Last month we heard from the Laser Parts Industry on their current state of affairs. We’d like to continue the thread and learn more about the Copier Parts Industry, highlighting some of the differences as well as the similarities in the challenges and opportunities facing the two industries. They each have their own tactics to create a value edge over the competition, and with a clear vision of the future and a willingness to take calculated risks, the remaining players have the potential to dominate the parts game. We’d like to thank the following participants in this month’s roundtable discussion:
l Michael Hicks, President, EBM, Inc.
l Steve McBride, Director of Sales, Katun North America
l Tom Porter, General Manager, Epartsroom
l Jim Spall, President, TSA World
l Joseph Steinberg, Co-founder & Partner, Q2, LLC
In your opinion, how has the copier parts industry evolved in the past five to ten years?
Spall: Over the course of the last 5–10 years, the copier dealer landscape has changed significantly. Many of the large and medium sized
dealerships have been acquired by various OEMs in the continuous attempt to gather market share. Additionally, with the advent of MPS, copier dealers are now heavily involved with printer support and maintenance which was not significantly the case ten years ago. Lastly, the make-up of the copier dealer technician has shifted radically from the electro-mechanical required abilities of analog copier days to the electronic and software-based requirements of today with the advent of digital copiers and network maintenance.
Jim Spall – TSA World
Porter: There is no denying that the industry as a whole has gone through a great deal of transformation and with it all of the ancillary industries that support copiers and printers have also evolved. Take our business for example, used parts—this model could not exist 10 years ago with the technology that was then available. It just would have been too cost prohibitive to execute. However, what we see today is more and more parts distributors embracing the latest technology to increase the customer’s experience. Whether it is Web Sites, Ecommerce, CRM or ERP systems, the real changes is not the products per say, but the methods the industry will use to provide them to the dealer customers.
Steinberg: One of the biggest changes in the copier parts industry has been the shift from stand-alone components to assemblies and units. When copier equipment manufacturers realized how much added revenue and profit HP and other printer manufacturers were able to generate by selling higher priced, more profitable assemblies versus individual parts, they started to utilize more assemblies and units in their machines. Products like drum or imaging units, transfer belt assemblies, fuser units, and corona wire assemblies have replaced the sales of many stand-alone components and shifted more revenues and profits from dealer service organizations to copier equipment manufacturers. Certainly some of the copier assemblies and units can be remanufactured at lower costs and resold for higher margins, but the opportunities to do so are limited. There is no market leader to drive assembly remanufacturing in the copier industry like HP does for printers, so copier assembly or unit remanufacturing is usually done on a smaller scale with fewer products. The shift from stand-alone components to assemblies or units has not only helped the copier equipment manufacturers generate more revenues and profits, it has also helped them regain market share by limiting the number and the sales of stand-alone component products from compatible aftermarket parts distributors.
McBride: I would look at the copier parts industry in four stages:
1 – The digital world came of age (including A4 Products). This means extended parts life. It creates challenges for parts suppliers from a usage standpoint, fewer parts are being used, but it is good for the dealer.
2 – Modularity of the equipment, which is somewhat impractical and costly for the dealer. Now dealers are forced to change out complete units instead of individual parts creating a financial burden on the dealer.
3 – The importance of IP friendly products has increased now that OEMs are actively pursuing lawsuits against products that infringe. The aftermarket is tasked, now more than ever, with creating parts that do not infringe.
4- An overall reduction of clicks. With more electronic housed documents and making fewer copies, there has been a reduction in the amount of parts wear, tear, and replacement.
Overall, there is a decline in parts usage; however dealers are not seeing the decline in the cost of parts as it relates to their service revenue. Most dealerships we see are still running with a parts expense above the model (which should be roughly 17% of service revenue).
With the convergence of the copier and printer markets, what do you think are the differentiators between a copier parts company and a laser printer parts company?
Steve McBride – Katun
Steinberg: I’m not sure these are key differentiators, but as the copier and printer markets converge, parts suppliers will probably pursue their opportunities differently. In general, copier parts companies will most likely focus on their traditional customer relationships to grow into the printer business, while printer parts companies will look to leverage their printer knowledge and experience to expand their businesses.
Looking at the two markets from a part or product perspective, copier parts companies should have more experience developing and selling stand-alone components for mid to higher speed machines, while printer parts companies have typically concentrated on products and assemblies for lower to mid range machines. The differences between lower speed printer and higher speed copier parts technologies may seem insignificant to some, but minor changes in materials or design can greatly affect the performance of a product and a machine. With the continued supply of cheap, and under or out-of-spec, knock-off product coming into the market, fully understanding a product’s performance requirements, functions, and applications will be especially important for any parts company hoping to remain successful as the markets converge.
