by: Tom Quinn, Mailing & Fulfillment Service Association (MFSA)

Should bindery operations consider mailing and fulfillment services to grow and sustain their companies? I, for one, would shout an overwhelming “YES” to the question and will share some facts with you concerning the mailing and fulfillment industry to support my enthusiastic answer.

Fact #1 – Your clients want you to get into the business.

Surveys conducted over the past four years by NAPL & MFSA, in conjunction with the Annual Fulfillment Conference, have substantiated this fact. Eighty-eight percent of the printers surveyed reported that the primary reason for adopting fulfillment services was client request. The binding industry has a slightly different market and selling proposition than the commercial printer, mailer, and fulfillment operation, but nonetheless eventually supports marketing organizations within large and mid-sized companies. These organizations are striving to reduce cost and reduce time-to-market. The Marketing Value Chain (shown to the right) is the process by which every marketing project is completed. When a marketing organization has a requirement (i.e., 4th quarter promotion, new product introduction, pricing announcement, etc.) which needs to be completed, these progressive steps are followed:

1. A design team completes the creative.
2. The printer prints the material.
3. The mailing house mails the material.
4. The fulfillment company fulfills request to sales personnel and customers.
5. Telemarketing companies answer questions and capture data.
6. The responses are collected in a database.

The bindery function has been inserted in the Value Chain to show which functions come before and after the bindery activity. When evaluating additional services, the operations just before and after the current position make the most sense to adopt and are the ones most commonly requested by the client.

Fact #2 – The cost of entry is low compared to bindery operations.

I am an advocate of mailing as an extension of the bindery operation. It is the next step in the value chain and production process. The process itself can be administered in your existing operations and financial operating system, and the cost of entry is low (under $100,000 for equipment). The equipment is not simple to operate, but is no more complex than existing bindery equipment. The trick to developing a successful mailing operation is to understand how to do business with the U.S. Postal System. It will be necessary to hire and train a postal expert. Consider in your decision making process that mailing services is a similar business model to the bindery production model, with most of your revenue being generated by the operation of machines.

The cost of entry for starting a fulfillment operation is approximately $200,000. This investment will allow you to purchase specialized fulfillment software, warehouse racking and equipment, computers, and other operational equipment. The fulfillment business operation has a different business model than the bindery – a service model. This model produces revenue primarily through people, systems, and facility. There are two separate portions to this business – fulfillment projects and fulfillment programs. Fulfillment projects are basically handwork projects which may include such operations as shrink-wrapping, gluing, stapling, collating, and shipping to a list provided by the client. Fulfillment projects do not require any additional software. Fulfillment programs refer to those activities required to “receive, store, assemble, and ship product and/or data for another company”. Because the primary activity is to store and ship for another company – requiring inventory tracking – specialized fulfillment software is required. Once a company masters the art of providing “world class” inventory accuracy for its clients, the operation will run very smoothly.

Fact # 3 – Both volume and profit margins increase when more activities are completed in the Value Chain.

The NAPL and MFSA surveys previously referenced also provided the following data from printing companies:

1. Those clients who purchased both print and fulfillment services showed increases in print margin compared to print-only clients.
2. Those clients who purchased both print and fulfillment services showed increases in print volume compared to print-only clients.
3. Those clients who purchased both print and fulfillment services had an improved customer retention rate of 300 percent compared to print-only clients.

There is a valid question whether this data is directly transportable to bindery operations. I would argue that the findings and data are transportable. There is data from the fulfillment industry which says that by offering additional services, the focus on price is taken away and the client/vendor relationship transitions into a partnership arrangement. The client/vendor designation places a premium on pricing to determine if the relationship will be ongoing. The partnership arrangement places a premium on timing, trust, and expertise in the areas of logistics, data, and shipping. An additional fact to consider in your decision-making process is that the fulfillment industry continues to command pricing structures which yield double digit bottom-line profit margins – in excess of 20 percent for several decades, with this trend continuing today.

One more factor to be considered when evaluating the addition of fulfillment services – a fulfillment program application lasts for many years. There are some applications that have lasted longer than 20 years. More realistically, a fulfillment application will last for 5-7 years and will continue to generate revenue and profit for the entire time the application is operational. If a fulfillment provider is competent, the client will leave the application in place until the product line or division reaches its end-of-life.

The primary reason for losing a fulfillment program is poor inventory accuracy. The second reason is consolidation. Third party fulfillment operations are caught in the same dilemma as the consolidated company itself when the buying entity has its own fulfillment center. Regardless of these risks, if your goal is to improve your bottom line, a decision to add mailing and fulfillment services will yield improved performance in the future.

