Does your MPS program focus on CPP or TCO?

What’s the difference? It depends on who you ask.

In recent months there have been a number of blog postings focused on the subject of TCO (total cost of ownership) for MPS opportunities. In most cases the author’s belief is focusing on TCO, and not on CPP, is the best way to distinguish yourself from your competition. Most articles will compared the components of both CPP and TCO, and some will suggest that CPP programs only focus on supplies, parts and service and TCO focuses on all the true costs of managing the fleet: Items like paper, IT support, network cost, etc.

The articles/post/presentations usually conclude with, those who focus on TCO are looking at the whole picture and are perceived more favorably as business consultants/advisors, differentiating them from the competition, therefore ultimately winning more lucrative MPS opportunities.

In theory I would agree that the broader your viewpoint, i.e. assessment and review, the more positive you should be perceived by the prospects you are focused on ,and in doing so, you might increase your chances for signing more MPS agreements. The problem I have with most of the postings is that the basis of comparison is very short-sighted when it comes to what is included in a CPP and too broad when you focus on their definition of TCO.

If you are looking at a transactional CPP (device basis), it will most likely include only supplies, service and parts, and the comparison would be accurate. But, if you take this basis and compare it to costs related to managing a fleet of devices, it is not an accurate assessment. You are comparing apples to oranges.

For those who are familiar with the Strategy Development’s MPS model, as clients or through our workshops, you know that the focus of the assessment in an MPS opportunity is identifying and quantifying all expenses directly attributed to the managing of the fleet of devices that you will assume when the prospect moves forward with your proposal. It is fleet based, it captures toner usage, service expense, parts, acquisition costs, maintenance, inventory carrying costs, obsolescence, and IT support. It focuses on capturing all expenses related to the services you will assume when the contract is signed.

In turn you convert the sum of these expenses to a CPP, so your prospect has a clear understanding as to the cost of producing a document in their organization. In fact you are capturing the TCO (minus paper). You do not focus on expenses that are not impacted through the implementation of this outsource agreement. For example, paper and network costs are two expenses that are consistently mentioned as costs that should be included in the TCO. I disagree with this belief.

The reason paper is not included is pretty straight forward. It is difficult to monitor or control, it is a commodity that adds very little, if any, value to the agreement, and it is not going away. In fact more of it may disappear before it ever gets into the printing device, making pilferage a real challenge to control, so why would you want to include it?

Including the costs of the network might not be as straight forward as paper. Even though printers drain network resources (Information Week says that 55% of network traffic is attributed to printers) the reasons you should not include it in your analysis are 1) you are not assuming the responsibility for the network, 2) the infrastructure and cost are not going away at the time a MPS program is implemented, 3) attempting to capture something that is not going away and you are not assuming responsibility for, will add significant time to your sales cycle and possibly decrease your chances of getting the deal. Yes, it might distinguish you from the competition but will this distinction secure the opportunity and will the prospect provide their costs for this knowing that you are not taking over this responsibility? I think not.

In summary, if you follow the Strategy Development model and identify and propose your opportunity on a fleet based, blended CPP you are in fact providing your prospect with an analysis of all the services and expenses you are assuming (i.e. costs directly associated with managing the fleet of printers). What more do you need? This is a TCO for the services you will provide. Why would you see a need to take it further?

Strategy Development Launches Strategic Selling Course

Web-Based or Onsite Training for Beginning and Intermediate Sales Professionals

Strategy Development is launching a strategic selling course designed for beginning and intermediate sales professionals. This course is available as an eight-week webinar series, with the first term starting Monday, October 25, 2010, or as an on-site, two-day workshop.

The most successful sales professionals possess solid skills in every aspect of the sales process. Undoubtedly, each individual on your sales team has strengths in certain areas. Formal education in a repeatable sales process will take them to new levels. This strategic selling training will reduce turnover and facilitate an increase in sales, including not only traditional hardware, but color, software and services.

The program is a comprehensive workshop in sales fundamentals that will develop and improve abilities for new account penetration, as well as selling more products and services into current accounts. Attendees will learn time and territory management; business acumen and decision maker motivations; prospecting; questioning and listening skills; initial sales call and presentation skills, proposal writing fundamentals, proficiency in negotiation, account planning and customer retention; as well as about maintaining the relationship.

Click here for a brief overview video of the class.

David Ramos, a sales operations consultant with Strategy Development, developed the curriculum and will lead the educational experience. David has over 15 years of experience in sales, sales management, and sales training development in the imaging industry. David was a top producing business development manager in both the U.S. and Mexico whose experience spans selling leading edge technologies, strategic marketing, and key account management.

In a pilot class, Rob Sloan, Vice President of Sales at OASYS, Inc. said, “My sales team and I came away feeling that the time was well spent. Some of the areas we found most beneficial were prospecting techniques, managed print services, presentation skills, and color opportunities and applications in today’s marketplace. The content was relevant to our industry today and provided information that my reps could use in the field right away. We look forward to your next visit.”

