Written by: Bryce Patrick
Outsourcing your MPS operational risk to uncover additional profits
Imagine as you plot your course on your new Managed Services map, that you were to come across a point in the map that promised increased cost visibility, which in turn promises new paths to larger margins of profit. Would you reroute your current path? If so, keep reading.
Comparisons between the MPS and insurance industries are often drawn. With any insurance program, you need to hedge liabilities at scale if you want to be profitable. The quickest and most trusted way to do so is to gain visibility and/or pay for services that enable you to outsource risk.
Perhaps the concept of outsourcing your MPS operation leaves you a bit leery. However, we often see Resellers outsourcing their Human Resources and Payroll processes because they lack the tool sets and resources to profitability manage it in house. Perhaps you have outsourced your toner delivery because you don’t own your own trucks to make those deliveries.
When you have chosen to outsource, what made you select that specific partner? What was the motivation to outsource? Were you trying to control capital costs? Increase efficiencies or reduce labor costs?
The key to deal profitability is regular analysis, at the page level, of actual versus expected costs, by device. Getting away from the “we can do it better in house” mentality will save you substantially if you outsource wisely. With today’s technologies, outsourcing has become widely accepted as a common practice of doing business.
We are going to explore several supply management risks in a typical MPS engagement and challenge you to look objectively at your operation to see how you are mitigating these risks to better conceptualize what should be outsourced.
Supply Management Risks
- Are you tracking shipments vs consumption and mapping the correct yielding cartridge to the device?
- Whether you have a large-scale operation or you are just getting started, you will want to start tracking the number of pages shipped per device and the consumption rate, in order to gain better control over how much gas each device requires—based on contract term. If you ship a toner cartridge with a 10,000-page yield and they consume an average of 500 pages per month, that cartridge will last an estimated 20 months. Best practices encourage dealers to turn supplies inventory over every 6 months to avoid over supplying the device with pages that will not be billed at the end of the contract. Each page shipped above the 6-month consumption rate is an exposure you need to control.
- Are you tracking the stated vs effective yield of the supplies you are providing?
- Start tracking the stated vs effective yield of the supplies you are shipping. If the cartridge states that it will last 10,000 pages and it is replenished only consuming 8,000 of the 10,000 pages there are a few factors that can play into this. They replenished the supply early before either all toner was consumed or the page coverage increased reducing the number of available pages. If either of the above did not occur, then the chances are the supply did not last the stated yield. This happens more frequently with inexpensive toners that do not focus on quality the MPS industry demands. These cartridges become more costly in an MPS environment because of its false advertising and lack of field reliability.
- Do you have readily available and accurate visibility to early replenishments in your managed fleet?
- In any given fleet, there will be early replenishments where an end user replaced the cartridge before total consumption of pages. How are you controlling this? It is nearly impossible to prevent early replenishments, but what you can do is gain visibility to them and provide proper education to the end user. Can you run reports today or does your software notify you of any early replenishments? Early replenishments can occur from the cartridge arriving before the current cartridge needs to be replaced. But they also occur frequently in consolidated environments that share the same toner cartridge in multiple machines. As an example, Device A requested a toner cartridge because it met the threshold to request a supply you set on the device. The cartridge arrives, so the end user grabs the toner cartridge and places it into Device B that does not need the cartridge because it is above adequate levels. This leads to an early replenishment in Device A that steals your profit and typically causes a “mis-shipment” in said originally intended device. Nevertheless, the customer comes first. You may rush a new supply out to the device at your expense. These mis-shipments and rush shipments are costly and avoidable. Why assume that risk? When you buy a wholesale page from an MPS infrastructure provider or outsource this process, you outsource this risk.
- How much time is spent managing the supplies process in your MPS program?
- In addition to managing the variables associated with supplies consumption, the supplies replenishment and order management process can cause the most risk to supplies costs. How much time is spent taking customer orders, reviewing supply alerts and ordering supplies, answering customer questions related to recent shipments, and searching multiple systems (DCAs, back office ERPs, shipping companies, and more) to find answers? Have you calculated your loaded cost per hour of these resources?
- Many dealers are offering Supply Automation programs to their end users, but the reality is there are many manual processes behind the scenes to provide a perception of automation. What if you could truly automate your replenishment process and just review the reports and manage exceptions? You can. MPS infrastructure providers in the market today have robust automation capabilities enabling them to manage tens of thousands of devices with minimal load on employee resources. Instead of providing a perception of automation, they are managing exceptions to the automation. More often than one would assume, dealers in the market are leveraging the Data Collection Agent (DCA) software to manage the supplies replenishment process, but the DCA providers are not hyper-focused on supplies profitability and order automation like an MPS infrastructure provider. The DCA may provide you with visibility when the supply needs to go out, but you end up consuming thousands of dollars in human resources expenses validating the supply request, generating the order, and fulfilling the order.
- Our findings evaluating dealers in the market place today show that if they do not have an automated program but are providing their customers a perception of automation, they are able to manage an average of 3,000 devices per person. As a benchmark, an automated supplies management process should enable you to manage up to 10,000 devices per person and more accurately than a manual process.
Control your capital cost, increase efficiency, reduce labor costs, risks and inventory, and focus on your core business, all by purchasing an outsourced page billed once per month. I challenge you to take 15 minutes, talk to a qualified MPS partner with an open-mind, and explore options on how they can help you improve your operation. Don’t forget to consider LMI.
Bryce Patrick is the Director of Services at LMI Solutions, focusing on Managed Business Strategies. The principal architect of LMI Solutions Managed Print Services, Bryce is a futurist in his own right. Having started in the imaging industry after graduating from Arizona State University, Bryce’s inherent technical knowledge and visionary capabilities have become highly sought after in the new realm of managed services.