The “noise” of Managed Print Services (MPS) as a key, maybe even necessary, strategy to most of this readership has certainly been turned up over the last decade or so. Trade publications, OEMs, legions of MPS “experts,” and innumerous third parties with solutions to help dealers build and execute their MPS programs have all created quite a few terabytes of information and opinion on the topic. It seems anyone willing to invest in learning about MPS can access all of the content necessary for market success.
Large numbers of dealers have added MPS solutions to their offering in the past decade. Most websites proudly describe the value proposition of MPS to their customers. Sales reps have been trained by the thousands. As a result, most dealers must own their own Brinks trucks to deliver all the cash to their banks on a weekly basis, right?
Sadly, no. As I talk with resellers around the U.S., most discuss “re-launching” their MPS program in their local markets. “Why?” I ask. “MPS is not as profitable as we believe it should be,” they reply. “If we re-launch with new (fill in the blank—partners, training, resources, etc.), we are sure it will be more profitable this time around.”
Why has MPS not been the nirvana of high revenue growth and higher profits promised by the pundits? Is it true that simply “re-teeing up the ball” and whacking it with a new club will—this time—put the ball straight down the fairway? For some, new clubs might just be the trick to make the difference. For most, however, the answer is much more complex.
To play golf at the top level, you can’t just hit off the tee well and win. You can’t just chip well and win. You can’t just putt well to win. You have to be great at all aspects of the game. And, more importantly, there are many variables within each swing type. Stance, hips, shoulders, arms, wrists, etc. Those of you who play know what I’m talking about.
Just like golf, executing MPS at a world-class level has many variables that all have to be managed well and synchronized to produce the best possible results. However, most dealers oversimplify the complexities of efficiently managing the care and feeding of their MPS fleets. Not closely managing the variables within the cost of “care” (break/fix service) and “feeding” (consumables) is the primary reason most dealers don’t reap the expected financial benefits of their MPS model. Often, the discussion centers on just the costs of the consumables and break/fix service calls. However, it is in the details of these variables where profit is lost.
Let’s start with the “feeding” of your MPS fleet. While the cost of the consumable itself is important, like the swing of your driver, there are many more variables. Shipments (in pages) versus consumption on a rolling 3-month basis is a key variable. Within this metric, there are other variables that can cause dealers to overspend on consumables shipments. For example, how many consumables are failing and not being returned? Is there any shrinkage (product going to the site, but leaving out the back door)? What is the “effective” yield of each consumable? Effective yield is the real number of pages (nominalized to 5 percent page coverage) between replenishments. This takes into account user behavior in addition to the stated yield of the consumable. Also, are there unidentified assets in the environment using these consumables that are not being seen via your data collection software?
In addition to evaluating shipments versus consumption and all of its related variables, a shift in device output mix can greatly affect profitability. For example, a shift from lower cost, centralized output to workgroup or personal printers can dramatically lower profits. Finally, a change in page coverage can result in a dramatic increase in consumption of toner in your customer’s environment. A change from 5 percent to 7 percent page coverage isn’t 2 percent—it’s a 40 percent increase in consumables consumption.
On the “care” side of the equation, understanding the key variables is equally important to improving profitability. Many dealers are now tracking pages per month per technician (PMT) as a key variable to understanding the cost of “care.” This metric can give a high level understanding of the profitability of service in an MPS fleet. (Side note: although it varies based on dealer, their customer verticals, geography, etc., the typical goal is 2.4 to 2.8 million pages per tech per month).
Like consumables shipments versus consumption, PMT has many variables within the metric. What are the average labor hours per repair? How many calls per technician per day are completed? What is the first time fix rate? What is the average drive time between calls? How much time is spent on non-repair activities—equipment installation/de-installation, moves, training, paperwork, etc.? Beyond PMT and its related variables, device failure rate is a key variable. Device repair cost is another key variable, and includes additional variables such as class issues (known failures on a given model or engine), misuse (label printing, anyone?), and aging technology in the field.
As you can see from the above care and feeding variables, the list is a long one. And, to really understand where the true profitability drains are in your MPS business, you need to understand each variable within each customer, and at the device level within that environment. Only then can you understand where the profit drains are within your MPS environments. Maybe some (or many) of you have been tracking at least the major variables at an aggregate level and have determined you are okay. Each one may be off by a little, so you are okay, right?
You can be off by a little on all of your major variables and still have a big profitability problem overall. The issue is called a tolerance stack. What is a tolerance stack? A tolerance stack is “an accumulation of individual tolerance variances (each within the acceptable range for that variable) that cause the overall system to be out of tolerance.”
Back to your golf game. When teeing up your drive, your stance may be just a little off, shoulders just a little off square, your hips rotate just a little too much, and your wrists break just a little too soon. Is the resulting shot just a little off? I didn’t think so.
In MPS, it is the tolerance stack that leads to low or unprofitable MPS engagements. Each variable might be just a little off, but in total, the “system” is out of whack. For example, small variations in each consumables variable, all just a little worse than expected, can drop profitability of an MPS engagement by over 20 percent. That means if you are expecting 15 percent net profit, you are underwater by 5 percent, and we haven’t even gotten to the break/fix service side of the equation.
If you are re-evaluating your MPS business model and looking to improve profitability, or are looking to “re-launch” your MPS program in the near future, look beyond your sales strategy to your operational management of your MPS fleets. Tracking each key cost variable to see if it is within the acceptable range of tolerance isn’t enough. You have to look at the overall impact to the system to see if you have a tolerance stack problem.
The profit of your MPS business is in managing the variables—just like managing the variables in your golf swing. Off to the driving range…
