By Antonio Sánchez Navarro
Itex 2014 was a good show according to most of the people participating that I talked to. It was slightly better than last year. And this is good as it breaks a negative trend.
In the multiple conversations with both distributors and dealers sensing their view about the future of MPS, I heard from a large majority that the current managed print services as a cost per page model is dead. It confirms what the analysts have been anticipating during the last couple of years. Why is this? How did it come to this point? Is there something after?
MPS is quite often mixed up with cost per page. Assuming this is correct and that they are the same thing, then MPS has been alive for almost 60 years, since Xerox introduced its innovative machine rental scheme in late 1950s and its legendary 914 copier.
First DCA and the expansion of MPS.
Since then, the only relevant thing came out in year 2000, when the first data collection agent (DCA) is patented. The DCA changes the billing process, making it possible to bill monthly with on-line actual counters, instead of estimates. It opens the door to have network connected devices included in the contract (most of them printers), and not just stand alone copiers. As a consequence, the IT dealers join this business with a quick and strong penetration. The competition for the copier dealer is tough, and the war in cost per page starts.
2007-2010 are years of glory. All dealers want to have it. All consultants talk about it as “The service” anyone in the industry must have in place. The strong demand from customers to control their cost of printing reinforces this perception.
But the transition from selling cartridges to selling pages is done without the appropriate consideration of all risks involved. It is rare at that time to see any analyst explaining why the demand from customers is so strong. Nobody explains that the customer just wants his printing costs controlled; he knows that he throws away toner on almost every single cartridge replacement; he is aware that he stocks in excess cartridges that very often have to be thrown away when the printer model is replaced by a new one. He also sees from time to time reports showing how dishonest employees resell his cartridges in eBay, and wonders if this may be happening to him (we recommend the following readings from The Liverpool Echo, NHS manager ripped off over GBP160,000 by ordering unnecessary printer cartridges and from ABC NEWS, Supply Closet Kleptos).
It is even rarer to listen to industry consultants talking about risk shifting. Nobody explains to the dealers that once they start billing pages to their customers, the issue with uncontrolled supplies cost is 100% theirs. As a consequence, the party comes to an end to early. Starting in 2011 there is a general feeling among dealers that this business is not generating the profits they were promised. Indeed, the majority of them are convinced that they lose money. As a matter of fact none is making the expected 50-70% margin, and those few that are close to it, is because they spend big sums in controlling their direct costs, therefore shifting $ from one pocket to another: from an excess of toner acquisition to an excess of headcount.
At some point of time the business around cost per page is close to ridiculous. We saw dealers investing $50,000 in tools to collect counters, to then bill manually! But numbers on paper where supporting it: with a promised increase of 20% on margin any dealer could support this investment. Nobody wanted to miss the big party.
Distributors and OEMs, they all want to participate in the fiesta. Their business approach though is more solid than the one from the dealers: their goal being to increase their sales of supplies by facilitating the dealers the access to an MPS platform. All dealers should be in MPS, and the distributor should be hosting the infrastructure.
The beginning of the end.
But when the base totters, the whole building collapses. The actual business figures show that margins are squeezed because the amount of toner delivered is much higher than what was initially considered for a fixed cost per page. The lack of profitability of the dealers in CPP contracts pushes them to diminish their costs. With growing tough competition there is no time to waste. The quickest and easiest way is always to buy cheaper.
The dealers explore other sources for better prices of the toner. During the last 3 years we have seen aftermarket products and alternative products rising strong. As a consequence both the distributor and the OEM that set up an MPS program to increase their sales, see their dealers buying more and more from somewhere else. They are then forced to be competitive in price, which drops the price again and again.
The quick rise of MPS is followed by an even quicker decline of the MPS business. The OEMs are those primarily penalized: the benefit flows to their industry competitors (the producers of alternative supplies).
Superman and costs control.
