THE EVOLUTION OF SERVICE,PARTS & SUPPLIES

[Anonymous]

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.”

[Author]

June 11, 2005 at 11:52 AM