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R.R. Donnelley--Calling the Shots

March 1999
Robert Pyzdrowski, president of Magazine Publishing Services at R.R. Donnelley & Sons, analyzes industry consolidation, the management chain, digital prepress, the potential impact of electronic commerce—and the relationships that keep Donnelley such a deity.


BY RANOIA ALONSO


Robert Pyzdrowski is very approachable; he is charming, friendly, distinguished—everything a top executive at R. R. Donnelley & Sons should be as Printing Impressions readies to fire a series of industry-oriented questions his way on this particularly crisp winter afternoon.

Pyzdrowski is a professional's professional. An executive's executive. He believes the publications market—the market he governs over as president of Magazine Publishing Services at R.R. Donnelley & Sons—is not going bullish into the thick of 1999.

Caution, Pyzdrowski advises, is in the wind for the publication printing segment of commercial printing throughout this year. Still, overall, Pyzdrowski predicts that 1999 will see a publication market with some growth, albeit flat to nominal, as the year 2000 promises to carry the printing industry into the next millenium of service, supply—and demand.

Recently, Printing Impressions had the good fortune of getting this Donnelley executive to share some of his views on massive industry consolidation, digital technologies, customer relations and more. Although he may come across as conservative in some respects, Pyzdrowski is unquestionably seasoned in the ups and downs of life in the magazine publishing industry.

See for yourself . . .

PI: The first quarter of a new year is a good time to reflect on the past and look toward the future. What role has consolidation played in the printing industry, and will it continue?

Pyzdrowski: "In 1992, Donnelley and our three primary competitors combined for a 49 percent market share in the long-run magazine and catalog printing industry. By the end of 1997, just five years later, these four companies had a 78 percent share of the market. This concentration of share is the result of organic capacity expansion (adding new equipment) and industry consolidation.

"Organic capacity expansion has resulted in capacity exceeding supply; thus, the focus is now on consolidation to leverage scale, synergy and efficiency. I believe that the pace of consolidations will accelerate, at least over the short term."

PI: In fact, Donnelley has disposed of some non-core businesses in the past couple of years. Why has the company done this, especially when the entire industry seems to be consolidating?

Pyzdrowski: "Donnelley has disposed of non-core businesses we had acquired in the past. You could say we have gone through a 'de-merger' stage—consolidating to our core of putting ink on paper.

"Every acquisition opportunity in the industry crosses our desk. We've taken a pass on most of them because we just don't see value in it for our customers and shareholders. Other companies try to make the case that consolidation means more efficiency, improved synergies and heightened productivity. That's fine for them, but what's in it for their customers? Printing is a manufacturing business.

"Our work is definable. It can be standardized. It's repeatable. And, therefore, it can be managed more effectively to deliver significant value for our customers. Instead of buying assets that might, on closer inspection, be redundant, companies should focus on using the capital structure already in place to improve productivity, enhance distribution effectiveness, reduce cycle time and lower materials consumption and costs. Donnelley has chosen to focus on supply chain management to reduce waste and cost, and to provide better products and services to customers at a better total delivered systems cost."

PI: Obviously, you believe supply chain management is key to reducing customer costs. How has the practice changed over the years?

Pyzdrowski: "Managing the supply chain in the printing industry is critical to help our customers build their revenue streams and reduce their total cost of doing business.

"During the 1990s the cost of distribution, especially postage, has risen to a point that it now rivals the cost of production for many of our customers. And, in general, paper alone accounts for more than a third of the cost of a finished magazine. So, it is incumbent upon printers, now and in the future, to manage the supply chain in such a way that we're creating value for our customers everywhere we can."

PI: What steps can Donnelley and other printers take to deliver maximum value when it comes to such a key element as paper?

Pyzdrowski: "Paper is a significant expense and, obviously, publishers understand the importance of managing this expense as intelligently and efficiently as possible.

"To strengthen the value we bring to customers, Donnelley is spearheading industry-wide standards that address how paper is shipped to our facilities from suppliers, the condition it's in when it arrives, how—and whether—it sits in our warehouses, and how it works and performs on the presses. In the future, printers, publishers and paper suppliers will have to recognize the fact that such standards will benefit everyone in the equation."

PI: How else will standards benefit customers?

Pyzdrowski: "Paper pricing is a good example. Although there might not be a significant difference between the price of paper today and what it will be five years from today, the market is such that, between now and then, pricing can be very volatile from year to year.

