DSFI successfully navigates the complex paper trail

As America shifts its business to the Internet, the folks who make receipts and labels and all those little bits of paper have seen their industry shrink dramatically. Amid the tumult, Addison-based Distributors Stock Forms Inc. survived by creating a stable, profitable niche and getting the basics right.

It also treats its customers right: 85 percent of orders are shipped out the same day.

"We're a survivor in an industry that has become extraordinarily difficult," said CEO Malcolm Geffen. "This is not a 'Rolls Royce'-fancy industry. This is very much a nuts-and-bolts industry and we've tried to run it that way."

DSFI bills itself as the country's largest privately-owned stock forms company, with 150 employees and four manufacturing plants in Chicago, Texas, California and Pennsylvania. The company buys paper and makes it into products like the confirmation slips ATMs and gasoline pumps spit out, labels encircling bottles of water, as well as computer pages, health-care forms, copy paper and custom forms. Customers include private companies, government agencies and retailers.

"They have a very high-quality product," said Elizabeth Suerth, general manager of imaging for Hoffman Estates-based ADP Inc. DSFI has supplied ADP with customized paper for eight years, she said.

DSFI has grossed between $60 million and $70 million for each of the past 10 years, according to Geffen, a South African immigrant who took the helm of the company 21 years ago. In just the last two of those years, the company took over the production for two other paper processors.

Turning out paper products that will be sold under another business' name now makes up 35 percent of DSFI's output, he said.

"As the industry is consolidating, we're trying to be the consolidators," said Geffen, who was educated at Harvard University and the Massachusetts Institute of Technology.

Soon after Elk Grove Village resident Bob Hehr founded DSFI in Itasca in 1978, the proliferation of new technology like personal computers increased demand for rolls of continuous paper used in the printers of the time, said Michael Bacon, who worked in the paper processing industry for 35 years.

Bacon is now a consultant for DSFI and other companies. He said that, in response to the new demand for computer paper, the paper processing industry stepped up production and new players got into the game. In the mid-1990s, though, the use of computer paper leveled off as more people became comfortable with storing data electronically, Bacon said.

Soon there was a glut of paper on the market. The price of the product dropped and many companies small and large went out of business. Many of the ones left competed for an emerging market created by office specialty stores like Staples, Bacon said.

DSFI consciously took a different tack, according to Geffen; it went after the market for customized paper products, which has higher profit margins. Since then the market for high-volume paper products like those made for Office Depot has somewhat fizzled, while the market for customized paper has remained stable, Bacon said.

"We have a clear focus of who we want to do business with," Geffen said. "We tried not to stay making the lowest profit margin items, the high-volume items. That's why our product line is so specialized and broad."

DSFI chose its large product line by tracking the customized orders received from customers; when the company saw that it was getting many requests from different sources for a similar customized item, it added it to its product line, Geffen said.

At the same time, the company had to focus closely on the cost of production, since its largest expense -- the paper itself -- is an uncontrollable factor that fluctuates wildly. Over the last 20 years the cost of paper has peaked and declined several times. The expense now makes up 70 percent of the final price of DSFI finished products, Geffen said.

"We're very much driven by the price of paper," he said. "It's been a challenge. It's been hard."

Outsourcing production overseas would have increased transportation costs too much, but through the use of technology and downsizing of its work force, DSFI reduced operating expenses by $3 million over the last two years.

"DSFI has managed this delicate balance of trying to create an atmosphere where the product is customer-customized but there are also economies of scale," Bacon said.

Nor does DSFI keep cash tied up in inventory: while orders still come in by phone or fax, 50 percent of customer requests are sent to the company electronically, said William McKillip, the chief financial officer. Within four minutes of receiving an order, a computer has sent the request to personnel on the manufacturing floor.

The raw material received by the company for production is used within 12 days. Finished goods stay in the company's warehouse no longer than four weeks, McKillip said.

"The status quo is change," he added. "Change is with us. Change is normal. And you just have to be able to sense where changes are and not fight it and adjust your business to take advantage of it."

Business profile

Company: Distributors Stock Forms Inc., a provider of customized paper documents and forms.

Chief executive: Malcolm Geffen

Headquarters: Addison

Annual gross revenue: $65 million

Employees: 150

Web site: dsfiforms.com