The annual Converter Meeting of the Tag & Label Manufacturers Institute gives leading label converters, and a few suppliers and press, a chance to benefit from technical and marketing sessions, rub elbows, play some golf and relax in spectacular surroundings—this year the location was seaside Cabo San Lucas, Mexico.

But these are business owners and managers, and business issues are never far from their minds. Converting was able to catch up with members of TLMI's current leadership, as well as some up-and-coming converters who represent the future of the industry, and ask them about a few of the sticky issues facing their businesses and their industry. The participants included Michael Falco, president, Topflight Corp., Glen Rock, PA; Ken Kidd, CEO, WS Packaging Group, Mason, OH; Dwane Wall, president, Creative Labels of Vermont, Winooski, VT; Randy Wise, president, Century Label Inc., Red Oak, TX; and Suzanne Zaccone, president, Graphic Solutions International LLC, Burr Ridge, IL.

Converting: It's true that without customers, we'd all be out of business. But over the past decade, it seems that demands by customers can sometimes simply get out of hand, whether it's just-in-time delivery, consignment, reverse auctions, unreasonable payment terms, etc. What are some of the demands that you are seeing from customers? And how do you deal with them?

Michael Falco: "We're seeing customers who won't accept increases in materials costs, such as pressure-sensitive adhesives and inks, so we can't pass them on. We've had to do the R&D to investigate alternative materials."

Ken Kidd: "Customers have become more savvy when it comes to applications, so if we come up with a substitute material that costs the same and performs well, our customers will usually accept it. We're also seeing instances where customers want to know your cost structures and profit, in other words everything that goes into the price you're charging them. Obviously we're careful as to which customers we share that information with."

Falco: "Consignment-type arrangements, such as what you mentioned [in the question], force us as suppliers to own the inventory. No one wants to own inventory anymore. In fact many of us have speculated that retailers' long-term goal for RFID technology is to get to the point where they don't pay for inventory until it's sold. We're also seeing requests for extended payment terms of 90–120 days, where the standard obviously used to be 30–60 days."

Dwane Wall: "In today's marketplace, there are no unreasonable demands, just unique opportunities and challenges for success. What would be considered unreasonable years ago is the state of business today. The object of the game is to build a business that can be successful in the market it is presented with. The only completely unreasonable customer request is 'FREE'".

Randy Wise: "We are seeing a trend on our clients' part toward driving their label and packaging costs down and maximizing cash flow. Typically, this translates to a) smaller, more frequent orders with an expectation of unchanged pricing, or b) large blanket orders with staggered release dates meant to take advantage of quantity price breaks. We welcome these arrangements provided we can secure commitments/guarantees on annual volume requirements, inventory limits, and inventory turnover rates. Our past experiences have shown reverse auctions to be unreasonable and unfair, and we do not participate in that format."

Suzanne Zaccone: "We've experienced all of the above. Customers are ratcheting up expectations and challenging us with short, sometimes unreasonable lead times and stringent quality control mandates. That is not necessarily a bad thing, as we look carefully at our process for as much cost saving opportunity as possible. But as in everything, at some point there is not much left to cut out, reduce or improve. We're also finding that our customers are more knowledgeable. International competitors from emerging economies are undercutting our best offers, and new rivals appear every day.

"While many of the changes to international competitors have resulted in horror stories, the company that originally had that business has lost it for a period of time, and when it comes back—generally concessions are made. What do we do to deal with unreasonable customer demands? That depends on the customer and the level of unreasonableness. Online auctions—we are no longer players. Consignment is not happening either."

Converting: All businesses run on a budget, be they raw-material suppliers, equipment vendors, converters or end-users. But growing sales in a budget-conscious environment can be difficult. How does your company grow its sales in an environment of price pressures? And when does it make sense to walk away from business?

Falco: "Most of us have encountered scenarios, especially during the height of the reverse-auction days, when we had to walk away from customers because we just couldn't make money on the jobs for the bid price. The reverse-auction activity seems to be dying down, and I feel it's because a lot of these low bidders delivered poor service, and the customers went back to their original suppliers."

Wall: "Our goal is to be the lowest cost producer. When we increase our sales incrementally, the concept of penetrated profit kicks in and we are able to maintain our margins and offer our customers a lower-than-market price. It makes sense to walk away from the business when all of the above cannot be met."

Wise: "By controlling expenses, aggressive sales efforts, and Service, Service, Service! When the effort and expense of landing or maintaining an account outweigh the returns (real or projected), it's time to bale."

Zaccone: "We are very careful about the customers that we target and because we offer a wide variety of specialty and traditional printing, our sales approach involves more than just sales. Customers come to rely on us and we are able to meet many of the latest corporate mandates while providing them with several answers to current projects.