"This volatility leads to both opportunistic buying and panic buying, which, in turn, lead to warehousing problems and wild cost fluctuations. Established, industry-recognized paper management standards and predictable forecasts of usage can help enhance efficiency and cost-effectiveness, which will result in predictable costs for our customers."

PI: Let's talk technology. How has the transition to computer-to-plate (CTP) workflows been for your customers?

Pyzdrowski: "Initially, the adoption of digital workflows was rather slow, but as customers have come to recognize the cost and time savings it provides, conversion to CTP has accelerated quickly.

"Now, we've helped over half of our customers benefit by converting to CTP. And still others want to reach that point in the near future. Editorially, it is easier for publications to switch to CTP than it is to persuade each advertiser to conform to digital standards, but Donnelley is working with customers to encourage advertisers to switch.

"Of course, once the advertisers go digital, it can mean our printing facilities will get ads in many different formats, which is an inefficient way of doing business. So, we'd like to see standards implemented in this area, as well. Specifically, we believe the TIFF-IT format will work well for publishers and printers. It's a stable, well-defined standard that's easy with which to work. As one of the largest pre-media providers, we intend to continue to play a leadership role in helping the industry move to CTP efficiently and effectively, because publishers stand to gain so much by converting."

PI: What's ahead in the digital realm, throughout the industry—and for Donnelley?

Pyzdrowski: "Today, many content suppliers transmit their materials electronically—they're moving away from physical delivery of information by such means as overnight mail. With a greater abundance of high-speed transmission solutions coming from communications providers improving productivity, this trend will continue, which, in turn, will reduce even more cycle time. That means more flexibility in editing, more time for late ads and more accurate delivery."

PI: What effect will electronic media have on the printing industry over the next few years?

Pyzdrowski: "Electronic commerce will both cannibalize and complement the printed product. We recognize the value of electronic services, and we're exploring the value it can bring to customers and their readers.

"Just as printers don't necessarily view themselves strictly as printers, publishers don't really see themselves as just publishers of magazines. They consider themselves content providers who need to get their information to their readers as quickly and efficiently as possible, whether it's presented on paper or electronically.

"I believe it's up to us to help them achieve that goal. For example, it makes real sense for publishers to use electronic media for reference materials and extremely targeted information for audiences too small to justify printing a magazine. From the publisher's perspective, then, print and electronic media can complement each other.

"In most cases, however, printing will continue to be the most compelling medium available to most people; magazines are portable, flexible and convenient. That said, it is still up to printers to help publishers recognize and realize the value of a well-printed, cost-effective publication."

PI: Since reducing costs is at the heart of Donnelley's plan for the future, distribution must be a concern. You touched on this subject earlier in this discussion, but what specifically has Donnelley done to help cut costs in this area?

Pyzdrowski: "Our approach to distribution in recent years, like our approach to other links in the supply chain, has been grounded in the principle of maximizing efficiencies and minimizing redundancies in order to reduce costs. In the case of distribution, we did this with collaboration.

"For example, the United States Postal Service (USPS) is very good at getting materials to the home, but, in the past, we relied on them every step of the way, which tended to drive up customer costs. Since then, we've taken a look at our publishers' needs and objectives, and have worked with the USPS to develop a mail consolidation network where, in some cases, we physically deliver stacks of magazines to Destination Delivery Units, which then deliver them to our customers' readers.

"In the end, the publisher, the printer and the post office all benefit from such a system. We're also looking at similarly creative ways to distribute materials to newsstands at a lower cost. With our volumes, we can go deeper into the postal system—more often and with greater efficiency than anyone else can. The savings are substantial. In 1997, we delivered $100 million in postal savings for our customers."

PI: Will it be possible for large printers to continue this trend toward reducing distribution costs?

Pyzdrowski: "I refer, again, to the critical importance of managing the supply chain from beginning to end. That starts by recognizing that this is a manufacturing business, and that the whole industry can benefit from the cost-reducing principles inherent in manufacturing.

"We can define the process, standardize it and repeat it to drive costs down and help publishers get the most from their partnerships with their printers. All parties—publishers, suppliers and printers alike—will have to work together to achieve this level of cooperation. We can do it. For the good of the printing industry and our customers, we must do it."
 

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