Print RSS Feed

2010 Mid-Year Economic Report



Cautious recovery



By Jack Kenny



Published July 14, 2010
Related Searches: Label printer Label converter Lean Manufacturing
Post a comment

Throughout the past several months I have heard positive reports from label converters in a wide range of sizes. 2009 was difficult for most, OK for some. 2010 has seen a rise in business, although it is not business as usual and it comes with its own new set of realities. Label customers are still skittish; they have downsized over the past two years and are as yet unwilling to ramp up the payroll by much; they forecast lower, in one converter's experience, than they actually perform; they place orders at the last minute, and want the labels yesterday. This is not occasional, but rather routine, it appears.

It's not all positive, of course. Some small label printers have disappeared. One converter said that three of his nearby competitors have vanished in the past year. This particular printer is enjoying success, so perhaps it was his competitive advantage that caused the others to fold.

Others, finding themselves in endangered markets (think automotive) made rapid shifts to other arenas, and have stayed alive.

At a recent conference on mergers and acquisitions in the packaging and printing markets sponsored by AWA Alexander Watson Associates, the consensus among economists and financiers was that the label sector is among the strongest in North America, and most likely around the world. In my opinion, one of the most significant reasons that label converters have weathered the economic storm better than others in the printing field is because of the attention that they have paid for the past several years to Lean initiatives. Many have embraced Lean Manufacturing, and those who have stuck with it – it's not a program with a start and a finish – have reaped the rewards. And a great percentage of these Lean pursuers began their work before the recession hit. That means that they were focused on eliminating waste, on those aspects of production and operation that provide value, and those that do not. So when the hammer came down, they were already in austerity mode.

In this issue's editorial I quote from Brian Gale's blog. Gale is president of ID Images, a label converting company in Brunswick, OH, USA. He started his blog just a couple of months ago, but he has caught my attention with his cogent perceptions. (www.idimages.com/briansblog/) I'd like to quote more from his blog, because he seems to epitomize the upbeat, positive drive that so many of those in our industry possess:

"If the events of the last couple of years have taught me anything, it is that there are a lot of things beyond our control. Nothing we did as a business could have prevented the financial crisis and the resulting recession. Yet, this recession has had a tremendous impact on how we operate our business. We had to adjust our plans during the downturn. Being reactive isn't fun; I want to be proactive. I want to succeed regardless of the macroeconomic environment.

"I want our company to be proactive towards our customers' needs. Was anyone proactive when loans were being made to people who needed the stars to align and home prices to appreciate forever in order to pay them back? Politicians, regulators, investors, and the general public (including me) were not asking tough questions during the boom. Yet we now all play Monday morning quarterback and talk about what should have been done. Congress is passing regulations to prevent what already happened from happening again. Are they thinking about what can happen in the future? Are they preparing for the unintended consequences of the new regulations? I certainly hope so."

Below are the thoughts of three successful converting companies that have weathered the tough times and maintain a watchful eye on the marketplace.— Jack Kenny


Scott Pillsbury, president
Rose City Label
Portland, OR, USA


Q: 2009 was a rough year for many, but 2010 in some respects is showing signs of economic recovery. How has your company performed so far this year, compared with performance in 2009?

A: We must have been an early indicator, because 2008 was worse than 2009 for us. By 2009, we had our costs under control and were able to keep everything on track. It was still a poor year, but better than 2008, when we were totally caught off guard. Now, in mid 2010 our phone is ringing more and customers are picking up demand, so we are in a great position moving forward. By going through the pain of the past 24 months, we are better prepared going forward.

Q:
What changes, if any, did you make in your company over the past year in light of business and economic trends?

A:
We reduced some hours last year and watched all costs more than ever before. By cutting hours, we were able to limit layoffs to just one short-term employee, which was great. We also questioned all overhead and extra costs that we hadn't paid much attention to in the past. Now we are a better company for the experience, but I certainly don't want to go through it again.

Q:
How do your customers view the economy and their markets today? Describe the purchasing patterns of your customers over the past year.

A:
 I think we are all seeing people wait to the last minute to save cash because of the uncertainty in their demand. Then, once they do place an order, they need it in a hurry because of the delay in ordering. In general, most people see their business picking up, but they are still cautious.

Q: Over the next 12 months, do you plan to invest in new or additional equipment? Do you plan to add personnel? Do you plan to increase your space?

A:
We are not to the point of adding equipment, but we are trying to fill the equipment we have with smarter, more profitable work. Same answer for people – the reductions were hard on everyone, so we will continue to be smart and cautious about hiring. We own our building on Label Lane, and we have land to expand if needed, so I don't plan on moving anytime soon.

Q:
In your opinion, what is the greatest challenge facing the narrow web converter today? Is there more than one significant challenge that you face? What is your company doing to meet that challenge and to move beyond?

A:
The business continues to be very competitive. People are working on thinner margins each day to earn new business. Vendors are starting to pass along significant price increases due to raw material shortage, which I do understand, but it still puts the converter in a tight position. Still, the greatest challenge for most established converters like us is to accommodate the great customers you have in the most efficient, logical, profitable manner possible. We all want to enter new markets and buy new, better, faster equipment, but in the short term, we need to maximize the value of the equipment we have.

Q:
Describe your vision of the narrow web industry over the next few years. Will we see changes in the way business is conducted, in technologies, in growth and/or acquisitions, in corporate performance?

