Photo: Getty Images by Petrovich9
Overruns have long been a standard part of doing business in the promo industry, but not everyone is on board. We talked to distributors and suppliers to learn the reasons behind overruns, identify strategies for dealing with them and attempt to settle a surprisingly philosophical question they pose. Plus, we ask if the economic fallout from the pandemic rekindled the debate.
by Sean Norris
As industry controversies go, overruns and their associated charges are pretty mundane. If, for example, a global pandemic that wipes out entire markets overnight and requires promo companies to reinvent themselves on the fly is a nuclear explosion, overruns are a simmering pot that every so often boils over onto the stovetop—an annoyance, not an existential threat. Still, that doesn’t make overruns any less of a pain. And, sometimes, they’ll burn you.
That was the case recently, when a frustrated distributor took to an industry social media group to raise concerns about overruns he saw reaching as high as 20 percent. The post, which featured words like “fed up” and “abusive,” generated 125 responses and a good deal of conversation about industry standards, decoration processes and pricing policies. Much of it was constructive. Some of it was less so. But all of it made clear that overruns, while commonplace, are no less polarizing or, in some cases, misunderstood. And the discussion raised a fascinating point, perhaps best articulated by Harold Wood, field sales and account manager for BIC Graphic, in the post’s replies: “Industry standards are only standards while people allow and pay for it.”
For this story, we talked to a number of suppliers and distributors—some who participated in the original discussion and some who did not—to address various questions and concerns surrounding overruns and identify constructive solutions for distributors. We also attempted to answer the question Wood alluded to above and others asked outright: Why, after decades of advances in manufacturing and decorating equipment, has the industry been unable to eliminate overruns altogether? As we’ll see, the reasons behind overruns and the strategies for dealing with them are fairly simple. The rest, as it turns out, is a bit more complicated.
Overruns, from a technical standpoint anyway, are easily explained. In the production process for any promotional product, typically during decoration, issues can arise that may result in damaged or otherwise unusable items. A pen positioned slightly out of alignment on the belt of an automatic pad printing machine, for example, might end up with an imprint in the wrong location. In screen printing, screens can tear or colors can shift if a screen is off. Products may be damaged in transit or assembly, in the cutting, folding or gluing phases. In some cases, decorating equipment runs at high speeds, making it difficult to hit an exact quantity—stop the press too soon, and there may be too few finished items.
To compensate for these potential losses and avoid underruns, suppliers aim to produce more than the ordered quantity. The practice dates back decades and is common in manufacturing. And given the promo industry’s complex supply chain—products can change hands from supplier to decorator to distributor to customer to end-user, leaving greater potential for damages—it’s generally accepted as standard. “It’s been our experience that customers are more upset if we happen to ship an order short, so we prefer to print overs,” said Sara Fette, contract key account executive for 3M Promotional Markets, the supplier based in North Mankato, Minn.
Most suppliers come in around 5 percent for overs and unders. This is considered the “industry standard,” though there are exceptions for certain suppliers, and it varies depending on who you ask. Fette, who participated in the original social media discussion, said 3M’s policy is 5 percent overs and up to 10 percent unders, which she considers standard. “In my opinion, more than 10 percent over or under would be a little excessive,” she said. Gary Semrow, chief marketing officer for American Ad Bag, Woodstock, Ill., put the industry standard at 10 to 15 percent. “When you start getting over 20 to 25 percent, it is a little high,” he said. The percentage can also vary from product to product. American Ad Bag runs exact quantities on custom/large quantity paper, cotton and non-woven bags, Semrow said, but on large quantity plastic bags it runs 10 percent overs/unders.
Custom plastic bags and some other flat, printed plastics are notoriously tricky to produce in exact quantities. They incur scrap at multiple stages of the production process, whether in cutting, setup or conversion, and they’re typically run on large, high-speed presses. This means they often come with higher overrun percentages, like the 10 percent Semrow noted, or in some cases higher. (The subject of the distributor’s frustrations in the post venting about 20 percent overruns was, of course, a plastic bags supplier.) Plastic bags are also common products in the promo industry, which means most distributors have likely encountered these higher overrun charges at some point, without necessarily understanding the technical reasons behind them.
While the basic concept of overruns isn’t complicated, these nuances and inconsistencies can be. And it doesn’t help that some industry suppliers don’t ship or charge for overruns at all, while others charge a fee for exact quantities. With such variations in policies and prices, it’s easy to see why some distributors are skeptical about the entire practice. “I really don’t think there is a need for overruns,” said Martha Whittier, owner of Golden Key Promotions, a distributor based in South Kingstown, R.I. “If a supplier can send your order plus the exact amount of the overrun—5 percent or 10 percent or whatever is stated on their site—then they can certainly send and charge for only what the order asks for.”
