Corporate purchasers identify major cost cutting potential in improbable place: thermal labels

Although most top corporate financial officers view labels as a commodity item, for large operations that consume millions of thermal labels each month, it is a prime operating expense with sourcing decisions made at the corporate level.

Given the sheer volume, purchasing strategies designed to cut out the middlemen and instead source directly from bulk specialty converters can cut annual labelling budgets by millions per year.

According to Russell Gayer, manager of printing services for a Fortune 100 food processor, large corporations can utilise hundreds of millions of labels per month. Even comparably smaller operations of $200 million or more in annual revenue can have label budgets that exceed $250,000 a year.

"You can run through a couple million thermal labels faster than you think," says Gayer, who in addition to currently managing the in-house print facility, has experience sourcing labels at the corporate level.

From manufacturers, warehousing, distributors, and resellers to food service, pharmaceuticals, healthcare and hospitals to big box retailers, supermarkets, e-tailers and mail order, millions of thermal labels per month are required for packaging, distribution, and logistics at thousands of locations nationwide.

Labels have a range of vital uses with both fixed and variable data. Far from "blanks," these labels often come pre-printed from the converter with store name, logos or other branding, as well as fixed information and defined spaces or boxes where variable data will be printed later by the processor. These labels ultimately are used for shipping and inventory management, food and meat packaging, and pharmacy and drug labelling.

According to Gayer, with so much at stake Fortune 500 companies are constantly searching for reliable label companies capable of delivering a quality product, consistently, and at the lowest possible price. For many, this means partnering with specialty converters that can pass on savings due to bulk purchasing power of thermal media direct from its source, in addition to delivering unique consignment and inventory management options.

By sourcing a thermal label supplier with these capabilities, corporations can reduce annual labeling budgets by as much as 40%.

The process of identifying a thermal label converter begins with an RFP to multiple suppliers, followed by careful vetting of each to determine the company's stability and long-term viability.

"Obviously price is the ticket to the dance," says Gayer. "However, we follow up with a lot of questions so we can learn about the company we are partnering with to determine if it can deliver the goods consistently."

Gayer cites the example of OMNI Systems. In 2000, he contacted the company for a quote on scale labels in quantities that were in excess of thirty million per month. OMNI Systems, the largest, privately owned label convertor in the United States,specializes in pre-printed or blank direct thermal or thermal transfer labels.

To start, he found the initial quote hard to believe. "When I got the pricing, I thought surely there was a mistake," he says.

Doug Williams, print category manager at a national retailer had a similar first impression when he was looking to convert from UPS labels to new shipping and inventory tracking labels. A few years ago, he reviewed a quote from the label converter for product ID labels at a volume of several million annually.

"When I got the pricing, I went back twice to verify it was correct because it was much lower than our other quotes," says Williams.

When he contacted the company to confirm the price, OMNI Systems explained that as the largest consumer of thermal media in the world, it had the purchasing power to procure quality raw materials at extremely low rates. In addition, the company operates in a lean, modern, 24/7 operating environment. The savings that result are passed on to the customer.

Such large converters can also source accessories like printheads directly from the same manufacturers that sell to OEMs, without the additional mark-ups typically involved. In addition to this, they can also include all tooling and plates at no additional cost.

Complicating matters, for this particular purchase the national rollout was set to occur within 6-8 weeks, so the task was urgent. According to Williams, the specialty converter was able to ship the labels two weeks ahead of schedule while saving his company over 40% in label costs.

"They were able to save us over $800,000 on the one label product," says Williams, who adds that he was satisfied with the quality as well. "After testing printed samples in stores, everything worked as promised from fit and form to adhesive."

When dealing with millions of thermal labels in rolls of varying diameters, another major concern for national chains is inventory management. Once the supplier is approved at the corporate level, individual or regional plants can access the information and order using the company's ERP system. However, leaving the task of inventory management to in-house staff can result in human error that can leave the processor high and dry.

For this reason, large thermal label converters often offer several Vendor Managed Inventory options to ensure that label stock is maintained to inventory minimums and replenished quickly from regional distribution centers.

This type of program requires the label converter to maintain its own sizable inventory at specific minimums agreed upon with the customer.

"From a corporate point of view, we realize that with the volume of tens of millions of scale labels there has to be significant inventory at the supplier as well," says Gayer. "So we worked with [OMNI Systems] to identify an appropriate min/max inventory for them to keep based on past order history and projections."

For higher volumes, the thermal label converter offers a consignment option that allows the processor to store thermal transfer or direct thermal labels at its facility at established minimums so stock is available at all times. The processor is not asked to pay for inventory until it has been pulled and reported.

If required, label converter can also take control of the inventory process for the end user by tasking personnel to go to the processor's site to complete inventory counts and ensure label supplies are maintained.

There are many advantages to this type of arrangement, including guaranteed product availability, less cash invested in labels sitting on a shelf, and a significant cost savings by eliminating the need for overnight or expedite fees. This type of approach can save processors up to 40% on annual thermal label budgets.

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