Kelly McDonald of Advanced Office Systems had this to say, “It was very, very, very beneficial. One of my main reluctances to pipeline management and territory management was lack of education. I entered all of my potential prospects/leads and it is great to see how much potential revenue I have coming in over the next year. I hope I can attend more of your workshops soon! I think Advanced Office Systems will now become Advanced AWESOME Systems.”

Strategy Development also offers a three-month training & coaching experience for your sales team. The program begins with individual and team assessments and goal setting. It incorporates instructor led training, coaching, self-study, and application assignments that address the unique strengths and challenges of the team.

Online and on-site each has its’ advantages. Reps can learn in one-hour weekly intervals that require no travel or time out of the field. Alternatively, experience the interactivity of breakout groups, exercises, and role-plays along with the top-notch presentations in a two-day on-site class. Custom classes can also be designed for your specific needs based upon subject matter and duration.

For more information, or to register please reach out to David at ramos@strategydevelopment.org.

Scarcity of Empties Causes Big Problems For Remanufacturers

By Charles Brewer

For the remanufacturing industry, a reliable supply of high-quality, empty cartridges is essential. Simply put: without a good source of empties, there can be no “remanufacturing.” For a variety of reasons, however, the supply of empties is drying up. The situation is serious and has already resulted in spot shortages and price increases. And it’s bound to only get worse.

All the complicated physics and chemistry involved in electrophotographic printing make remanufacturing toner cartridges technically challenging. Precision toners must be matched and qualified with various components like imaging drums and fusing units to get a reconditioned cartridge to work properly. If the toners and components don’t work flawlessly every time, it will be glaringly apparent in the output--especially if it’s a color job.

While the stuff that goes into a refurb cartridge is critical to its performance, the most precious raw material is the empty cartridge itself. The best empties are OEM cartridges that are used once, properly repackaged when depleted, and then returned for remanufacturing. Because these so-called “virgin empties”--or “virgin cores”-- have never been remanufactured, they retain the characteristics of a brand new cartridge. After remanufacturing, cores begin to deteriorate and parts no longer line up like they did originally so remanufacturers always try to use virgin cores. If not, there can be problems. The risk of toner leakage increases, for example, and the tolerances are less precise making it more difficult for components to perform properly.

Recent gains in market share by the remanufacturing industry has played a big part in the draining of the empties pool. The recession sent customers looking for less expensive consumables, and many turned to remans as an alternative to expensive OEM products. Sales of new OEM cartridges plunged, which reduced the number of empties entering the pool. Demand for remans was further fueled by ill-timed price increases by virtually all OEMs in late 2007 and early 2008. Then, various OEMs encountered logistical problems that led to OEM cartridge shortages, which further limited the number of new empties entering the supply of cores. The net result was that demand for remanufactured cartridges exploded just as the availability of empties dropped because OEMs were having an assortment of difficulties selling new cartridges.

Beyond the growing popularity of remanufactured cartridges, there are other factors at play limiting empties availability. For years, empties brokers kept remanufacturers supplied with virgin cores but that business has been encroached upon. Since the middle of the decade, OEMs and large remanufactures have successfully established their own large-scale collection programs and increasingly they’ve marginalized brokers. Supplies vendors--OEM and non-OEM alike--have have been able to woo the brokers‘ suppliers especially those in the channels. They’ve done a pretty good job “closing the loop” on spent cartridges, and while they are still far from 100%, the number of exhausted inkjet and toner cartridges being reclaimed by individual OEMs and remanufacturers is growing. Millions of cores that were once available to the remanufacturing industry at large through brokers are now being captured and retained for the exclusive use of only a few large companies.

OEMs have always put a lot of time and energy into collecting empty cores to keep them out of the hands of their archrivals, the remanufacturers. Every empty they collect is potentially one fewer remanufactured cartridge an OEM has to sell against. Because of the terms of their contracts, copier OEMs always had an advantage and could leverage their dealer channels and service technicians to get back empties. Because printers are sold outright, however, it wasn’t as easy for printer OEMs to get their empties back. For years, HP had collection rates of less than 50%, although I’m sure that has changed. HP has grown increasingly active in collections. It has partnered with Staples, for example, to collect empties at the office superstore’s retail outlets. The OEM also has opened separate inkjet and toner cartridge facilities to process millions of empties so the plastics can be recycled.

Thanks to its Prebate program, Lexmark has been perhaps the printer OEM most successful at getting its empties back. The firm has achieved return rates in excess of 80%. Through the program, which is now known as “Use and Return,” if a customer agrees to return the empty at the time of purchase, Lexmark provides a discounted price on certain replacement cartridges. Using a “shrink wrap” agreement commonly featured on software packaging, opening the box and using the cartridge creates a binding legal contract guaranteeing Lexmark gets its empty back.

Not only are the end users legally bound to return their Prebate cartridges, for years Lexmark contended that the deal extended its rights as a patent holder. The company claimed the Prebate contract under U.S. Patent law meant remanufacturing Prebate cartridges violated Lexmark’s intellectual property. Although remanufacturers scrupled with Lexmark’s interpretation of patent law, most were unwilling to risk a lawsuit so Lexmark retained the majority of the cartridge market for machines using Prebate replacement cartridges. Then, after years of legal wrangling, a U.S. federal district court determined in 2008 that the Prebate contract did not extend Lexmark’s patent rights, although the court indicated that the agreement satisfied the requirements of a binding contract. The firm says its Use and Return program is very popular with customers and they continue to honor the contract and return their empties.

