For U.S. Remanufacturers, MPS Is Both A Blessing And A Curse

by Charles Brewer

It’s increasingly difficult to make money marketing remanufactured toner cartridges in the United States. Remanufacturing cartridges that perform well consistently has always been a challenge and that challenge has been compounded significantly with the introduction of new imaging technology, particularly color. Finding vital supplies has also become an issue. The supply of empty cores--the remanufacturing industry’s life blood--has been drying up for the past few years and the price of empties has skyrocketed. And most importantly, years of fierce competition led by large companies both foreign and domestic has resulted in severe price compression and razor thin margins.

Medium-sized remanufacturers in the U.S. have been hit the hardest. Many mid-sized players were established at a time when they could cover the majority of the market producing only a handful of cartridges. Now, remanufacturers must offer dozens of different SKUs to supply today’s diverse installed base. Many mid-sized firms, however, lack the capacity to produce such a wide array of cartridges. These firms now must outsource the majority--if not all--of their production. This has caused a fundamental shift in the industry, and many companies have changed their business models from that of a producer to a distributor. Outsourcing can be expensive and being profitable while selling cartridges from a third party is a difficult proposition especially when selling monochrome SKUs, which have become increasingly commoditized.

Those mid-sized companies that continue to produce cartridges in-house also find it difficult to turn a profit. Often they lack the economies of scale needed to negotiate lower raw material prices with suppliers so their costs are high compared to the big guys. The smaller firms get little respect from empties brokers and must pay top dollar for the most popular cores--if they can get them at all. Suffice it to say that for those firms that have been able to continue to produce their own products, the overhead has grown to a point where they find it hard to operate profitably.

Managed print services seemed to offer remanufacturers relief from some of their most vexing problems. First and foremost, MPS was seen as a way to add value to commoditized products. Just like it does for hardware vendors, MPS held the promise of improved margins by providing remanufacturers with a way to wrap valuable services around their consumables. It could also give mid-sized firms a vehicle to differentiate themselves as a service provider in the marketplace. Depending on how they shaped their MPS services, remanufacturers could reap added benefits like having some say as to the type of equipment their clients would employ, which would limit the range of SKUs the remanufacturer had to provide. And, it would allow the remanufacturer the ability to collect precious empties--a service that the clients would also value.

The remanufacturing industry as a whole became aware of print management solutions about five years ago. Initially, interest was strong, but remanufacturers recognized they faced a number of hurdles if they were to offer MPS packages. They lacked technology, for example, to monitor their clients’ machines even for the most basic MPS offering. And they had to move from the transactional sale associated with selling cartridges to the solution sale required for an MPS contract. Remanufacturers also faced logistical changes as they moved from providing some fixed number cartridges to supplying customers with cartridges as needed.

As the industry continued to demonstrate a desire to offer MPS, various companies have come forward to support remanufacturers. Technology to monitor printer fleets, for example, has been increasingly available from firms like PrintTracker, PrintFleet, and others. Likewise, various companies have stepped up to help remanufacturers successfully transition from transaction sales to marketing MPS solutions. There are now scores of seminars and workshops aimed at helping smaller remanufacturers launch and manage MPS programs.

Despite all the support and interest, however, it’s not clear that MPS will be the panacea the mid-sized remanufacturers have been looking for. In fact, it’s quite likely they will not be able to offer a profitable managed print service.

It’s difficult for a company that markets supplies exclusively to offer a real managed print program. For clients to realize the full benefits of MPS, there needs to be some degree of fleet optimization, and optimizing a printer fleet requires swapping out hardware. While this may include physically moving devices within an organization and taking some off-line, often it requires deploying new hardware. There are some remanufacturers that are also VARs and they succeed in the MPS market. But those companies that only sell cartridges ultimately will find it impossible to compete with the MPS contracts that dealers and VARs can offer.

Another big challenge that mid-sized firms face are the expenses associated with MPS. It can be costly to acquire the equipment and software required to support monitoring technology. There are companies that will host the services, but outsourcing can get expensive especially for a small company. Remanufacturers also face new cash flow issues. Rather than collecting full payment at or near the time of delivery as they had when they sold cartridges, companies may have to wait months for MPS payments to come in before they can cover their costs. Moreover, often companies must stock up their customers’ supplies closets with inventory and that cache of cartridges may not yield any cash for months.

Some mid-sized firms are learning that rather than offering a new path to profits, MPS really represents new threats. First, large remanufacturers are increasingly active in the space and can undercut the mid-sized players. And, rather than losing one sale, losing an MPS bid means the customer is lost until the contract is up, which is typically between three and five years. Remanufacturers also have to do battle with new competitors as more and more companies offer some type of MPS solution. OEMs are providing new supports to their channel partners, which further strengthen the value proposition of those competing with the remanufacturers.

I don’t want to suggest that MPS is all doom and gloom for remanufacturers. It can open new doors and some new opportunities are emerging. Independent dealers, for example, are increasingly aware of the improved margins remanufactured cartridges can offer them compared to OEM, which is expanding the market for remans. But MPS is not good news for everyone in the industry and it will put further pressure on many remanufacturers doing business in the United States.



With over 12 years of experience, Charles Brewer is an independent consultant for the digital imaging industry. He is a contributing editor to Lyra Research's Hard Copy Supplies Journal published, which he managed from 2005 until 2009. Brewer has authored numerous articles, reports, and white papers on hardware as well as toners, inks, and media and has worked with various OEMS and third-party supplies vendors.