"We carefully analyze every job before presenting prices to the customer through our estimating department. Then we rely on the skills of our production staff and finally we analyze every job after it runs to be sure that the cost estimate had merit. Sometimes a price needs to be reduced, and sometimes increased. Again, depending on the customer and the price increase amount—we may or may not ask for the increase. Through this process we have recognized loss leaders and 'fired' customers or certain work from customers because it was not profitable. While many stories have been written on the merits of firing customers, there is danger as well. Firing a customer opens the door for a competitor to break into the markets you have selected to serve."

Converting: In 2004, there were almost 350 mergers and acquisitions in the worldwide packaging field. The total value of these deals was about $17.8 billion. Is consolidation a good or bad thing for label converters? And is acquisition a good way to grow your business?

Wise: "We believe consolidation in the label business to be a good thing. Our industry is very fragmented and overpopulated—especially in our company's geographic region (Dallas, TX). The result is an extremely competitive environment in which to do business. It is partly for this reason that we also believe acquisition to be a sound strategy for growth—provided the targeted company(s) fit your business plan and make sense economically."

Wall: "That depends on who you are. I don't feel that consolidation is either good or bad. What makes a difference is how you handle your own business. There are plenty of opportunities out there that need to be capitalized on."

Kidd: "I guess it's fair to say that WS Packaging has been an aggressive acquisitor in the past few years—we've grown to our present size of $200 million by buying label companies that were a strategic and geographic fit."

Falco: "We're kind of at the other end of the spectrum. Topflight is a privately held company whose owner is 84 years old. While we're instituting an ESOP [employee stock ownership plan], we are the kind of company that looks attractive for acquisition, and we must get 3–4 calls a week from people who are making inquiries along those lines."

Kidd: "The fact is that there's just a lot of money to be invested from private equity firms, and packaging looks attractive from an ROI standpoint. There's a lot of innovation happening in the industry, and the allure of such technologies as RFID makes the labeling sector look high-tech."

Converting: Whether a converter is publicly or privately owned, investing in the business means more than just looking at the next fiscal quarter. Longer-term investments can take many forms: new employees, new capital equipment, or new marketing strategies. Without disclosing company secrets, how do you decide to make such investments in the future? And how do you determine the short- and long-term return on those investments?

Wise: "We ask ourselves some simple questions. Does it make sense? (i.e. Does it fit our long-term vision of where we are going or want to accomplish as a company?) Does it support, enhance, or add to our capabilities and strengths? Does it address any of our weaknesses? If the answer to any of these questions is yes, we take a closer look at the economics.

"As to determining ROI: In the short term, can we afford it or how quickly will it generate enough additional business to pay for itself? In the long term, what affect can we expect in overall sales increase? Efficiency increases? Decreased dependency on outside suppliers? New market entries? Of course all of the previous questions must be quantified and examined as projected incremental profits."

Wall: "We make our investment decisions on a number of factors. One would be the greatest ROI, the longest market protection, the greatest revenue increaser and the availability of funds to meet the objectives."

Zaccone: "Our decisions to invest in the future have come from a long process of learning what we do best and leveraging that knowledge at every opportunity, being open to printing non-traditional products run through narrow-web and screen presses, long- and short-term strategic planning, accepting risks and failures, and a lot of entrepreneurial guts and instinct."

Converting: Our last question: What one issue do you believe is the most important challenge facing the label converting industry?

Wall: "Outsourcing, which is reducing manufacturing in the US, creating a shrinking pie. That, coupled with the commoditization of what used to be perceived as a craft."

Wise: "This is a tough one. Our industry faces many important challenges—economic, environmental, regulatory. But, we believe that the push to integrate RFID technology into the packaging stream to be a huge challenge. Most label converters don't fully understand what it is or how it concerns them. But it's a freight train picking up steam and headed our way. As an evolving technology, RFID has a lot of issues: the standards and protocols are still in flux, it is too expensive, the components too delicate. It would seem a natural fit to the label-converting process, but problems abound. It is an immense opportunity for our industry."

Falco: "I would say that it is going to be the influence of big-box mass merchandisers, retailers, putting pressure on the packaging supply chain, and in turn service, prices, the condensing of the supply chain. This will put enormous pressure on label printers."

Kidd: "While I think we face a host of challenges, the one thing that is at the top of my list is keeping up with prepress software compliance demands from consumer package-goods companies. That, and the supply-chain compression."

Zaccone: "Remember when computers were first becoming prolific and the buzz was that the printing world would soon suffer immeasurable loss because of it? Well, in my life this has not happened. Printers from every discipline are still hard at work and enjoying backlogs, and consumers are still reading books, magazines, newspapers, labels on products, and instruction manuals. Print is growing in some phenomenally exciting new ways.

"What I fear is that not enough printers are recognizing the explosive growth opportunities that are presenting themselves. Printing is already incorporating electronics, allowing users to be interactive with the product. This requires a major shift in production equipment, talent, R&D efforts, training, standards, sales and customer-service demands.

"The message here is that there are other options opening up for printers and for our firm and our industry that have yet to be fully explored, and we have to be ready for them—that is the challenge facing us today."