• What products can be sold through the existing base of distributors?

• Can the indirect channel provide access to enough volume in planned new products or services?

• Will diversification force the trade manufacturer to compete with product or service specialists who may have cost, service level or established market position advantages.

Most distributors sell cut sheet products that can be printed on forms presses, pressure-sensitive labels and envelopes. Trade manufacturers have been able to diversify into those products without the need to seek alternate channels of distribution. Beyond these and similar forms-related products, distributors can be a major diversification constraint. Trade manufacturers who have added short run commercial printing capabilities have found that many distributors already operate their own plants with small sheetfed presses. Direct mail is a growth segment of the printing industry, but most distributors sell only an occasional order. Distributors also have diversified into some growth products not manufactured by their traditional trade suppliers, and have now developed new sources outside the forms industry that can meet their requirements.

With gradual shift of value from printed products to print-related services and time of service in the entire printing industry, the limitations of relying on distributors are becoming even more serious. Distributors tend to either provide many print-related services themselves or avoid complex service-intensive projects and maintain their traditional product orientation. The distributors who prefer to maintain a focus on products are diversifying into advertising specialties, presentation folders, envelopes, business cards, utilitarian commercial printing and other items with short sell cycles and good prospects for repeat orders. As a result, trade manufacturers have found it difficult to sell services such as print management, on-demand digital printing, mailing, fulfillment and personalization through distributors.

One option for trade manufactures has been to seek very close alliances with distributors and develop joint sales and implementation programs for printed product and service "packages." Such alliances can be very effective in capturing volume from in-plant printshops, selling very comprehensive print management programs and moving distributors and manufacturers jointly towards the growth market of digital printing. An alliance can allow both distributor and manufacturer to sell printing as a service, not as a product. In an effective alliance, the distributor has to allow the manufacturer full access to the customer for technical issues and program implementation. The distributor has to concentrate on customer relationships and program sales and surrender control of the order flow to the manufacturer. In the past, few distributors have been able accept the idea of diminished control over customers and orders, therefore successful alliances are still rare.

Regardless of the constraints, the need for trade manufacturers to diversify is becoming more urgent. The industry can expect to see more manufacturers combine product and service diversification with a parallel addition of new distribution methods. Diversification in the forms industry may also involve distributor acquisitions of manufacturers and manufacturer mergers with distributors. Some of the direct-selling manufacturers, in order to diversify into new products and services, are moving partly to a distributorship model in their sales organizations. One of the major challenges for trade manufacturers who want to expand their range of products and services is the need to develop a thorough understanding of specific distributor and end user requirements, expectations and buying practices. Major end users of printed products and services today tend to favor a smaller number of strategic suppliers, and manufacturers will have to seek closer integration with end user supply networks, either through distributors or other means. Diversification into growth markets such as direct mail, digital on-demand printing and document processing is very difficult without direct contact between production specialists and end users.

Document Factories
High-speed laser printers, especially those with color capabilities, have caused a gradual migration of invoices, statements, checks, computer letters and other documents from forms plants to different types of production facilities outside the forms industry. This migration started with the introduction of laser printers that could image variable text as well as relatively good quality graphics. The increased pace of migration over the last 10 years has attracted little attention from the conventional forms industry, and only a small number of manufacturers have set up the new types of facilities necessary to follow the forms. Today, a sizeable number of service bureau operations, mailing houses, digital printing specialists and in-plant printshops produce forms with fixed graphics and variable information using digital printers and plain paper. Frequently called document factories, these new forms suppliers use the printing, finishing and mailing equipment demonstrated at the annual Xplor shows.

The typical document factory combines printing of forms or checks with envelope inserting and mailing, sometimes in a single "mill-roll-to-mailbag" production line. Millions of social security statements, utility bills, mutual fund statements, business invoices and checks are produced in document factories. In the past, most of the document factory work would have been pre-printed as continuous forms on offset presses and then personalized with variable information in large data centers with high speed computer printers. Some of the direct-selling manufacturers have recognized the opportunities presented by forms migration and now operate document factories with digital presses or a combination of digital and conventional equipment. Only a few trade manufacturers have started small-scale document factory operations because very few distributors have made a major transition from selling forms to selling document processing and mailing services. Several distributorships that have started to offer document processing services have also purchased equipment and hired information management specialists to maintain control and meet the high service level expectations of their customers.

A strategy to follow the migration of forms is likely to require a combination of manufacturing diversification with market specialization. A manufacturer has to add digital printing, document processing, mail preparation, envelope inserting, fulfillment, mailing and information processing capabilities. Successful document factory operations tend to specialize by type of application, such as check processing, invoices and statements or direct mail, and many focus on specific industries or types of businesses. The general trend to more outsourcing of document printing and mailing operations by both large and medium size businesses is making it easier for forms suppliers to follow the migration of forms. Several service bureau operations now offer document printing, processing and mailing services through distributors. It is also an opportunity for forms trade manufacturers who can develop alliances with distributors to sell and implement document processing programs or find other ways to reach the customers needed to support startup of a document factory. Some forms suppliers should be able to take advantage of the current self-seal mailer popularity to make a modest start in selling a document imaging, sealing and mailing service package instead of just selling the mailers and sealing machines.

Trade manufacturers and distributors interested in seeing what makes a document factory function should attend DMIA's event at the upcoming Xplor Show in Orlando on November 1 & 2, 2001. In one day you will see all the pieces of the puzzle. Click here for more information on this event.

Focus on Basics
The difficult competitive environment of today's forms industry makes basic strategic planning more important than ever. It does not have to be a complex process, and there is no "strategic formula" that fits all trade manufacturers. The basics include an analysis of strengths and weaknesses, determining core competencies and defining a market vision. Add to this an evaluation of competition, customers, distribution methods and technology, and the future options for growing a business should be clear.

The trends in printing and business documents that will affect forms trade manufacturers for the next 5 to 10 years are evident in industry studies and at the major printing and document production trade shows. Digital printing will become one of the mainstream processes and alter the way forms and other documents are produced. Personal selling of printed products and relationship building will be combined with transaction processing over the Internet to make distribution more efficient. As repeat order processing moves to the Internet, forms suppliers may need fewer sales representatives but they will have to be more skilled in program sales and relationship building.

Demand for conventional forms will continue to decline, but most trade manufacturers have time to implement the strategies that will complement their existing forms volume base with new products. The most urgent task is to craft a new industry vision that recognizes forms and forms suppliers as participants in the large business communications marketplace.

Ivars Sarkans is a noted industry consultant based on Los Angeles. He can be reached at isarkans@sarkans.com, or by calling 323-221-7791.

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