Fact #4 – The market is changing.

The chart below was prepared for the 2005 Annual Meeting of the MFSA. The chart had several uses, but was used in this meeting for a presentation on diversifying your business. The horizontal access shows the various industries and, for this discussion, the bindery industry should be considered as a subset of the Print Industry. The categories include Printers, Mailers, 3PF (Third Party Fulfillment), Specialty (disc duplicators, telemarketers, contract packaging houses, etc), Product Fulfillment (primarily catalog fulfillment), and 3PLs (Third Party Logistics). The vertical access contains some of the major operations completed by these market segments. As noted, the list ranges all the way from printing to logistics (providing transportation, storage, procurement, and assembly). The good and bad news from this chart is that each of the segments does fulfillment and warehousing. The good news is that very few companies do fulfillment correctly, and that the market continues to grow. The bad news is there is competition everywhere and that the word fulfillment can mean anything from sending out lead responses for a client to assembling and shipping product for a company.

	Printers	Mailers	3PF	Specialty	Product	3PL
Print	x
Bindery	x	x
Variable Print	x	x	x
Mailing Services	x	x	x
Warehousing	x	x	x	x	x	x
Fulfillment	x	x	x	x	x	x
Database Management		x	x		x
Web Hosting & Design	x		x		x
Credit Card & Cashiering		x	x		x
Telemarketing			x	x	x
Contract Packaging			x	x
Transportation		x	x	x	x	x
Logistics						x

This chart also shows that the conventional boundaries of task completion and competence are changing. Companies need to decide what they will be doing in the future to sustain their growth. I would pose the same question to the owners of bindery operations that was posed to owners of mailing and fulfillment companies at this meeting: “Where are you on this chart today and where will you be in five years?” This chart needs to be revised because there have been two major technology advances since the chart was completed – color digital printing; and the ability to provide campaign management and other marketing services such as e-mail blasts, Purl’s, and landing pages. These new tools have assisted print, mail, and fulfillment companies in further penetrating the marketing organization that we primarily support. There are many opportunities and alternatives for bindery operations to diversify.

Fact #5 – The bindery industry marketplace is well suited to adopt mailing and fulfillment services.

While I am still a novice to the pure bindery industry, it does seem evident to me that there are three very nice opportunities for a bindery that provides mailing and fulfillment services. These opportunities are as follows:

Existing Printer Relationships – The adoption of mailing and/or fulfillment services may be viewed as positive or negative by your existing printer relationships. Many printers have been slow to adopt mailing and fulfillment services and your entry into the marketplace may assist them in their marketing and sales efforts. You already have established your expertise as a bindery expert, and the addition of these services may be viewed as an extension of your existing services. For those printers who have adopted mailing and/or fulfillment services, it should remain “business as usual”. However, there will probably be more than one instance where an existing printer client asks you to complete a mailing and/or fulfillment function for them rather than sending the finished goods to a competitive mailer for processing. This is a premise that remains to be tested as I support more bindery operations.

Existing Bindery Clients – There is a certain percentage of your business that you control directly with your client. The clients falling in this category represent the primary prospects for your newly established mailing and fulfillment operations. We would hope that these are the clients asking you to provide more services, similar to our commercial printer population.

New Mailing and Fulfillment Clients – There is a very large mailing and fulfillment market space and, once a bindery has established its operations, the bindery can compete in this space. This is a tertiary market for bindery companies because it must be understood that the primary objective of adding mailing and fulfillment operations is to keep the bindery equipment running. However, if you are able to grow the company by acquisition, you will have purchased a large client base, sales force, and operation that can compete in the mailing and fulfillment space.

There is additional good news concerning the adoption of mailing and fulfillment services in the area of training. The Mailing & Fulfillment Service Association, NAPL, and PIA all have training programs to help new entrants get into the business. In the past several years, classes on mailing and fulfillment topics have been available at Graph Expo and a mailing and fulfillment pavilion has been established for you to meet equipment vendors and other industry personnel. I hope you share my resounding YES concerning the adoption of fulfillment, and I look forward to providing further information to assist in your decision-making process. I wish you good selling.

Tom Quinn is the director of fulfillment service for the Mailing & Fulfillment Service Association. Quinn was a featured presenter at the BIA Mid Management Conference in May of 2008. This article is the first in a series of two which will address the addition of mailing and fulfillment services to bindery operations. For more information, contact Quinn at [email protected].