical part of the print production process, it is not generally recognized for its value and marketability. As the printing industry continues to change structurally, it is imperative for print service providers to realize that distribution is a major facet in the print production cycle. Distribution needs to be viewed in a different light due to the:

• Continued use of alternative (non-print) means of communicating some types of information, previously communicated by traditional print methods.
   
• Continued cost increases associated with the physical transport of printed media.
   
• Need for more service diversification and profitability in order to compete in the marketplace.

All of these issues can lead to a reduction in the amount of print generated and distributed, in turn resulting in a negative impact to the printer’s bottom line. Therefore, as printers consider their strategic direction, value added services such as distribution and related services need to be evaluated and assessed for the financial benefits it can offer (Cummings & LeMaire, 2008).

Conclusion
More and more printers are diversifying by incorporating value added services into their business model. Unfortunately, as has happened with printing services, it is anticipated that traditional and first-generation value added offerings will soon be a commodity, making it once again difficult for companies to differentiate themselves. In the future these service offerings will be the norm for most printers – not unique, but rather a normal part of a printing company’s business operation (Cummings & LeMaire, 2008). Thus, it is imperative for these companies to incorporate more second-generation value added services and to look for third generation opportunities to stay ahead of the competition in order to continue to offer value to their customers.

Finally, while the participants in this study did not find the distribution center model to be of significant value, they agree that distribution as a service is extremely valuable. Thus, distribution should be understood and highlighted for its importance to the print production process.

References
Cummings, T., with LeMaire, B. (2008). Print media distribution: A look at infrastructure, systems, and trends. Rochester, NY: RIT Cary Graphic Arts Press.

Gorelick, D. (2004). Building business profitability: 101 ways to increase profitability. American Printer, September 2004. Retrieved August 18, 2005 from americanprinter.com/mag/printing_welcome_ways/index.html

Paparozzi, A., Vincenzino, J., & Wang, K. (2008). NAPL State of the Industry Report (7th ed.). Paramus, NJ: National Association of Printing Leadership.

2009-2010 Research Monographs

To read about this research in detail, download the monograph from: http://print.rit.edu/pubs/picrm201001.pdf

Research publications of the Center are available at:
http://print.rit.edu/research/index