Porter: Interestingly, a quick assessment of these two interrelated segments of the industry reveals an increasingly blurry line. There is a revealing trend that we see from distributors within both spaces continuing to migrate over and offer a more extensive product mix. And why not, when it comes right down to it, some of the products even cross over from copiers to printer compatibility. So when you serve your customers effectively and they trust you and you see a vertical opportunity with no real barriers to entry, as a manager it’s a pretty obvious decision. So we don’t really see a definitive difference within these two business models.
Joseph Steinberg – Q2
McBride: Copier parts companies are developing and designing OEM-compatible, patent-friendly parts, while laser printer parts companies typically take OEM parts and refurbish them. There is not as much development and the use of all OEM parts are more prevalent. A lot of this is due to copier design versus the printer, as printers have a longer life expectancy. Also, the modularity of printers along with vastness of like models has created a refurbished parts aspect that isn’t as prevalent in the copier industry. Some companies do have core strategies and can refurbish parts, like Katun, but most companies do not have the bandwidth to do that. The copier industry has more parts, more models, less penetration per model and more OEM players. You are dealing with one dominant player in printer side, HP, which you don’t have in the copier side.
Tom Porter – Epartsroom
Spall: The main difference between copier parts companies and printer parts companies is that neither one can survive in only a single arena. With MPS, dealers are putting anything that prints under contract. This means a parts supplier has to provide parts for a very large mix of printer and copier manufacturers.
What is the greatest challenge facing the copier parts industry today?
Porter: Leveraging technology! Whether this industry or another, the continued challenges will be how B2B organizations budget and allocate technology-related resources. If you are part of a forward thinking culture, you tend to relentlessly consider how customers will utilize your online platforms. Will they need to search parts, research compatibility or place and track orders, and then you need to consider what devices will they use: smart phones, work tablets, or workstations? Should we invest in developing apps for smart phones or building a responsive website? If we invest in these technologies, will it be used by the industry masses? And of course throughout the entire iterative process, considering what if our assumptions are wrong—do you sleep?
McBride: Taking an overall industry look – greater yield per part and less volume per machine means there is less parts usage in the long run. OEMs are seeing the decline in their aftermarket parts sales as well. Their response has been to put more pressure on dealers to buy OEM exclusively. This forces up the cost for a dealer’s service department and has a negative impact on their profitability.
Steinberg: This question really depends on your perspective. From where I sit, the greatest challenge facing the copier parts industry has to do with the declining volumes from sales lost to OEM branches, difficult to remanufacture assemblies and units, or new product technologies. Our business is like many other businesses where volume drives investment. If the volume is declining, so is the investment into new products and opportunities. There still are new product projects worth pursuing, but you have to be very careful where and how you spend your time and money. The margin for error is very small, and you can quickly find yourself in trouble if you hook your product development wagon to the wrong horse.
Spall: The main challenge to the copier parts industry is MPS. As MPS continues to shrink dealer margins, there are only two places dealers can go to reduce costs: service labor and parts costs. As the MPS process continues its downward pricing process, more dealers will have to use lower quality/cost parts and try to take shortcuts in maintenance.
Mike Hicks – EBM
How has MPS affected your business?
McBride: For Katun, MPS is one of the best things that has happened to our business. It’s a new revenue stream that plays into our core values – offering dealers low cost, high-quality product that allows them to stay profitable in their MPS contracts. We have always been known for our quality and OEM-equivalent performance. With MPS, we bring in another cost variable for a dealer to consider reducing the service component. MPS is dependent on CPC logic, like the copier industry, which we are very familiar with. When you look at the cartridges being 65% of an MPS contract cost, we can offer a significant impact to that cost. Also, Katun is using our color technical experience from the copier side to parallel over to print – we can leverage our copier experience to produce high-quality, high-value products for MPS.
Hicks: MPS is the same CPC offering copier dealers have done for 30 years; it’s just a different name to allow the printer dealers to differentiate themselves. New DCA software has allowed the copier dealer to become proactive instead of reactive. Whether analog or digital the process to produce a finished page is the same in a copier or printer. The successful dealers just added printer CPC to their offering 5+ years ago. Besides, remanufactured toner is now reliable and any tech that can fix a copier can easily fix a printer.
Steinberg: MPS has had a small but meaningful impact on our company to date. We expect to further benefit from MPS as it becomes more prevalent and we continue to grow and expand our business.
