by Milt Vine
Expansion has always typified health. Thriving companies buy out competing companies, merge with others that offer complementary services or build new services from the inside out. It's the stuff that builds empires and gives us great advantages over t he competition.
However, the motivation behind expansion is no longer the promise of extraordinary wealth; it's the necessity to do so given today's world markets and the competition that it has stimulated. As technology has brought great gains, it has also brought th e need for shrinking production cycle times. Today, we are being forced to scrutinize our business as never before to increase production efficiencies while maintaining quality and profitability.
Profitability. A whole new manufacturing vocabulary has grown up around the definition of profitability: total procurement cost, distributed manufacturing, distribute-and-print, on-demand, just-in-time, continuous process improvement, etc. Each concept arising from clients'-particularly those in the high-tech and financial arenas-needs to shorten production cycles and ours to make a profit.
Suppliers are now being selected based on their ability to move a client's product or service to market ahead of its competition. While price and quality are still among the top three criteria in selecting us, they're rapidly being replaced by turnaround. So, how do we meet these punishing deadlines and still meet quality and cost requirements?
Streamlined workflow. Production efficiency has always been a goal and many of the ways we achieve it haven't changed. Certainly, quality control programs have been around a long time. And the concepts of strategic alliances and vertically integrated services aren't new. What has changed is that we are being forced to address these issues at unrelenting speed. Do we partner? Do we add in house services? Is acquisition an option? I believe we can arrive at answers to these questions onl y after analyzing our own business, our clients' businesses and the competition.
Here's a personal scenario that might provide a framework.
The management from a company specializing in index tabbing and mylar reinforcing approached me to discuss a possible buyout. At first, I was skeptical due to capital restraints. After further discussion, I was convinced to at least pursue it to the next step.
We started with a comparison of each of our businesses. Our products were related. We delivered them in much the same manner. We provided comparable customer service. We were both committed to high quality standards and both had established a solid reputation in the marketplace. As trade houses geographically proximate, we also shared a common customer base. I was intrigued.
I then looked at our companies' situations. We had a long lease and lots of underused space. The other company was being forced to move due to a Port of Seattle expansion. We could easily incorporate the other company's operations with ours, reducing the overhead costs of running two plants.
After carefully reviewing the impact such a transition would have on our company, I determined it would not interrupt production, service nor quality. I was hooked. The next steps took me to the bank, and even the banker agreed this was an opportunity that seemed tailor made for Seattle Bindery.
Once the deal was consummated and the consolidation completed, we kicked marketing into high gear. After determining that many of our top customers were the same, we looked at which weren't doing business with both of us and launched a phone and mail campaign, cross-selling our respective services to these customers.
Today, our companies are well integrated: customer databases are merged and sales production efforts combined. Our operations work both independently as well as seamlessly on those jobs requiring bindery and tabbing services. Best of all, business is good.
Certainly, I've omitted the multiple other questions we had to address before finally making a decision. What other services do our customers require? Mailing list management? Data management and archiving? Inventory management? Fulfillment? Would any of these make more sense? Do customers require the volume of index tabbing to justify the acquisition?
I also looked at our competition. What other trade houses offered similar services? How much market share did I think we could gain by joining forces with the tabbing company? Would partnering be a better solution than outright purchase?
In the end, the acquisition made perfect sense.
Total procurement cost. There are other factors that play a role in our decision to expand. While still unfamiliar to many clients, total procurement cost is a concept clients need to know. Many clients still look only at unit cost whe n outsourcing our services, a stumbling block when we try to explain the added value we bring to their projects. If we can provide all the services a client requires, we reduce soft costs like having to get multiple bids for jobs. If we partner, we can sh rink lead times and production cycles. We'll eliminate lost opportunity costs if our integrated systems ensure they'll meet their time-to-market deadlines.
Finally, the issues you face when examining expansion opportunities are identical to ours. Trade finishers must ask ourselves the same questions, since our success depends on our ability to perform as well as you do for clients. Working together to explore these issues makes all sorts of sense.
Milt Vine is president of Seattle Bindery, a post-production house specializing in
index tabbing in addition to providing folding, stitching, perfect binding, scoring ,
perforating and trimming services for the trade. You can reach Milt at 206/682-2558.
© 1996, Seattle Bindery. Reprinted from Northwest Trader October 1996.