FLAG is a support organization for independently owned flexo label converters. Its member advantages also include bottom-line buying group savings and top line label sales. Through leveraged procurement programs, independent printers across North America have the ability to compete with the top ten printers and consolidators.
According to McKay, it’s a service desperately needed by time-depleted owners. “When you think about the average size company today, the owner is wearing multiple hats,” McKay says. “When does he have time to focus on cutting his material costs?”
McKay should know. After working for the Pitman Company for over 25 years, and dealing with companies of all sizes, he’s seen firsthand how owners struggle to find time to run their business. It inspired him to launch a strategy that would help multiple owners achieve some of the advantages normally reserved for bigger companies.
McKay helped launch the Independent Card Group, in which a group of independent owners of folding card companies starting pooling their buying power. Their focus was narrow – offset plates – but the results were tremendous.
By pooling their buy, the costs went down. “It was a good arrangement for everyone – the members, the vendors, and ultimately the customer,” McKay says.
The success of the Independent Card Group inspired him to embark on a similar initiative in the label industry. Four years ago, he took the plunge and formed FLAG. Today, the organization includes 24 members in the United States, with expansion soon planned for Canada. The goal is simple: “FLAG is not about wearing less hats,” McKay says. “It’s about sharing them.”
Critical Need for Pricing Breaks
The co-op couldn’t have arrived at a better time for small to mid-sized companies. As we’ve written in previous Bottom Line articles, the looming issue that will soon (and, in many places, is currently) affect the entire industry is consolidation.
“The label industry has overcapacity,” McKay said. “The small, local shops are happy with their little niche, but the bigger guys are continuing to get bigger.”
Titans of the industry, eager to boost sales and profits, are pushing into the markets of small to mid-sized label printers. “They have all the resources and the national agreements,” McKay notes. “They can be more aggressive, and get to better pricing.”
The same phenomenon occurred in the newspaper and offset printing business. It’s now beginning to affect labels. McKay feels that consolidation will squeeze mid-sized flexo label companies ($2-12 million in annual revenue) like never before.
To help its members compete, FLAG is based on four pillars:
1. Bottom-Line Buying Group Savings. By pooling the group’s collective buy, members can realize savings of 5-10%. Members of FLAG receive discounts in the following areas:
• Roll label substrates
• Tools and dies
• Stickyback tapes
• Prepress supplies and equipment
• Pressroom supplies
• Small package and LTL freight
The last two items on the list, freight and healthcare, are savings areas available to FLAG members through an alliance with IPW, a similar co-op for offset printers.
2. Catastrophic Back-Up Plans. When McKay worked with the International Card Group, he saw how important a catastrophic back-up plan can be to a small business owner. A fire had destroyed a client’s facility. Determined not to lose his business, the owners called two members in the cooperative. They agreed to produce the owner’s orders (without stealing the clients) while he did what he needed to get his business back on its feet.
FLAG has taken this concept to another level by adding on the services of Agility Recovery, a nationwide company that specializes in helping businesses overcome these types of potentially fatal blows. They provide temporary offices, back-up systems, and other types of recovery steps.
3. Top-Line New Label Sales Growth Potential. The most successful mid-sized businesses tend to be the organizations that find a profitable niche. That’s a great approach, but what happens when your client has needs beyond your skillset?
FLAG encourages its members to grow their business by sub-contracting overflow to other co-op members. Besides encouraging networking at its annual meeting, FLAG provides a website where members can review complementary capabilities of other flexo label printers.
4. New Technical and Business Resources. Sharing ideas and success stories may be one of the organization’s most prized assets. At FLAG’s annual meeting – this year held in Cincinnati – networking and idea-sharing is encouraged.
“We spend time together as a group, learning from each other, and interacting with our vendor partners,” McKay says.
FLAG also keeps information free-flowing through its quarterly newsletters, lunch-and-learn webinars, and vendor learning sessions.
This pooled audience allows vendors to communicate in a manner that the membership would not receive on an individual basis. “We had a vendor set-up a digital printer at one of our annual meetings,” he says. “That’s something you just wouldn’t get on your own.”
FLAG also routinely sends out vendor spotlight email blasts that highlight new technologies and products.
How Does FLAG Choose Members and Vendors?
McKay is located in New Hampshire, and its initial membership was based on geography. As the co-op’s popularity increased, the base expanded rapidly throughout the US, and as mentioned earlier, will soon stretch its way across the Canadian borders.
Many printing co-ops restrict membership – both in terms of vendors and printers. Initially, McKay envisioned having to enforce similar limitations, restricting membership based on geography. His thinking changed when he received a call from one of his members.
“He told me to give a competitor a call,” McKay recalls. “I told him I was holding back, considering the two companies were in close proximity to each other. He told me to go ahead and call him, saying, ‘He’s got his customers, and I’ve got mine.’”
That kind of generosity might not be echoed throughout the industry, but McKay doesn’t believe overflow will be a problem. FLAG has 24 members right now, and according to McKay, there are 3,000 label converters in the US alone.
Admitting vendors to FLAG is based on a careful evaluation of what the membership needs. “We know the basic products, and we know
the basic spending percentage for each of those. So we work our way down the list.”
Input for new vendors is generated at the annual meeting as well. The open lines of communication between members and FLAG help keep the organization attuned to what’s needed to remain competitive.
Time to Focus
All of this brings us back to the critical advantage of FLAG, which addresses the Achilles heel of an owner – time.
By forging alliances with approved vendors, FLAG’s members don’t have to spend time sifting through all the companies in the marketplace. Owners can instead focus on new customers and internal improvements.
These arrangements can have an enormous impact on your bottom line. To determine if it’s a good arrangement for you, McKay’s recommendation is similar to the one we voice in every Bottom Line article: Look at your numbers.
“For a $4 million label converter that spends $2 million on materials, that’s a huge expense,” he says. “So what if you can save 5% of that amount? That could be $100,000 in six months.” At this point, McKay asks the printer how many labels would need to be printed to equal that amount. The response is usually laughter. But don’t just think about business in terms of how many labels you need to print. Think about your day. Think about how scattered you are, trying to wear multiple hats.
In his brilliant book, The 4-Hour Workweek, entrepreneur Tim Ferriss stresses the need to eliminate the number of tasks in the day, and in effect, forget about time management. “In the strictest sense, you shouldn’t be trying to do more in each day, trying to fill every second with a word fidget of some type,” he writes.
Ferriss advocates a practice he refers to as “elimination.” He encourages eliminating all the busy things you do each day, and focus on the things that truly add value to your life – and in this case, your business.
For some reason, owners always gravitate toward getting new business instead of finding ways to make their current business more efficient.
Why? Because it’s a time commitment. Too many owners think that initiating quality measures and lean operations – which can reduce costs - will take too much time.
That’s an unfortunate perception. But unfortunately, perception is reality. With FLAG, however, those time-related barriers are torn down, and savings of 5-10%, plus the benefits mentioned in the organization’s three other benefits, can help your business immediately.
This column, The Bottom Line, is about finding smart ways to deal with financial issues like reducing your raw material costs. It’s good to see organizations like FLAG providing solutions.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He can be reached by email at firstname.lastname@example.org.