As I mentioned earlier, large remanufacturers are also collecting empties by the millions. Take, for example, Clover Technologies. According to Golden Gate Capital, a private-equity group that purchased the remanufacturer in April, Clover has annual revenue in excess of $450 million. It is the largest remanufacturer in North America, perhaps in the world. Clover is a supplier of private-label products to wholesalers, distributors, and retailers and is believed to be a key vendor to office superstores including Staples and Office Depot. The relationships with the various channels provide Clover with the opportunity to collect a lot of empties. The company says it collects over 60 million spent cartridges each year and claims to be the industry’s “largest collector and remanufacturer of empty cartridges.”

In addition to collection programs run by OEM and non-OEM supplies vendors, U.S. patent law is also restricting the supply of cores in this country for remanufacturing. Under what is referred to as the “repair doctrine,” a cartridge can be repaired--or remanufactured--without violating any patents. This concept was worked out in the U.S. courts in the 1990s and it’s what keeps the remanufacturing industry out of legal troubles. Over the past eight years or so, however, the courts have added a wrinkle to the doctrine. They’ve ruled that the patent holder rights are only exhausted if the first sale of a product occurs within the U.S. If instead a cartridge is first sold outside of the country and is later remanufactured and sold in the U.S., the remanufacturer and its distributors have then violated any patents originally covering the cartridge. Strange but true!

Because case law has significantly changed the concept of patent right exhaustion after the first sale, the supply of empties that can be remanufactured and sold in the U.S. has been dramatically reduced. The change means that no empties can be imported and remanufactured for sale in the U.S. OEMs are vigilantly monitoring third-party supplies vendors to make sure none of them refill empties first purchased overseas and resell them in the U.S. Epson has already successfully sued a number of remanufacturers and their distributors for doing just that with empty Epson ink cartridges that were sold abroad. In August, Lexmark filed suit against 24 companies for selling or remanufacturing toner cartridges first sold outside of the country and imported for sale in the U.S.

The scarcity of empty cores has had an adverse impact on the remanufacturing industry. Supply and demand has driven core prices into the stratosphere. Depending on the SKU, some cores can cost 300 X what they cost several years ago--if you can get the core at all. Sensing growing desperation, some unscrupulous firms with injection-molding capabilities are offering “new plastic,” which are empty clone cores that trample on OEM IP and are direct knock-offs of the original cartridge.

It remains to be seen how the dire empties situation be resolved. For sure, it will force empties-starved firm to outsource production. So more small remanufacturers in the U.S. will change business models and become distributors, a trend that has been ongoing for years. In addition, big players will need to invest in their own programs and cozy up to firms in the channels that have access to empties. I would expect that more large remanufacturers will gobble up brokers, another trend that has been ongoing. And you can bet there will be more lawsuits--and plenty of them. Beyond those givens, it’s interesting to speculate. Could empties become so valuable that OEMs allow some cores to flow to a select few that are willing to pay a premium? Will the cost differential between legitimately remanufactured cartridges and OEM supplies close? If so, what happens to the remanufacturers’ value proposition? Or will the price of all consumables continue to rise? Only time will tell!



Charles Brewer is the President of Actionable Intelligence, a market research firm based outside of Boston, MA that follows the digital imaging hardware and consumables industry. Brewer previously served as Managing Editor for Lyra Research, a company which collaborates with imaging industry decision-makers worldwide, enabling clients to strengthen their market position and achieve profitable growth, where he wrote and managed a monthly newsletter.

David Factor, Former OKI Channel Manager, Named Director of Business Development

We are pleased to announce that David Factor has joined the firm as Director of Business Development. In this role, David will lead the growth efforts at Strategy Development.

Factor has an extensive background in the imaging industry having spent 18 years at Oki Data Americas, most recently as National Sales Director. In this role, Factor developed business plans and strategies to enter the MFP business in 2004 and provided executive sales leadership for development of OKI’s managed print services strategy. Factor held numerous positions of increasing responsibility at OKI including district sales manager and national sales manager of the fax division prior to his role as national sales director.

“David Factor is well respected in the BTA and VAR channels having a long history of helping the dealer/reseller channel grow,” said Tom Callinan, managing principal of Strategy Development. “David knows the channel, understands how to help dealers/resellers grow revenue and profitability, and will be a significant asset in helping Strategy Development reach the many companies that have reached out to us for our consulting and training expertise. I am excited to have David join the firm as Director of Business Development.”

“I am thrilled to be joining the strongest team of consultants in the imaging business,” commented David Factor. “Having been exposed to the Strategy Development team members in the past, I know there is no better group at growing top and bottom line business results and their position as the industry leading MPS consultancy, the most notable growth strategy in years, is exciting. I also look forward to seeing many of my old dealer friends from the OKI days.”

David can be contacted at (908) 336-8147or factor@strategydevelopment.org.