Porter: MPS programs have had a strong positive effect on our quality used parts division. Strictly from a quantitative stand point, MPS offers the servicing dealer a high degree of autonomy in what parts and supplies are used to maintain the customer’s fleet. So when a Service Manger or VP of Service needs to increase profitability and renegotiating the MPS contract with the customer is not an option, the only choice left is reducing the overall maintenance cost of the contract. And since labor costs are probably fixed for a company, that only leaves parts and supplies as the adjustable variables in this equation.
Spall: MPS has helped us grow but only because we are associated with so many copier dealers. It has had a devastating effect on small printer repair companies who were not equipped to deal with MPS contracts and did not have adequate financial resources.
With flat or possibly declining printed page volumes, where do you see key areas for growth in the coming years?
Hicks: Controlling workflow and documents is the new lease. Most times, it’s better than a lease because if you control the content and workflow, the copier/printer is just a node that produces the page when needed. A customer should be less likely to switch from a company who controls their data as opposed to the end of a 5-year copier lease. Data control can also be accomplished by a Managed Network Services offering. At this stage it’s probably better to acquire a small IT dealer than start a help desk/data center from scratch.
McBride: The compression of the profitability of a click is going to be a challenge for dealers. Katun can help bring relief and alleviate some of the profitability concerns. We see additional opportunities coming – more and more dealers will have to look at a cost-effective way to maintain their equipment, and Katun plays into that picture very well. Plenty of growth opportunity is still there. Likewise, all the analysis we do for our customers shows us there is opportunity out there; however, only the strong players will survive – those with a combination of value and quality.
Spall: Our value proposition remains the same; we offer quality. When dealing with MPS, the money to be saved is not by purchasing fusers, maintenance kits, and commonly used rollers at the cheapest possible price. The savings come from making a single service call and fixing the printer or copier fault. When you purchase low-end products, the failure rate is much higher and the “warranty” costs far outweigh any savings gained from buying low cost alternatives. These savings may look good at the time of purchase but they don’t hold up when the service department profitability plummets. Overall, the company loses.
Porter: It is very difficult to respond to this question without possibly revealing the company’s future strategy. However, I will say that all industries change and most businesses will adapt or cease to operate. There are a number of great projects that we will initiate within the next few years. We think this is still an exciting business, with many opportunities to come.
Steinberg: We are still a relatively small company, and fortunately we’re not having to spend time on issues like “right sizing” our business, or figuring out who to keep and who to let go. We have a very experienced and hardworking team of people who understand our customers, our products, and our business very well. We have identified seven areas for growth within the industry, and we are building mutually beneficial partnerships with organizations that will help us achieve our objectives. As we expand, our core business will continue to add more customers and more products while we develop our new areas of opportunity.
What is one of the ways you provide added value to your customers?
Porter: This is a great question, in a price-commoditized industry every distributor needs to focus on inside realities and discover what their organization’s true core competencies are. We spend a great deal of time communicating with our customers. We have invested very heavily in technology and discovered that adding value to our customer’s online experience has offered us a level of competitive advantage. Whether folks use our numerous downloadable reference guides or our parts compatibility tools, the most valuable resource with the highest customer download is our Quick Parts® Guides, which list all consumable parts for old and late models, divided by Main Frame, Fuser, Supplies and Accessories.
Spall: One of most popular value added programs has been our printer repair training program, which is the most cost-effective available in the industry. We go to the customer facility and do onsite, hands-on technician training (and have received rave reviews on the results from customers). MPS has moved a great deal of printer repair away from traditional printer service companies into the hands of copier dealers. These dealer service organizations do not have the technical familiarity with HP, Lexmark, and other brands of printers being placed under MPS contracts. The technicians are excellent but when faced with repairing an unknown machine it definitely helps to have someone provide you solid diagnostic tools, point out common fault areas, and take the “fear of the unknown” out of the equation.
McBride: It is a combination of a couple things. One, the partnerships that we have with other industry providers, the analysis we can bring to a dealer along with a strong product offering — all of that wrapped in that one solution from Katun that can show a dealer how to put money on their bottom line. Secondly, there is a lot of acquisition happening in the industry right now. Katun can help dealers who want to be acquired by helping them achieve more profit; we can also help dealers who are acquiring other businesses – showing them how they can be as profitable as possible in those acquisitions.
Steinberg: We’ve noticed that a lot of companies in our industry like to overcharge their customers, take their money for a period of time, and then return some of it later in the form of a rebate. We believe rebates are like taxes – When you pay too much, you may get something back, but then again, you may not. With Q2, what you see is what you get – best pricing upfront with no hooks, ties or unnecessary commitments. Our goal is simple: To help our customers be more successful by keeping more of their money working for them and their business. We hope our customers see value in that.
