Hackett just released the first report in their new Category Insight Report series from their “Procurement Advisory Service” on “Commercial Print”. What did Hackett find? First of all, it found that the Commercial Print (CP) industry is shrinking in the US due to a shift toward digital-based solutions, which is in line with what we would expect as on-line advertising has been increasing. However, surprisingly, the global market is expected to grow at a 2.8% CAGR (Compound Annual Growth Rate) between 2011 and 2016, primarily as a result of expected growth in Asia-Pacific.

Thirdly, it found that the most significant costs are raw materials, which we would also expect. However, we might not expect that raw materials, and paper and ink in particular, account for nearly 60% of Commercial Printing Cost! In comparison, labour, averaging at 27%, is less than half of the cost. Thus, if you go digital, as the layout costs are probably similar, you can save 60% of the costs and spend that money on value-generating creative activities instead!

In addition, the report also highlighted that while paper accounts for approximately 50% of the costs in Asia-Pacific (AP) and Europe, ink accounts for about 44% of the costs in the United States. This is because printer ink, in the US, can cost over $5,000 a gallon, making it at least 25 times as expensive as a pint of blood (based on the average amount a hospital has to pay a provider to guarantee a tested, safe supply), and because the manufacturers design printers to reject cartridges when they are nearly, but not yet, empty. It’s ridiculous. Based on the average costs in Europe and Asia-Pacific, the cost of ink is 10 (ten) times what it should be — and it’s doing environmental damage to boot! (Because manufacturers make their money on the ink, they are making low-quality disposable printers that just end up in landfills when the drum nears the end of its useful life or it’s cheaper to buy a new printer on sale with a half-cartridge than buy a new cartridge.)

It also had a few surprising insights. For example, it found that the CP industry is experiencing a shift towards low-cost country sourcing. Traditionally, most companies printed at home, using either the printer preferred by their advertising firm or the local printer that gave them the best price, because quality control was vital (and transportation costs for paper can be high). But the internet makes project management and quality control possible from anywhere, and costs in countries (without the ink monopoly) can be significantly cheaper, especially if they are close by (like Poland, Slovenia, and Turkey are for European countries).

It also had some great insights into the dynamics of the industry, with a medium threat of potential entrants to existing suppliers (fighting for a low-growth or dwindling market), a medium to high threat of substitutes (as buyers go electronic), a high rivalry, and strong bargaining power on the buyer-side. For complete details, check out the Commercial Print report, which, like future reports in the series, in addition to the category overview and key market trends, addresses:

• the cost structure in detail,
• the competitive landscape and key industry players,
• category tools,
• the sourcing and procurement Capability Maturity Model (CMM) for the category,
• category best practices, and
• optimal channel design(s).

Hackett isn’t the first group to offer Category-Specific Market Intelligence, and players like the Denali Group and Mintec, have been offering it for a while, but it is one of the few research firms that have the expertise to deliver industry-leading category-specific market intelligence. If you’re already a Hackett client, and you need category-specific market intelligence, it’s probably the product you need. If you’re not a Hackett client, but need category-specific market intelligence, be sure to put Hackett on you’re shortlist!

In our last post on the US Post Office, we asked will Darrell Issa save the US Post Office. Given that the US Post Offices need to identify immediate savings of almost 20 Billion plus (as it keeps bleeding red with losses of 15.9 Billion in 2012 and 3.2 Billion in the first two quarters of 2013), something needs to be done fast.

In response to this need, as chronicled in our last post, we noted how Darrell Issa, a Representative of California and chairman of the US House Oversight and Government Reform, signed off on H.R. 2748, the Postal Reform Act of 2013, designed to bring the United States Postal Service (USPS) to financial solvency with cost-cutting reforms and innovative new sources of revenue. While the plan had a couple of good points, SI’s conclusion was that it was not going to be enough to generate the savings required.

Not that Royal Mail is in much better shape. As per an article in the Economist last summer, chronicled in this SI post that asked who’s in worse shape, Royal Mail racked up a £s;10 Billion deficit in unfunded pension liabilities. They may have saved over 300 Million in the first phase of their Procurement Transformation, and may expect to save over 600 Million in the second phase of their Procurement Transformation, but that’s a far cry from the 10 Billion they need to save.

However, as per this recent article over on CNN Money on how
U.K.’s Royal Mail Goes Public, the British Government is planning to sell a majority of its take in the Royal Mail through an IPO (initial public offering) that will be one of the U.K.’s largest in decades. The sale will certainly help, but given that the postal service IPO is likely to be valued around £s;3 Billion, that’s less than 1/3 of the shortfall and not a quick fix.

Still, it might indicate the only solution for the U.S. Postal Service that is now losing an estimated 25 Million daily. Specifically, the US should consider selling the US Post Office to a private equity group that can do what private equity groups do – turn struggling businesses with a lot of profit potential around into profit making machines. There are arguments both ways on this topic, some of which are summarized in this Research Roundup, but given that the USPS did 65 Billion in Revenue in 2012, the potential valuation could easily be in the 200 Billion range, and any group that could raise that kind of equity could definitely afford to make up the unfunded liabilities. It’s an interesting thought.