A:
All of the above will continue to make this an exciting business. I am sure it isn't as fun or profitable as it was 20 years ago, but it is still a great industry. We really have two distinct segments that we focus on – longer run repeat work (for any industry) and new, custom engineered specialty work. Both parts are critical to our business, and we have to approach them in different ways to make sure we are always serving the customer better than our competitor. How we go to market and connect with these customers is what each of us really does to set ourselves apart.


Bill Muir, president
Grand Rapids Label

Grand Rapids, MI, USA

Company performance: In a general sense things have improved significantly for 2010 compared with 2009. Our sales for the first six months of the year are up over 50 percent. During this time we were able to hold our employee count steady as we have worked to increase our efficiency. The uncertainty in the marketplace, I feel, has left people hesitant to invest in more bodies, and they have figured out ways to get more done with the same number of people. We have done it through the use of temporary workers as well as overtime. This combination has allowed us to see a significant change in profitability as well.

Company changes:
We made two significant changes over the last year or so. First, we invested heavily in new business development to diversify into new markets as well as new customers. Second, we have focused internally on furthering our Lean initiatives. We re-energized this effort as it had gotten stale over the years. Both of these efforts have paid off. The top line success has energized the organization, and sharing the trials and tribulations along the way has instilled confidence in the organization.

Customers' perspectives: The term that best describes the marketplace from our customers' perspective is "cautiously optimistic." Trying to forecast demand has been difficult, at best, for our customers, which translates into shortened lead times. They are not buying more because they are still not wanting to lay in too much inventory, but they are ordering more often. I feel that this caution is forcing more companies to put off hiring as long as possible, which is why we are not seeing a decrease in unemployment, which the mainstream media translates into a double dip. Our customers are seeing the demand and are waiting as long as possible to add capacity through more people. They have the capacity in mothballed equipment and facilities.

Short-term investment plans: We are looking to add equipment as well as personnel. We are looking for equipment to replace aging machinery to increase our efficiency and run speeds. This should help us to hold off hiring new employees, but we know that it is inevitable given the pace of growth that we are seeing and anticipate to see over the next year or so. We do not foresee an increase in space at this point.

Challenges to converters:
For us, the greatest challenge is scaling up operations to meet the rising demand from existing customers as well as new markets. There are some great opportunities out there, but they require investing in new, more efficient equipment. Another challenge is going to be the rising demand: It is bringing rising material costs, and it is still difficult to pass along these increases to the customer. We are looking at new equipment and new technologies as a necessity, but are doing so with caution.

Industry forecast: I think that technology is set to take another leap forward in non-production areas. Mobile computing, I think, is just starting to find a market beyond the "fun," and is poised to help improve interaction with customers, and therefore improve efficiency.


Mike Erwin, president
Tailored Label Products
Menomonee Falls, WI, USA


Company performance: We have experienced the recovery at a substantial rate, with a 20 percent increase in sales the first six months of 2010 over 2009, from areas such as telecommunication, industrial controls, water industry products, medical products and selective automotive clients. Of particular strength is work provided to contract plastics molders in the region as their clients have come back strong and are rebuilding their diminished inventories.

Company changes:
In 2009 we did some slight headcount reductions and have been slow to rehire during our recovery. We invested in a variety of new digital and flexo press technology enhancements to improve yields and solidly reduce setups. We performed some special training and cross-training to be far more flexible than ever before. So the resulting increase in sales resulted only in a sub-5 percent shop-hour load.

We have been selective in new product development and are working on items that have more immediate revenue growth yet still working on new product development but with a smaller list of game changers.

Customers' perspectives:
Most of our top accounts have still underforecast their growth for the year versus what we are actually getting in new orders. They believe that the growth is to be more subdued than their actual orders tell us it is.

Many of our clients have been very reactive as to order releases. And again, they are buying much more than we get early warnings about. There are actually more orders for smaller lot sizes, and more often. That's the case with our top 10 customers.

As for customer expectations, ramping up and meeting shorter lead times is more routine, and we are still maintaining 100 percent delivery reliability. We're seeing results with spotty overtime and a bit more material expediting. These are all things we enjoy doing if we are growing.

Short-term investment plans: As for equipment, yes. We are more focused on labor reducing packaging and converting systems. And we do plan to add personnel in marketing, design and on the shop floor. We doubled our square footage in May 2008, well ahead of the mess!

Challenges to converters: Is there still overcapacity, or just folks that will sell product with a shock-driven lower margin expectation? If so, for how long can that be sustained and to what overall industry damage? Poor margins equal poor future investment in operational excellence.

Our favorite challenge is the serious difficulty in extracting any price increases to moderate margin decay as we see raw material costs creep upward.

We pass on work that does not meet our strategic expectations, and we stay focused on opportunities where our clients are compatible with the value we provide, be it design services, fulfillment, or asset management.

Industry forecast:
I would hope that collectively we continue to develop new growth opportunities for flexo alternatives to other printing solutions, while building a complementary digital workflow, ultimately benefiting our customers with a best-fit solution.

Industry-wide, I would expect to see a renewed effort to merge or acquire other complimentary flexo and digital print companies, since it appears to have gone into hibernation over the past 18 months. And the way deals are done will take on a new profile, with more owner risk in the sale of their business than before.




blog comments powered by Disqus
Top Searches
L&NW ENewsletter
Sign up now to receive the free weekly newsletter

Enter your email address:
Top Articles
Follow L&NW On