*NEWS*EVOLUTION OF SRVC,PARTS & SUPPLIES

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*NEWS*EVOLUTION OF SRVC,PARTS & SUPPLIES

 user 2005-06-11 at 11:53:00 am Views: 55
  • #29524
    The Evolution Of Service, Parts And Supplies; The Undercurrent At Low Tide
    In The Supplies Stream
    written By Paul McGovern Of Depot America
    For 15 years now I have seen Original Equipment Manufacturers (OEM)
    authorized service organizations, partners in the cause of servicing their
    machines, treated as regally as visiting royalty bearing gifts and as lowly as
    red headed stepchildren to the Czars.
    The service and supply business was
    traditionally a low revenue, high margin, low profile business that has seen
    good days and bad. Early on service and service parts were a necessary evil to
    the OEM. Supplies were relatively low dollar add on sales that locked in a
    little ongoing revenue and hopefully some loyalty allowing future hardware sales
    opportunities
    But what was initially cast as a lowly cost center was soon to
    be discovered as a profitable but obscure branch of many machine service and
    sales organizations. It wasn’t uncommon that the service end of the company
    might not contribute 10% to total revenue but could represent 30% of overall
    margin. Eventually entrepreneurial retirees and others started companies
    catering to the repair of electronic and electro-mechanical subassemblies of
    copiers and laser printers. Some were manufacturer specific, others specialized
    by machine type. These were repair and return or “break fix” operations; you
    broke it they fixed it! These were pleasant little companies dropping nice
    numbers to their bottom lines, none of this single digit pittance, we as parts
    resellers, dredge the market for today. These were proud times when an
    independent shop would win the respect and trust of the OEM for providing
    quality products and consistent service. However, once the independents started
    to win a noticeable amount of business supporting the end users and service
    companies, previously OEM territory, OEM service companies reeled from the
    market share losses.
     
    The 1990’s would bring a quick and vast prosperity to the computer world
    led by Japanese and American OEM manufacturers. Not only were sales up for
    manufacturers and suppliers but more options arrived for end users. Service
    models were designed specifically to better support the on site providers and
    end users.
    The invention of the inkjet printer in 1984, spawned the
    Hewlett-Packard Company and Lexmark International ink and laser printer
    manufacturing operations that now dominate the United States workplace. Copier
    resellers would react to this new market and begin to adapt. Products from
    Canon, Epson, Brother and others followed and eventually would dominate the home
    markets with low cost ink solutions. HP and Lexmark lay claim to as much as 85%
    of the U.S. market with HP suggesting they own up to 70% themselves, but
    whispers between the cubicles suggest it may be closer to 60% these days.

    The fact that two computer companies harnessed most of the growth in this
    printed page market while copier giants waned is a subject for a separate and
    lengthy discussion. As markets evolved and devolved, the once prized hardware
    became the commodity selling at low single digit if any margins while the
    supplies, ink and toner, began to rule the kingdom. He who owns the supplies
    owns the profits is the hard fast rule. Today you can buy low-end printers for
    less than the ink cartridge inside and high-end machines provided by companies,
    like Xerox, can be free if you sign a supplies contract!
    Once again the
    entrepreneurs smelled opportunity and the supplies aftermarket spawned a
    profit-laden industry that would first be spurned by the OEM and then, adopted
    by them to varying degrees. HP and Lexmark both reuse parts to manufacture their
    supplies cartridges utilizing internal and outsourced suppliers. Some
    manufacturers are remanufacturing other manufacturers supplies independently,
    talk about irony! Lexmark currently stands alone in legal battles defending
    monopoly like controls against the free marketing independent remanufacturers
    while HP is accused of internal and often premature expiration coding within
    some of their supplies. If HP has embraced a market protection strategy, it
    would be the rapid introduction of ever more advance engineered products that
    naturally preclude rapid independent reverse engineering of the sub-assemblies
    and suitable alternates.
    The aftermarket community used to come to market
    with alternatives before the next OEM product offering; now several OEM models
    can be introduced in between aftermarket offerings.
    So now we have the
    hardware market all but devoid of margin and resellers are relying on supplies
    for profits. The machine pie, once aplenty, is now more like a tart. OEM’s are
    taking direct share of the profitable supply chain and service product lines
    reminiscent of how companies operated in the 1970’s. OEM domination brings us
    right back to the beginning. Only now this pits the OEM authorized service level
    companies that keep customers happy and loyal, against the megalo-maniacal
    behemoth suppliers and the OEM’s themselves. OEM’s and suppliers seldom address
    the issues that affect the daily business of an end user like a service company
    can, let alone design services to support them as they deserve.
    This is why
    the independent market flourished from the beginning. So the customer suffers
    while independent authorized service companies and smaller suppliers experience
    shrinking margins. This money now goes to the OEM and high level supply partners
    for short-term gains while creating a channel disruption that will cost money to
    repair in the long run This, all to entertain the market makers and shareholders
    who, for example, go into work and complain about the degraded services they
    have been receiving on the printers from a company they own stock in and
    threaten to send a letter to the CEO who just got ousted.
    As a good friend
    of mine says, “If we are in the middle of a 7-year bear market and the market
    continues practices of pillage and disruption because of it, then I, like
    Punxsutawney Phil the old weather forecasting groundhog of Pennsylvania winter
    forecasting fame, see a big ugly shadow and an extended winter before spring
    returns the warmth and prosperity along with sense and sensibility to our
    market.”