Is there a way back to the original goals? Can we still save the current MPS model based on cost per page (CPP)? The answer can only be found once we understand why it went wrong. The CPP model was searching for bigger margins by changing what the invoice looks like; no changes in prices and no changes in costs. Isn’t this ridiculous?
Let’s now imagine that we can’t touch the price at which the page is sold (CPP), but we can influence the costs. Would the margin change? The answer is a clear “yes”. As a matter of fact there is plenty of room to reduce the cost of a page by simply reducing the amount of cartridges shipped to the customer. This is achieved by doing the following:
1) Track every single cartridge from the moment in which the dealer decides to deliver, till it is installed in the printer or MFP;
2) Ensure that only needed cartridges are shipped, that they do not get lost on their way to the printer;
3) Ensure that the cartridge is completely empty when replaced.
There is more than 30% margin in all this.
Doing a full tracking of each printer is not an easy task. Some of the dealers are satisfied with their employee in charge. They are indeed convinced that they simply can’t do better. Let’s make some basic numbers to verify:
A dealer with 2000 monochrome printers in contract must be delivering around 8000 cartridges a year. For the sake of simplicity let’s assume they are all monochrome.
This means that an average of 32 cartridges is shipped daily.
Assuming we want to deliver as close as possible to the moment in which the cartridge may get empty, but not too late, a manual daily follow-up over 500 printers must be done; this number corresponds to the amount of concurrent printers which toner is getting to a low level.
Once the employee in charge makes the decision to ship, he or she must follow-up on the cartridge to ensure it is installed (to avoid it getting lost) and that it happens at the right time (to avoid throwing out toner). Assuming the cartridge is delivered an average of 10 working days in advance, the employee is daily tracking 10 days X 32cartridges daily (320 cartridges daily). He must register each time one is installed, and add each time one delivery takes place.
The total is:
- Printer needs monitored daily: 500 devices
- Number of cartridges monitored daily for installation: 320
- Both printers and cartridges change daily, so the analysis is performed over different “individuals” each time.
- Should the printer be a color one, these numbers multiply by 4!
Superman or superwoman (as this is how we must call him or her now) is therefore performing a check every 19 seconds. And of course this is assuming that the printer is not experiencing relevant changes in its behavior in a day. Should this happen, our hero has to do his checking several times a day!
I don’t think anyone can expect a human being doing all this, and doing it right. So maybe it is worthy to be honest with oneself and think on the possibility that the dealer does not have its costs under control after all.
MPS AFTER MPS
The dealer, the distributor and the OEM have no option but throwing away their $50,000 investment and buy a tool that, on top of capturing page counters, it determines when is the right moment to ship, and it tracks every single cartridge automatically from need to installation. This is called a printer management tool with lean management functionality. The dealer will certainly not find it in his current tool. So better explore the market. Nubeprint is currently the only tool that ensures the profitability via reduction of costs for the dealer. Designed for dealers, Nubeprint makes any MPS program profitable, especially when using quality cartridges from OEM or quality remanufactured. Does this mean that you have to replace your obsolete MPS tool? The answer is a yes. Nubeprint does all what your current tool does (which is only collecting counters correctly), plus it automatically determines when a specific cartridge will be needed by a printer, sends you or your ERP the alert, and then tracks the cartridge till it is installed and even till you pick it up empty after the next replacement.
The existing portfolio of contracts can become greatly profitable (50-70%) by simply pushing away from their infrastructure that does not perform, and replace it by advanced algorithm based technology that reduces its direct costs. The sooner this is done, the more time the dealer has to recuperate the losses and make a significant profit. Therefore, is there a future for MPS based on cost per page in the MPS model? The answer is a “yes”; and this is more MPS, but this time having addressed the problem ignored during the first decade of this millennium: the costs.
P.S.: I shall ask the readers reading my articles regularly to forgive me for talking about my company. This is an exception. My purpose is to let them all understand that the control of costs is not possible in any other tool in the market, even though some vendors may give the impression that their system offers such a solution.