Will the office supplies market still remain soft for buyers?

Transcription

1 ARTICLE August 2013 Will the office supplies market still remain soft for buyers? Author Chetan Roy Gupta Copyright Beroe Inc., All Rights Reserved

2 Office Supplies is an integral part of Facilities Management (FM) spend. It constitute around 4 6 % of the total spend on Facilities Management (FM) for a fortune 500 company. So it is important to understand the nitty-gritties of office supplies industry. Moreover with the changing supplier base dynamics due to mergers and acquisitions the fortune companies have started focusing on the market trends which could help them to consolidate their spend. It is important to evaluate and understand the future market dynamics which could help buyers to source office products in a more productive and an efficient way. Following are some of the recent trends which could have significant impact on procurement of office supply products more from cost perspective. Market moving to an Oligopolistic situation - No More BIG 3 only BIG 2 In geographies like U.S. the BIG 3(Staples, Office Depot and Office Max) have a significant presence. U.S. also has local/regional supplier providing office supplies services with better turnaround time. So, to match up with the service levels such daily delivery provided by the local supplier and the limited level of differentiation between products offered by the suppliers has led to increase in competition. Therefore to retain their client base and to have better bargaining power over their vendors, it is important for the BIG3 to provide better services at lower cost. This increase in competition among the BIG 3 has led to a competitive pricing, hence benefitting the buyers. The situation is expected to change with the merger of OfficeMax and Office Depot. After merger, the two companies (Staples and the merged entity of Office max and Office Depot) will contribute almost 70%-75% of the overall corporate office supply market. The competition among top two

3 (Staples and the merged entity), having almost equal revenue is expected to decrease. This consolidation of the supplier base may create oligopolistic situation in the office supply and can increase the supplier power. This will also help the two companies to improve their profit margins which have not shown a positive trend since Suppliers may set the price related issues for the fortune clients and buyers have to spend more on the same products in comparison to what they are spending now. However with entry of big retailers like Amazon and Wal-Mart trying to enter the office supply market and suppliers like Lyreco increasing their service capabilities may help to mitigate this effect and help buyers

4 Are there still any opportunity for buyers to consolidate their spend? Suppliers are continuously increasing their service capability by providing additional services like office furniture, break-room supplies, janitorial supplies and promotional marketing items. This has led to the change in sourcing strategies which involves bundling of these services under one contract. This will not only bring supplier consolidation but also reduce the cost. However, it is not possible for a single supplier to provide all the aforementioned products globally. So choosing the correct combination of products for different geographies according the supplier capability is important. Thus, having a global contract containing the basic office products (Office Supplies, Paper, and Ink & Toner) and then clubbing additional products (office furniture, break-room supplies, janitorial supplies and promotional marketing) in some geography can be part of the sourcing strategy for a fortune 500 company. This trend may see an impact from the managed print service providers who are providing the print services at a much lower cost as compared office products suppliers. This could lead to the reduction in the sales of paper and toner products from the office product suppliers which in turn may force them to increase their service capabilities throughout the globe, hence again providing an opportunity to buyers. Another tread of electronically sourcing of office products has seen an increase after being bit dormant for a few years. There is an increase in trend of reverse auctioning by dividing the office products spend into four tabs (office supplies, paper, toner, and off-contract spend). This will lead to a better clarity on prices offered by the suppliers and may help the buyers to get a cost reduction of about 5 10%.

5 Considering the current market dynamics of the industry it is expected that the office supplies industry will move from a soft to a hard one making it difficult for Fortune 500 buyers to negotiate. Though, buyers can leverage on the increase in services provided by the supplier and rationalizing their item basket. Focus should also be on optimization of the product range by keeping a check on the end-user adaptability. Further, laying emphasis on procuring one brand, one type and better priced product and leveraging on electronic sourcing help buyers to consolidate the spend substantially.

6 Metadata Industry to be impacted. Pharmaceutical Food, Beverage & Tobacco Metal, Mining & Minerals Chemicals Oil & Gas Personal Products Bank & Financial Services Hi-tech Domain to be impacted Facilities Management Focus Area Sourcing Opportunity Keywords Used Office supply, Office supplies, Office products, Procurement strategy, Sourcing Office Supplies, Merger Office Max and Office Depot.