In our previous article (Click here to read Part 1) we have established the link between Lean management and MPS. Indeed, this philosophy has brought many companies’ success (Wal*Mart, Inditex, Dell) and no matter the size of the company, it is top of mind of the most successful CEOs and COOs.
Applying lean management to MPS may be a big inconvenience and does require a specific technology to make it happen. Without it, the MPS solution put in place remains limited to a handful set of actions like billing based on cost per page, and little more. But on the opposite side, once you have the appropriate infrastructure technology in place, the advantages are huge:
- · Immediate cost savings
- · Increase of sales through identifying new opportunities
- · Customer satisfaction increase through a better, automated and accurate outsource of his/her printing resources
- · Better purchase conditions through the alignment of the objectives with the vendor and or the distributor
Yield Management
Many dealers and distributors have implemented an MPS solution that relies on monitoring technology. As a result their current expenses grow quicker than revenues, their warehouse is out of control, and the number of calls requesting urgent deliveries grows as quickly as the frustration of their customers. An MPS business that relies only on monitoring technology goes along with the lack of a reasonable profit greatly and inhibits the efforts to grow an MPS program.
The usage of the appropriate technology is a must. By grabbing three to ten pieces of data from each remote printer or copier, the technology has to notify about the current needs of toner, parts and services, predict future needs and forecast them. This is what yield management accomplishes when applied to MPS.
We can then define Yield management as the process of understanding, anticipating and influencing printer behavior in order to maximize yield or profits from a fixed, perishable resource (extracted from the definition in Wikipedia). “Yield management involves strategic control of inventory to sell it to the right customer, to the right printer, at the right time, for the right price.”
When managing hundreds, or thousands, or hundreds of thousands of printers, the only way to come to manage this volume of information is by using the appropriate technology: yield management technology. The technology becomes responsible for the success of an MPS program.
By anticipating the behavior of each printer or copier, MPS yield management technology determines when it is the right moment to order, and when it is the right moment to ship to the customer. This is the basic ingredient around which the distributor in the printing distribution chain takes advantages of MPS under a lean management attitude.
The Distributor
A yield management system powering an MPS solution anticipates the needs for toner and parts for the coming weeks, months or even years.
The time frame of the prediction has a big influence on the way it is used and benefited from.
- Short term forecast: In a time frame small enough, the content of the forecast is based on the needs from printers that are currently operating. Therefore, the shortest the term, the more accurate the forecast. Indeed, it shows when the current cartridges must be replaced. The short-term forecast is equivalent to pre-ordering a supply so that it will arrive in a few weeks time. If the distributor knows in a consistent way 45 days in advance what will be ordered, it will adapt the warehouse by ordering more units of what it is lacking, and reduce the number of units on those references where the stock is overcrowded compared to the predicted volume. The distributor is indeed accelerating its inventory turn-over.
Carrying large inventories is one of the major and most frequent wastes detected by lean management. This large inventory does not only represent having money invested in something that is not producing an immediate profit and stressing your cash flow. It also enables additional inefficiencies:
- Investment in space that is not for free.
- People taking care of it, both physically and virtually.
- Risk of obsolescence and a lot of other small waste.
Thinking lean is getting rid of unnecessary inventory as a way to be more profitable.
- Long term forecast indicates the SKUs and individual quantities that are likely to be ordered in a one year time frame. Such forecast is based in the portfolio of printers and copiers and not individualized per device. The risk of a printer or copier to be replaced is high enough not to use this forecast as an anticipated order, but more like a volume indicator. Keep in mind that if a printer is replaced by a different model, the SKUs change. While a short-term forecast helps identify what the purchases to vendors should be, a long-term forecast is useful to accordingly size and allocate warehouse resources. It is also used to negotiate vendors’ volume discounts and purchase compromises.
Knowing what the needs are, facilitates shipping what is needed when it is needed (remember the definition of Yield management). Goods can then be continuously dispatched to distributor’s warehouse, repacked and dispatched to dealers or end-customers often without ever sitting in the inventory. As a result, the distributor benefits from reduced inventory costs.
MPS is Part of the Distributor’s Marketing Plan
The long-term forecast contains behavior information about the printers and copiers. It is a source of information for the marketing department of the distributor. It opens up new business opportunities by identifying those SKUs for which there is a need but that are currently not in its catalog. These are purchases that the customers (dealers) are currently buying from the competition: the so called lost opportunities. The distributor determines the business opportunities by using the expected volume that the MPS yield management system provides. Its decision is also influenced by the marginal cost of distribution of a new product reference. But the marginal cost is optimized by reducing the inventory, as seen above. Therefore, the distributor that accelerates the inventory turn-over can manage a larger number of references at the same marginal cost, and for the same warehouse resources in place.
By selling more to the current customers, the distributor increases its revenues with very little investment: no need to have larger warehouse facilities and no penalty in costs as a consequence of adding products with a rotation lower than normal (this happens when the inventory turn-over is normalized for all references, as previously seen). The growth of revenues combined with stable costs implies larger profit.
A distributor whose objective is to increase the revenue and the profit, should seriously consider to put in place an MPS infrastructure as part of the marketing plan strategy to sell more to its current customers. The effect is that the retention rate increases at the same time that the distributor does not leave any business opportunity in its customers unattended. Maximizing the customers is equivalent to protecting the market share.
MPS is a strategic opportunity for the distributor to reach a sustainable profitable growth with very little investment. In a similar way, the dealer does benefit from MPS and the lean management spirit that lies behind. We’ll cover this in our next article.
