Are you getting tired of hearing about this? I sure am but… here we go again
From Printing Impressions
Business Management – Supply Chain
August 17, 2022
Latest Survey Sheds Light on Supply Chain Crisis for Substrates, Consumables
By Andrew D. Paparozzi
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To get the facts on the supply chain crisis, PRINTING United Alliance recently launched the Printing Industry Supply Chain Conditions Survey. Nearly 200 companies, including commercial printers, graphic and sign producers, apparel decorators, functional printers, and package printers/converters, have participated to date.
Our survey confirms that the crisis is getting worse. For every substrate covered, reports that availability has decreased over the past 60 days far exceed reports of the opposite, with the highest percentages reporting declines in the availability of coated paper (84.8%), uncoated paper (79.2%), vinyl (62.6%), and plastics other than vinyl (55.7%). Moreover, majorities ranging from 96.7% for coated paper to 74.4% for textiles/fabrics and newsprint report prices continue to rise (see Figure 1).
For every consumable covered, majorities report supply has not diminished during the past two months, but is still tight enough to push prices higher. The most widely reported increases are for coatings (84.4%), plates (78.1%), and ink (77.6%) (see Figure 2).
Finally, 69.3% report overall supply chain conditions are deteriorating, while just 12.4% report they are improving. (Slightly more than 18% report conditions are not changing.) The “randomness” and “unpredictability” of supply chains — not knowing from week to week what will be available, when, and at what price — tops a long list of challenges, which includes the following:
- “Envelopes at any volume are pretty impossible to get. When ordering what once took four weeks, now takes four, five, or six months, and prices change on-the-fly.
- “Display hardware has been our biggest issue. The issues range from container availability, to ship availability, to incredibly long queues at any West Coast port. Couple that with rising raw material costs, factory closures in China, and whole region lockdowns, and it seems no matter how far out we plan, it is not far enough and orders are not large enough. Now we are wondering if we might be overbought if demand in the United States starts to fall due to inflation.”
- “It now takes a special SWAT team to source paper. The allocations are often used up early in each month.”
- “Price increases come across my desk almost weekly. Many items have increased in price three or four times since July 2021. Some items are up 30% to 50%. Everything is up at least 10%.”
- “The crisis has caused an inability to grow the business post-COVID. Allocations are based on last year’s volumes, which were approximately 65% of pre-COVID levels.”
- Printers are responding to the crisis in a number of ways. Actions taken, summarized below, have lessened the effects of the crisis but not eliminated them.
- Building inventory. The most widely taken action comes down to “buying anything and everything we can — it’s that simple.” Reports of companies doubling and tripling paper inventory are common.
- Keeping clients informed. Encouraging clients to plan jobs far in advance, exploring substrate and production alternatives, and “telling the unvarnished facts before the others.”
- Adjusting prices frequently and increasing markups. “Print estimates going out to customers are valid for 10 days.” Higher markups on stocks/materials and to compensate for the costs of procurement and workflow disruptions: “We are spending an incredible amount of time in the quoting and order entry process because we now need to check for paper availability on many of the projects we produce. What used to be automated and relatively hassle-free is now a tremendous burden and expense.”
- Capitalizing on strong supplier relationships. Meeting regularly with suppliers to discuss future material requirements and alternatives, price expectations, and current and expected supply chain conditions.
- Capitalizing on supplier diversification. Effective but limited because many suppliers are not accepting new customers.
- Expanded internal communications. Meeting weekly with purchasing, estimating, scheduling, production, sales, and customer service to discuss material availability and pricing, substitution options, how the supply chain crisis is affecting customers, and how to minimize those effects.
- Networking. Partnering with members of trade associations, peer groups, and local printers to share supply chain intelligence, storage space, and materials and supplies.
- Elevating inventory management to mission-critical status. Building the team’s skills and adding talent to bolster inventory analysis, planning, and forecasting capabilities. Recognizing superior supply chain management as a competitive advantage, especially since fractured supply chains have exposed the limits of just-in-time.
As with all market upheavals, the effects of the supply chain crisis vary dramatically from company to company. Among companies we surveyed, 26.5% report revenue has increased so far in 2022 because of the crisis, 43.5% report revenue has decreased, and 30% report no effect on revenue. The average year-to-date increase in revenue is 14.2%, while the average decrease is 13.2% (see Figure 3.)
Who finishes on the right side of the market redistribution will depend as much on actions prior to the crisis as on actions taken during it.
Has a company built the healthy margins and cash flow required to maintain large inventories? Has it established strong relationships with diverse suppliers? Does it have pricing power? As resistance to price increases stiffens, can it offset operating cost inflation with productivity gains? Has it built a productive, flexible workforce that minimizes the effects of labor shortages?
As one company owner explained to us, “How we are protecting ourselves from the supply-chain crisis is not so much about what we are doing, but how we managed our company in the past years. Because we focused so much on financial stability by reducing or eliminating debt and building supplier relationships, we positioned ourselves to weather these types of scenarios.”
We closed our survey by asking when supply chain conditions are expected to improve meaningfully. As Figure 4 shows, 59.8% expect improvement in 2023 (nearly evenly split between the first half of the year and the second half), 18% by the end of 2022, 4.2% in 2024 or later, and 15.6% are not sure when to expect improvement. Less than 3% say conditions are already improving.
We will conduct the Printing Industry Supply Chain Conditions Survey every other month to monitor how conditions are changing, and to capture the full effects of the crisis on our industry, including how much print will be lost to electronic alternatives, and how many companies we are likely to lose.
For the most recent survey results, check the PRINTING United Alliance Supply Chain Resources page at printing.org/library/supply-chain-resources.
Andrew D. Paparozzi
Andrew D. Paparozzi joined PRINTING United Alliance as Chief Economist in 2018. He analyzes and reports on economic, technological, social and demographic trends that will define the printing industry’s future. His most important responsibility, however, is being an observer of the industry by listening to the issues and concerns of company owners, executives and managers.Previously, he worked 31 years at the National Association for Printing Leadership. He has also taught mathematics, statistics and economics at various colleges.Andrew holds a Bachelor’s degree in economics from Boston College and a Master’s degree in economics — with concentrations in econometrics and public finance — from Columbia University.