One of the key findings from our new “Wide Format in the Communications Mix” study is that over 60% of wide format graphics need to be fulfilled within 2 days. This dynamic has vital implications for vendors up-and-down the wide format digital print supply chain. It means that equipment and supplies distributors with the best warehousing and logistics capabilities, and the best vision into product and technology portfolio, will have a huge advantage.
Many of the conversations I have with wide format digital print supplies manufacturers indicate that finding and maintaining great distribution partners is one of their biggest challenges. Manufacturers have told me they have had dealers “going rogue” by selling certain products at or below cost in hopes of making up margin on other products, or dealers pushing third-party, often Asian-manufactured “white-box” supplies brands instead of their established brand because they already had the white-box brand in stock and they make a few more points of profit on white-box supplies. I don’t think either of these dynamics are new, but I do think they are becoming more important to manufacturers who are already stressed by low margins and fast product development and delivery cycles.
Compounding this issue is that there are numerous equipment and supplies dealers, which makes it so that end users can easily compare dealers against one another for the best prices. Our research indicates that most print service providers buy from multiple sources in order to get the best deals which drives down margins and limits branding opportunities. Vendors are employing one, or a combination of these strategies to address these increasing challenges.
- Shift channel management to master distributors. This strategy is compelling because it provides instant national coverage, excellent logistics and better-than-you-might-think go-to-market costs.
- “Cherry-pick” key distributors and work closely with them to ensure consistent business through their value-added selling approach. This strategy provides strong control of the brand, but requires more resources to manage the channel.
- “Go direct” effectively cutting distribution companies out of the loop and relying on FedEx or UPS to fulfill supplies orders on a rapid basis – which they are very good at. This strategy offers the highest level of control but requires a direct sales force and/or very strong e-commerce capabilities.
The optimal strategy depends on a number of factors such as the nature of the product being sold (is it an “everyday” item or a specialty product?), where the product is in its life cycle, the key users/producers, the local markets and the manufacturers’ margin requirements.
One of the outcomes of the increasingly demanding supply chain is that distribution companies that have greater capacity to do business at a rapid pace across a variety of SKUs will have the advantage. That means same-day or next-day delivery, and 24 x 7 on-line ordering among other things. I believe this is why we are seeing the growth of companies like Xpedx in the wide format digital printing business. Xpedx has a massive truck fleet, very large warehousing capacity, and a very strong e-commerce capability. Xpedx also has a strong story to tell on its total integration capabilities, bringing all of a print service providers services together through one supplier, which is another strong selling feature. But there is only one xpedx – if you are a supplier and you are not in with them what other ways can you build a supply chain that meets the needs of both you and your customers?
InfoTrends is developing a research study on this topic that we’re calling “Disruptive Supply Chain Strategies” to have a look at the challenges in the graphics market and how companies from other industries such as food service, which have many of the same demands as the wide format digital business, have overcome strategic challenges via improved supply chain management. Going into this study I think we’re going to find that managing a supply chain in the graphics market takes both discipline and vision; discipline to be firm with those rogue dealers that can damage your brand, and vision to see the emergence of channel partners that will fuel growth and profitability.