Beware of the “Guaranteed Savings Model” in Print Management

The name sounds so good: “Guaranteed Savings Model.” What could be better than the certainty of savings when deciding upon a print management partner? Even the shortened version, “Gain Share,” combines two positive ideas.

Oh, but buyer beware. Numbers can do funny things behind the scenes. When a print management provider touts “guarantees” and “no risk, no obligation” propositions, you should adopt a skeptical pose.

Ask about pricing transparency. And what’s included and excluded.

Whatever the name, the guaranteed savings model (GSM) is full of potential pitfalls. Such as:

• Out-of-scope work, when there is little to no cost reduction. Such work is usually priced based on a limited run capacity and quoted against like material from a previous job. Most often, this work does not fall within the provider’s price savings agreements.
• Exit & low volume penalties, when clients get sanctioned for unforeseen issues. Most contractual commitments are based either on time or volume. For example, consider a multi-year contract with an anticipated annual volume of $20MM. If the volume or dollar amount misses the plan expectations, “true-up” clauses can be activated, where the client on an annual basis is required to offset the volume in payments to the print management provider. Similarly, if the client chooses to end the relationship early, there is typically a future year reimbursement penalty triggered.
• Rush job charges, which activate more often than not as additional fees for expedited work. Print management providers using a GSM will apply rate card costs for this work, since it is not part of agreed volume or savings calculations. Also, the typical distribution-based model may result in increased costs if store direct is required for shipping. Depending on the lead time and rush requirement, up-charges (“rate card plus”) may be applied.
• Bulk material buys, when clients are required to purchase or guarantee the use of bulk substrates, so that the print management provider and their print partners are not carrying the cost of bulk materials. With this approach, the client in effect owns the inventory and may be
  left holding unused materials or boxed into using a material no longer desirable.

Again, numbers are simple to manipulate and the devil is in the details.

How does your potential print management provider define print costs, raw costs, logistics and inventory management? And what do they consider “print”? Do they exclude, say, metal, buttons or inflatable décor? And what about “print on demand” items?

With “guaranteed saving models,” clients should confirm that agreed-upon service level agreements (SLAs) are measurable and can be independently verified through an internal audit process since performance-based financial savings are anchored in the SLA.

It might not surprise you that Miller Zell doesn’t use a GSM.

First, as the print procurement agency of record for the world’s largest retailer, we offer up significant buying power to provide competitive pricing. We also calculate print savings in a straight-forward way that is shared with our clients: 1. We calculate an average of all the print bids; 2. We use the difference between that average and the lowest bid; 3. Miller Zell clients see all print bids and have final say on which to accept.

Compare that to providers who use the difference between the highest and lowest bids to tout “savings.” That often inflates savings numbers because print providers know in advance who the high-cost printers are, so that drives up the difference.

When choosing a print management partner, retailers want: 1. Expertise; 2. Transparency; 3. Efficiency; 4. Good Pricing.

They just need to make sure they don’t let deceptive figures for No. 4 obscure the other 75 percent of a potentially productive print management partnership.

E-Book: 6 Questions to Ask Your Print Management Partner