"When I was new in sales, there were a few times I ended up in a sticky situation with overruns. But overall, I’ve found that the better job I’ve done with educating customers, those uncomfortable conversations have basically become nonexistent."—Jed Spencer, inside sales, NBS Promos Inc.
As we’ve seen, Whittier isn’t alone in this viewpoint. No one likes extra costs, especially when margins were already thin, and are now potentially even thinner due to the pandemic’s economic impact on industry verticals (see sidebar on opposite page). And while larger distributors may be able to simply absorb these costs, it’s not always so easy for smaller distributors. But there are some solutions.
Foremost of these is communication, starting on the supplier side. Clear, easily accessible information regarding a supplier’s overruns policy helps avoid confusion from the start. Most suppliers list this information right on their websites. (It took me less than a minute each to find overrun policies for all but one of 15 hard goods suppliers randomly selected from our 2020 Top Suppliers list. For the sole outlier, I was unable to find the information and gave up after a few minutes, though that may have been user error.) In cases where this information is not readily available on a supplier’s website, a call to a supplier rep or customer service line should work, but it’s often available in multiple locations. Fette said 3M lists its overruns policy on its quote forms, in its catalog and on its website. Other suppliers may let distributors know at the time of the quote, on the proof or on the emailed order acknowledgement.
“I think most suppliers do a good job with this,” said Jed Spencer, inside sales for NBS Promos Inc., a distributor based in Liberty Lake, Wash., who participated in the original discussion in the social media group. “If they make it a standard practice to have this information somewhere on each product page on their website, and at least in the information section on the back of their catalog, they’ll save themselves the hassle of those uncomfortable conversations later.”
From there, it falls on the distributor to communicate those overrun policies to customers. It might also help to explain what overruns actually are. This is easy to overlook, but it’s crucial in helping avoid surprises. If overruns are treated as a normal and necessary part of an order, rather than as an additional, unexplained fee tacked on at the end, it will go a long way toward a customer’s understanding and acceptance of the charges. And, ultimately, this allows for the simplest and most obvious solution for handling overruns—passing the costs along to the customer.
“When I was new in sales, there were a few times I ended up in a sticky situation with overruns,” said Spencer. “But overall, I’ve found that the better job I’ve done with educating customers, those uncomfortable conversations have basically become nonexistent. I have a standard disclaimer regarding typical over/underrun policies that suppliers may have on all my quotes, which I can quickly delete if I know the supplier sends exact quantities. The verbiage also lets the customer know to contact me if they’re not OK with that and the possibility that there may be an additional fee to get the exact quantity. With new customers, I will often point out that disclaimer so they understand the possibility of getting more or less than what they ordered.”
A simple explanation like this is usually enough. But, sometimes, it may not be. Spencer said he sometimes runs into issues if a customer places an order that needs to be billed and paid before that customer’s fiscal year-end budget-clearing deadline. This requires billing the order before the customer receives their goods, which poses obvious problems if the order ships with overruns. Spencer said this is a rare occurrence. But, other times, issues may be budget-related. Mike Wilson, vice president of operations at Overture Promotions, the distributor company based in Waukegan, Ill., said that larger customers typically understand the need for overruns and have the budget to cover them without issue. Smaller customers, though, may have smaller budgets and could be less comfortable with what they view as added costs.
In these cases, or in cases like Spencer mentioned above, distributors have a couple of options. One is to build a cushion into their pricing to account for overruns ahead of time. This won’t necessarily alleviate customer budget issues—and it could make your quote less competitive—but it will reduce the customer’s perception that they’re getting hit with additional fees. A second option is to state on your purchase order to the supplier that you cannot accept or pay for overruns. Many suppliers will accommodate this request, but it may result in an underrun, which should be explained to and cleared with the end-customer. Other suppliers may charge an exact quantity fee, which eliminates overruns, but isn’t always an option.
“Many of my clients use purchase orders for their orders,” said Whittier. “Once a PO is created, I cannot go back and charge more than what was on the quote. If I am in a bid situation, I can’t add in an exact quantity fee and expect to win the bid. As mentioned above, many of my clients need to produce a PO before an order is placed. I have to give a quote with all charges and fees included. These clients are not ones where I could add in overrun protection on their orders. Therefore, once the PO is approved and I have the go-ahead to place the order, I can’t invoice them for more than what is stated on the quote. If a supplier sends overruns and charges me for them, I end up having to pay and can’t always pass it along to my clients.”
