How to Work with a Paper Merchant
As a mill rep, I sold paper through merchants. As a printer, you probably buy paper from merchants.
I found that most merchants make money selling paper, but there are a few who make money buying paper.
How do they make money buying paper? I remember a story, told to me by a merchant executive, about how some of the company's sales reps were celebrating a drop in the price of paper. Why were the sales reps happy? Because they knew that for at least some of the orders they had in place, they could buy the paper at the lower price, but would not have to pass the savings on to the printer. Since they were paid a commission on the gross margin, this meant more money in their pockets, while everyone else was a loser: the mills that had lower prices, the merchant house whose inventory value went down, and the printers who were not getting the reduced market price.
I remember another story. I was playing golf with a guy whose friend was a merchant sales rep. He said the paper business was a strange one, and explained that his friend said he made money when prices went up and when prices went down, but not so much when prices were stable. When prices went up, he was able to get the increases from the printer, but was also able to delay paying the increase to the mills. When prices went down, he was able to get the lower prices from the mills, but not pass the lower prices on to the printers.
How do you avoid these situations? One thing I’ve said before is that printers and mills should work together, and merchants are an important part of the equation. In selecting a merchant, you need a strong merchant rep with a strong merchant house behind him or her. Of course, they must buy paper well, but they must also add value—and by adding value they earn their money selling paper.
Ed Farley, senior vice president, marketing and communications for Unisource put it succinctly: “Today a merchant has to offer more than just a product. A merchant has to offer a platform of values to the customer that will help the customer grow their business profitably.”
Merchants buy paper from the mill, and then resell it at a markup. Margins are tight (except when they don’t pass price decreases on to the printer). There’s not much to be gained by trying to play one merchant against another—you can’t get much blood from that stone. Better to find one or two good merchants who understand your business and provide the service you need and provide paper at a competitive price.
Bob West, executive director for NetPrint, offers 10 specific things to look for, advising printers to: "Make sure your merchant...
“is a true 'merchant,' not a distributor. The printer needs a partner who is focused on a few products in each category and dedicates his marketing expertise with these suppliers.”
“has 'brick and mortar'—people and inventory in your market to service your account properly. Paper is your biggest spend; partner with a merchant who has made an investment.”
“has regular service runs for delivery to your plant. Late deliveries because of poor service are costly to your business.”
“has dedicated customer service, outside sales and technology to support your requirements. None of the shortcuts have ever been very successful.”
“is knowledgeable and proactive with market intelligence. Your competitive advantage depends on this.”
“is a solid link in the supply chain with mills. A marginal merchant will not represent your interests well with mills.”
“is solid financially. Choose a partner who is growing and managing its bottom line.”
“is fully informed of your goals and objectives. A solid relationship can carry both through difficult times.”
“has easy access to your management team. Most issues can be avoided with proactive communications.”
“is easy to deal with. Simple concept, but more true than ever.”
West used the word partner several times, and he is right. Ed Farley talked about values, and he is right. It all comes down to helping you grow your business profitably and, if done right, it’s a WIN/WIN/WIN—win for the printer, win for the merchant, and it can be a win for the mill, too. WIN/LOSE is just not sustainable.
Jack Miller is founder and Principal Consultant at Market-Intell LLC, offering Need to Know™ market intelligence in paper, print and packaging. Previously, he was senior consultant, North America, with Pira International.
Known as the Paper Guru, Jack is the former director of Market Intelligence with Domtar, where he also held positions as regional sales manager, territory sales manager and product manager. He has presented at On Demand, RISI’s Global Outlook, PRIMIR, SustainCom World and at various IntertechPira conferences. Jack has written for Printing Impressions, Canadian Printer, Paper 360, PaperTree Letter and Package Printing, along with publishing a monthly e-newsletter, MarketIntellibits.
He holds a Bachelor of Arts degree in Economics from The College of the Holy Cross and has done graduate studies in Statistics and Finance.