The printed statement or invoice is probably the single most important customer communication device. Canada Post still carries about 37,000,000 mail pieces each working day and it is estimated that over half of these are monthly bills. Even with advances in on-line billing, CPC still expects to keep the posties busy for years to come.
At some point someone decided to stuff first their own, then other companies’ advertisements (inserts) in the statement envelope to offset some of the cost. As long as the final mail piece doesn’t exceed 30 grams, the cost of the stamp is the same. In fact, customer relationship management (CRM) software enables companies to know so much more about their customers that the latest automated insertion equipment can handle up to 24 selective inserts for target marketing.
Print technology has also improved dramatically with high-resolution graphics (600 dots per inch) and advanced colour capabilities. At Xplor, a recent electronic document trade show, full digital colour statements were printed using Scitex printing systems. The quality was almost as good as the black toner systems in use today, and the unit costs are fast approaching their black toner equivalent in high-volume applications when you consider the lower pre-print costs with the use of plain white paper. In fact, print quality is so good you can now eliminate some of the traditional inserts and print the coupons or targeted advertisements right on the paper bill itself. This is an excellent use of leftover “white space” for bills that vary in length from month to month and also keeps the weight down.
The marketing folks knew a good thing when they saw it and now everyone wants to jazz up the statements, using the CRM packages to target market for themselves and others. But it’s not cheap. High-volume roll-fed printers cost a million and a half dollars, and the insertion equipment is almost as pricey. If you’re dependent on the revenue stream, you must also buy the back-up equipment, and you’ll likely find yourself with a cost-prohibitive project.
Outsourcing the operation to a large print shop, especially if you’re approaching the end of the useful life of your older in-house printers, may be a cost effective alternative. Just make sure you know what you’re in for and get as much of it nailed down as possible before you make your final vendor selection.
Statement of Work (SOW)
Put as much detail into a SOW as possible and append it to the request for quotation (RFQ). Don’t tell your vendor how to run a print shop, but do be very specific as to what your mail piece has to look like to be acceptable. Allow some “wiggle room” for future changes to paper, envelope, and format, but keep in mind that the weight, size, and type of paper used can seriously affect the speed of the processing equipment. Don’t lock into a multi-year deal at a fair price only to see the pricing increase in the absence of competition when you make a minor change. Be very specific with the print placement of bar codes and MICR lines used for insert selection and remittance processing in many applications. Show and tell your vendor what level of quality you expect, not how to police it, and make sure there are fixed financial consequences for any poor quality product that slips out the door.
Service Level Agreements (SLA)
Concentrate on what is most important to you – getting the statement to the customers so they can either make a payment or be informed as early as possible. Start from the desired end and work backwards to determine the most meaningful SLAs. Your goal should be to get the most high-quality mail pieces onto a postal walk with the least possible delay and at the lowest cost. Do you care if the entire production run can be processed in eight hours, just to have it sitting in mailbags overnight waiting for the morning truck at either the print shop or the post office?
Consistency, predictability and flexibility, which allow the printer to exploit his equipment fleet, are rewarded with lower prices. If you can reliably deliver stable workloads to the printer during off-peak hours, you can strike a very favourable deal. Also make sure that everything that is under the vendor’s control is both measurable and has consequences for poor service.
Print Ready Files vs. Flat Files
Your selected printer will also want your file composition business. It gives them more production control, a head start on the eventual electronic delivery, and makes it much more difficult for you to leave them in the future. True, it does significantly reduce transmission times as less data is being sent, but you must decide whether the savings are worth the loss of control. Peter Karavos, managing partner at Simplified Communications Group of Toronto explains, “If you do want that control, be aware that acquiring composition software and learning how to make the most use of it is not an inexpensive or easy process. To acquire the software you can spend upwards of $300,000 and then you need to train your people or hire a professional services firm. You also need to understand that these products are constantly evolving, they still have quite a few bugs and there is a constant stream of new version releases.”
If you have a national operation with a high cash flow you may want to consider regional printing. Canada Post’s delivery commitment is two days for local mail, three days for regional and four days for out-of-province. Regional printing may cut as much as two days off your delivery cycle plus give you greater confidence in yourDRP solution if one site should suffer a disaster. The drawback is on-site quality control audits and the additional costs that may be incurred.
A common mistake is to leave backup and recovery discussions until late in the game when most of your leverage is gone. The vendor’s idea of no-charge backup might be a policy of running at no more than 70 per cent capacity to allow for periodic equipment failures. Find out what happens if their entire site is compromised. Where do you sit in the pecking order when everything goes down at once? “Best Efforts” is not good enough when your cash flow is frozen. You might also want to consider another vendor as your backup site. Give them 10 per cent of the volume to keep them familiar with the application and you basically have a hot site, albeit with reduced capacity. Another big advantage is that you always have negotiating leverage over your primary vendor for new print applications during the term of the agreement.
Also make sure you cover off what happens when the problem is at your end. What if your billing application shuts down for a couple of days and you have to pump out three to four times the volume in a single day? What will your vendor do to help you get caught up?
Test, Test, Test!
Work the mandatory testing schedule into the agreement and don’t leave it to the transition team after the agreement is signed. Both the hi-speed printers and automated inserters have to be stress tested under full-volume conditions. The printer testing is usually predictable but inserters can be very finicky. You don’t want to find out after the cutover that they are jamming every five minutes when a five-page statement goes through or when more than four inserts are selected.
Pricing Issues and Contract Terms
Specify in the RFQ how you want the pricing presented, and insist on the basics:
- A price per impression in simplex or duplex (and get a clear definition of what an impression is).
- Are the consumables included (toner, developer)? Are you paying for “ghost impressions” or not?
- A price per automated insertion (up to an eight-page invoice with inserts) and in some cases a price for oversized automated insertions (up to 75 pages, depending on paper weight).
- Determine how many insert stations you require up front, and how many you may need in the future if you start printing some of the messages right on the statement. Lock in some future pricing for the most likely scenarios.
Ideally you want the equipment to run non-stop and not have to stop it for another “setup” to remove the Western Region inserts when the Eastern Region inserts are required. Are you paying for “setups”? What is the definition of a setup? There’s a huge difference between mounting an 800-pound roll of paper on a printer and swapping a handful of inserts on an automated inserter. You’ll also need an hourly ratefor hand-assembly work, including small reruns, damaged statements, and jobs too small to justify setting up a machine.
Who is responsible for inventory levels? The vendor should be – will you allow them to place the orders directly with your supplier and provide you with regular reports? How will you keep them informed of upcoming changes so they don’t over-order obsolescent material? You’ll need to negotiate cut-sheet pricing for those small or specialty jobs, excess inventory storage charges, and shredding charges for confidential scrap.
This type of outsourcing is volume-driven, with better margins as the economies of scale improve. In your first agreement, remember to negotiate volume discounts as the impression or insertion counts grow. A formula that takes into consideration the percentage increase over the baseline plus the remaining years in the contract seems to work well. Allow for volume reductions as well.
Give some thought to the end-of-term renewal. The renewal deal will have limited competition if the relationship has been good, so your leverage is reduced significantly and it may be best to work some renewal terms into the initial agreement. This is especially important if the vendor has been able to amortize any new equipment acquired to address your application during the original term. The renewal pricing could be significantly less and still provide the same profit margins to the service provider.
Finally, spend some time on the ‘pre-nup’ agreement (see PurchasingB2B, November 2001). Don’t get into a marriage that you can’t get out of with a minimal amount of pain and suffering if things don’t go well.