Which brings us to a third option: absorbing the costs. Wilson said that Overture will often simply treat overruns as a “cost of doing business” rather than charging them to the end-customer. Darrell McChesney, director of sales for Team Iowa, a distributor based in Cedar Rapids, Iowa, said he’s rarely run into issues with overruns, largely because of this approach. “In the end, we don’t get into a debate or a hassle with the client,” McChesney said. “If we get billed for overruns from the supplier, we pass that charge along to the client. If the client refuses or complains, we take off the charge no questions asked. We explain what the supplier did, take the charge off, send a new invoice and move on. It’s not worth losing a client or having them unhappy with our services over a few dollars.”
If none of these options make sense, try asking your supplier how they can help. Most are flexible and understand that some orders and customers require different solutions. Suppliers want your business—and the best suppliers want partnerships. (For more on establishing and developing business partnerships with industry suppliers, check out Promo Marketing's Back to Business Virtual Meetings scheduled for November 2020 and multiple dates in 2021.)
“We’re willing to work with a distributor as long as we have a ‘window’ of overs/unders,” said Fette. “For example, rather than the standard 5 percent over/10 percent under, we may suggest ‘4 percent over/5 percent under.’ Or ‘no overs, but up to 10 percent unders are OK.’ It really depends on the customer’s needs, and we’ll make every effort to accommodate that when we can. If they absolutely need exact quantity, then a 5 percent charge would apply. Of course, if the order is very large, maybe only a 1 percent or 2 percent window is needed, and we’re happy to discuss options.”
None of this, of course, answers the question many distributors, even the ones who understand and accept overruns, come back to: Why hasn’t the industry figured out how to eliminate overruns altogether? This is what Wood, at BIC Graphic, alluded to in his comment about industry standards. And it’s the big question for Whittier. For McChesney, too: “Once I understood the process it made a little more sense,” he said. “I’m not sure I know what should be an acceptable amount in today’s industry. I keep thinking with the advances in decorating and automation that we should be getting closer to the exact quantities ordered, though.”
That question becomes more complicated when we consider that some suppliers have eliminated overruns. BIC Graphic, for example, did away with them in January 2019. Carrie Lewis, marketing and communications manager for the supplier, which ranked No. 5 on Promo Marketing’s 2020 Top Suppliers list, said the decision was part of an ongoing initiative aimed at evaluating and improving production processes across the company.
“Our continuous improvement team identified eliminating over/underruns to be operationally efficient while also ensuring our distributors are not short on product or incurring charges for extra items,” Lewis said. “Manufacturing processes and capabilities are complicated and can vary greatly—and the promotional products industry is especially complex. At BIC Graphic, our engineering and production teams work closely together to make sure we are using all our resources to optimize our machinery and capabilities.”
The move appears to be working out for BIC Graphic, which as of Jan. 1 2021 will rebrand as The Koozie Group. (Other suppliers have also eliminated overruns, though some may have adjusted base pricing to compensate.) But Lewis’s reply highlights perhaps the biggest reason that overruns keep hanging around in the industry at large: They’re necessary. Even if suppliers produce exact amounts, distributors still need overruns to be absolutely sure their customers won’t be short on product—especially for more complex orders.
“We experience this daily as a distributor with a large fulfillment house,” said Wilson. “Once the supplier sends the product, we are then handling that product and split shipping or kitting it with other items. These items can be damaged in transit to our facility, or damaged on the floor with our kitting handlers. If I am kitting a 10-item kit and shipping 500 kits to 500 locations, the chances are high that if I received exact quantities on each of those 10 items, there will be item or imprint issues on a few, which then will result in a re-order of product and timeline issues to meet event dates.”
Even Whittier, who was maybe more critical of overruns than anyone else I interviewed for this story, acknowledged that, sometimes, they’re welcome. She said her clients are usually excited to receive “free” pieces, and she appreciates when suppliers ship a few extras. Spencer, meanwhile, believes overruns may actually be a good thing for everyone involved, especially when customers understand them and pick up the costs. This, more than anything else, perhaps best explains why overruns have remained the industry standard—and why it’s unlikely they’ll be going away any time soon. “You and your supplier make extra money, and the customer receives more items to hand out,” said Spencer. “It’s a win, win, win.”